The following discussion should be read in connection with our Consolidated Financial Statements and the notes thereto included elsewhere in this annual report on Form 10-K. Some of the statements in this annual report on Form 10-K constitute forward-looking statements because they relate to future events or our future performance or financial condition. The forward-looking statements contained in this annual report on Form 10-K may include statements as to: •our future operating results and distribution projections; •the ability of Oaktree to reposition our portfolio and to implement Oaktree's future plans with respect to our business; •the ability of Oaktree and its affiliates to attract and retain highly talented professionals; •our business prospects and the prospects of our portfolio companies; •the impact of the investments that we expect to make; •the ability of our portfolio companies to achieve their objectives; •our expected financings and investments and additional leverage we may seek to incur in the future; •the adequacy of our cash resources and working capital; •the timing of cash flows, if any, from the operations of our portfolio companies; and •the cost or potential outcome of any litigation to which we may be a party. In addition, words such as "anticipate," "believe," "expect," "seek," "plan," "should," "estimate," "project" and "intend" indicate forward-looking statements, although not all forward-looking statements include these words. The forward-looking statements contained in this annual report on Form 10-K involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth in "Item 1A. Risk Factors" in this annual report on Form 10-K. Other factors that could cause actual results to differ materially include: •changes or potential disruptions in our operations, the economy, financial markets or political environment; •risks associated with possible disruption in our operations or the economy generally due to terrorism, natural disasters or the COVID-19 pandemic; •future changes in laws or regulations (including the interpretation of these laws and regulations by regulatory authorities) and conditions in our operating areas, particularly with respect to Business Development Companies or RICs; •general considerations associated with the COVID-19 pandemic; •the ability of the parties to consummate the Mergers on the expected timeline, or at all; •the ability to realize the anticipated benefits of the Mergers; •the effects of disruption on our business from the proposed Mergers; •the combined company's plans, expectations, objectives and intentions, as a result of the Mergers; •any potential termination of the Merger Agreement; •the actions of our stockholders or the stockholders of OCSI with respect to the proposals submitted for their approval in connection with the Mergers; and •other considerations that may be disclosed from time to time in our publicly disseminated documents and filings. We have based the forward-looking statements included in this annual report on Form 10-K on information available to us on the date of this annual 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 theSEC , including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. All dollar amounts in tables are in thousands, except share and per share amounts and as otherwise indicated. Business Overview We are a specialty finance company that looks to provide customized, one-stop credit solutions to companies with limited access to public or syndicated capital markets. We are a closed-end, externally managed, non-diversified management investment company that has elected to be regulated as a Business Development Company under the Investment Company Act of 1940, as amended, or the Investment Company Act. In addition, we have qualified and elected to be treated as a RIC under the Code for tax purposes. 55 -------------------------------------------------------------------------------- We are externally managed by Oaktree pursuant to the Investment Advisory Agreement. The Oaktree Administrator, an affiliate of Oaktree, provides certain administrative and other services necessary for us to operate pursuant to the Administration Agreement. Our investment objective is to generate current income and capital appreciation by providing companies with flexible and innovative financing solutions, including first and second lien loans, unsecured and mezzanine loans, bonds, preferred equity and certain equity co-investments. We may also seek to generate capital appreciation and income through secondary investments at discounts to par in either private or syndicated transactions. Our portfolio may also include certain structured finance and other non-traditional structures. We invest in companies that typically possess resilient business models with strong underlying fundamentals. We intend to deploy capital across credit and economic cycles with a focus on long-term results, which we believe will enable us to build lasting partnerships with financial sponsors and management teams, and we may seek to opportunistically take advantage of dislocations in the financial markets and other situations that may benefit from Oaktree's credit and structuring expertise, including during the COVID-19 pandemic. Sponsors may include financial sponsors, such as an institutional investor or a private equity firm, or a strategic entity seeking to invest in a portfolio company. Oaktree is generally focused on middle-market companies, which we define as companies with enterprise values of between$100 million and$750 million . We generally invest in securities that are rated below investment grade by rating agencies or that would be rated below investment grade if they were rated. Below investment grade securities, which are often referred to as "high yield" and "junk," have predominantly speculative characteristics with respect to the issuer's capacity to pay interest and repay principal. Oaktree intends to continue to rotate our portfolio into investments that are better aligned with Oaktree's overall approach to credit investing and that it believes have the potential to generate attractive returns across market cycles (which we call "core investments"). Oaktree has performed a comprehensive review of our portfolio and categorized our portfolio into core investments, non-core performing investments and underperforming investments. Certain additional information on such categorization and our portfolio composition is included in investor presentations that we file with theSEC . Since an Oaktree affiliate became our investment adviser inOctober 2017 , Oaktree and its affiliates have reduced the investments identified as non-core by over$700 million at fair value. Over time, Oaktree intends to rotate us out of the remaining non-core investments, which were approximately$128 million at fair value as ofSeptember 30, 2020 . Oaktree periodically reviews designations of investments as core and non-core and may change such designations over time. Business Environment and Developments We believe that the COVID-19 pandemic may have lasting effects on theU.S. and global financial markets and may cause further economic uncertainties or deterioration in the performance of the middle market inthe United States and worldwide. While the initial market disruptions have somewhat eased, the global economy continues to experience economic uncertainty. This uncertainty can impact the overall supply and demand of the market through changing spreads, deal terms and structures, and equity purchase price multiples. Despite this economic uncertainty, we believe attractive risk-adjusted returns can be achieved by making loans to companies in the middle market. Given the breadth of the investment platform of Oaktree and its affiliates, we believe that we have the resources and experience to source, diligence and structure investments in these companies and are well placed to generate attractive returns for investors. We have proactively taken a number of actions to evaluate and support our portfolio companies in light of the COVID-19 pandemic, including outreach to a variety of management teams and sponsors. We have been in close contact with many of our portfolio companies to understand their liquidity and solvency positions. We believe that these efforts to closely monitor and identify vulnerable investments will allow us to address potential problems early and provide constructive solutions to our portfolio companies. As ofSeptember 30, 2020 , 88.3% of our debt investment portfolio (at fair value) and 88.8% of our debt investment portfolio (at cost) bore interest at floating rates indexed to the LIBOR and/or an alternate base rate (e.g., prime rate), which typically resets semi-annually, quarterly or monthly at the borrower's option. As a result of the COVID-19 pandemic and the related decision of theU.S. Federal Reserve to reduce certain interest rates, LIBOR decreased beginning inMarch 2020 . A prolonged reduction in interest rates will result in a decrease in our total investment income and could result in a decrease in our net investment income to the extent the decreases are not offset by an increase in the spread on our floating rate investments, a decrease in our interest expense or a reduction of our incentive fee on income. InJuly 2017 , the head of theUnited Kingdom Financial Conduct Authority announced the desire to phase out the use of LIBOR by the end of 2021. In anticipation of the cessation of LIBOR, we may need to renegotiate any credit agreements extending beyond 2021 with our prospective portfolio companies that utilize LIBOR as a factor in determining the interest rate and may also need to renegotiate the terms of the Credit Facility, which matures in 2024. Certain of the loan agreements with our portfolio companies have included fallback 56 -------------------------------------------------------------------------------- language in the event that LIBOR becomes unavailable. This language generally provides that the administrative agent may identify a replacement reference rate, typically with the consent of (or prior consultation with) the borrower. In certain cases, the administrative agent will be required to obtain the consent of either a majority of the lenders under the facility, or the consent of each lender, prior to identifying a replacement reference rate. Certain of the loan agreements with our portfolio companies do not include any fallback language providing a mechanism for the parties to negotiate a new reference interest rate and will instead revert to the base rate in the event LIBOR ceases to exist. It remains unclear whether the cessation of LIBOR will be delayed due to COVID-19 or what form any delay may take, and there are no assurances that there will be a delay. It is also unclear what the duration and severity of COVID-19 will be, and whether this will impact LIBOR transition planning. COVID-19 may also slow regulators' and others' efforts to develop and implement alternative reference rates, which could make LIBOR transition planning more difficult, particularly if the cessation of LIBOR is not delayed but an alternative reference rate does not emerge as industry standard. Critical Accounting Policies Basis of Presentation Our Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted inthe United States of America , or GAAP, and pursuant to the requirements for reporting on Form 10-K and Regulation S-X. All intercompany balances and transactions have been eliminated. We are an investment company following the accounting and reporting guidance inFinancial Accounting Standards Board , or FASB, Accounting Standards Codification, or ASC, Topic 946, Financial Services-Investment Companies, or ASC 946. Investment Valuation We value our investments in accordance with FASB ASC Topic 820, Fair Value Measurements and Disclosures, or ASC 820, which defines fair value as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A liability's fair value is defined as the amount that would be paid to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. ASC 820 prioritizes the use of observable market prices over entity-specific inputs. Where observable prices or inputs are not available or reliable, valuation techniques are applied. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the investments or market and the investments' complexity. Hierarchical levels, defined by ASC 820 and directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, are as follows: •Level 1 - Unadjusted, quoted prices in active markets for identical assets or liabilities as of the measurement date. •Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data at the measurement date for substantially the full term of the assets or liabilities. •Level 3 - Unobservable inputs that reflect management's best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. If inputs used to measure fair value fall into different levels of the fair value hierarchy, an investment's level is 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 the investment. This includes investment securities that are valued using "bid" and "ask" prices obtained from independent third party pricing services or directly from brokers. These investments may be classified as Level 3 because the quoted prices may be indicative in nature for securities that are in an inactive market, may be for similar securities or may require adjustments for investment-specific factors or restrictions. Financial instruments with readily available quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment inherent in measuring fair value. As such, Oaktree obtains and analyzes readily available market quotations provided by pricing vendors and brokers for all of our investments for which quotations are available. In determining the fair value of a particular investment, pricing vendors and brokers use observable market information, including both binding and non-binding indicative quotations. We seek to obtain at least two quotations for the subject or similar securities, typically from pricing vendors. If we are unable to obtain two quotes from pricing vendors, or if the prices obtained from pricing vendors are not within our set threshold, we seek to obtain a quote directly from a broker making a market for the asset. Oaktree evaluates the quotations provided by pricing vendors and brokers based on available market information, including trading activity of the subject or 57 -------------------------------------------------------------------------------- similar securities, or by performing a comparable security analysis to ensure that fair values are reasonably estimated. Oaktree also performs back-testing of valuation information obtained from pricing vendors and brokers against actual prices received in transactions. In addition to ongoing monitoring and back-testing, Oaktree performs due diligence procedures over pricing vendors to understand their methodology and controls to support their use in the valuation process. Generally, we do not adjust any of the prices received from these sources. If the quotations obtained from pricing vendors or brokers are determined to not be reliable or are not readily available, we value such investments using any of three different valuation techniques. The first valuation technique is the transaction precedent technique, which utilizes recent or expected future transactions of the investment to determine fair value, to the extent applicable. The second valuation technique is an analysis of the enterprise value, or EV, of the portfolio company. EV means the entire value of the portfolio company to a market participant, including the sum of the values of debt and equity securities used to capitalize the enterprise at a point in time. The EV analysis is typically performed to determine (i) the value of equity investments, (ii) whether there is credit impairment for debt investments and (iii) the value for debt investments that we are deemed to control under the Investment Company Act. To estimate the EV of a portfolio company, Oaktree analyzes various factors, including the portfolio company's historical and projected financial results, macroeconomic impacts on the company and competitive dynamics in the company's industry. Oaktree also utilizes some or all of the following information based on the individual circumstances of the portfolio company: (i) valuations of comparable public companies, (ii) recent sales of private and public comparable companies in similar industries or having similar business or earnings characteristics, (iii) purchase prices as a multiple of their earnings or cash flow, (iv) the portfolio company's ability to meet its forecasts and its business prospects, (v) a discounted cash flow analysis, (vi) estimated liquidation or collateral value of the portfolio company's assets and (vii) offers from third parties to buy the portfolio company. We may probability weight potential sale outcomes with respect to a portfolio company when uncertainty exists as of the valuation date. The third valuation technique is a market yield technique, which is typically performed for non-credit impaired debt investments. In the market yield technique, a current price is imputed for the investment based upon an assessment of the expected market yield for a similarly structured investment with a similar level of risk, and we consider the current contractual interest rate, the capital structure and other terms of the investment relative to risk of the company and the specific investment. A key determinant of risk, among other things, is the leverage through the investment relative to the EV of the portfolio company. As debt investments held by us are substantially illiquid with no active transaction market, we depend on primary market data, including newly funded transactions and industry-specific market movements, as well as secondary market data with respect to high yield debt instruments and syndicated loans, as inputs in determining the appropriate market yield, as applicable. 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. Consistent with FASB guidance under ASC 820, these investments are excluded from the hierarchical levels. These investments are generally not redeemable. We estimate the fair value of privately held warrants using a Black Scholes pricing model, which includes an analysis of various factors and subjective assumptions, including the current stock price (by using an EV analysis as described above), the expected period until exercise, expected volatility of the underlying stock price, expected dividends and the risk-free rate. Changes in the subjective input assumptions can materially affect the fair value estimates. Our Board of Directors undertakes a multi-step valuation process each quarter in connection with determining the fair value of our investments: •The quarterly valuation process begins with each portfolio company or investment being initially valued by Oaktree's valuation team in conjunction with Oaktree's portfolio management team and investment professionals responsible for each portfolio investment; •Preliminary valuations are then reviewed and discussed with management of Oaktree; •Separately, independent valuation firms engaged by our Board of Directors prepare valuations of our investments, on a selected basis, for which market quotations are not readily available or are readily available but deemed not reflective of the fair value of the investment, and submit the reports to us and provide such reports to Oaktree and the Audit Committee of our Board of Directors; •Oaktree compares and contrasts its preliminary valuations to the valuations of the independent valuation firms and prepares a valuation report for the Audit Committee; •The Audit Committee reviews the preliminary valuations with Oaktree, and Oaktree responds and supplements the preliminary valuations to reflect any discussions between Oaktree and the Audit Committee; •The Audit Committee makes a recommendation to our full Board of Directors regarding the fair value of the investments in our portfolio; and •Our Board of Directors discusses valuations and determines the fair value of each investment in our portfolio. 58 -------------------------------------------------------------------------------- The fair value of our investments as ofSeptember 30, 2020 andSeptember 30, 2019 was determined in good faith by our Board of Directors. Our Board of Directors has and will continue to engage independent valuation firms to provide assistance regarding the determination of the fair value of a portion of our portfolio securities for which market quotations are not readily available or are readily available but deemed not reflective of the fair value of the investment each quarter, and the Board of Directors may reasonably rely on that assistance. As ofSeptember 30, 2020 , 93.1% of our portfolio at fair value was valued either based on market quotations, the transactions precedent approach or corroborated by independent valuation firms. However, our Board of Directors is responsible for the ultimate valuation of the portfolio investments at fair value as determined in good faith pursuant to our valuation policy and a consistently applied valuation process. 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 our investments may fluctuate from period to period. Because of the inherent uncertainty of valuation, these estimated values may differ significantly from the values that would have been reported had a ready market for the investments existed, and it is reasonably possible that the difference could be material. As ofSeptember 30, 2020 andSeptember 30, 2019 , approximately 95.9% and 97.1%, respectively, of our total assets represented investments at fair value. Revenue Recognition Interest Income Interest income, adjusted for accretion of OID is recorded on an accrual basis to the extent that such amounts are expected to be collected. We stop accruing interest on investments when it is determined that interest is no longer collectible. Investments that are expected to pay regularly scheduled interest in cash are generally placed on non-accrual status when there is reasonable doubt that principal or interest cash payments will be collected. Cash interest payments received on investments may be recognized as income or a return of capital depending upon management's judgment. A non-accrual investment is restored to accrual status if past due principal and interest are paid in cash, and the portfolio company, in management's judgment, is likely to continue timely payment of its remaining obligations. As ofSeptember 30, 2020 , there were two investments on which we had stopped accruing cash and/or PIK interest or OID income. In connection with our investment in a portfolio company, we sometimes receive nominal cost equity that is valued as part of the negotiation process with the portfolio company. When we receive nominal cost equity, we allocate our cost basis in the investment between debt securities and the nominal cost equity at the time of origination. Any resulting discount from recording the loan, or otherwise purchasing a security at a discount, is accreted into interest income over the life of the loan. PIK Interest Income Our investments in debt securities may contain PIK interest provisions. PIK interest, which typically represents contractually deferred interest added to the loan balance that is generally due at the end of the loan term, is generally recorded on the accrual basis to the extent such amounts are expected to be collected. We generally cease accruing PIK interest if there is insufficient value to support the accrual or if we do not expect the portfolio company to be able to pay all principal and interest due. Our decision to cease accruing PIK interest on a loan or debt security involves subjective judgments and determinations based on available information about a particular portfolio company, including whether the portfolio company is current with respect to its payment of principal and interest on its loans and debt securities; financial statements and financial projections for the portfolio company; our assessment of the portfolio company's business development success; information obtained by us in connection with periodic formal update interviews with the portfolio company's management and, if appropriate, the private equity sponsor; and information about the general economic and market conditions in which the portfolio company operates. Our determination to cease accruing PIK interest is generally made well before our full write-down of a loan or debt security. In addition, if it is subsequently determined that we will not be able to collect any previously accrued PIK interest, the fair value of the loans or debt securities would be reduced by the amount of such previously accrued, but uncollectible, PIK interest. The accrual of PIK interest on our debt investments increases the recorded cost bases of these investments in our Consolidated Financial Statements including for purposes of computing the capital gains incentive fee payable by us to Oaktree. To maintain our status as a RIC, certain income from PIK interest may be required to be distributed to our stockholders, even though we have not yet collected the cash and may never do so. Fee Income Oaktree or its affiliates may provide financial advisory services to portfolio companies and, in return, we may receive fees for capital structuring services. These fees are generally nonrecurring and are recognized by us upon the investment closing date. We may also receive additional fees in the ordinary course of business, including servicing, amendment and prepayment fees, which are classified as fee income and recognized as they are earned or the services are rendered. 59 -------------------------------------------------------------------------------- We have also structured exit fees across certain of our portfolio investments to be received upon the future exit of those investments. These fees are typically paid to us upon the earliest to occur of (i) a sale of the borrower or substantially all of the assets of the borrower, (ii) the maturity date of the loan or (iii) the date when full prepayment of the loan occurs. The receipt of such fees is contingent upon the occurrence of one of the events listed above for each of the investments. These fees are included in net investment income over the life of the loan. Dividend Income We generally recognize dividend income on the ex-dividend date for public securities and the record date for private equity investments. Distributions received from private equity investments are evaluated to determine if the distribution should be recorded as dividend income or a return of capital. Generally, we will not record distributions from private equity investments as dividend income unless there are sufficient earnings at the portfolio company prior to the distribution. Distributions that are classified as a return of capital are recorded as a reduction in the cost basis of the investment. Portfolio Composition Our investments principally consist of loans, common and preferred equity and warrants in privately-held companies and SLF JV I, a joint venture through which we and Kemper co-invest in senior secured loans of middle-market companies and other corporate debt securities. Our loans are typically secured by a first, second or subordinated lien on the assets of the portfolio company and generally have terms of up to ten years (but an expected average life of between three and four years). During the fiscal year endedSeptember 30, 2020 , we originated$816.1 million of investment commitments in 59 new and 23 existing portfolio companies and funded$732.7 million of investments. During the fiscal year endedSeptember 30, 2020 , we received$563.5 million of proceeds from prepayments, exits, other paydowns and sales and exited 48 portfolio companies. A summary of the composition of our investment portfolio at cost and fair value as a percentage of total investments is shown in the following tables: September 30, 2020 September 30, 2019 Cost: Senior secured debt 80.58 % 77.35 % Debt investment in SLF JV I 5.77 6.36 Subordinated debt 4.64 6.88 Common equity and warrants 3.69 3.48 LLC equity interests of SLF JV I 2.95 3.26 Preferred equity 2.37 2.67 Total 100.00 % 100.00 % September 30, 2020 September 30, 2019 Fair value: Senior secured debt 84.06 % 78.64 % Debt investment in SLF JV I 6.12 6.69 Subordinated debt 4.17 5.65 Common equity and warrants 2.40 4.10 Preferred equity 1.90 2.82 LLC equity interests of SLF JV I 1.35 2.10 Total 100.00 % 100.00 % 60
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The industry composition of our portfolio at cost and fair value as a percentage of total investments was as follows:
September 30, 2020 September 30, 2019 Cost: Application Software 9.71 % 8.73 % Multi-Sector Holdings (1) 8.87 9.67 Data Processing & Outsourced Services 6.57 6.46 Pharmaceuticals 5.96 3.92 Biotechnology 5.36 5.43 Health Care Services 4.26 6.62 Specialized Finance 3.11 3.52 Personal Products 3.00 - Property & Casualty Insurance 2.88 4.83 Specialty Chemicals 2.68 2.10 Movies & Entertainment 2.68 1.25 Integrated Telecommunication Services 2.67 2.23 Real Estate Services 2.34 2.60 Fertilizers & Agricultural Chemicals 2.02 - Auto Parts & Equipment 2.02 2.82 Oil & Gas Refining & Marketing 1.87 2.01 Internet Services & Infrastructure 1.72 2.15 Aerospace & Defense 1.68 2.23 Managed Health Care 1.65 1.83 Oil & Gas Storage & Transportation 1.59 0.77 Electronic Components 1.53 - Research & Consulting Services 1.49 2.30 Education Services 1.37 1.04 Airport Services 1.34 - Health Care Supplies 1.30 - Health Care Technology 1.29 3.37 Independent Power Producers & Energy Traders 1.29 - Electrical Components & Equipment 1.25 1.40 Systems Software 1.24 2.10 General Merchandise Stores 1.15 1.25 Diversified Support Services 1.13 1.24 Insurance Brokers 1.05 - Hotels, Resorts & Cruise Lines 0.92 - Diversified Real Estate Activities 0.92 - Industrial Machinery 0.90 1.13 IT Consulting & Other Services 0.89 0.99 Internet & Direct Marketing Retail 0.89 - Apparel, Accessories & Luxury Goods 0.82 1.20 Advertising 0.82 2.80 Construction & Engineering 0.80 1.55 Health Care Distributors 0.77 1.49 Metal & Glass Containers 0.68 - Airlines 0.63 0.70 Restaurants 0.61 0.20 Trading Companies & Distributors 0.61 0.68 Commercial Printing 0.47 0.40 Food Retail 0.41 0.96 Oil & Gas Equipment & Services 0.20 0.80 Health Care Facilities 0.19 - Construction Materials 0.13 - Leisure Facilities 0.11 0.12 Specialty Stores 0.08 0.09 Thrifts & Mortgage Finance 0.06 0.08 Specialized REITs 0.01 0.55 Other Diversified Financial Services 0.01 0.01 Alternative Carriers - 1.94 Interactive Media & Services - 1.44 Household Appliances - 0.52 Environmental & Facilities Services - 0.39 Human Resource & Employment Services - 0.05 Department Stores - 0.04 Total 100.00 % 100.00 % 61
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September 30, 2020 September 30, 2019 Fair value: Application Software 10.21 % 9.00 % Multi-Sector Holdings (1) 7.74 8.94 Pharmaceuticals 6.55 4.18 Data Processing & Outsourced Services 6.33 6.83 Biotechnology 6.14 5.96 Health Care Services 3.81 4.06 Personal Products 3.24 - Specialized Finance 3.08 3.58 Property & Casualty Insurance 2.97 5.16 Movies & Entertainment 2.77 1.29 Integrated Telecommunication Services 2.61 2.01 Specialty Chemicals 2.48 1.64 Real Estate Services 2.40 2.75 Fertilizers & Agricultural Chemicals 2.14 - Auto Parts & Equipment 1.99 2.82 Oil & Gas Refining & Marketing 1.90 2.20 Managed Health Care 1.70 1.93 Internet Services & Infrastructure 1.69 2.26 Electronic Components 1.69 - Oil & Gas Storage & Transportation 1.64 0.83 Aerospace & Defense 1.56 2.35 Research & Consulting Services 1.54 2.60 Health Care Technology 1.40 3.64 Health Care Supplies 1.37 - Airport Services 1.35 - Independent Power Producers & Energy Traders 1.32 - Systems Software 1.30 2.19 Electrical Components & Equipment 1.30 1.39 Insurance Brokers 1.15 - General Merchandise Stores 1.14 1.18 Diversified Support Services 1.12 1.30 Hotels, Resorts & Cruise Lines 1.09 - Diversified Real Estate Activities 1.07 - Internet & Direct Marketing Retail 0.97 - IT Consulting & Other Services 0.88 0.96 Construction & Engineering 0.86 1.67 Advertising 0.85 2.59 Airlines 0.83 1.12 Health Care Distributors 0.78 1.53 Metal & Glass Containers 0.75 - Industrial Machinery 0.74 1.17 Trading Companies & Distributors 0.64 0.72 Restaurants 0.50 0.19 Apparel, Accessories & Luxury Goods 0.50 0.92 Commercial Printing 0.47 0.41 Education Services 0.45 - Food Retail 0.44 1.04 Health Care Facilities 0.23 - Oil & Gas Equipment & Services 0.16 0.95 Construction Materials 0.13 - Thrifts & Mortgage Finance 0.02 0.05 Specialized REITs 0.01 0.57 Leisure Products - 1.05 Alternative Carriers - 2.06 Interactive Media & Services - 1.56 Household Appliances - 0.53 Environmental & Facilities Services - 0.41 Leisure Facilities - 0.33 Human Resource & Employment Services - 0.05 Department stores - 0.03 Total 100.00 % 100.00 % ___________________
(1)This industry includes our investments in SLF JV I, collateralized loan obligations and certain limited partnership interests.
62 --------------------------------------------------------------------------------Loans and Debt Securities on Non-Accrual Status As ofSeptember 30, 2020 andSeptember 30, 2019 , there were two and three investments, respectively, on which we had stopped accruing cash and/or PIK interest or OID income. The percentages of our debt investments at cost and fair value by accrual status as ofSeptember 30, 2020 andSeptember 30, 2019 were as follows: September 30, 2020 September 30, 2019 % of Debt Fair % of Debt % of Debt Fair % of Debt Cost Portfolio Value Portfolio Cost Portfolio Value Portfolio Accrual$ 1,500,364 98.79 %$ 1,483,284 99.89 %$ 1,311,849 95.72 %$ 1,305,718 99.79 % PIK non-accrual (1) 12,661 0.83 - - 12,661 0.92 - - Cash non-accrual (2) 5,712 0.38 1,571 0.11 46,107 3.36 2,706 0.21 Total$ 1,518,737 100.00 %$ 1,484,855 100.00 %$ 1,370,617 100.00 %$ 1,308,424 100.00 %
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(1)PIK non-accrual status is inclusive of other non-cash income, where applicable. (2)Cash non-accrual status is inclusive of PIK and other non-cash income, where applicable.Senior Loan Fund JV I, LLC InMay 2014 , we entered into a limited liability company, or LLC, agreement with Kemper to form SLF JV I. We co-invest in senior secured loans of middle-market companies and other corporate debt securities with Kemper through our investment in SLF JV I. SLF JV I is managed by a four person Board of Directors, two of whom are selected by us and two of whom are selected by Kemper. All portfolio decisions and investment decisions in respect of SLF JV I must be approved by the SLF JV I investment committee, which consists of one representative selected by us and one representative selected by Kemper (with approval from a representative of each required). Since we do not have a controlling financial interest in SLF JV I, we do not consolidate SLF JV I. SLF JV I is capitalized pro rata with LLC equity interests as transactions are completed and may be capitalized with additional subordinated notes issued to us and Kemper by SLF JV I. OnDecember 28, 2018 , we and Kemper directed the redemption of our holdings of mezzanine notes issued by SLF Repack Issuer 2016, LLC, a wholly-owned, special purpose issuer subsidiary of SLF JV I. Upon such redemption, the assets collateralizing the mezzanine notes, which consisted of equity interests ofSLF JV I Funding LLC , or the Equity Interests, were distributed in-kind to each of us and Kemper, based upon our respective holdings of mezzanine notes. Upon such distribution, we and Kemper each then directed that a portion of our respective Equity Interests holdings be contributed to SLF JV I in exchange for LLC equity interests of SLF JV I and the remainder be applied as payment for the subordinated notes of SLF JV I. SLF Repack Issuer 2016, LLC was dissolved following the foregoing redemption and liquidation. The subordinated notes issued by SLF JV I, or the SLF JV 1 Subordinated Notes, and the mezzanine notes issued by SLF Repack Issuer 2016, LLC, or the SLF Repack Notes, collectively are referred to as the SLF JV I Notes. Prior to their redemption onDecember 28, 2018 , the SLF Repack Notes consisted of Class A mezzanine secured deferrable floating rate notes and Class B mezzanine secured deferrable fixed rate notes. The SLF JV I Subordinated Notes are (and the SLF Repack Notes were, prior to their redemption) senior in right of payment to SLF JV I LLC equity interests and subordinated in right of payment to SLF JV I's secured debt. As ofSeptember 30, 2020 andSeptember 30, 2019 , we and Kemper owned, in the aggregate, 87.5% and 12.5%, respectively, of the LLC equity interests of SLF JV I and the outstanding SLF JV I Subordinated Notes. SLF JV I has a senior revolving credit facility with Deutsche Bank AG,New York Branch, or, as amended, the Deutsche Bank I Facility, which permitted up to$250.0 million of borrowings (subject to borrowing base and other limitations) as ofSeptember 30, 2020 andSeptember 30, 2019 . Borrowings under the Deutsche Bank I Facility are secured by all of the assets ofSLF JV I Funding LLC , a special purpose financing subsidiary of SLF JV I. As ofSeptember 30, 2020 , the reinvestment period of the Deutsche Bank I Facility was scheduled to expireJune 28, 2021 and the maturity date for the Deutsche Bank I Facility wasJune 29, 2026 . As ofSeptember 30, 2020 , borrowings under the Deutsche Bank I Facility accrued interest at a rate equal to the 3-month LIBOR plus 1.85% per annum during the reinvestment period and 3-month LIBOR plus 2.00% per annum during the amortization period. Under the Deutsche Bank I Facility,$167.9 million and$170.2 million of borrowings were outstanding as ofSeptember 30, 2020 andSeptember 30, 2019 , respectively. As ofSeptember 30, 2020 , the Deutsche Bank I Facility includes a waiver period (which extends throughJanuary 3, 2021 ) during which the facility agent is restricted from revaluing certain collateral obligations where the change in valuation is caused by or results from a business disruption due primarily to the COVID-19 pandemic (subject to SLF JV I's ability to earlier terminate such period in certain circumstances). 63 -------------------------------------------------------------------------------- As ofSeptember 30, 2020 andSeptember 30, 2019 , SLF JV I had total assets of$313.5 million and$360.9 million , respectively. SLF JV I's portfolio primarily consisted of senior secured loans to 56 and 51 portfolio companies as ofSeptember 30, 2020 andSeptember 30, 2019 , respectively. The portfolio companies in SLF JV I are in industries similar to those in which we may invest directly. As ofSeptember 30, 2020 , our investment in SLF JV I consisted of LLC equity interests and SLF JV I Subordinated Notes of$117.4 million in aggregate at fair value. As ofSeptember 30, 2019 , our investment in SLF JV I consisted of LLC equity interests and SLF JV I Subordinated Notes of$126.3 million in aggregate at fair value. As of each ofSeptember 30, 2020 andSeptember 30, 2019 , we and Kemper had funded approximately$165.5 million to SLF JV I, of which$144.8 million was from us. As ofSeptember 30, 2020 andSeptember 30, 2019 , we and Kemper had the option to fund additional SLF JV I Notes, subject to additional equity funding to SLF JV I. As of each ofSeptember 30, 2020 andSeptember 30, 2019 , we had commitments to fund LLC equity interests in SLF JV I of$17.5 million , of which$1.3 million was unfunded. Below is a summary of SLF JV I's portfolio, followed by a listing of the individual loans in SLF JV I's portfolio as ofSeptember 30, 2020 andSeptember 30, 2019 : September 30, 2020 September 30, 2019 Senior secured loans (1)$307,579 $340,960 Weighted average interest rate on senior secured loans (2) 5.44% 6.57% Number of borrowers in SLF JV I 56 51 Largest exposure to a single borrower (1)$10,487 $10,835 Total of five largest loan exposures to borrowers (1)$49,097 $50,510 __________________ (1) At principal amount. (2) Computed using the weighted average annual interest rate on accruing senior secured loans at fair value. 64 -------------------------------------------------------------------------------- SLF JV I Portfolio as of September 30, 2020
Cash Interest Portfolio Company Investment Type Rate (1)(2) Industry Principal Cost Fair Value (3) Notes First Lien Term Loan, LIBOR+3.75% cash due Diversified Support Access CIG, LLC 2/27/2025 3.91 %
Services
927 shares of common stock Advertising 1,390 1,373
(4)
First Lien Term Loan, AI Ladder (Luxembourg) LIBOR+4.50% cash due Electrical Components & Subco S.a.r.l. 7/9/2025 4.65 % Equipment 6,038 5,914 5,781 (4) First Lien Term Loan, LIBOR+7.50% cash due Hotels, Resorts & CruiseAirbnb, Inc. 4/17/2025 8.50 % Lines 3,051 2,981 3,311 (4) First Lien Term Loan, Integrated LIBOR+4.00% cash due Telecommunication Altice France S.A. 8/14/2026 4.15 % Services 4,643 4,450 4,527 First Lien Term Loan, LIBOR+5.25% cash due Alvogen Pharma US, Inc. 12/31/2023 6.25 % Pharmaceuticals 9,879 9,623 9,566 First Lien Term Loan, LIBOR+4.00% cash due Amplify Finco Pty Ltd. 11/26/2026 4.75 % Movies & Entertainment 7,960 7,880
6,846 (4)
First Lien Term Loan, LIBOR+3.75% cash due Anastasia Parent, LLC 8/11/2025 Personal Products 2,828 2,282 1,248 (6) First Lien Term Loan, LIBOR+7.25% cash due Apptio, Inc. 1/10/2025 8.25 % Application Software 4,615 4,550 4,526
(4)
First Lien Revolver, LIBOR+7.25% cash due 1/10/2025 Application Software - (5)
(8) (4)(5)
Total Apptio, Inc. 4,545 4,518 First Lien Term Loan, LIBOR+6.00% cash due Aurora Lux Finco S.À.R.L. 12/24/2026 7.00 % Airport Services 6,468 6,324 6,015
(4)
First Lien Term Loan, Blackhawk Network Holdings, LIBOR+3.00% cash due Data Processing & Inc. 6/15/2025 3.15 % Outsourced Services 9,775 9,758 9,251 First Lien Term Loan, LIBOR+4.25% cash due Boxer Parent Company Inc. 10/2/2025 4.40 % Systems Software 7,532 7,448 7,331 (4) First Lien Term Loan, LIBOR+4.00% cash due Oil & Gas Equipment & Brazos Delaware II, LLC 5/21/2025 4.16 % Services 7,331 7,306 5,600 Data Processing & C5 Technology Holdings, LLC 171 Common Units Outsourced Services - - (4) Data Processing & 7,193,539.63 Preferred Units Outsourced Services 7,194 5,683 (4) Total C5 Technology Holdings, LLC 7,194 5,683 First Lien Term Loan, Carrols Restaurant Group, LIBOR+6.25% cash due Inc. 4/30/2026 7.25 % Restaurants 3,990 3,792 3,960 First Lien Term Loan, LIBOR+5.00% cash due Oil & Gas Refining & CITGO Petroleum Corp. 3/28/2024 6.00 % Marketing 7,184 7,112 6,842 (4) First Lien Term Loan, Clear Channel Outdoor LIBOR+3.50% cash due Holdings, Inc. 8/21/2026 3.76 % Advertising 331 290 302 First Lien Term Loan, LIBOR+4.50% cash due Connect U.S. Finco LLC 12/11/2026 5.50 % Alternative Carriers 7,437 7,262 7,228 First Lien Term Loan, LIBOR+3.75% cash due Curium Bidco S.à.r.l. 7/9/2026 3.97 % Biotechnology 5,940 5,895 5,895 First Lien Term Loan, LIBOR+4.00% cash due Internet Services & Dcert Buyer, Inc. 10/16/2026 4.15 % Infrastructure 7,960 7,940 7,879 First Lien Term Loan, LIBOR+4.25% cash due Dealer Tire, LLC 12/12/2025 4.40 % Distributors 943 902 924 First Lien Term Loan, LIBOR+4.50% cash due eResearch Technology, Inc. 2/4/2027 5.50 % Application Software 7,481 7,406 7,461 First Lien Term Loan, Integrated Frontier Communications PRIME+2.75% cash due Telecommunication Corporation 6/15/2024 6.00 % Services 3,939 3,901 3,887 First Lien Term Loan, LIBOR+4.25% cash due Gigamon, Inc. 12/27/2024 5.25 % Systems Software 7,781 7,734 7,684 65
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Cash Interest Portfolio Company Investment Type Rate (1)(2) Industry Principal Cost Fair Value (3) Notes First Lien Term Loan, Global Medical Response, LIBOR+4.75% cash due Inc. 10/2/2025 5.75 % Health Care Services$ 2,231 $ 2,187 $ 2,185 Second Lien Term Loan, LIBOR+8.00% cash due Research & Consulting Guidehouse LLP 5/1/2026 8.15 % Services 6,000 5,979 5,790 (4) First Lien Term Loan,Helios Software Holdings , LIBOR+4.25% cash due Inc. 10/24/2025 4.52 % Systems Software 3,970 3,930 3,923 First Lien Term Loan, Intelsat Jackson Holdings PRIME+4.75% cash due S.A. 11/27/2023 8.00 % Alternative Carriers 3,568 3,541 3,598 First Lien Delayed Draw Term Loan, LIBOR+5.50% cash due 7/13/2022 6.50 % Alternative Carriers 971 801 1,011 (5) Total Intelsat Jackson Holdings S.A. 4,342 4,609 First Lien Term Loan, LIBOR+4.00% cash due KIK Custom Products Inc. 5/15/2023 5.00 % Household Products 5,322 5,308 5,302 First Lien Term Loan, LIBOR+4.75% cash due LogMeIn, Inc. 8/31/2027 4.91 % Application Software 5,000 4,876 4,842 First Lien Term Loan, LIBOR+7.00% cash 1.5% PIK Internet Services & Mindbody, Inc. due 2/14/2025 8.00 % Infrastructure 4,546 4,481 4,192 (4) First Lien Revolver, LIBOR+8.00% cash due Internet Services & 2/14/2025 Infrastructure - (7) (38) (4)(5)Total Mindbody, Inc. 4,474 4,154 First Lien Term Loan, LIBOR+5.50% cash due MRI Software LLC 2/10/2026 6.50 % Application Software 3,830 3,795 3,737 (4) First Lien Delayed Draw Term Loan, LIBOR+5.50% cash due 2/10/2026 Application Software - (1) (4) (4)(5) First Lien Revolver, LIBOR+5.50% cash due 2/10/2026 Application Software - (3) (8) (4)(5)Total MRI Software LLC 3,791 3,725 First Lien Term Loan, LIBOR+4.00% cash due Navicure, Inc. 10/22/2026 4.15 % Health Care Technology 5,970 5,940 5,849 First Lien Term Loan, LIBOR+5.00% cash due Oil & Gas Equipment & New IPT, Inc. 3/17/2021 6.00 % Services 1,006 1,006 786 (4) 21.876 Class A Common Units in New IPT Oil & Gas Equipment & Holdings, LLC Services - - (4)Total New IPT, Inc. 1,006 786 First Lien Term Loan, Northern Star Industries LIBOR+4.75% cash due Electrical Components & Inc. 3/31/2025 5.75 % Equipment 6,825 6,803 6,518 First Lien Term Loan, LIBOR+5.50% cash due Integrated Northwest Fiber, LLC 4/30/2027 5.66 % Telecommunication Services 2,400 2,314
2,403
First Lien Term Loan, LIBOR+5.00% cash due Novetta Solutions, LLC 10/17/2022 6.00 % Application Software 5,931 5,909 5,827 First Lien Term Loan, LIBOR+4.00% cash due OEConnection LLC 9/25/2026 4.15 % Application Software 7,455 7,418 7,371 First Lien Delayed Draw Term Loan, LIBOR+4.00% cash due 9/25/2026 Application Software - (2) (5) (5)Total OEConnection LLC 7,416 7,366 First Lien Term Loan, LIBOR+6.50% cash due Olaplex, Inc. 1/8/2026 7.50 % Personal Products 4,938 4,851 4,938 (4) First Lien Revolver, LIBOR+6.50% cash due 1/8/2025 7.50 % Personal Products 270 261 270 (4)(5)Total Olaplex, Inc. 5,112 5,208 First Lien Term Loan, LIBOR+4.25% cash due Specialized Consumer PetVet Care Centers, LLC 2/14/2025 5.25 % Services 2,743 2,736 2,747 First Lien Term Loan, LIBOR+4.50% cash due PG&E Corporation 6/23/2025 5.50 % Electric Utilities 5,985 5,899 5,875 First Lien Term Loan, LIBOR+4.25% cash due Recorded Books, Inc. 8/31/2025 4.75 % Publishing 6,000 5,940 5,940 First Lien Term Loan, LIBOR+4.50% cash due Sabert Corporation 12/10/2026 5.50 % Metal & Glass Containers 2,828 2,800 2,791 66
-------------------------------------------------------------------------------- Cash Interest Portfolio Company Investment Type Rate (1)(2) Industry Principal Cost Fair Value (3) Notes First Lien Term Loan, LIBOR+6.50% cash due Salient CRGT, Inc. 2/28/2022 7.50 % Aerospace & Defense$ 2,111 $ 2,099 $ 1,963 (4) First Lien Term Loan, LIBOR+3.00% cash PIK SHO Holding I Corporation 2.25% due 4/27/2024 4.00 % Footwear 8,396 8,380 5,898 First Lien Term Loan, LIBOR+4.50% cash due Signify Health, LLC 12/23/2024 5.50 % Health Care Services 9,750 9,690 9,409 First Lien Term Loan, LIBOR+5.50% cash due Diversified Support Sirva Worldwide, Inc. 8/4/2025 5.65 % Services 4,781 4,709 3,992 First Lien Term Loan, LIBOR+4.25% cash due Star US Bidco LLC 3/17/2027 5.25 % Industrial Machinery 3,718 3,532 3,551 First Lien Term Loan, Sunshine Luxembourg VII LIBOR+4.25% cash due SARL 10/1/2026 5.25 % Personal Products 7,940 7,900 7,911 First Lien Term Loan, LIBOR+3.75% cash due Supermoose Borrower, LLC 8/29/2025 3.90 % Application Software 4,888 4,575 4,407 (4) First Lien Term Loan, Surgery Center Holdings, LIBOR+3.25% cash due Inc. 9/3/2024 4.25 % Health Care Facilities 4,962 4,943 4,691 (4) First Lien Term Loan, LIBOR+4.00% cash due Uber Technologies, Inc. 4/4/2025 5.00 % Application Software 2,997 2,959 2,980 First Lien Term Loan, LIBOR+3.25% cash due UFC Holdings, LLC 4/29/2026 4.25 % Movies & Entertainment 2,856 2,816 2,814 First Lien Term Loan, LIBOR+5.50% cash due Veritas US Inc. 9/1/2025 6.50 % Application Software 6,500 6,371 6,375 First Lien Term Loan, LIBOR+4.50% cash due Verscend Holding Corp. 8/27/2025 4.65 % Health Care Technology 4,112 4,080 4,084 (4) First Lien Term Loan, LIBOR+3.25% cash due Data Processing & VM Consolidated, Inc. 2/28/2025 3.40 % Outsourced Services 10,487 10,495 10,291 First Lien Term Loan, Integrated Windstream Services II, LIBOR+6.25% cash due Telecommunication LLC 9/21/2027 7.25 % Services 7,980 7,662 7,744 (4) Second Lien Term Loan, LIBOR+7.75% cash due WP CPP Holdings, LLC 4/30/2026 8.75 % Aerospace & Defense 6,000 5,956 4,680 (4)$ 307,579 $ 311,428 $ 298,771
__________________
(1) Represents the interest rate as ofSeptember 30, 2020 . All interest rates are payable in cash, unless otherwise noted. (2) The interest rate on the principal balance outstanding for all floating rate loans is indexed to LIBOR and/or an alternate base rate (e.g., prime rate), which typically resets semi-annually, quarterly, or monthly at the borrower's option. The borrower may also elect to have multiple interest reset periods for each loan. For each of these loans, we have provided the applicable margin over LIBOR or the alternate base rate based on each respective credit agreement and the cash interest rate as of period end. All the LIBOR shown above is inU.S. dollars. As ofSeptember 30, 2020 , the reference rates for SLF JV I's variable rate loans were the 30-day LIBOR at 0.15%, the 60-day LIBOR at 0.19%, the 90-day LIBOR at 0.22%, the 180-day LIBOR at 0.27% and the PRIME at 3.25%. Most loans include an interest floor, which generally ranges from 0% to 1%. (3) Represents the current determination of fair value as ofSeptember 30, 2020 utilizing a similar technique as us in accordance with ASC 820. However, the determination of such fair value is not included in our Board of Directors' valuation process described elsewhere herein. (4) This investment is held by both us and SLF JV I as ofSeptember 30, 2020 . (5) Investment has undrawn commitments. Unamortized fees are classified as unearned income which reduces cost basis, which may result in a negative cost basis. A negative fair value may result from the unfunded commitment being valued below par. (6) This investment was on cash non-accrual status as ofSeptember 30, 2020 . Cash non-accrual status is inclusive of PIK and other non-cash income, where applicable. SLF JV I Portfolio as of September 30, 2019 Cash Interest Portfolio Company Investment Type Rate (1)(2) Industry Principal Cost Fair Value (3)
Notes
First Lien Term Loan, LIBOR+3.75% cash due Diversified support Access CIG, LLC 2/27/2025 6.07 %
services
927 shares of common stock Advertising 1,390 1,295
(4)
First Lien Term Loan, AI Ladder (Luxembourg) LIBOR+4.50% cash due Electrical components & Subco S.a.r.l. 7/9/2025 6.60 % equipment 6,145 5,992 5,659 (4) First Lien Term Loan, LIBOR+4.75% cash due IT consulting & other Air Newco LP 5/31/2024 6.79 % services 9,900 9,875 9,916 First Lien Term Loan, LIBOR+5.50% cash due Oil & gas storage & AL Midcoast Holdings LLC 8/1/2025 7.60 % transportation 9,900 9,801 9,764 First Lien Term Loan, Integrated LIBOR+4.00% cash due telecommunication Altice France S.A. 8/14/2026 6.03 % services 7,444 7,282 7,439 67
-------------------------------------------------------------------------------- Cash Interest Portfolio Company Investment Type Rate (1)(2) Industry Principal Cost Fair Value (3) Notes First Lien Term Loan, LIBOR+4.75% cash due Alvogen Pharma US, Inc. 4/1/2022 6.79 % Pharmaceuticals$ 7,656 $ 7,656 $ 6,963 First Lien Term Loan, LIBOR+7.25% cash due Apptio, Inc. 1/10/2025 9.56 % Application software 4,615 4,534 4,530 (4) First Lien Revolver, LIBOR+7.25% cash due 1/10/2025 Application software - (7) (7) (4)(5)Total Apptio, Inc. 4,527 4,523 First Lien Term Loan, Blackhawk Network Holdings, LIBOR+3.00% cash due Data processing & Inc. 6/15/2025 5.04 % outsourced services 9,875 9,855 9,858 First Lien Term Loan, LIBOR+4.25% cash due Boxer Parent Company Inc. 10/2/2025 6.29 % Systems software 7,609 7,518 7,336 (4) First Lien Term Loan, LIBOR+4.00% cash due Oil & gas equipment & Brazos Delaware II, LLC 5/21/2025 6.05 % services 7,406 7,376 6,855 Data Processing & C5 Technology Holdings, LLC 171 Common Units Outsourced Services - - (4) 7,193,539.63 Preferred Units 7,194 7,194 (4) Total C5 Technology Holdings, LLC 7,194 7,194 First Lien Term Loan, LIBOR+4.00% cash due Cast & Crew Payroll, LLC 2/9/2026 6.05 % Application software 4,975 4,925 5,018 First Lien Term Loan, LIBOR+5.00% cash due Oil & gas refining & CITGO Petroleum Corp. 3/28/2024 7.10 % marketing 7,960 7,880 8,010 (4) First Lien Term Loan, LIBOR+4.50% cash due Connect U.S. Finco LLC 9/23/2026 7.10 % Alternative Carriers 8,000 7,840 7,888 (4) First Lien Term Loan, LIBOR+4.00% cash due Curium Bidco S.à r.l. 7/9/2026 6.10 % Biotechnology 6,000 5,955 6,030 First Lien Term Loan, LIBOR+4.00% cash due Internet services & Dcert Buyer, Inc. 8/8/2026 6.26 % infrastructure 8,000 7,980 7,985 First Lien Term Loan, LIBOR+4.00% cash due Internet services & DigiCert, Inc. 10/31/2024 6.04 % infrastructure 8,250 8,148 8,249 (4) First Lien Term Loan, LIBOR+4.00% cash due Ellie Mae, Inc. 4/17/2026 6.04 % Application software 5,000 4,975 5,015 First Lien Term Loan, LIBOR+3.00% cash due Everi Payments Inc. 5/9/2024 5.04 % Casinos & gaming 4,764 4,742 4,776 First Lien Term Loan, Falmouth Group Holdings LIBOR+6.75% cash due Corp. 12/14/2021 8.95 % Specialty chemicals 4,938 4,909 4,910 First Lien Term Loan, Frontier Communications LIBOR+3.75% cash due Integrated Corporation 6/15/2024 5.80 % telecommunication services 6,473 6,400
6,471
First Lien Term Loan, Gentiva Health Services, LIBOR+3.75% cash due Inc. 7/2/2025 5.81 % Healthcare services 7,920 7,801 7,974 First Lien Term Loan, LIBOR+4.25% cash due Gigamon, Inc. 12/27/2024 6.29 % Systems software 7,860 7,801 7,644 First Lien Term Loan, LIBOR+2.75% cash due Interactive media & GoodRx, Inc. 10/10/2025 4.81 % services 7,852 7,835 7,862 Second Lien Term Loan, LIBOR+7.50% cash due Research & consulting Guidehouse LLP 5/1/2026 9.54 % services 6,000 5,975 5,925 (4) First Lien Term Loan, LIBOR+4.50% cash due Indivior Finance S.a.r.l. 12/19/2022 6.76 % Pharmaceuticals 7,898 7,797 7,272 First Lien Term Loan, Intelsat Jackson Holdings LIBOR+3.75% cash due S.A. 11/27/2023 5.80 % Alternative Carriers 10,000 9,891 10,042 First Lien Term Loan, LIBOR+4.00% cash due KIK Custom Products Inc. 5/15/2023 6.26 % Household products 8,000 7,972 7,610 First Lien Term Loan, McDermott Technology LIBOR+5.00% cash due Oil & gas equipment & (Americas), Inc. 5/9/2025 7.10 % services 4,187 4,119 2,676 First Lien Term Loan, LIBOR+7.00% cash due Internet services & Mindbody, Inc. 2/14/2025 9.06 % infrastructure 4,524 4,443 4,438 (4) First Lien Revolver, LIBOR+7.00% cash due Internet services & 2/15/2025 infrastructure - (9) (9) (4)(5)Total Mindbody, Inc. 4,434 4,429 First Lien Term Loan, LIBOR+3.75% cash due Navicure, Inc. 9/18/2026 6.13 % Healthcare technology 6,000 5,970 6,008 68
-------------------------------------------------------------------------------- Cash Interest Portfolio Company Investment Type Rate (1)(2) Industry Principal Cost Fair Value (3) Notes First Lien Term Loan, LIBOR+5.00% cash due Oil & gas equipment & New IPT, Inc. 3/17/2021 7.10 % services$ 1,422 $ 1,422 $ 1,422 (4) 21.876 Class A Common Units in New IPT Oil & gas equipment & Holdings, LLC services - 1,268 (4)Total New IPT, Inc. 1,422 2,690 First Lien Term Loan, Northern Star Industries LIBOR+4.50% cash due Electrical components & Inc. 3/31/2025 6.56 % equipment 6,895 6,868 6,792 First Lien Term Loan, LIBOR+5.00% cash due Novetta Solutions, LLC 10/17/2022 7.05 % Application software 5,993 5,961 5,882 First Lien Term Loan, LIBOR+4.00% cash due OCI Beaumont LLC 3/13/2025 6.10 % Commodity chemicals 7,880 7,872 7,890 First Lien Term Loan, LIBOR+4.00% cash due OEConnection LLC 9/24/2026 6.13 % Application software 7,312 7,275 7,298 First Lien Delayed Draw Term Loan, LIBOR+4.00% cash due 9/24/2026 Application software - (3) (1) (5)Total OEConnection LLC 7,272 7,297 First Lien Term Loan, LIBOR+3.00% cash due Interactive media & Red Ventures, LLC 11/8/2024 5.04 % services 3,990 3,971 4,011 First Lien Term Loan, LIBOR+6.00% cash due Salient CRGT, Inc. 2/28/2022 8.05 % Aerospace & defense 2,205 2,183 2,094 (4) First Lien Term Loan, Scientific Games LIBOR+2.75% cash due International, Inc. 8/14/2024 4.79 % Casinos & gaming 6,516 6,491 6,470 First Lien Term Loan, LIBOR+5.00% cash due SHO Holding I Corporation 10/27/2022 7.26 % Footwear 8,420 8,403 7,999 First Lien Term Loan, LIBOR+4.50% cash due Signify Health, LLC 12/23/2024 6.60 % Healthcare services 9,850 9,775 9,838 First Lien Term Loan, LIBOR+5.50% cash due Diversified support Sirva Worldwide, Inc. 8/4/2025 7.54 % services 4,906 4,833 4,759 First Lien Term Loan, LIBOR+4.25% cash due Sunshine Luxembourg VII SARL 9/25/2026 6.59 % Personal products 8,000 7,960 8,048 First Lien Term Loan, LIBOR+7.00% cash due Thruline Marketing, Inc. 4/3/2022 9.10 % Advertising 1,854 1,851 1,854 (4) 927 Class A Units in FS AVI Holdco, LLC Advertising 1,088 658 (4) Total Thruline Marketing, Inc. 2,939 2,512 Fixed Rate Bond 144A 9.0% Toggle PIK cash due Triple Royalty Sub LLC 4/15/2033 Pharmaceuticals 5,000 5,000 5,175 First Lien Term Loan, LIBOR+4.00% cash due Uber Technologies, Inc. 4/4/2025 6.03 % Application software 9,875 9,836 9,836 (4) First Lien Term Loan, LIBOR+3.25% cash due UFC Holdings, LLC 4/29/2026 5.30 % Movies & entertainment 4,489 4,489 4,506 First Lien Term Loan, LIBOR+5.00% cash due Uniti Group LP 10/24/2022 7.04 % Specialized REITs 6,401 6,221 6,256 (4) First Lien Term Loan, Valeant Pharmaceuticals LIBOR+2.75% cash due International Inc. 11/27/2025 4.79 % Pharmaceuticals 1,772 1,764 1,778 First Lien Term Loan, LIBOR+4.50% cash due Veritas US Inc. 1/27/2023 6.60 % Application software 6,894 6,856 6,534 (4) First Lien Term Loan, LIBOR+3.75% cash due Data processing & Verra Mobility, Corp. 2/28/2025 5.79 % outsourced services 10,835 10,849 10,894 Second Lien Term Loan, LIBOR+7.75% cash due WP CPP Holdings, LLC 4/30/2026 10.01 % Aerospace & defense 6,000 5,949 5,974 (4)$ 340,960 $ 347,985 $ 345,032
__________________
(1) Represents the interest rate as ofSeptember 30, 2019 . All interest rates are payable in cash, unless otherwise noted. (2) The interest rate on the principal balance outstanding for all floating rate loans is indexed to LIBOR and/or an alternate base rate (e.g., prime rate), which typically resets semi-annually, quarterly, or monthly at the borrower's option. The borrower may also elect to have multiple interest reset periods for each loan. For each of these loans, we have provided the applicable margin over LIBOR or the alternate base rate based on each respective credit agreement and the cash interest rate as of period end. All the LIBOR shown above is inU.S. dollars. As ofSeptember 30, 2019 , the reference rates for SLF JV I's variable rate loans were the 30-day LIBOR at 2.04%, the 60-day LIBOR at 2.09%, the 90-day LIBOR at 2.10%, the 180-day LIBOR at 2.06%, and the PRIME at 5.00%. Most loans include an interest floor, which generally ranges from 0% to 1%. 69 -------------------------------------------------------------------------------- (3) Represents the current determination of fair value as ofSeptember 30, 2019 utilizing a similar technique as us in accordance with ASC 820. However, the determination of such fair value is not included in our Board of Directors' valuation process described elsewhere herein. (4) This investment was held by both us and SLF JV I as ofSeptember 30, 2019 . (5) Investment had undrawn commitments. Unamortized fees are classified as unearned income which reduces cost basis, which may result in a negative cost basis. A negative fair value may result from the unfunded commitment being valued below par. Both the cost and fair value of our debt investment in the SLF JV I were$96.3 million as of each ofSeptember 30, 2020 andSeptember 30, 2019 . We earned interest income of$8.1 million ,$9.8 million and$11.2 million (including$3.1 million of PIK interest) on our investments in the SLF JV I Subordinated Notes for the years endedSeptember 30, 2020 , 2019 and 2018, respectively. The SLF JV I Subordinated Notes bear interest at a rate of one-month LIBOR plus 7.0% per annum and mature onDecember 29, 2028 . The cost and fair value of the LLC equity interests in SLF JV I held by us was$49.3 million and$21.2 million , respectively, as ofSeptember 30, 2020 , and$49.3 million and$30.1 million , respectively, as ofSeptember 30, 2019 . We did not earn dividend income for the years endedSeptember 30, 2020 and 2019 with respect to our investment in the LLC equity interests of SLF JV I. We earned dividend income of$1.6 million for the year endedSeptember 30, 2018 with respect to our investment in LLC equity interests of SLF JVI. The LLC equity interests of SLF JV I are dividend producing to the extent SLF JV I has residual cash to be distributed on a quarterly basis. Below is certain summarized financial information for SLF JV I as ofSeptember 30, 2020 andSeptember 30, 2019 and for the years endedSeptember 30, 2020 , 2019 and 2018: September 30, 2020 September 30, 2019 Selected Balance Sheet Information: Investments at fair value (costSeptember 30, 2020 :$311,428 ; cost September 30, 2019:$347,985 ) $ 298,771 $ 345,032 Cash and cash equivalents 5,389 3,674 Restricted cash 4,211 5,242 Other assets 5,093 6,912 Total assets $ 313,464 $ 360,860 Senior credit facility payable $ 167,910 $ 170,210 Debt securities payable at fair value (proceedsSeptember 30, 2020 :$110,000 ; proceedsSeptember 30, 2019 :$110,000 ) 110,000 110,000 Other liabilities 11,336 46,303 Total liabilities 289,246 326,513 Members' equity 24,218 34,347 Total liabilities and members' equity $ 313,464 $ 360,860 Year ended Year ended Year ended September 30, September 30, September 30, 2020 2019 2018 Selected Statements of Operations Information: Interest income$ 19,808 $ 22,727 $ 20,574 Other income 338 153 65 Total investment income 20,146 22,880 20,639 Interest expense 16,637 19,858 20,713 Other expenses 244 358 473 Total expenses (1) 16,881 20,216 21,186 Net unrealized appreciation (depreciation) (9,704) 2,257 12,386 Net realized gains (losses) (3,691) (8,507) (16,311) Net income (loss)$ (10,130) $ (3,586) $ (4,472) __________
(1) There are no management fees or incentive fees charged at SLF JV I.
SLF JV I has elected to fair value the debt securities issued to us and Kemper under FASB ASC Topic 825, Financial Instruments - Fair Value Option. The debt securities are valued based on the total assets less the total liabilities senior to the SLF JV I Notes in an amount not exceeding par under the enterprise value technique. During the year endedSeptember 30, 2020 , we did not sell any debt investments to SLF JV I. During the year endedSeptember 30, 2019 , we sold$8.4 million of senior secured debt investments to SLF JV I at fair value in exchange for$8.3 million cash consideration. A loss of$0.1 million was recognized by us on these transactions. During the year endedSeptember 30, 2018 , we sold$8.0 million of senior secured debt investments to SLF JV I at fair value in exchange for$8.0 million cash consideration. 70 -------------------------------------------------------------------------------- Discussion and Analysis of Results and Operations Results of Operations Net increase (decrease) in net assets resulting from operations includes net investment income, net realized gains (losses) and net unrealized appreciation (depreciation). Net investment income is the difference between our income from interest, dividends and fees and net expenses. Net realized gains (losses) is the difference between the proceeds received from dispositions of investment related assets and liabilities and their stated costs. Net unrealized appreciation (depreciation) is the net change in the fair value of our investment related assets and liabilities carried at fair value during the reporting period, including the reversal of previously recorded unrealized appreciation (depreciation) when gains or losses are realized. Comparison of Years endedSeptember 30, 2020 andSeptember 30, 2019 Total Investment Income Total investment income includes interest on our investments, fee income and dividend income. Total investment income for the years endedSeptember 30, 2020 andSeptember 30, 2019 was$143.1 million and$147.7 million , respectively. For the year endedSeptember 30, 2020 , this amount consisted of$133.4 million of interest income from portfolio investments (which included$7.9 million of PIK interest),$8.5 million of fee income and$1.2 million of dividend income. For the year endedSeptember 30, 2019 , this amount consisted of$139.2 million of interest income from portfolio investments (which included$5.5 million of PIK interest),$6.7 million of fee income and$1.8 million of dividend income. The decrease of$4.6 million , or 3.1%, in our total investment income for the year endedSeptember 30, 2020 , as compared to the year endedSeptember 30, 2019 , was due primarily to (i) a$5.7 million decrease in interest income, which was primarily attributable to decreases in OID of$5.7 million , which was the result of higher non-recurring OID accretion during the year endedSeptember 30, 2019 , and the impact of decreases in LIBOR on our floating rate investments, partially offset by a$3.1 million increase in make-whole interest earned in connection with the prepayment of certain investments during the year endedSeptember 30, 2020 as well as a larger average investment portfolio and higher yields on new originations, and (ii) a$0.6 million decrease in dividend income from our investment inFirst Star Speir Aviation Limited , partially offset by a$1.8 million increase in fee income primarily due to higher prepayment fees. Expenses Net expenses (expenses net of fee waivers) for the years endedSeptember 30, 2020 andSeptember 30, 2019 were$71.1 million and$79.8 million , respectively. Net expenses decreased for the year endedSeptember 30, 2020 , as compared to the year endedSeptember 30, 2019 , by$8.7 million , or 10.8%, due primarily to a$6.1 million decrease in interest expense, primarily the result of decreases to LIBOR and interest expense savings from the issuance of the 2025 Notes and the subsequent repayment of the 2024 Notes and 2028 Notes during the year endedSeptember 30, 2020 , and a$1.7 million decrease in base management fees and incentive fees (net of fee waivers), primarily driven by a$1.2 million reversal of previously accrued waived fees in the prior year and$1.1 million of accrued Part II incentive fees (net of accrued waivers) in the prior year, partially offset by$0.6 million of higher management fees during the current year due to a larger investment portfolio and$0.3 million of higher Part I incentive fees during the current year mainly due to lower interest expense. Net Investment Income As a result of the$4.6 million decrease in total investment income and the$8.7 million decrease in net expenses, net investment income for the year endedSeptember 30, 2020 increased by$4.1 million , or 6.0%, compared to the year endedSeptember 30, 2019 . Realized Gain (Loss) Realized gains or losses are measured by the difference between the net proceeds from the sale or redemption of investments, secured borrowings and foreign currency and the cost basis without regard to unrealized appreciation or depreciation previously recognized, and includes investments written-off during the period, net of recoveries. Realized losses may also be recorded in connection with our determination that certain investments are considered worthless securities and/or meet the conditions for loss recognition per the applicable tax rules. During the years endedSeptember 30, 2020 and 2019, we recorded aggregate net realized gains (losses) of$(13.9) million and$20.8 million , respectively, in connection with the exits or restructurings of various investments. See "Note 9. Realized Gains or Losses and Net Unrealized Appreciation or Depreciation" in the notes to the accompanying Consolidated Financial Statements for more details regarding investment realization events for the years endedSeptember 30, 2020 and 2019. 71 -------------------------------------------------------------------------------- Net Unrealized Appreciation (Depreciation) Net unrealized appreciation or depreciation is the net change in the fair value of our investments, secured borrowings and foreign currency during the reporting period, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized. During the years endedSeptember 30, 2020 and 2019, we recorded net unrealized appreciation (depreciation) of$(20.6) million and$38.5 million , respectively. For the year endedSeptember 30, 2020 , this consisted of$35.3 million of net unrealized depreciation on equity investments,$12.0 million of net unrealized depreciation on debt investments and$0.3 million of net unrealized depreciation of foreign currency forward contracts, partially offset by$26.9 million of net unrealized appreciation related to exited investments (a portion of which resulted in a reclassification to realized losses). For the year endedSeptember 30, 2019 , this consisted of$57.0 million of net unrealized appreciation related to exited investments (a portion of which resulted in a reclassification to realized losses),$10.6 million of net unrealized appreciation on equity investments and$0.3 million of net unrealized appreciation of foreign currency forward contracts, partially offset by$26.8 million of net unrealized depreciation on debt investments and$2.7 million of net unrealized depreciation of secured borrowings (which results in a reclassification to realized gains). Comparison of Years endedSeptember 30, 2019 andSeptember 30, 2018 The comparison of the fiscal years endedSeptember 30, 2019 and 2018 can be found within Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of our annual report on Form 10-K for the fiscal year endedSeptember 30, 2019 which is incorporated by reference herein. Financial Condition, Liquidity and Capital Resources We have a number of alternatives available to fund our investment portfolio and our operations, including raising equity, increasing or refinancing debt and funding from operational cash flow. We generally expect to fund the growth of our investment portfolio through additional debt and equity capital, which may include securitizing a portion of our investments. We cannot assure you, however, that our efforts to grow our portfolio will be successful. For example, our common stock has generally traded at prices below net asset value for the past several years, and we are currently limited in our ability to raise additional equity at prices below the then-current net asset value per share. We intend to continue to generate cash primarily from cash flows from operations, including interest earned, and future borrowings. We intend to fund our future distribution obligations through operating cash flow or with funds obtained through future equity and debt offerings or credit facilities, as we deem appropriate. Our primary uses of funds are investments in our targeted asset classes and cash distributions to holders of our common stock. We may also from time to time repurchase or redeem some or all of our outstanding notes. At a special meeting of our stockholders held onJune 28, 2019 , our stockholders approved the application of the reduced asset coverage requirements in Section 61(a)(2) of the Investment Company Act to us effective as ofJune 29, 2019 . As a result of the reduced asset coverage requirement, we can incur$2 of debt for each$1 of equity as compared to$1 of debt for each$1 of equity. As ofSeptember 30, 2020 , we had$714.8 million in senior securities and our asset coverage ratio was 227.2%. As ofSeptember 30, 2020 , our debt to equity ratio was 0.78x. Our target debt to equity ratio is 0.85x to 1.0x (i.e.,one dollar of equity for each$0.85 to$1.00 of debt outstanding) as we plan to continue to opportunistically deploy capital into the markets. For the year endedSeptember 30, 2020 , we experienced a net increase in cash and cash equivalents of$23.7 million . During that period, we used$152.9 million of net cash from operating activities, primarily from funding$727.2 million of investments, a$63.7 million of net decrease in payables from unsettled transactions, partially offset by$579.6 million of principal payments and sale proceeds received and the cash activities related to$72.0 million of net investment income. During the same period, net cash provided by financing activities was$176.3 million , primarily consisting of$100.0 million of net borrowings under the Credit Facility (as defined below) and$136.2 million net incurrence of unsecured notes, partially offset by$53.1 million of cash distributions paid to our stockholders,$4.8 million of deferred financing costs paid and$1.9 million of repurchases of common stock under our dividend reinvestment plan, or DRIP. For the year endedSeptember 30, 2019 , we experienced a net increase in cash and cash equivalents and restricted cash of$1.9 million . During that period, we received$215.8 million of net cash from operating activities, primarily from$606.3 million of principal payments and sale proceeds received,$44.5 million of a net increase in payables from unsettled transactions and the cash activities related to$67.9 million of net investment income, partially offset by funding$478.0 million of investments. During the same period, net cash used in financing activities was$214.1 million , primarily consisting of$228.8 million of repayments of unsecured notes,$2.7 million of repayments of secured borrowings,$52.2 million of cash distributions paid to our stockholders,$2.9 million of deferred financing costs paid and$1.3 million of repurchases of common stock under our DRIP, partially offset by$73.8 million of net borrowings under the Credit Facility. 72 -------------------------------------------------------------------------------- For the year endedSeptember 30, 2018 , we experienced a net decrease in cash and cash equivalents and restricted cash of$46.4 million . During that period, we received$53.5 million of net cash from operating activities, primarily from$1,106.8 million of principal payments and sale proceeds received and the cash activities related to$60.0 million of net investment income, partially offset by funding$1,059.6 million of investments and net revolvers. During the same period, net cash used in financing activities was$99.9 million , primarily consisting of$15.0 million of net repayments under our credit facilities,$21.2 million of repurchases of unsecured notes,$1.2 million of repayments of secured borrowings,$55.0 million of cash distributions paid to our stockholders,$6.2 million of payments of deferred financing costs and$1.4 million of repurchases of common stock under our DRIP. As ofSeptember 30, 2020 , we had$39.1 million in cash and cash equivalents, portfolio investments (at fair value) of$1.6 billion ,$6.9 million of interest, dividends and fees receivable,$285.2 million of undrawn capacity on the Credit Facility (subject to borrowing base and other limitations),$8.6 million of net receivables from unsettled transactions,$414.8 million of borrowings outstanding under our Credit Facility,$294.5 million of unsecured notes payable (net of unamortized financing costs and unaccreted discount) and unfunded commitments to portfolio companies of$157.5 million . As ofSeptember 30, 2020 , we have analyzed cash and cash equivalents, availability under the Credit Facility, the ability to rotate out of certain assets and amounts of unfunded commitments that could be drawn and believe our liquidity and capital resources are sufficient to take advantage of market opportunities in the current economic climate. As ofSeptember 30, 2019 , we had$15.4 million in cash and cash equivalents, portfolio investments (at fair value) of$1.4 billion ,$11.2 million of interest, dividends and fees receivable,$385.2 of undrawn capacity on the Credit Facility (subject to borrowing base and other limitations),$55.0 million of net payables from unsettled transactions,$314.8 million of borrowings outstanding under our Credit Facility,$158.5 million of unsecured notes payable (net of unamortized financing costs) and unfunded commitments of$88.3 million . Significant Capital Transactions The following table reflects the distributions per share that we have paid, including shares issued under our DRIP, on our common stock sinceOctober 1, 2017 : Amount Cash DRIP Shares DRIP Shares Date Declared Record Date Payment Date per Share Distribution Issued (1) Value August 7, 2017 December 15, 2017 December 29, 2017$ 0.125 $ 17.3 million 58,456$ 0.3 million February 5, 2018 March 15, 2018 March 30, 2018 0.085 11.5 million 122,884 0.5 million May 3, 2018 June 15, 2018 June 29, 2018 0.095 13.0 million 87,283 0.4 million August 1, 2018 September 15, 2018 September 28, 2018 0.095 13.2 million 34,575 0.2 million November 19, 2018 December 17, 2018 December 28, 2018 0.095 13.0 million 87,429 0.4 million February 1, 2019 March 15, 2019 March 29, 2019 0.095 13.1 million 59,603 0.3 million May 3, 2019 June 14, 2019 June 28, 2019 0.095 13.1 million 61,093 0.3 million August 2, 2019 September 13, 2019 September 30, 2019 0.095 13.1 million 61,205 0.3 million November 12, 2019 December 13, 2019 December 31, 2019 0.095 12.9 million 87,747 0.5 million January 31, 2020 March 13, 2020 March 31, 2020 0.095 12.9 million 157,523 0.5 million April 30, 2020 June 15, 2020 June 30, 2020 0.095 13.0 million 87,351 0.4 million July 31, 2020 September 15, 2020 September 30, 2020 0.105 14.3 million 102,404 0.5 million ______________ (1)Shares were purchased on the open market and distributed. Indebtedness See "Note 6. Borrowings" in the Consolidated Financial Statements for more details regarding our indebtedness. Credit Facility As ofSeptember 30, 2020 , (i) the size of the Credit Facility was$700 million (with an "accordion" feature that permits us, under certain circumstances, to increase the size of the facility to up to the greater of$800 million and our net worth (as defined in the Credit Facility) on the date of such increase, (ii) the period during which we may make drawings will expire onFebruary 25, 2023 and the maturity date wasFebruary 25, 2024 and (iii) the interest rate margin for (a) LIBOR loans (which may be 1-, 2-, 3- or 6-month, at our option) was 2.00% (which can be increased up to 2.25%) and (b) alternate base rate loans was 1.00% (which can be increased up to 1.25%); provided that the interest margin will increase to 2.75% and 1.75% for 73 -------------------------------------------------------------------------------- LIBOR loans and alternative base rate loans, respectively, if our stockholders' equity is below$700 million , each depending on our senior debt coverage ratio. See "-Recent Developments-Upsize of Credit Facility." Each loan or letter of credit originated or assumed under the Credit Facility is subject to the satisfaction of certain conditions. Borrowings under the Credit Facility are subject to the facility's various covenants and the leverage restrictions contained in the Investment Company Act. We cannot assure you that we will be able to borrow funds under the Credit Facility at any particular time or at all. The following table describes significant financial covenants, as ofSeptember 30, 2020 , with which we must comply under the Credit Facility on a quarterly basis: Financial Covenant Description Target Value June 30, 2020 Reported Value (1) Minimum shareholders' equity Net assets shall not be less than the sum of$550 million $859 million (x)$550 million , plus (y) 50% of the aggregate net proceeds of all sales of equity interests after May 6, 2020 Asset coverage ratio Asset coverage ratio shall not be less than the 1.50:1 2.11:1 greater of 1.50:1 and the statutory test applicable to us Interest coverage ratio Interest coverage ratio shall not be less than 2.25:1 3.30:1 2.25:1 Minimum net worth Net worth shall not be less than$500 million $500 million $855 million ___________ (1) As contractually required, we report financial covenants based on the last filed quarterly or annual report, in this case our Quarterly Report on Form 10-Q for the quarter endedJune 30, 2020 . We were in compliance with all financial covenants under the Credit Facility based on the financial information contained in this Quarterly Report on Form 10-Q. As ofSeptember 30, 2020 andSeptember 30, 2019 , we had$414.8 million and$314.8 million of borrowings outstanding under the Credit Facility, respectively, which had a fair value of$414.8 million and$314.8 million , respectively. Our borrowings under the Credit Facility bore interest at a weighted average interest rate of 3.028% and 4.550% for the years endedSeptember 30, 2020 and 2019, respectively. Our borrowings under the Credit Facility bore interest at a weighted average interest rate of 4.254% for the period fromNovember 30, 2017 toSeptember 30, 2018 . Our borrowings under the Prior ING Facility (as defined below) bore interest at a weighted average interest rate of 3.705% for the period fromOctober 1, 2017 toNovember 30, 2017 . For the years endedSeptember 30, 2020 , 2019 and 2018, we recorded interest expense (inclusive of fees) of$14.9 million ,$17.1 million and$11.6 million , respectively, related to the Credit Facility. FromMay 27, 2010 throughNovember 30, 2017 , we were party to a secured syndicated revolving credit facility with certain lenders party thereto from time to time andING Capital LLC , as administrative agent, or, as amended, the Prior ING Facility. In connection with the entry into the Credit Facility, we repaid all outstanding borrowings under the Prior ING Facility following which the Prior ING Facility was terminated. Obligations under the Prior ING Facility would have otherwise matured onAugust 6, 2018 . During the year endedSeptember 30, 2018 , we expensed$0.2 million of unamortized deferred financing costs related to the Prior ING Facility. 2025 Notes OnFebruary 25, 2020 , we issued$300.0 million in aggregate principal amount of the 2025 Notes for net proceeds of$293.8 million after deducting OID of$2.5 million , underwriting commissions and discounts of$3.0 million and offering costs of$0.7 million . The OID on the 2025 Notes is amortized based on the effective interest method over the term of the notes. For the year endedSeptember 30, 2020 , we recorded interest expense of$7.0 million related to the 2025 Notes. As ofSeptember 30, 2020 , there were$300.0 million of 2025 Notes outstanding, which had a carrying value and fair value of$294.5 million and$301.4 million , respectively. 2019 Notes For the years endedSeptember 30, 2019 and 2018, we recorded interest expense of$5.1 million and$12.6 million (inclusive of fees), respectively, related to our 4.875% unsecured notes due 2019, or the 2019 Notes. The 2019 Notes matured onMarch 1, 2019 and were fully repaid during the three months endedMarch 31, 2019 . As ofSeptember 30, 2020 andSeptember 30, 2019 , there were no 2019 Notes outstanding. 2024 Notes For the year endedSeptember 30, 2020 , we recorded interest expense of$1.9 million (inclusive of fees) related to our 5.875% unsecured notes due 2024, or the 2024 Notes. For each of the years endedSeptember 30, 2019 and 2018, we recorded interest expense of$4.6 million (inclusive of fees) related to the 2024 Notes. 74 -------------------------------------------------------------------------------- OnMarch 2, 2020 , we redeemed 100%, or$75.0 million aggregate principal amount, of the issued and outstanding 2024 Notes. The redemption price per 2024 Note was$25 plus accrued and unpaid interest. We recognized a loss of$1.0 million in connection with the redemption of the 2024 Notes during the year endedSeptember 30, 2020 . As ofSeptember 30, 2020 , there were no 2024 Notes outstanding. As ofSeptember 30, 2019 , there were$75.0 million of 2024 Notes outstanding, which had a carrying value and fair value of$73.9 million and$77.4 million , respectively. 2028 Notes For the year endedSeptember 30, 2020 , we recorded interest expense of$2.5 million (inclusive of fees) related to our 6.125% unsecured notes due 2028, or the 2028 Notes. For each of the years endedSeptember 30, 2019 and 2018, we recorded interest expense of$5.5 million (inclusive of fees) related to the 2028 Notes. OnMarch 13, 2020 , we redeemed 100%, or$86.3 million aggregate principal amount, of the issued and outstanding 2028 Notes. The redemption price per 2028 Note was$25 plus accrued and unpaid interest. We recognized a loss of$1.5 million in connection with the redemption of the 2028 Notes during the year endedSeptember 30, 2020 . As ofSeptember 30, 2020 , there were no 2028 Notes outstanding. As ofSeptember 30, 2019 , there were$86.3 million of 2028 Notes outstanding, which had a carrying value and fair value of$84.6 million and$87.6 million , respectively. Secured Borrowings As ofSeptember 30, 2020 and 2019, there were no secured borrowings outstanding. During the year endedSeptember 30, 2019 ,$7.2 million of secured borrowings were extinguished in exchange for$7.2 million of preferred stock inC5 Technology Holdings, LLC , which was restructured during the year. For the years endedSeptember 30, 2019 and 2018, we recorded interest expense of$0.1 million and$0.7 million , respectively, related to the secured borrowings. For the years endedSeptember 30, 2019 and 2018, we recorded unrealized appreciation (depreciation) on secured borrowings of$(2.7) million and$2.4 million respectively. For the year endedSeptember 30, 2019 , we recorded a realized gain of$2.6 million as a result of the extinguishment of secured borrowings in connection with theC5 Technology Holdings, LLC restructuring. Off-Balance Sheet Arrangements We may be a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of our portfolio companies. As ofSeptember 30, 2020 , our only off-balance sheet arrangements consisted of$157.5 million of unfunded commitments, which was comprised of$152.7 million to provide debt financing to certain of our portfolio companies,$1.3 million to provide equity financing to SLF JV I and$3.5 million related to unfunded limited partnership interests. As ofSeptember 30, 2019 , our only off-balance sheet arrangements consisted of$88.3 million of unfunded commitments, which was comprised of$83.5 million to provide debt financing to certain of its portfolio companies,$1.3 million to provide equity financing to SLF JV I and$3.5 million related to unfunded limited partnership interests. Such commitments are subject to our portfolio companies' satisfaction of certain financial and nonfinancial covenants and may involve, to varying degrees, elements of credit risk in excess of the amount recognized in our Consolidated Statements of Assets and Liabilities. 75 --------------------------------------------------------------------------------
A list of unfunded commitments by investment (consisting of revolvers, term
loans with delayed draw components, SLF JV I subordinated notes and LLC equity
interests, and limited partnership interests) as of
September 30, 2020 September 30, 2019 Assembled Brands Capital LLC $ 36,079 $ 35,182 WPEngine, Inc. 26,348 - Athenex, Inc. 22,780 - NuStar Logistics, L.P. 17,911 - A.T. Holdings II SÀRL 7,541 - MRI Software LLC 7,239 - Dominion Diagnostics, LLC 5,887 - Corrona, LLC 5,189 - NeuAG, LLC 4,382 - Pingora MSR Opportunity Fund I-A, LP 3,500 3,500 Mindbody, Inc. 3,048 3,048 Ardonagh Midco 3 PLC 3,007 - Accupac, Inc. 2,346 - Acquia Inc. 2,240 - New IPT, Inc. 2,229 2,229 Olaplex, Inc. 1,917 - Apptio, Inc. 1,538 1,538 Senior Loan Fund JV I, LLC 1,328 1,328 Coyote Buyer, LLC 942 - iCIMs, Inc. 882 882 Immucor, Inc. 541 - Ministry Brands, LLC 425 800 GKD Index Partners, LLC 231 1,156 PaySimple, Inc. - 12,250 P2 Upstream Acquisition Co. - 9,000 Sorrento Therapeutics, Inc. - 7,500 TerSera Therapeutics, LLC - 4,200 Thruline Marketing, Inc. - 3,000 4 Over International, LLC - 1,977 PLATO Learning Inc. (1) - 746 Total $ 157,530 $ 88,336 ___________
(1) This investment was on cash non-accrual status as of
Contractual Obligations The following table reflects information pertaining to our principal debt outstanding under the Credit Facility, 2025 Notes, 2024 Notes and 2028 Notes: Maximum debt Weighted average debt outstanding for Debt Outstanding Debt Outstanding outstanding for the the year ended as of September 30, as of September 30, year ended September 30, 2019 2020 September 30, 2020 2020 Credit Facility $ 314,825 $ 414,825 $ 397,951$ 466,825 2025 Notes - 300,000 178,689 300,000 2024 Notes 75,000 - 31,557 75,000 2028 Notes 86,250 - 38,883 86,250 Total debt $ 476,075 $ 714,825 $ 647,080 76
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The following table reflects our contractual obligations arising from the Credit Facility and the 2025 Notes:
Payments due by period as of
Less than Contractual Obligations Total 1 year 1-3 years 3-5 years More than 5 years Credit Facility$ 414,825 $ - $ -$ 414,825 $ - Interest due on Credit Facility 30,877 9,074 18,149 3,654 - 2025 Notes 300,000 - - 300,000 - Interest due on 2025 Notes 46,286 10,500 21,000 14,786 - Total$ 791,988 $ 19,574 $ 39,149 $ 733,265 $ -
Regulated Investment Company Status and Distributions
We have qualified and elected to be treated as a RIC under Subchapter M of the Code for tax purposes. As long as we continue to qualify as a RIC, we will not be subject to tax on our investment company taxable income (determined without regard to any deduction for dividends paid) or realized net capital gains, to the extent that such taxable income or gains is distributed, or deemed to be distributed as dividends, to stockholders on a timely basis. Taxable income generally differs from net income for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses, and generally excludes net unrealized appreciation or depreciation. Distributions declared and paid by us in a taxable year may differ from taxable income for that taxable year as such distributions may include the distribution of taxable income derived from the current taxable year or the distribution of taxable income derived from the prior taxable year carried forward into and distributed in the current taxable year. Distributions also may include returns of capital. To maintain RIC tax treatment, we must, among other things, distribute dividends, with respect to each taxable year, of an amount at least equal to 90% of our investment company taxable income (i.e., our net ordinary income and our realized net short-term capital gains in excess of realized net long-term capital losses, if any), determined without regard to any deduction for dividends paid. As a RIC, we are also subject to a federal excise tax, based on distribution requirements of our taxable income on a calendar year basis. We anticipate timely distribution of our taxable income in accordance with tax rules. We did not incur aU.S. federal excise tax for calendar years 2018 and 2019. We may incur a federal excise tax in future years. We intend to distribute at least 90% of our annual taxable income (which includes our taxable interest and fee income) to our stockholders. The covenants contained in the Credit Facility may prohibit us from making distributions to our stockholders, and, as a result, could hinder our ability to satisfy the distribution requirement associated with our ability to be subject to tax as a RIC. In addition, we may retain for investment some or all of our net capital gains (i.e., realized net long-term capital gains in excess of realized net short-term capital losses) and treat such amounts as deemed distributions to our stockholders. If we do this, our stockholders will be treated as if they received actual distributions of the capital gains we retained and then reinvested the net after-tax proceeds in our common stock. Our stockholders also may be eligible to claim tax credits (or, in certain circumstances, tax refunds) equal to their allocable share of the tax we paid on the capital gains deemed distributed to them. To the extent our taxable earnings for a fiscal and taxable year fall below the total amount of our dividend distributions for that fiscal and taxable year, a portion of those distributions may be deemed a return of capital to our stockholders. 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, we may be limited in our ability to make distributions due to the asset coverage test for borrowings applicable to us as a Business Development Company under the Investment Company Act and due to provisions in our credit facilities and debt instruments. If we do not distribute a certain percentage of our taxable income annually, we will suffer adverse tax consequences, including possible loss of our ability to be subject to tax as a RIC. We cannot assure stockholders that they will receive any distributions or distributions at a particular level. A RIC may treat a distribution of its own stock as fulfilling its RIC distribution requirements if each stockholder elects to receive his or her entire distribution in either cash or stock of the RIC, subject to certain limitations regarding the aggregate amount of cash to be distributed to all stockholders. If these and certain other requirements are met, forU.S federal income tax purposes, the amount of the dividend paid in stock will be equal to the amount of cash that could have been received instead of stock. 77 -------------------------------------------------------------------------------- We may generate qualified net interest income or qualified net short-term capital gains that may be exempt fromU.S. withholding tax when distributed to foreign stockholders. A RIC is permitted to designate distributions of qualified net interest income and qualified short-term capital gains as exempt fromU.S. withholding tax when paid to non-U.S. shareholders with proper documentation. The following table, which may be subject to change as we finalize our annual tax filings, lists the percentage of qualified net interest income and qualified short-term capital gains for the year endedSeptember 30, 2020 , our last tax year end. Qualified Net Interest Qualified Short-Term Year Ended Income Capital Gains September 30, 2020 83.4 % - We have adopted a DRIP that provides for the reinvestment of any distributions that we declare in cash on behalf of our stockholders, unless a stockholder elects to receive cash. As a result, if our Board of Directors declares a cash distribution, then our stockholders who have not "opted out" of the DRIP will have their cash distributions automatically reinvested in additional shares of our common stock, rather than receiving a cash distribution. If our shares are trading at a premium to net asset value, we typically issue new shares to implement the DRIP, with such shares issued at the greater of the most recently computed net asset value per share of our common stock or 95% of the current market value per share of our common stock on the payment date for such distribution. If our shares are trading at a discount to net asset value, we typically purchase shares in the open market in connection with our obligations under the DRIP. Related Party Transactions We have entered into the Investment Advisory Agreement with Oaktree and the Administration Agreement with Oaktree Administrator, an affiliate of Oaktree. Mr.John B. Frank , an interested member of our Board of Directors, has an indirect pecuniary interest in Oaktree. Oaktree is a registered investment adviser under the Advisers Act that is partially and indirectly owned by OCG. See "Note 11. Related Party Transactions - Investment Advisory Agreement" and "- Administrative Services" in the notes to the accompanying Consolidated Financial Statements. Recent Developments Distribution Declaration OnNovember 13, 2020 , our Board of Directors declared a quarterly distribution of$0.11 per share, payable in cash onDecember 31, 2020 to stockholders of record onDecember 15, 2020 . Upsize of Credit Facility OnOctober 28, 2020 , we entered into an incremental commitment and assumption agreement in connection with our exercise of$75 million of the accordion feature under the Credit Facility, increasing the size of the Credit Facility to$775 million . Merger Agreement OnOctober 28, 2020 , we entered into the Merger Agreement, which provides that, subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into OCSI, with OCSI continuing as the surviving company and as our wholly-owned subsidiary and, immediately thereafter, OCSI will merge with and into us, with us continuing as the surviving company. Both our Board of Directors and the Board of Directors of OCSI, including all of the respective independent directors, in each case, on the recommendation of a special committee comprised solely of certain independent directors of us or OCSI, as applicable, have approved the Merger Agreement and the transactions contemplated thereby. At the Effective Time, each share of OCSI Common Stock issued and outstanding immediately prior to the Effective Time (other than Cancelled Shares) will be converted into the right to receive a number of shares of our common stock equal to the Exchange Ratio (as defined below), plus any cash (without interest) in lieu of fractional shares. As of a mutually agreed date no earlier than 48 hours (excluding Sundays and holidays) prior to the Effective Time, which we refer as the "Determination Date", each of us and OCSI will deliver to the other a calculation of its net asset value as of such date, in each case using a pre-agreed set of assumptions, methodologies and adjustments. We refer to such calculation with respect to OCSI as the "Closing OCSI Net Asset Value" and with respect to us as the "Closing OCSL Net Asset Value". Based on such calculations, the parties will calculate the "OCSI Per Share NAV", which will be equal to (i) the Closing OCSI Net Asset Value divided by (ii) the number of shares of OCSI Common Stock issued and outstanding as of the Determination Date 78 -------------------------------------------------------------------------------- (excluding any Cancelled Shares), and the "OCSL Per Share NAV", which will be equal to (A) the Closing OCSL Net Asset Value divided by (B) the number of shares of our common stock issued and outstanding as of the Determination Date. The "Exchange Ratio" will be equal to the quotient (rounded to four decimal places) of (i) the OCSI Per Share NAV divided by (ii) the OCSL Per Share NAV. We and OCSI will update and redeliver the Closing OCSL Net Asset Value or the Closing OCSI Net Asset Value, respectively, in the event of a material change to such calculation between the Determination Date and the closing of the Mergers and if needed to ensure that the calculation is determined within 48 hours (excluding Sundays and holidays) prior to the Effective Time. The Merger Agreement contains customary representations and warranties by each of us, OCSI and Oaktree. The Merger Agreement also contains customary covenants, including, among others, covenants relating to the operation of each of our and OCSI's businesses during the period prior to the closing of the Mergers. Consummation of the Mergers, which is currently anticipated to occur during the first half of calendar year 2021, is subject to certain closing conditions, including requisite approvals of our and OCSI's stockholders and certain other closing conditions. The Merger Agreement also contains certain termination rights in favor of us and OCSI, including if the Mergers are not completed on or beforeJuly 28, 2021 or if the requisite approvals of our or OCSI's stockholders are not obtained. The Merger Agreement provides that, upon the termination of the Merger Agreement under certain circumstances, a third party acquiring OCSI may be required to pay us a termination fee of approximately$5.7 million . The Merger Agreement provides that, upon the termination of the Merger Agreement under certain circumstances, a third party acquiring us may be required to pay OCSI a termination fee of approximately$20.0 million . The foregoing description of the Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Merger Agreement. The representations, warranties, covenants and agreements contained in the Merger Agreement were made only for purposes of the Merger Agreement and as of specific dates; were solely for the benefit of the parties to the Merger Agreement (except as may be expressly set forth in the Merger Agreement); may be subject to limitations agreed upon by the parties, including being qualified by confidential disclosures made for the purposes of allocating contractual risk between the parties to the Merger Agreement instead of establishing these matters as facts; and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors. Investors and security holders should not rely on such representations, warranties, covenants or agreements, or any descriptions thereof, as characterizations of the actual state of facts or condition of any of the parties to the Merger Agreement or any of their respective subsidiaries or affiliates. Moreover, information concerning the subject matter of the representations, warranties, covenants and agreements may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in public disclosures by the parties to the Merger Agreement. Management Fee Waiver In connection with entry into the Merger Agreement, Oaktree has agreed to waive$750,000 of base management fees payable to it under the Investment Advisory Agreement in each of the eight quarters immediately following the closing of the Mergers (for an aggregate waiver of$6.0 million of base management fees). 79
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