NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2019
(Unaudited)
|
|
1.
|
Organization and Purpose
|
Alcentra Capital Corporation (the “Company” or “Alcentra”)
was formed as a Maryland corporation on June 6, 2013 as an externally managed, non-diversified closed-end management investment
company that has elected to be regulated as a business development company under the Investment Company Act of 1940, as amended
(the “1940 Act”). The Company is an investment company following the accounting and reporting guidance in Financial
Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946, Financial Services
– Investment Companies. Alcentra is managed by Alcentra NY, LLC (the “Adviser” or “Alcentra NY”),
a registered investment adviser under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). In addition,
for U.S. federal income tax purposes, Alcentra has elected to be treated as a regulated investment company (“RIC”)
under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). Alcentra NY, together with certain
of its affiliated companies (the "Alcentra Group"), is an indirect, majority owned subsidiary of The Bank of New York
Mellon Corporation.
The Company was formed for the purpose of acquiring certain
assets held by BNY Mellon-Alcentra Mezzanine III, L.P. (the “Partnership”). The Partnership is a Delaware limited partnership,
which commenced operations on May 14, 2010 (the “Commencement Date”). BNY Mellon-Alcentra Mezzanine III (GP), L.P.
(the “General Partner”), a Delaware limited liability company, is the General Partner of the Partnership. BNY Mellon-Alcentra
Mezzanine Partners (the “Manager”), a division of Alcentra NY and an affiliate of the General Partner, manages the
investment activities of the Partnership.
On May 8, 2014 (commencement of operations), the Company acquired
all of the assets of the Partnership other than its investment in the shares of common stock and warrants to purchase common stock
of GTT Communications (the “Fund III Acquired Assets”) for $64.4 million in cash and $91.5 million in shares of Alcentra’s
common stock. Concurrent with Alcentra’s acquisition of the Fund III Acquired Assets from the Partnership, Alcentra also
purchased for $29 million in cash certain debt investments (the “Warehouse Portfolio”) from Alcentra Group. The Warehouse
Portfolio debt investments were originated by the investment professionals of the Adviser and purchased by Alcentra Group using
funds under a warehouse credit facility provided by The Bank of New York Mellon Corporation in anticipation of the initial public
offering of Alcentra’s shares of common stock. Except for the $1,500 seed capital provided by Alcentra NY in exchange for
100 shares of Alcentra's common stock, the Company had no assets or operations prior to the acquisition of the investment portfolios
of the Partnership and as a result, the Partnership is considered a predecessor entity of the Company.
On May 14, 2014, Alcentra completed its initial public offering
(the “IPO”), at a price of $15.00 per share. Through the IPO the Company sold 6,666,666 shares for gross proceeds of
approximately $100 million. Alcentra used $94.2 million of the proceeds from the IPO to fund the purchase of the warehouse portfolio,
and the cash portion of the consideration paid to Fund III. On June 6, 2014, Alcentra sold 750,000 shares through the underwriters’
exercise of the overallotment option for gross proceeds of $11,250,000.
On April 8, 2014, the Company formed Alcentra BDC Equity Holdings,
LLC, a wholly-owned subsidiary for tax purposes (the “Taxable Subsidiary”). The Taxable Subsidiary allows us to hold
equity securities of portfolio companies organized as pass-through entities while continuing to satisfy the requirements of a RIC
under the Code. The financial statements of this entity are consolidated into the financial statements of Alcentra. All intercompany
balances and transactions have been eliminated.
On May 22, 2017, Alcentra Capital Corporation completed an underwritten
primary offering of 808,161 shares of its common stock at a public offering price of $13.68 per share for proceeds of
approximately $10,853,602, after paying the sales load and offering expenses.
The Company’s investment objective is to generate both
current income and, to a lesser extent, capital appreciation primarily by making direct investments in middle-market companies,
which the Company defines as companies having annual earnings, before interest, taxes, depreciation and amortization, or EBITDA
of between $15 million and $75 million, although the Company may make investments in larger or smaller companies and other types
of investments. These investments are in the form of first lien, second lien, unitranche and, to a lesser extent given the current
credit environment, mezzanine debt. The Company expects to source investments primarily through the network of relationships that
the principals of our investment adviser have developed with financial sponsor firms, financial institutions, middle-market companies,
management teams and other professional intermediaries.
Upon commencement of operations, the Company also entered into
an administration and custodian agreement (the “Administration Agreement”) with State Street Bank and Trust Company
(the “Administrator”) to provide the Company with financial reporting, post-trade compliance and treasury services.
ALCENTRA CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)
June 30, 2019
(Unaudited)
|
|
2.
|
Summary of Significant Accounting Policies
|
Basis of Presentation
– The accompanying financial
statements of the Company have been prepared on the accrual basis of accounting in accordance with U.S. generally accepted accounting
principles (“GAAP”) and pursuant to the requirements for reporting on Form 10-Q and Articles 10 and 12 of Regulation
S-X. Accordingly, certain financial information that is normally included in annual financial statements, including certain financial
statement notes, prepared in accordance with GAAP, is not required for interim reporting purposes and have been omitted. In the
opinion of management, the unaudited financial results included herein contain all adjustments considered necessary for the fair
presentation of financial statements for the interim periods included herein. The current period’s results of operations
will not necessarily be indicative of results that ultimately may be achieved for the fiscal year ending December 31, 2019.
The accounting records of the Company are maintained in United
States dollars.
Use of Estimates
–
The preparation of financial statements in accordance with U.S. GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
as of the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates and such differences could be material. The most significant estimates relate to the
valuation of the Company’s portfolio investments.
Consolidation
–
In accordance with ASC Topic 810 - Consolidation, the Company generally will not consolidate its
interest in any operating company other than in investment company subsidiaries, certain financing subsidiaries, and controlled
operating companies substantially all of whose business consists of providing services to the Company.
Portfolio Investment Classification
–
The Company classifies its investments in accordance with the requirements of
the 1940 Act. Under the 1940 Act, “Control Investments” are defined as investments in which the Company owns more than
25% of the voting securities or has rights to maintain greater than 50% of the board representation. Under the 1940 Act, “Affiliate
Investments” are defined as investments in which the Company owns between 5% and 25% of the voting securities and does not
have rights to maintain greater than 50% of the board representation. “Non-controlled, non-affiliate investments” are
defined as investments that are neither Control Investments or Affiliate Investments.
Cash
–
At
June 30, 2019, cash balances totaling $7.6 million exceeded FDIC insurance protection levels, subjecting the Company to risk related
to the uninsured balance. All of the Company’s cash deposits are held by the Administrator and management believes that the
risk of loss associated with any uninsured balance is remote.
Deferred Financing Costs
–
Deferred financing costs consist of fees and expenses paid in connection with the Credit Facility
(as defined in Note 10) and are capitalized at the time of payment. These costs are amortized using the straight line method, which
approximate the effective interest method over the term of the Credit Facility.
Deferred Note Offering Costs
–
Deferred note offering costs consist of fees and expenses paid in connection with
the Notes (as defined in Note 9) and are capitalized at the time these fees and expenses are incurred before the issuance commenced.
These costs are amortized using the straight line method, which approximate the effective interest method over the term of the
Notes.
Valuation of Portfolio Investments
– Portfolio
investments are carried at fair value as determined by the
Board of Directors (the ‘‘Board’’)
of Alcentra
.
The methodologies used in determining these valuations include:
(1) Preferred shares/membership units and common shares/membership
units
In determining estimated fair value for common shares/membership
units and preferred shares, the Company makes assessments of the methodologies and value measurements which market participants
would use in pricing comparable investments, based on market data obtained from independent sources as well as from the Company’s
own assumptions and taking into account all material events and circumstances which would affect the estimated fair value of such
investments. Several types of factors, circumstances and events could affect the estimated fair value of the investments. These
include but are not limited to the following:
ALCENTRA CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)
June 30, 2019
(Unaudited)
(i) Any material changes in the (a) competitive position
of the portfolio investment, (b) legal and regulatory environment within which the portfolio investment operates, (c) management
or key managers of the portfolio investment, (d) terms and/or cost of financing available to the portfolio investment, and (e)
financial position or operating results of the investment;
(ii) pending disposition by the
Company of the major portfolio investment; and
(iii) sales prices of recent public
or private transactions in identical or comparable investments.
One or a combination of the following valuation techniques
are used to fair value these investments: Market Approach and Income Approach. The Market Approach uses prices and other relevant
information generated by market transactions involving identical or comparable assets or liabilities. The Income Approach uses
valuation techniques to convert future amounts to a present amount (i.e., discounting estimated future cash flows to a net present
value amount).
(2) Debt
The fair value of performing debt investments is typically
derived utilizing a market yield analysis. In a market yield analysis, a price is ascribed to each debt investment based upon an
assessment of current and expected market yields for similar debt investments and risk profiles. Additional consideration is given
to current contractual interest rates, relative maturities and other key terms and risks associated with a debt investment.
The Company considers many factors in evaluating the
most suitable point within the range of fair values, including, but not limited to, the following:
|
|
·
|
the portfolio company’s underlying operating performance
and any related trends;
|
|
|
·
|
the improvement or decline in the underlying credit quality
measured on the basis of a loan-to-enterprise value ratio and total outstanding debt to EBITDA ratio; and
|
|
|
·
|
changes or issues related to the portfolio company’s
customer/supplier concentration, regulatory developments and other portfolio company specific considerations.
|
(3) Warrants
Where warrants are considered to be in the money,
their incremental value is included within the valuation of the investments.
Valuation techniques are applied consistently from
period to period, except when circumstances warrant a change to a different valuation technique that will provide a better estimate
of fair value.
With respect to the Company’s valuation process, the Board
undertakes a similar multi-step valuation process each quarter in connection with determining the fair value of the Company's investments
for which no market quotation is readily available, as described below:
|
|
·
|
Alcentra’s quarterly valuation process begins with
each portfolio company or investment being initially valued by the investment professionals of the Adviser responsible for the
portfolio investment;
|
|
|
·
|
preliminary valuation conclusions will then be documented
and discussed with the investment committee of the Adviser;
|
|
|
·
|
Independent valuation firms engaged by the valuation committee
of the Board prepare preliminary valuations on a select portion of the Company's investment portfolio on a quarterly basis and
submit the reports to the Board; and
|
|
|
·
|
the valuation committee of the Board then reviews these
preliminary valuations and makes a recommendation to the Board with respect thereto; and
|
|
|
·
|
the Board then discusses valuations and approves the fair
value of each such investment in good faith, based on the input of the Adviser, the independent valuation firms and the valuation
committee.
|
The valuation committee of the Board has authorized the engagement
of independent valuation firms to provide Alcentra with valuation assistance. Alcentra intends to have independent valuation firms
provide it with valuation assistance on a portion of its portfolio on a quarterly basis and its entire portfolio will be reviewed
at least annually by independent valuation firms; however, the Board does not have
de minimis
investments of less than 1%
of the Company’s gross assets (up to an aggregate of 10% of the Company’s gross assets) independently reviewed. The
Board is ultimately responsible for the valuation of portfolio investments at fair value as approved in good faith pursuant to
Alcentra’s valuation policy and a consistently applied valuation process.
ALCENTRA CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)
June 30, 2019
(Unaudited)
Due to the inherent uncertainty of determining the fair value
of investments that do not have a readily available market value, the fair value of the Company's investments, as determined by
the Board, may differ significantly from the values that would have been used had a readily available market value existed for
such investments, and the differences could be material. In addition, changes in the market environment and other events that may
occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than
the valuations previously assigned.
Offering Costs
–
Offering expenses are expensed on the Company’s Consolidated Statements of Operations. Offering
expenses consist principally of underwriter’s fee, legal, accounting, printing fees and other related expenses associated
with the filing of a registration statement.
Paid-In-Capital
–
The Company records the proceeds from the sale of its common stock on a net basis to (i)
capital stock and (ii) paid in capital in excess of par value, excluding all commissions.
Earnings and Net Asset Value Per Share
– Earnings
per share is calculated based upon the weighted average number of shares of common stock outstanding during the reported period.
Net Asset Value per share is calculated using the number of shares outstanding as of the end of the period.
Investments
– Investment security transactions
are accounted for on a trade date basis. Cost of portfolio investments represents the actual purchase price of the securities acquired
including capitalized legal, brokerage and other fees as well as the value of interest and dividends received in-kind and the accretion
of original issue discounts. Fees may be charged to the issuer by the Company in connection with the origination of a debt security
financing. Such fees are reflected as a discount to the cost of the portfolio security and the discount is accreted into income
over the life of the related debt security.
Original Issue Discount
– When the Company receives
warrants with a nominal or discounted exercise price upon origination of a debt or preferred stock investment, a portion of the
cost basis is allocated to the warrants. When the investment is made concurrently with the sale of a substantial amount of equity,
the value of the warrants is based on the sales price. The value of the warrants is recorded as original issue discount (“OID”)
to the value of the debt or preferred stock investment and the OID is amortized over the life of the investment.
Interest and Dividend Income
– Interest is recorded
on the accrual basis to the extent that the Company expects to collect such amounts. The Company accrues paid in-kind interest
(“PIK”) by recording income and an increase to the cost basis of the related investments. Dividend income is recorded
on ex-dividend date. Dividends in-kind are recorded as an increase in cost basis of investments and as income.
Investments that are expected to pay regularly scheduled interest
in cash are generally placed on non-accrual status when principal or interest cash payments are past due 30 days or more and/or
when it is no longer probable that principal or interest cash payments will be collected. Such non-accrual investments are restored
to accrual status if past due principal and interest are paid in cash, and in management’s judgment, are likely to continue
timely payment of their remaining principal and interest obligations. Cash interest payments received on non-accrual designated
investments may be recognized as income or applied to principal depending on management’s judgment. There was one non-accrual
investment as of each of June 30, 2019 and December 31, 2018.
Other Income
– The Company may also receive structuring
or closing fees in connection with its investments. Such upfront fees are accreted into income over the life of the investment.
These fees are non-recurring in nature.
Prepayment penalties received by the Company for debt instruments
paid back to the Company prior to the maturity date are recorded as income upon receipt.
Income Taxes
– The Company has elected to be treated
for U.S. federal income tax purposes as a RIC under Subchapter M of the Code, and to operate in a manner to qualify for the tax
treatment applicable to RIC’s. To obtain and maintain our qualification for taxation as a RIC, the Company must, among other
things, meet certain source-of-income and asset diversification requirements. In addition, the Company must distribute to its stockholders,
for each taxable year, at least 90% of ‘‘investment company taxable income,’’ which is generally net ordinary
taxable income plus the excess of realized net short-term capital gains over realized net long-term capital losses, or the Annual
Distribution Requirement. As a RIC, the Company generally will not pay corporate-level U.S. federal income taxes on any ordinary
income or capital gains that are timely distributed to stockholders as dividends.
ALCENTRA CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)
June 30, 2019
(Unaudited)
The Taxable Subsidiary permits the
Company to hold equity investments in portfolio companies which are “pass through” entities for tax purposes and
continue to comply with the “source income” requirements contained in RIC tax provisions of the Code. The Taxable
Subsidiary is not consolidated with the Company for income tax purposes and may generate income tax expense, benefit, and the
related tax assets and liabilities, as a result of its ownership of certain portfolio investments. The income tax expense, or
benefit, if any, and related tax assets and liabilities are reflected in the Company’s consolidated financial
statements. The Taxable Subsidiary uses the asset and liability method of accounting for income taxes. This method requires
the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences
between financial accounting bases and tax bases of assets and liabilities. The tax benefits of tax loss carryforwards and
other deferred taxes are recorded as an asset to the extent that management assesses the utilization of such assets to be
more likely than not. Management routinely assesses the realizability of the deferred income tax assets, and a valuation
allowance is recognized if it is determined that deferred income tax assets may not be fully utilized in future
periods. Management considers future taxable earnings in making such assessments. Numerous judgments and assumptions are
inherent in the determination of future taxable earnings, including such factors as future operating conditions. When the
future utilization of some portion of the deferred tax asset is determined not to be more likely than not, a valuation
allowance is provided to reduce the recorded deferred tax asset. When management can project that a portion of the deferred
tax asset can be realized through application of a portion of tax loss carryforward, management will record that utilization
as a deferred tax benefit and recognize a deferred tax asset in the same amount. There can be no assurance that facts and
circumstances will not materially change and require the recording of any deferred tax asset valuation allowance in future
periods. For the three and six months ended June 30, 2019, the Company recognized a provision for income tax on unrealized
gain on investments of $0.9 million and $1.1 million, respectively, for the Taxable Subsidiary. For the three and six months
ended June 30, 2018, the Company recognized a benefit for income taxes on unrealized loss on investments of $1.0 million and
$1.0 million, respectively, for the Taxable Subsidiary. As of June 30, 2019 and December 31, 2018, the Company had a deferred
tax asset in the amount of $4.3 million and $5.4 million, respectively, primarily relating to tax loss carryforwards. The
decrease in the deferred tax asset resulted from a valuation allowance recorded during the quarter.
The deferred tax asset of
$4.3 million (after a 21% tax rate) is comprised of the following: (1) $1.0 million of NOL’s; (2) $0.7 million of
capital losses; (3) $3.4 million of partnership losses, offset by (4) $0.8 of a valuation allowance. GAAP provides
guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements.
GAAP requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Company’s
financial statements to determine whether the tax positions are “more-likely-than-not” of being sustained by the
applicable tax authority. The Company has analyzed such tax positions and has concluded that no unrecognized tax benefits
should be recorded for uncertain tax positions for tax years that may be open for the quarter ended June 30, 2019. This
conclusion may be subject to review and adjustment at a later date based on factors, including but not limited to, ongoing
analysis and changes to laws, regulations, and interpretations thereof.
Indemnification
– In the normal course of business,
the Company enters into contractual agreements that provide general indemnifications against losses, costs, claims and liabilities
arising from the performance of individual obligations under such agreements. The Company has had no prior claims or payments pursuant
to such agreements. The Company’s individual maximum exposure under these arrangements is unknown, as this would involve
future claims that may be made against the Company that have not yet occurred. However, based on management’s experience,
the Company expects the risk of loss to be remote.
Recently Issued Accounting Standards
– In March
2017, the FASB issued ASU 2017-08, Premium Amortization on Purchased Callable Debt Securities, which amended FASB ASC 310-20. The
amendments in ASU 2017-08 shortened the amortization period for certain callable debt securities held at a premium, generally requiring
the premium to be amortized to the earliest call date. For public business entities, the amendments became effective for fiscal
years beginning after December 15, 2018, as well as for interim periods within those fiscal years. The Company adopted ASU 2017-08
in connection with its quarterly report on Form 10-Q for the three months ended March 31, 2019. Such adoption did not have a material
impact on the Company’s financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement
(Topic 820), Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in
this Update modify the disclosure requirements on fair value measurement in Topic 820, Fair Value Measurement, based on the concepts
in the Concepts Statement, including the consideration of costs and benefits. ASU 2018-13 is effective for all entities for fiscal
years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The Company
has adopted ASU 2018-13 in its consolidated financial statements and disclosures with no material impact.
In August 2018, the U.S. Securities and Exchange Commission
adopted final rules to eliminate redundant, duplicative, overlapping, outdated or superseded disclosure requirements in light of
other disclosure requirements, GAAP or changes in the information environment. These rules amend certain provisions of Regulation
S-X and Regulation S-K, certain rules promulgated under the Securities Act of 1933 and the Securities Exchange Act of 1934 and
certain related forms. The Company has adopted these changes in its consolidated financial statements and disclosures with no material
impact.
ALCENTRA CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)
June 30, 2019
(Unaudited)
In May 2014, the FASB issued ASC 606, Revenue From Contracts
With Customers, originally effective for public business entities with annual reporting periods beginning after December 15, 2016.
On August 12, 2015, the FASB issued an ASU, Revenue From Contracts With Customers (Topic 606): Deferral of the Effective Date,
which deferred the effective date of ASC 606 for one year. ASC 606 provides accounting guidance related to revenue from contracts
with customers. For public business entities, ASC 606 is effective for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2017. The Company has evaluated the impact of ASC 606 and determined that it will not have a material
impact on its consolidated financial statements and disclosures.
|
|
3.
|
Fair Value of Portfolio Investments
|
The Company accounts for its investments in accordance with
FASB Accounting Standards Codification Topic 820 (“ASC Topic 820”),
Fair Value Measurements and Disclosures,
which defines fair value, establishes a framework for measuring fair value. ASC Topic 820 established a fair value hierarchy which
prioritizes and ranks the level of market price observability used in measuring investments at fair value.
Market price observability is impacted by a number of factors,
including the type of investment, the characteristics specific to the investment, and the state of the marketplace (including the
existence and transparency of transactions between market participants). Investments with readily-available actively quoted prices
or for which fair value can be measured from actively-quoted prices in an orderly market will generally have a higher degree of
market price observability and a lesser degree of judgment used in measuring fair value.
Investments measured and reported at fair value are classified
and disclosed in one of the following categories (from highest to lowest) based on inputs:
Level 1
– Quoted prices (unadjusted)
are available in active markets for identical investments that the Company has the ability to access as of the reporting date.
The type of investments which would generally be included in Level 1 includes listed equity securities and listed derivatives.
As required by ASC Topic 820, the Company, to the extent that it holds such investments, does not adjust the quoted price for these
investments, even in situations where the Company holds a large position and a sale could reasonably impact the quoted price.
Level 2
– Pricing inputs are observable
for the investments, either directly or indirectly, as of the reporting date, but are not the same as those used in Level 1. Fair
Value is based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly
or indirectly.
Level 3
– Pricing inputs are unobservable
for the investment and include situations where there is little, if any, market activity for the investment. The inputs into the
determination of fair value require significant judgment or estimation by the Company. The types of investments which would generally
be included in this category include debt and equity securities issued by private entities.
In certain cases, the inputs used to measure fair value may
fall into different levels of the fair value hierarchy. In such cases, the determination of which category within the fair value
hierarchy is appropriate for any given investment is based on the lowest level of input that is significant to the fair value measurement.
The Company's 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.
The fair values of our investments disaggregated into the three
levels of the fair value hierarchy based upon the lowest level of significant input used in the valuation as of June 30, 2019 are
as follows:
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Senior Secured - First Lien
|
|
$
|
—
|
|
|
$
|
7,162,215
|
|
|
$
|
128,361,939
|
|
|
$
|
135,524,154
|
|
|
Senior Secured - Second Lien
|
|
|
—
|
|
|
|
—
|
|
|
|
65,239,620
|
|
|
|
65,239,620
|
|
|
Subordinated Debt
|
|
|
—
|
|
|
|
—
|
|
|
|
1,225,020
|
|
|
|
1,225,020
|
|
|
CLO/Structured Credit
|
|
|
—
|
|
|
|
1,828,490
|
|
|
|
—
|
|
|
|
1,828,490
|
|
|
Equity/Other
|
|
|
—
|
|
|
|
—
|
|
|
|
15,389,916
|
|
|
|
15,389,916
|
|
|
Total Investments
|
|
$
|
—
|
|
|
$
|
8,990,705
|
|
|
$
|
210,216,495
|
|
|
$
|
219,207,200
|
|
The fair values of our investments disaggregated into the three
levels of the fair value hierarchy based upon the lowest level of significant input used in the valuation as of December 31, 2018
are as follows:
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Senior Secured – First Lien
|
|
$
|
-
|
|
|
$
|
3,800,000
|
|
|
$
|
164,354,929
|
|
|
$
|
168,154,929
|
|
|
Senior Secured – Second Lien
|
|
|
-
|
|
|
|
-
|
|
|
|
42,549,396
|
|
|
|
42,549,396
|
|
|
Subordinated Debt
|
|
|
-
|
|
|
|
-
|
|
|
|
1,212,774
|
|
|
|
1,212,774
|
|
|
CLO/Structured Credit
|
|
|
-
|
|
|
|
1,739,600
|
|
|
|
-
|
|
|
|
1,739,600
|
|
|
Equity/Other
|
|
|
-
|
|
|
|
-
|
|
|
|
21,141,117
|
|
|
|
21,141,117
|
|
|
Total investments
|
|
$
|
-
|
|
|
$
|
5,539,600
|
|
|
$
|
229,258,216
|
|
|
$
|
234,797,816
|
|
ALCENTRA CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)
June 30, 2019
(Unaudited)
The changes in investments classified as Level 3 are as follows
for the six months ended June 30, 2019 and June 30, 2018.
As of June 30, 2019:
|
|
|
Senior
|
|
|
Senior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured -
|
|
|
Secured -
|
|
|
Senior
|
|
|
Equity/
|
|
|
|
|
|
|
|
First Lien
|
|
|
Second Lien
|
|
|
Subordinated
|
|
|
Other
|
|
|
Total
|
|
|
Balance as of January 1, 2019
|
|
$
|
164,354,929
|
|
|
$
|
42,549,396
|
|
|
$
|
1,212,774
|
|
|
$
|
21,141,117
|
|
|
$
|
229,258,216
|
|
|
Amortized discounts/premiums
|
|
|
745,945
|
|
|
|
242,474
|
|
|
|
-
|
|
|
|
-
|
|
|
|
988,419
|
|
|
Paid in-kind interest
|
|
|
113,301
|
|
|
|
-
|
|
|
|
6,074
|
|
|
|
183,529
|
|
|
|
302,904
|
|
|
Net realized gain (loss)
|
|
|
68,711
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,013,030
|
|
|
|
1,081,741
|
|
|
Net change in unrealized appreciation (depreciation)
|
|
|
(1,920,653
|
)
|
|
|
43,697
|
|
|
|
-
|
|
|
|
592,730
|
|
|
|
(1,284,226
|
)
|
|
Purchases
|
|
|
33,819,312
|
|
|
|
17,200,000
|
|
|
|
6,172
|
|
|
|
400,000
|
|
|
|
51,425,484
|
|
|
Sales/Return of capital
|
|
|
(59,295,553
|
)
|
|
|
(8,120,000
|
)
|
|
|
-
|
|
|
|
(7,940,490
|
)
|
|
|
(75,356,043
|
)
|
|
Lien status change
|
|
|
(13,324,053
|
)
|
|
|
13,324,053
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Transfers in
|
|
|
3,800,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,800,000
|
|
|
Transfers out
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Balance as of June 30, 2019
|
|
$
|
128,361,939
|
|
|
$
|
65,239,620
|
|
|
$
|
1,225,020
|
|
|
$
|
15,389,916
|
|
|
$
|
210,216,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized appreciation (depreciation) from investments still held as of June 30, 2019
|
|
$
|
(1,522,345
|
)
|
|
$
|
128,749
|
|
|
$
|
-
|
|
|
$
|
583,310
|
|
|
$
|
(810,286
|
)
|
As of June 30, 2018:
|
|
|
Senior
|
|
|
Senior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured -
|
|
|
Secured -
|
|
|
Senior
|
|
|
Equity/
|
|
|
|
|
|
|
|
First Lien
|
|
|
Second Lien
|
|
|
Subordinated
|
|
|
Other
|
|
|
Total
|
|
|
Balance as of January 1, 2018
|
|
$
|
177,340,027
|
|
|
$
|
14,203,691
|
|
|
$
|
66,884,849
|
|
|
$
|
29,125,978
|
|
|
$
|
287,554,545
|
|
|
Amortized discounts/premiums
|
|
|
165,255
|
|
|
|
24,736
|
|
|
|
155,059
|
|
|
|
-
|
|
|
|
345,050
|
|
|
Paid in-kind interest
|
|
|
81,763
|
|
|
|
-
|
|
|
|
207,222
|
|
|
|
169,276
|
|
|
|
458,261
|
|
|
Net realized gain (loss)
|
|
|
(24,418
|
)
|
|
|
(4,922,041
|
)
|
|
|
(10,098,674
|
)
|
|
|
(5,245,476
|
)
|
|
|
(20,290,609
|
)
|
|
Net change in unrealized appreciation (depreciation)
|
|
|
(163,436
|
)
|
|
|
7,750,383
|
|
|
|
5,280,892
|
|
|
|
565,315
|
|
|
|
13,433,154
|
|
|
Purchases
|
|
|
10,880,846
|
|
|
|
18,189,499
|
|
|
|
2,277,803
|
|
|
|
-
|
|
|
|
31,348,148
|
|
|
Sales/Return of capital
|
|
|
(37,984,277
|
)
|
|
|
(3,529,000
|
)
|
|
|
(41,252,701
|
)
|
|
|
-
|
|
|
|
(82,765,978
|
)
|
|
Transfers in
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Transfers out
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Balance as of June 30, 2018
|
|
$
|
150,295,760
|
|
|
$
|
31,717,268
|
|
|
$
|
23,454,450
|
|
|
$
|
24,615,093
|
|
|
$
|
230,082,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized appreciation (depreciation) from investments still held as of June 30, 2018
|
|
$
|
(60,534
|
)
|
|
$
|
(700,657
|
)
|
|
$
|
(5,373,294
|
)
|
|
$
|
(4,680,161
|
)
|
|
$
|
(10,814,646
|
)
|
ALCENTRA CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)
June 30, 2019
(Unaudited)
The following is a summary of the quantitative inputs and assumptions
used for items categorized in Level 3 of the fair value hierarchy as of June 30, 2019 and December 31, 2018, respectively.
As of June 30, 2019:
|
|
|
Fair Value at
|
|
|
|
|
|
|
|
|
|
|
|
Assets at Fair Value
|
|
|
|
|
Valuation
Technique
|
|
Unobservable
Input
|
|
|
|
Weighted
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured - First Lien
|
|
$
|
128,361,939
|
|
|
Yield to Maturity
|
|
Comparable Market Rate
|
|
6.8% - 17.1%
|
|
|
10.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured - Second Lien
|
|
|
65,239,620
|
|
|
Yield to Maturity
|
|
Comparable Market Rate
|
|
10.3% - 14.3%
|
|
|
10.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Subordinated
|
|
|
1,225,020
|
|
|
Yield to Maturity
|
|
Comparable Market Rate
|
|
14.0% - 14.2%
|
|
|
14.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Ownership
|
|
|
13,847,543
|
|
|
Market Approach
|
|
Enterprise Value / LTM EBITDA Multiple / Transaction
price
|
|
6.0x - 10.5x
|
|
|
8.2
|
x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Ownership/ Common Warrants
|
|
|
1,542,373
|
|
|
Market Approach
|
|
Enterprise Value / LTM EBITDA
Multiple / Transaction price
|
|
4.5x - 10.5x
|
|
|
6.5
|
x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
210,216,495
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2018:
|
|
|
Fair Value at
|
|
|
|
|
|
|
|
|
|
|
|
Assets at Fair Value
|
|
|
|
|
Valuation
Technique
|
|
Unobservable
Input
|
|
|
|
Weighted
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured - First Lien
|
|
$
|
164,354,929
|
|
|
Yield to Maturity
|
|
Comparable Market Rate
|
|
7.0% - 14.0%
|
|
|
10.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured - Second Lien
|
|
|
42,549,396
|
|
|
Yield to Maturity
|
|
Comparable Market Rate
|
|
10.3% - 13.0%
|
|
|
11.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Subordinated
|
|
|
1,212,774
|
|
|
Yield to Maturity
|
|
Comparable Market Rate
|
|
14.0%
|
|
|
14.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Ownership
|
|
|
16,914,223
|
|
|
Market Approach
|
|
Enterprise Value / LTM EBITDA Multiple / Transaction
price
|
|
5.5x - 12.0x
|
|
|
7.4
|
x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Ownership/ Common Warrants
|
|
|
4,226,894
|
|
|
Market Approach
|
|
Enterprise Value / LTM EBITDA
Multiple / Transaction price
|
|
4.5x - 12.0x
|
|
|
8.1
|
x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
229,258,216
|
|
|
|
|
|
|
|
|
|
|
|
On November 2, 2017, the Board approved a $2.5 million open
market stock repurchase program. Pursuant to the program, the Company was authorized to repurchase up to $2.5 million in aggregate
of our common stock in the open market. The timing, manner, price and amount of any share repurchases were determined by our management,
in its discretion, based upon the evaluation of economic conditions, stock price, applicable legal and regulatory requirements
and other factors. Repurchases under the program were authorized through November 2, 2018.
On November 16, 2017, the Board approved expansion of the open
market stock repurchase program to $5.0 million and extension of the length of the program to January 31, 2019.
As of August 8, 2018, the Company repurchased an aggregate of
$5.0 million shares of our common stock under the discretionary open-market share repurchase program and, as a result, the program
terminated on such date in accordance with its terms. Subsequently, pursuant to the Board authorization on November 5, 2018, the
Company adopted a trading plan on December 10, 2018 for the purpose of repurchasing shares of its common stock in the open market
(the "Plan"). Under the Plan, the Company may repurchase up to the lesser of (1) 5.0% of the amount of shares of the
Company's common stock outstanding as of the date of the Plan, December 10, 2018 and (2) $10.0 million in aggregate amount of the
Company's common stock.
ALCENTRA CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)
June 30, 2019
(Unaudited)
The following tables set forth the number of shares of common
stock repurchased by the Company under its share repurchase programs for the six months ended June 30, 2019 and June 30, 2018:
Six months ended June 30, 2019:
|
Month Ended
|
|
Shares Repurchased
|
|
|
Repurchase Price Per Share
|
|
Aggregate Consideration for
Repurchased Shares
|
|
|
January 2019
|
|
|
207,220
|
|
|
$6.50 - $6.99
|
|
$
|
1,318,920
|
|
|
February 2019
|
|
|
22,509
|
|
|
$6.95 - $7.00
|
|
|
157,495
|
|
|
Total
|
|
|
229,729
|
|
|
|
|
$
|
1,476,415
|
|
Six months ended June 30, 2018:
|
Month Ended
|
|
Shares Repurchased
|
|
|
Repurchase Price Per Share
|
|
Aggregate Consideration for
Repurchased Shares
|
|
|
January 2018
|
|
|
16,786
|
|
|
$8.01 - $8.22
|
|
$
|
136,949
|
|
|
March 2018
|
|
|
195,785
|
|
|
$6.05 - $7.24
|
|
|
1,373,656
|
|
|
April 2018
|
|
|
231,343
|
|
|
$6.12 - $7.20
|
|
|
1,599,304
|
|
|
May 2018
|
|
|
136,819
|
|
|
$6.18 - $6.85
|
|
|
901,837
|
|
|
June 2018
|
|
|
59,461
|
|
|
$6.30 - $6.80
|
|
|
397,913
|
|
|
Total
|
|
|
640,194
|
|
|
|
|
$
|
4,409,659
|
|
The Company intends to make quarterly distributions of available
net investment income determined on a tax basis to its stockholders. Distributions to stockholders are recorded on the record date.
The amount, if any, to be distributed to stockholders is determined by the Board each quarter and is generally based upon the earnings
estimated by management. Net realized capital gains, if any, will be distributed at least annually. If the Company does not distribute
(or are not deemed to have distributed) at least (i) 98% of the Company's annual ordinary income in the calendar year earned (the
“required distribution”), (ii) 98.2% of capital gain net income (adjusted for certain ordinary losses) for the one-year
period ending October 31 of that calendar year, and (iii) any income or capital gains recognized, but not distributed, in preceding
calendar years and on which the Company incurred no federal income tax, the Company will generally be required to pay an excise
tax equal to 4% of the amount by which the required distribution exceeds the distributions from such taxable income for the year.
To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated
current year dividend distributions from such taxable income, the Company accrues excise taxes, if any, on estimated excess taxable
income. As of June 30, 2019 and December 31, 2018, the Company accrued $392,007 and $435,797, respectively, for any unpaid potential
excise tax liability and have included these amounts within income tax asset or liability on the accompanying Consolidated Statements
of Assets and Liabilities.
The following table reflects the dividends on the Company’s
common stock declared by the Board and paid for the six months ended June 30, 2019:
|
Date Declared
|
|
Record Date
|
|
Payment Date
|
|
Amount Per Share
|
|
|
March 11, 2019
|
|
March 29, 2019
|
|
April 4, 2019
|
|
$
|
0.18
|
|
|
May 3, 2019
|
|
June 28, 2019
|
|
July 3, 2019
|
|
$
|
0.33
|
|
The following table reflects the dividends on the Company’s
common stock declared by the Board and paid for the six months ended June 30, 2018:
|
Date Declared
|
|
Record Date
|
|
Payment Date
|
|
Amount Per Share
|
|
|
March 8, 2018
|
|
March 30, 2018
|
|
April 4, 2018
|
|
$
|
0.18
|
|
|
May 4, 2018
|
|
June 29, 2018
|
|
July 5, 2018
|
|
$
|
0.18
|
|
ALCENTRA CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)
June 30, 2019
(Unaudited)
The Company has adopted a dividend reinvestment plan (“DRIP”)
that provides for the reinvestment of dividends on behalf of its stockholders, unless a stockholder has elected to receive dividends
in cash. As a result, if the Company declares a cash dividend, the stockholders who have not “opted out” of the DRIP
no later than the record date will have their cash dividend automatically reinvested into additional shares of the Company’s
common stock. The Company has the option to satisfy the share requirements of the DRIP through the issuance of new shares of common
stock or through open market purchases of common stock by the DRIP plan administrator. Newly issued shares are valued based upon
the final closing price of the common stock on the NASDAQ Global Select Market on the dividend payment date. Shares purchased in
the open market to satisfy the DRIP requirements will be valued upon the average price of the applicable shares purchased by the
plan administrator, before any associated brokerage or other costs.
|
|
6.
|
Related Party Transactions
|
Management Fee
Under the Investment Advisory
Agreement, the Company has agreed to pay Alcentra NY an annual base management fee, which is calculated at an annual rate as
follows: 1.50% of its gross assets (i.e., total assets held before deduction of any liabilities), including assets purchased
with borrowed funds or other forms of leverage and excluding cash and cash equivalents (such as investments in U.S. Treasury
Bills), if its gross assets are less than or equal to $625,000,000; 1.40% if its gross assets are greater than or equal to
$625,000,001 but less than or equal to $750,000,000; and 1.25% if its gross assets are greater than or equal to $750,000,001.
The various management fee percentages (i.e. 1.50%, 1.40% and 1.25%) would apply to the Company’s entire gross assets
in the event its gross assets exceed the various gross asset thresholds. The base management fee is payable quarterly in
arrears and is calculated based on the average value of the Company’s gross assets, excluding cash and cash
equivalents, at the end of the two most recently completed calendar quarters.
On May 4, 2018, the Adviser agreed to
a temporary voluntary 25 basis point reduction, from May 1, 2018 to April 30, 2019, across all of these base management fee
breakpoints. On May 3, 2019, the Adviser agreed to a continuation of the temporary 25 basis point reduction across all of the
base management fee breakpoints under the Investment Advisory Agreement, effective from May 1, 2019 to April 30, 2020.
The incentive fee consists of two parts. The first part, which
is calculated and payable quarterly in arrears, equals 20% of the Company's ‘‘pre-incentive fee net investment income’’
for the immediately preceding quarter, subject to a hurdle rate of 2% per quarter, and is subject to a ‘‘catch-up’’
feature. The “catch-up” feature is intended to provide the Adviser with an incentive fee of 50% of the Company’s
“pre-incentive fee net investment income” as if a preferred return did not apply when our net investment income exceeds
2.5% in any quarter.
The foregoing incentive fee is subject to a total return requirement,
which provides that no incentive fee in respect of our pre-incentive fee net investment income is payable except to the extent
20.0% of the cumulative net increase in net assets resulting from operations over the then current and 11 preceding quarters exceeds
the cumulative incentive fees accrued and/or paid for the 11 preceding quarters. In other words, any ordinary income incentive
fee that is payable in a calendar quarter is limited to the lesser of (i) 20.0% of the amount by which our pre-incentive fee net
investment income for such calendar quarter exceeds the 2.0% hurdle, subject to the “catch-up” provision, and (ii)
(x) 20.0% of the cumulative net increase in net assets resulting from operations for the then current and 11 preceding calendar
quarters
minus
(y) the cumulative incentive fees accrued and/or paid for the 11 preceding calendar quarters. For the foregoing
purpose, the “cumulative net increase in net assets resulting from operations” is the amount, if positive, of the sum
of pre-incentive fee net investment income, realized gains and losses and unrealized appreciation and depreciation for our then
current and 11 preceding calendar quarters. In addition, the portion of such incentive fee that is attributable to deferred interest
(such as PIK interest or OID) is paid to the Adviser, together with interest thereon from the date of deferral to the date of payment,
only if and to the extent that the Company actually receives such interest in cash, and any accrual thereof will be reversed if
and to the extent such interest is reversed in connection with any write-off or similar treatment of the investment giving rise
to any deferred interest accrual. Any reversal of such accounts would reduce net income for the quarter by the net amount of the
reversal (after taking into account the reversal of incentive fees payable) and would result in a reduction and possible elimination
of the incentive fees for such quarter. There is no accumulation of amounts on the hurdle rate from quarter to quarter, and accordingly
there is no clawback of amounts previously paid if subsequent quarters are below the quarterly hurdle, and there is no delay of
payment if prior quarters are below the quarterly hurdle. The Adviser has agreed to permanently waive any interest accrued on the
portion of the incentive fee attributable to deferred interest (such as PIK interest or OID).
The second part is calculated and payable in arrears as of the
end of each calendar year (or, upon termination of the Investment Advisory Agreement, as of the termination date) and equals 20%
of our aggregate cumulative realized capital gains from inception through the end of each calendar year, computed net of aggregate
cumulative realized capital losses and aggregate cumulative unrealized capital depreciation through the end of such year, less
the aggregate amount of any previously paid capital gain incentive fees. Pre-incentive fee net investment income means interest
income, dividend income and any other income (including any other fees, such as commitment, origination, structuring, diligence,
managerial assistance and consulting fees or other fees that the Company receives from portfolio companies) accrued during the
calendar quarter, minus our operating expenses for the quarter (including the base management fee, expenses payable for administrative
services under the Investment Advisory Agreement, and any interest expense and any distributions paid on any issued and outstanding
preferred stock, but excluding the incentive fee and any offering expenses and other expenses not charged to operations but excluding
certain reversals to the extent such reversals have the effect of reducing previously accrued incentive fees based on the deferral
of non-cash interest). Pre-incentive fee net investment income excludes, in the case of investments with a deferred interest feature
(such as original issue discount, debt instruments with PIK interest and zero coupon securities), accrued income until the Company
has received such income in cash.
ALCENTRA CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)
June 30, 2019
(Unaudited)
For the three and six months ended
June 30, 2019, the Company recorded expenses for base management fees of $841,566 and $1,707,184, respectively, of which
$140,261 and $284,531, respectively, was waived by the Adviser pursuant to the voluntary waiver as part of the Investment
Advisory Agreement and $701,305 was payable at June 30, 2019. For the three and six months ended June 30, 2018, the
Company recorded expenses for base management fees of $1,036,122 and $2,270,985, respectively, of which $109,281 and
$109,281, respectively, was waived by the Adviser and $926,841 was payable at June 30, 2018.
For the three and six months ended June 30, 2019, the Company
reversed $204,867 and $691,991, respectively, in previously accrued income-based incentive fees. For the three and six months ended
June 30, 2018, the Company incurred no incentive fees. As of June 30, 2019 and June 30, 2018, $198,805 and $1,294,985 in income-based
incentive fees, respectively, was payable by the Company. For each of the three and six months ended June 30, 2019 and June 30,
2018, the Company incurred capital gains incentive fees of $0.
The Company’s officers are employees of the Adviser and
the Company may pay the allocable portion of the compensation of the Company’s Chief Financial Officer and Chief Compliance
Officer and their staffs pursuant to the Investment Advisory Agreement.
The Company’s independent directors each receive an annual
fee of $40,000. They also receive $2,500 plus reimbursement of reasonable out-of-pocket expenses incurred in connection with attending
in-person each Board meeting and $1,000 for each Board meeting they participate in telephonically. In addition, each independent
director receives $1,000 plus reimbursement of reasonable out-of-pocket expenses incurred in connection with each audit committee,
compensation committee, nominating and corporate governance committee, and valuation committee meeting attended in person or telephonically.
The chair of the audit committee receives an annual fee of $10,000, and the respective chairs of the compensation committee, the
nominating and corporate governance committee and the valuation committee each receives an annual fee of $5,000. The lead independent
director also receives an annual fee of $15,000. The Board may establish ad hoc committees or working groups from time to time
to assist the Board in fulfilling its oversight responsibilities, and the independent directors may receive fees and be reimbursed
for reasonable out-of-pocket expenses incurred in connection therewith.
In connection with the Board’s review of strategic alternatives,
the Board established a Committee of Independent Directors during 2018, which is comprised of each of the Board’s independent
directors and met throughout 2018 on a periodic basis. Effective April 2018, each member of the Committee of Independent Directors
received a monthly fee of $1,000, and the chair of the Committee of Independent Directors received an additional monthly retainer
of $5,000 for his services as chair and the increased responsibilities associated therewith. Effective November 2018, each member
of the Committee of Independent Directors received $1,000 plus reimbursement of reasonable out-of-pocket expenses incurred in connection
with each meeting of the committee attended in person or telephonically. In addition, the chair of the Committee of Independent
Directors receives a monthly retainer of $4,000 for his services as chair and the increased responsibilities associated therewith.
Effective May 1, 2019, each member of the Committee of the Independent Directors receives a $10,000 monthly retainer in lieu of
the $1,000 per meeting fee that was effective starting in November 2018. In addition, the chair of the Committee of Independent
Directors receives an additional $5,000 monthly retainer in lieu of the previous $4,000 monthly retainer.
The Company has obtained directors’ and officers’
liability insurance on behalf of its directors and officers.
For the three and six months ended June 30, 2019, the Company
recorded directors' fee expense of $215,000 and $374,676, respectively, of which $197,154 was payable at June 30, 2019. For the
three and six months ended June 30, 2018, the Company recorded directors' fee expense of $116,826 and $213,028, respectively, of
which $36,125 was payable at June 30, 2018.
|
|
8.
|
Purchases and Sales (Investment Transactions)
|
Investment purchases, sales and principal payments/paydowns
are summarized below for the six months ended June 30, 2019 and June 30, 2018.
|
|
|
For the six months ended June 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Investment purchases, at cost (including PIK interest and dividends)
|
|
$
|
59,038,873
|
|
|
$
|
44,507,064
|
|
|
Investment sales, proceeds (including principal payments/paydown proceeds)
|
|
|
75,393,530
|
|
|
|
79,266,967
|
|
ALCENTRA CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)
June 30, 2019
(Unaudited)
|
|
9.
|
Alcentra Capital InterNotes®
|
On January 30, 2015, the Company entered into a Selling Agent
Agreement with Incapital LLC, as purchasing agent for the Company's issuance of $40.0 million of Alcentra Capital InterNotes®.
On January 25, 2016, the Company entered into an additional Selling Agent Agreement with Incapital LLC, as purchasing agent for
the Company’s issuance of up to $15 million of Alcentra Capital InterNotes®.
These notes (the "Notes") are direct unsecured obligations
and each series of notes has been issued by a separate trust (administered by U.S. Bank). The notes bear interest at fixed interest
rates and offer a variety of maturities no less than twelve months from the original date of issuance.
During each of the six months ended June 30, 2019 and June 30,
2018, the Company did not issue any Alcentra Capital InterNotes®. For the three and six months ended June 30, 2019, the Company
had average Notes outstanding of $55.0 million and $55.0 million (principal amount), respectively, with a weighted average interest
rate of 6.40% and 6.44%, respectively. For the three and six months ended June 30, 2018, the Company borrowed an average of $55.0
million and $55.0 million, respectively, with a weighted average interest rate of 6.40% and 6.44%, respectively.
The following table summarizes the Alcentra Capital InterNotes®
issued and outstanding as of June 30, 2019.
|
Tenor at
|
|
Principal
|
|
|
Interest
|
|
Weighted
|
|
|
|
|
Origination
|
|
Amount
|
|
|
Rate
|
|
Average
|
|
|
|
|
(in years)
|
|
(000’s omitted)
|
|
|
Range
|
|
Interest Rate
|
|
|
Maturity Date Range
|
|
5
|
|
$
|
53,582
|
|
|
6.25% - 6.50%
|
|
|
6.38
|
%
|
|
February 15, 2020 - June 15, 2021
|
|
7
|
|
|
1,418
|
|
|
6.50% - 6.75%
|
|
|
6.63
|
%
|
|
January 15, 2022 - April 15, 2022
|
|
|
|
$
|
55,000
|
|
|
|
|
|
|
|
|
|
In connection with the issuance of the Alcentra Capital InterNotes®,
the Company incurred $1.196 million of fees which are being amortized over the term of the notes and are included within deferred
financing costs on the Consolidated Statements of Assets and Liabilities as of June 30, 2019. During the six months ended June
30, 2019 and June 30, 2018, the Company recorded $0.243 million and $0.246 million of amortization of deferred note offering costs
on the Alcentra Capital InterNotes®.
|
|
10.
|
Credit Facility/Line of Credit
|
On May 8, 2014, the Company entered into a senior secured revolving
credit agreement (as amended and restated from time to time, the “Credit Facility”) with ING Capital LLC (“ING”),
as administrative agent, collateral agent and lender, and the lenders from time to time party thereto, to provide liquidity in
support of its investment and operational activities. The Credit Facility had an initial commitment of $80 million with an accordion
feature that allowed for an increase in the total commitments up to $160 million, subject to certain conditions and the satisfaction
of specified financial covenants. The Credit Facility was amended on August 11, 2015 to increase the commitments and the accordion
feature. The total commitments and accordion feature were $135 million and up to $250 million, respectively, subject to satisfaction
of certain conditions at the time of any such future increase. As amended, the Credit Facility had a maturity date of August 11,
2020 and bore interest, at our election, at a rate per annum equal to (i) 2.25% plus the highest of a prime rate, the Federal Funds
rate plus 0.5%, three month LIBOR plus 1%, and zero or (ii) 3.25% plus the one, three or six month LIBOR rate, as applicable.
On September 21, 2018, the Company amended certain provisions
of the Credit Facility. Under the Amended Credit Agreement, (i) revolving commitments by lenders were reduced from $135 million
to $115 million, with an accordion feature that allows for an increase in total commitments up to $180 million, subject to satisfaction
of certain conditions at the time of any such future increase, (ii) the maturity date of the Credit Facility was extended to September
21, 2022 and the revolving period was extended to September 21, 2021, and (iii) borrowings under the Credit Facility bear interest,
at the Company’s election, at a rate per annum equal to (a) 2.50% if the contribution to the borrowing base of eligible portfolio
investments that are long-term U.S. government securities and first lien bank loans is greater than or equal to 70% (or 2.75% if
such contribution is less than 70%) plus the one, three or six month LIBOR rate, as applicable, or (b) 1.50% if the contribution
to the borrowing base of eligible portfolio investments that are long-term U.S. government securities and first lien bank loans
is greater than or equal to 70% (or 1.75% if such contribution is less than 70%) plus the highest of (A) a prime rate, (B) the
Federal Funds rate plus 0.5%, (C) three month LIBOR plus 1.0%, and (D) zero.
ALCENTRA CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)
June 30, 2019
(Unaudited)
The Amended Credit Agreement also modifies certain covenants
in the Credit Facility, including to provide for a minimum asset coverage ratio of 2.00 to 1, a minimum interest coverage ratio
of 2.00 to 1 as of the last day of any fiscal quarter, and a requirement to maintain stockholder’s equity as of the last
day of any fiscal quarter to be no less than the greater of (i) 45% of the total assets of the Company and its subsidiaries as
at the last day of such fiscal quarter and (ii) the sum of (x) $120,000,000 plus (y) 65% of the aggregate net proceeds of all sales
of equity interests by the Company and its subsidiaries after the closing date of the Amended Credit Agreement. In addition, the
Amended Credit Agreement requires payment of a commitment fee ranging from 0.5% to 1.0% per annum based on the size of the unused
portion of the Credit Facility. This fee is included in interest expense on the Company’s Consolidated Statements of Operations.
The Credit Facility is secured by a first priority security interest in all of our portfolio investments, the equity interests
in certain of our direct and indirect subsidiaries, and substantially all of our other assets.
The Credit Facility agreement also contains customary terms
and conditions, including, without limitation, affirmative and negative covenants, including, without limitation, information reporting
requirements, a minimum liquidity test, and maintenance of RIC and BDC status. The Credit Facility agreement also contains customary
events of default, including, without limitation, nonpayment, misrepresentation of representations and warranties in a material
respect, breach of covenant, cross-default to other indebtedness, bankruptcy, and certain change in control events. As of June
30, 2019, the Company was in compliance in all material respects with the terms of the Credit Facility.
As of June 30, 2019 and December 31, 2018, the Company had United
States dollar borrowings of $26.6 million and $28.5 million outstanding under the Credit Facility, respectively. For the three
and six months ended June 30, 2019, the Company had average borrowings under the Credit Facility of $18.9 million and $24.6 million,
respectively, with a weighted average interest rate of 4.29% and 4.58%, respectively. For the three and six months ended June 30,
2018, the Company had average borrowings under the Credit Facility of $58.4 million and $57.4 million, respectively, with a weighted
average interest rate of 5.29% and 5.11%, respectively.
In accordance with the 1940 Act, during the three months ended
March 31, 2019, the Company was allowed to borrow amounts such that its asset coverage, calculated pursuant to the 1940 Act, was
at least 200% after such borrowing. On May 4, 2018, the Board, including a “required majority” (as such term is defined
in Section 57(o) of the 1940 Act) of the Board, approved the application of the modified asset coverage requirements set forth
in Section 61(a)(2) of the 1940 Act, as amended by the Small Business Credit Availability Act. As a result, effective on May 4,
2019, the Company’s asset coverage requirement applicable to senior securities, under the 1940 Act, was reduced to 150%;
however, the Company remains subject to a 200% minimum asset coverage ratio covenant under the Credit Facility and thus will not
be able to take advantage of the reduced asset coverage requirement under the 1940 Act unless and until it negotiates revised terms
and conditions with the lenders under the Credit Facility. As of June 30, 2019, the aggregate amount outstanding of the senior
securities issued by the Company was $26.6 million under The Credit Facility (also outstanding are the Alcentra Capital InterNotes®
of $55.0 million) and the Company’s asset coverage was 274%.
|
|
11.
|
Market and Other Risk Factors
|
At June 30, 2019, a significant portion of the Company’s
portfolio investments are comprised of non-publicly-traded securities. The non-publicly-traded securities trade in an illiquid
marketplace. The portfolio is comprised of investments in the 17 industries listed in Note 13. Risks affecting these industries
include, but are not limited to, increasing competition, rapid changes in technology, government actions and changes in economic
conditions. These risk factors could have a material effect on the ultimate realizable value of the Company’s investments.
The Company estimates the fair value of investments for which
observable market prices in active markets do not exist based on the best information available, which may differ significantly
from values that would have otherwise been used had a ready market for the investments existed and the differences could be material.
Market conditions may deteriorate, which may negatively impact
the estimated fair value of the Company’s investments or the amounts which are ultimately realized for such investments.
The above events are beyond the control of the Company and cannot
be predicted. Furthermore, the ability to liquidate investments and realize value is subject to significant limitations and uncertainties.
There may also be risk associated with the concentration of investments in one geographic region or in certain industries.
|
|
12.
|
Commitments and Contingencies
|
In the normal course of business, the Company enters into contracts
that contain a variety of representations and warranties and which provide general indemnifications. In addition, the Company has
agreed to indemnify its officers, directors, employees, agents or any person who serves on behalf of the Company from any loss,
claim, damage, or liability which such person incurs by reason of his performance of activities of the Company, provided they acted
in good faith. The Company expects the risk of loss related to its indemnifications to be remote.
ALCENTRA CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)
June 30, 2019
(Unaudited)
The Company’s investment portfolio may contain debt investments
that are in the form of lines of credit and unfunded delayed draw commitments, which require the Company to provide funding when
requested by portfolio companies in accordance with the terms of the underlying loan agreements. As of June 30, 2019 and December
31, 2018, the Company had $14.4 million and $15.0 million in unfunded commitments under loan and financing agreements, respectively.
The Company’s unfunded commitment under loan and financing agreements as of June 30, 2019 and December 31, 2018 are presented
below.
|
|
|
As of
|
|
|
|
|
June 30, 2019
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
BayMark Health Services, Inc.
|
|
$
|
4,000,000
|
|
|
$
|
-
|
|
|
Clanwilliam Group Ltd.
|
|
|
3,505,227
|
|
|
|
3,753,476
|
|
|
Epic Healthcare Staffing Intermediate Holdco, LLC
|
|
|
2,836,363
|
|
|
|
363,637
|
|
|
Manna Pro Products, LLC
|
|
|
2,589,092
|
|
|
|
92,764
|
|
|
Healthcare Associates of Texas, LLC
|
|
|
1,454,003
|
|
|
|
1,572,225
|
|
|
Pharmalogic Holdings Corp.
|
|
|
-
|
|
|
|
4,760,000
|
|
|
Superior Controls, Inc.
|
|
|
-
|
|
|
|
2,500,000
|
|
|
CGGR Operations Holding Corporation
|
|
|
-
|
|
|
|
2,000,000
|
|
|
Total
|
|
$
|
14,384,685
|
|
|
$
|
15,042,102
|
|
|
|
13.
|
Classification of Portfolio Investments
|
As of June 30, 2019, the Company’s portfolio investments
were categorized as follows:
|
Investment Type
|
|
Cost
|
|
|
Fair Value
|
|
|
% of
Net
Assets*
|
|
|
Senior Secured - First Lien
|
|
$
|
137,153,769
|
|
|
$
|
135,524,154
|
|
|
|
95.48
|
%
|
|
Senior Secured - Second Lien
|
|
|
64,856,841
|
|
|
|
65,239,620
|
|
|
|
45.97
|
%
|
|
Equity/Other
|
|
|
30,888,997
|
|
|
|
15,389,916
|
|
|
|
10.84
|
%
|
|
CLO/Structured Credit
|
|
|
1,949,886
|
|
|
|
1,828,490
|
|
|
|
1.29
|
%
|
|
Senior Subordinated
|
|
|
4,754,007
|
|
|
|
1,225,020
|
|
|
|
0.86
|
%
|
|
Total
|
|
$
|
239,603,500
|
|
|
$
|
219,207,200
|
|
|
|
154.44
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic Region
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South
|
|
$
|
47,377,522
|
|
|
$
|
46,345,318
|
|
|
|
32.65
|
%
|
|
West
|
|
|
33,412,457
|
|
|
|
33,455,553
|
|
|
|
23.57
|
%
|
|
Midwest
|
|
|
33,896,464
|
|
|
|
32,146,637
|
|
|
|
22.65
|
%
|
|
Southeast
|
|
|
42,533,288
|
|
|
|
31,823,914
|
|
|
|
22.42
|
%
|
|
Northeast
|
|
|
30,730,520
|
|
|
|
26,518,960
|
|
|
|
18.68
|
%
|
|
Mid-Atlantic
|
|
|
28,674,664
|
|
|
|
25,960,951
|
|
|
|
18.29
|
%
|
|
Canada
|
|
|
14,457,969
|
|
|
|
14,567,996
|
|
|
|
10.27
|
%
|
|
Ireland
|
|
|
6,570,730
|
|
|
|
6,559,381
|
|
|
|
4.62
|
%
|
|
US (CLO)
|
|
|
1,949,886
|
|
|
|
1,828,490
|
|
|
|
1.29
|
%
|
|
Total
|
|
$
|
239,603,500
|
|
|
$
|
219,207,200
|
|
|
|
154.44
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industry
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business Services
|
|
$
|
46,855,927
|
|
|
$
|
47,002,952
|
|
|
|
33.12
|
%
|
|
Healthcare Services
|
|
|
44,373,007
|
|
|
|
44,545,329
|
|
|
|
31.38
|
%
|
|
Consumer Services
|
|
|
33,419,981
|
|
|
|
32,968,796
|
|
|
|
23.23
|
%
|
|
High Tech Industries
|
|
|
18,535,483
|
|
|
|
18,654,396
|
|
|
|
13.14
|
%
|
|
Industrial Services
|
|
|
20,298,185
|
|
|
|
16,372,678
|
|
|
|
11.54
|
%
|
|
Technology & Telecom
|
|
|
13,172,751
|
|
|
|
13,233,217
|
|
|
|
9.32
|
%
|
|
Oil & Gas Services
|
|
|
10,955,419
|
|
|
|
10,955,419
|
|
|
|
7.72
|
%
|
|
Media: Advertising, Printing & Publishing
|
|
|
12,677,834
|
|
|
|
8,679,689
|
|
|
|
6.12
|
%
|
|
Financial Services
|
|
|
8,244,193
|
|
|
|
8,619,188
|
|
|
|
6.07
|
%
|
|
Environmental/Recycling Services
|
|
|
6,953,565
|
|
|
|
5,098,537
|
|
|
|
3.59
|
%
|
|
Telecommunications
|
|
|
4,414,967
|
|
|
|
4,417,330
|
|
|
|
3.11
|
%
|
|
Retail
|
|
|
4,816,914
|
|
|
|
4,346,403
|
|
|
|
3.06
|
%
|
|
USD CLO
|
|
|
1,949,886
|
|
|
|
1,828,490
|
|
|
|
1.29
|
%
|
|
Security
|
|
|
5,485,400
|
|
|
|
1,023,603
|
|
|
|
0.72
|
%
|
|
Transportation Logistics
|
|
|
1,254,000
|
|
|
|
795,212
|
|
|
|
0.56
|
%
|
|
Industrial Manufacturing
|
|
|
500,000
|
|
|
|
665,961
|
|
|
|
0.47
|
%
|
|
Education
|
|
|
5,695,988
|
|
|
|
—
|
|
|
|
0.00
|
%
|
|
Total
|
|
$
|
239,603,500
|
|
|
$
|
219,207,200
|
|
|
|
154.44
|
%
|
*Fair value as a percentage of Net Assets
ALCENTRA CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)
June 30, 2019
(Unaudited)
As of December 31, 2018, the Company’s portfolio investments
were categorized as follows:
|
Investment Type
|
|
Cost
|
|
|
Fair Value
|
|
|
% of
Net
Assets*
|
|
|
Senior Secured - First Lien
|
|
$
|
167,745,286
|
|
|
$
|
168,154,929
|
|
|
|
115.33
|
%
|
|
Senior Secured - Second Lien
|
|
|
42,210,313
|
|
|
|
42,549,396
|
|
|
|
29.18
|
%
|
|
Equity/Other
|
|
|
37,232,929
|
|
|
|
21,141,117
|
|
|
|
14.50
|
%
|
|
CLO/Structured Credit
|
|
|
1,948,058
|
|
|
|
1,739,600
|
|
|
|
1.20
|
%
|
|
Senior Subordinated
|
|
|
4,741,760
|
|
|
|
1,212,774
|
|
|
|
0.83
|
%
|
|
Total
|
|
$
|
253,878,346
|
|
|
$
|
234,797,816
|
|
|
|
161.04
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic Region
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West
|
|
$
|
52,427,327
|
|
|
$
|
54,266,593
|
|
|
|
37.22
|
%
|
|
Southeast
|
|
|
56,535,014
|
|
|
|
44,026,689
|
|
|
|
30.20
|
%
|
|
South
|
|
|
45,437,808
|
|
|
|
43,758,859
|
|
|
|
30.01
|
%
|
|
Northeast
|
|
|
43,622,806
|
|
|
|
38,144,071
|
|
|
|
26.16
|
%
|
|
Midwest
|
|
|
24,841,625
|
|
|
|
23,614,916
|
|
|
|
16.20
|
%
|
|
Canada
|
|
|
22,721,398
|
|
|
|
22,900,000
|
|
|
|
15.71
|
%
|
|
Ireland
|
|
|
6,344,310
|
|
|
|
6,347,088
|
|
|
|
4.35
|
%
|
|
US
|
|
|
1,948,058
|
|
|
|
1,739,600
|
|
|
|
1.19
|
%
|
|
Total
|
|
$
|
253,878,346
|
|
|
$
|
234,797,816
|
|
|
|
161.04
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industry
|
|
|
|
|
|
|
|
|
|
|
Business Services
|
|
$
|
45,913,805
|
|
|
$
|
46,130,114
|
|
|
|
31.64
|
%
|
|
Healthcare Services
|
|
|
44,727,905
|
|
|
|
45,038,816
|
|
|
|
30.89
|
%
|
|
Technology & Telecom
|
|
|
32,324,555
|
|
|
|
33,345,749
|
|
|
|
22.87
|
%
|
|
Consumer Services
|
|
|
26,231,367
|
|
|
|
26,237,699
|
|
|
|
17.99
|
%
|
|
Industrial Services
|
|
|
21,095,416
|
|
|
|
19,559,789
|
|
|
|
13.42
|
%
|
|
Retail
|
|
|
12,051,199
|
|
|
|
12,119,708
|
|
|
|
8.31
|
%
|
|
Oil & Gas Services
|
|
|
11,385,108
|
|
|
|
11,382,254
|
|
|
|
7.81
|
%
|
|
Wholesale/Distribution
|
|
|
10,189,394
|
|
|
|
10,614,192
|
|
|
|
7.28
|
%
|
|
High Tech Industries
|
|
|
8,701,223
|
|
|
|
8,729,396
|
|
|
|
5.99
|
%
|
|
Media: Advertising, Printing & Publishing
|
|
|
12,677,834
|
|
|
|
6,554,225
|
|
|
|
4.50
|
%
|
|
Environmental/Recycling Services
|
|
|
6,757,790
|
|
|
|
5,699,791
|
|
|
|
3.91
|
%
|
|
Telecommunications
|
|
|
4,410,000
|
|
|
|
4,410,000
|
|
|
|
3.02
|
%
|
|
USD CLO
|
|
|
1,948,058
|
|
|
|
1,739,600
|
|
|
|
1.19
|
%
|
|
Security
|
|
|
5,485,401
|
|
|
|
1,023,999
|
|
|
|
0.70
|
%
|
|
Waste Services
|
|
|
2,529,303
|
|
|
|
820,437
|
|
|
|
0.56
|
%
|
|
Transportation Logistics
|
|
|
1,254,000
|
|
|
|
726,000
|
|
|
|
0.50
|
%
|
|
Industrial Manufacturing
|
|
|
500,000
|
|
|
|
666,047
|
|
|
|
0.46
|
%
|
|
Education
|
|
|
5,695,988
|
|
|
|
-
|
|
|
|
0.00
|
%
|
|
Total
|
|
$
|
253,878,346
|
|
|
$
|
234,797,816
|
|
|
|
161.04
|
%
|
*Fair value as a percentage of Net Assets
ALCENTRA CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)
June 30, 2019
(Unaudited)
The following per share data and financial ratios have been
derived from information provided in the consolidated financial statements of the Company. The following is a schedule of financial
highlights for one share of common stock for the six months ended June 30, 2019 and June 30, 2018.
|
|
|
For the six months ended
|
|
|
For the six months ended
|
|
|
|
|
June 30, 2019
|
|
|
June 30, 2018
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
Per share data
(1)
|
|
|
|
|
|
|
|
|
|
Net asset value, beginning of period
|
|
$
|
11.13
|
|
|
$
|
11.09
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss)
|
|
|
0.42
|
|
|
|
0.52
|
|
|
Net realized and unrealized gains (losses)
(2)
|
|
|
0.07
|
|
|
|
(0.31
|
)
|
|
Benefit (Provision) for income taxes on unrealized gain (loss) on investments
|
|
|
(0.09
|
)
|
|
|
0.07
|
|
|
Net increase (decrease) in net assets resulting from operations
|
|
|
0.40
|
|
|
|
0.28
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to shareholders:
(3)
|
|
|
|
|
|
|
|
|
|
From net investment income
|
|
|
(0.51
|
)
|
|
|
(0.36
|
)
|
|
Total dividend distributions declared
(7)
|
|
|
(0.51
|
)
|
|
|
(0.36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, end of period
|
|
$
|
11.02
|
|
|
$
|
11.01
|
|
|
Market value per share, end of period
|
|
$
|
8.38
|
|
|
$
|
6.39
|
|
|
|
|
|
|
|
|
|
|
|
|
Total return based on net asset value
(4)(5)
|
|
|
3.6
|
%
|
|
|
2.5
|
%
|
|
Total return based on market value
(4)(5)
|
|
|
37.4
|
%
|
|
|
(19.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
Shares outstanding at end of period
|
|
|
12,875,566
|
|
|
|
13,582,751
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio/Supplemental Data:
|
|
|
|
|
|
|
|
|
|
Net assets, at end of period
|
|
$
|
141,937,995
|
|
|
$
|
149,594,744
|
|
|
Ratio of total expenses before waiver to average net assets
(6)
|
|
|
10.25
|
%
|
|
|
10.47
|
%
|
|
Ratio of interest expenses to average net assets
(6)
|
|
|
4.42
|
%
|
|
|
4.75
|
%
|
|
Ratio of incentive fees to average net assets
(6)
|
|
|
(0.97
|
)%
|
|
|
—
|
%
|
|
Ratio of waiver of management and incentive fees to average net assets
(6)
|
|
|
0.40
|
%
|
|
|
0.14
|
%
|
|
Ratio of net expenses to average net assets
(6)
|
|
|
9.86
|
%
|
|
|
10.33
|
%
|
|
Ratio of net investment income (loss) before waiver to average net assets
(6)
|
|
|
7.36
|
%
|
|
|
9.63
|
%
|
|
Ratio of net investment income (loss) after waiver to average net assets
(6)
|
|
|
6.96
|
%
|
|
|
9.49
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Total Credit Facility payable outstanding
|
|
$
|
26,565,008
|
|
|
$
|
58,553,273
|
|
|
Total Notes payable outstanding
|
|
$
|
55,000,000
|
|
|
$
|
55,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset coverage ratio
(7)
|
|
|
2.7
|
|
|
|
2.3
|
|
|
Portfolio turnover rate
(5)
|
|
|
27
|
%
|
|
|
16
|
%
|
|
|
(1)
|
The per share data was derived by using the average shares
outstanding during the period.
|
|
|
(2)
|
The amount shown at this caption is the balancing figure
derived from the other figures in the schedule. The amount shown at this caption for a share outstanding throughout the year may
not agree with the change in the aggregate gains and losses in portfolio securities for the year because of the timing of purchases
or sales of the Company's shares in relation to fluctuating market values for the portfolio.
|
|
|
(3)
|
The per share data for distributions is the actual amount
of distributions paid or payable per share of common stock outstanding during the entire period.
|
|
|
(4)
|
Returns are historical and are calculated by determining
the percentage change in net asset value or market value with all distributions reinvested. Distributions are assumed to be reinvested
at prices obtained under the Company’s dividend reinvestment plan.
|
|
|
(6)
|
Annualized, except for consulting fees.
|
|
|
(7)
|
Includes a special dividend of $0.15 per share paid to stockholders of record as of June 28,
2019.
|
ALCENTRA CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)
June 30, 2019
(Unaudited)
|
|
(6)
|
Annualized, except for non-recurring expenses.
|
|
|
(7)
|
Asset coverage ratio is equal to (i) the sum of (A) net
assets at the end of the period and (B) debt outstanding at the end of the period, divided by (ii) total debt outstanding at the
end of the period.
|
|
|
15.
|
Unconsolidated Significant Subsidiaries
|
In accordance with the SEC’s Regulation S-X and GAAP,
the Company has one subsidiary, Southern Technical College (“STI”), that is deemed to be a “significant subsidiary”
as of and for the six months ended June 30, 2019 and two subsidiaries, FST Technical Services, LLC ("FST") and STI, that
are deemed to be "significant subsidiaries" as of and for the year ended December 31, 2018 for which summarized financial
information is presented below as of and for the six months ended June 30, 2019 and as of and for the year ended December 31, 2018
in aggregate.
Southern Technical College
|
|
|
As of
|
|
|
|
|
For the six months ended
|
|
|
Balance Sheet
|
|
June 30, 2019
|
|
|
Income Statement
|
|
June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
$
|
6,496,255
|
|
|
Net Sales
|
|
$
|
10,708,883
|
|
|
Noncurrent Assets
|
|
|
43,646,754
|
|
|
Gross Profit
|
|
|
1,779,926
|
|
|
Current Liabilities
|
|
|
8,273,232
|
|
|
Net Income/EBITDA
|
|
|
1,798,415
|
|
|
Noncurrent Liabilities
|
|
|
18,458,702
|
|
|
|
|
|
|
|
Southern Technical College and FST Technical Services,
LLC
|
|
|
As of
|
|
|
|
|
For the year ended
|
|
|
Balance Sheet
|
|
December 31, 2018
|
|
|
Income Statement
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
$
|
15,536,556
|
|
|
Net Sales
|
|
$
|
50,355,783
|
|
|
Noncurrent Assets
|
|
|
64,090,276
|
|
|
Gross Profit
|
|
|
12,732,260
|
|
|
Current Liabilities
|
|
|
10,838,139
|
|
|
Net Income/EBITDA
|
|
|
7,318,579
|
|
|
Noncurrent Liabilities
|
|
|
32,322,997
|
|
|
|
|
|
|
|
In addition to the risks associated with our investments in
general, there are unique risks associated with our investments in these entities. The business and growth of FST at December 31,
2018 depended in large part on the continued trend toward outsourcing of certain services in the semiconductor and biopharmaceutical
industries and there was no assurance that this trend in outsourcing would have continued, as companies may elect to perform such
services internally. A significant change in the direction of that trend generally, or a trend in the semiconductor and biopharmaceutical
industry not to use, or to reduce the use of, outsourced services such as those provided by FST, could have significantly decreased
its revenues and such decreased revenues could have had a material adverse effect on it or its results of operations or financial
condition. The Company sold its investment in FST on February 8, 2019.
The business and growth of STI have been impacted by regulatory
changes that have affected for-profit institutions. Although the regulatory climate has since improved, there is no assurance that
this will continue to improve enrollment or retention rates.
Subsequent to June 30, 2019, the following
activity occurred:
On July 3, 2019, the Company paid a
quarterly dividend of $0.18 per share and a special dividend of $0.15 per share to stockholders of record as of June 28,
2019.
On August 5, 2019, the Board approved the
2019 third quarter dividend of $0.18 per share for stockholders of record as of September 26, 2019, payable on October 3, 2019.
Item 2.