Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 814-01175
BAIN CAPITAL SPECIALTY FINANCE, INC.
(Exact name of registrant as specified in its charter)
Delaware
81-2878769
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
200 Clarendon Street, 37th Floor Boston, MA (Address of principal executive offices)
02116 (Zip Code)
(617) 516-2000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.001 per share
BCSF
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
Accelerated filer o
Non-accelerated filer x
Smaller reporting companyo
Emerging growth company x
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of August 7, 2019, the registrant had 51,649,812.27 shares of common stock, $0.001 par value, outstanding.
TABLE OF CONTENTS
Page
PART I
FINANCIAL INFORMATION
4
Item 1.
Consolidated Financial Statements
Consolidated Statements of Assets and Liabilities as of June 30, 2019 (unaudited) and December 31, 2018
Consolidated Statements of Operations for the three and six months ended June 30, 2019 and 2018 (unaudited)
5
Consolidated Statements of Changes in Net Assets for the three and six months ended June 30, 2019 and 2018 (unaudited)
6
Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018 (unaudited)
7
Consolidated Schedules of Investments as of June 30, 2019 (unaudited) and December 31, 2018
8
Notes to Consolidated Financial Statements (unaudited)
16
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
50
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
78
Item 4.
Controls and Procedures
79
PART II
OTHER INFORMATION
80
Legal Proceedings
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
81
Signatures
83
2
FORWARD-LOOKING STATEMENTS
Statements contained in this Quarterly Report on Form 10-Q (the “Quarterly Report”) (including those relating to current and future market conditions and trends in respect thereof) that are not historical facts are based on current expectations, estimates, projections, opinions and/or beliefs of the Company, BCSF Advisors, LP (the “Advisor”) and/or Bain Capital Credit, LP and its affiliated advisers (collectively, “Bain Capital Credit”). Such statements involve known and unknown risks, uncertainties and other factors and undue reliance should not be placed thereon. Certain information contained in this Quarterly Report constitutes “forward-looking statements,” which can be identified by the use of forward-looking terminology such as “may,” “will,” “should,” “seek,” “expect,” “anticipate,” “project,” “estimate,” “intend,” “continue,” “target,” or “believe” or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events or results or the actual performance of the Company may differ materially from those reflected or contemplated in such forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and are difficult to predict, that could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements including, without limitation, the risks, uncertainties and other factors we identify in the section entitled Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K (the “Annual Report”) for the fiscal year ended December 31, 2018 and in our filings with the Securities and Exchange Commission (the “SEC”).
Although we believe that the assumptions on which these forward-looking statements are based are reasonable, some of those assumptions may be based on the work of third parties and any of those assumptions could prove to be inaccurate; as a result, the forward-looking statements based on those assumptions also could prove to be inaccurate. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this Quarterly Report should not be regarded as a representation by us that our plans and objectives will be achieved. These risks and uncertainties include those described or identified in the section entitled Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. Investors should not place undue reliance on these forward-looking statements, which apply only as of the date of this Quarterly Report. We do not undertake any obligation to update or revise any forward-looking statements or any other information contained herein, except as required by applicable law. The safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which preclude civil liability for certain forward-looking statements, do not apply to the forward-looking statements in this Quarterly Report because we are an investment company.
3
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Bain Capital Specialty Finance, Inc.
Consolidated Statements of Assets and Liabilities
(in thousands, except share and per share data)
As of
June 30, 2019
December 31, 2018
(Unaudited)
Assets
Investments at fair value:
Non-controlled/non-affiliate investments (amortized cost of $2,372,619 and $1,449,749, respectively)
$
2,360,349
1,422,837
Controlled affiliate investment (amortized cost of $57,630 and $296,648, respectively)
60,346
298,249
Non-controlled/affiliate investment (amortized cost of $6,720 and $6,720, respectively)
6,720
Cash and cash equivalents
100,358
14,693
Foreign cash (cost of $545 and $589, respectively)
599
591
Restricted Cash
27,946
17,987
Collateral on forward currency exchange contracts
1,984
Deferred financing costs
3,868
4,018
Interest receivable on investments
13,529
6,249
Prepaid insurance
—
1
Receivable for sales and paydowns of investments
12,016
1,634
Other assets
1,484
Unrealized appreciation on forward currency exchange contracts
331
9,322
Dividend receivable
292
8,709
Total Assets
2,589,822
1,791,014
Liabilities
Revolving credit facilities
1,141,351
271,265
2018-1 Notes (net of unamortized debt issuance costs of $1,955 and $2,040, respectively)
363,745
363,660
Offering costs payable
1,731
1,820
Interest payable
10,893
4,835
Payable for investments purchased
15,241
119,166
Unrealized depreciation on forward currency exchange contracts
158
Base management fee payable
6,366
2,950
Incentive fee payable
4,490
3,300
Accounts payable and accrued expenses
3,469
1,281
Distributions payable
21,176
21,108
Total Liabilities
1,568,620
789,385
Commitments and Contingencies (See Note 10)
Net Assets
Preferred stock, $0.001 par value per share, 10,000,000,000 shares authorized, none issued and outstanding as of June 30, 2019 and December 31, 2018, respectively
Common stock, par value $0.001 per share, 100,000,000,000 and 100,000,000,000 shares authorized, 51,649,812 and 51,482,137 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively
52
51
Paid in capital in excess of par value
1,037,577
1,034,255
Total distributable earnings (loss)
(16,427
)
(32,677
Total Net Assets
1,021,202
1,001,629
Total Liabilities and Total Net assets
Net asset value per share
19.77
19.46
See Notes to Consolidated Financial Statements
Consolidated Statements of Operations
For the Three Months Ended June 30,
For the Six Months Ended June 30,
2019
2018
Income
Investment income from non-controlled/non-affiliate investments:
Interest from investments
44,938
15,821
75,326
28,436
Dividend income
Other income
369
94
391
208
Total investment income from non-controlled/non-affiliate investments
45,307
15,915
75,733
28,644
Investment income from controlled affiliate investments:
135
77
242
99
5,152
5,433
14,510
10,141
Total investment income from controlled affiliate investments
5,291
5,510
14,756
10,240
Total investment income
50,598
21,425
90,489
38,884
Expenses
Interest and debt financing expenses
16,619
5,325
27,165
9,614
Base management fee
7,983
3,756
14,734
7,004
Incentive fee
911
8,575
2,916
Professional fees
275
316
826
840
Directors fees
106
67
211
Other general and administrative expenses
1,587
450
2,430
624
Total expenses before fee waivers
31,060
10,825
53,941
21,133
Base management fee waiver
(1,617
(1,878
(3,867
(3,502
Incentive fee waiver
(1,004
(1,982
Total expenses, net of fee waivers
29,443
7,943
48,092
16,627
Net investment income
21,155
13,482
42,397
22,257
Net realized and unrealized gains (losses)
Net realized loss on non-controlled/non-affiliate investments
(571
(2,104
(1,421
(1,846
Net realized gain on controlled affiliate investments
265
Net realized loss on foreign currency transactions
(318
(544
(312
(265
Net realized gain (loss) on forward currency exchange contracts
7,063
444
10,696
(2,873
Net change in unrealized appreciation (depreciation) on foreign currency translation
499
(8
300
(26
Net change in unrealized appreciation (depreciation) on forward currency exchange contracts
(5,866
6,653
(9,149
7,594
Net change in unrealized appreciation (depreciation) on non-controlled/non-affiliate investments
(11,896
14,642
(9,320
Net change in unrealized appreciation (depreciation) on controlled affiliate investments
(3,280
140
1,116
2,005
Total net gains (losses)
(1,933
(7,315
16,137
(4,731
Net increase in net assets resulting from operations
19,222
6,167
58,534
17,526
Per Common Share Data
Basic and diluted net investment income per common share
0.41
0.38
0.82
0.69
Basic and diluted increase in net assets resulting from operations per common share
0.37
0.17
1.14
0.54
Basic and diluted weighted average common shares outstanding
51,629,544
35,379,436
51,556,248
32,273,765
Consolidated Statements of Changes in Net Assets
Operations:
Net realized gain (loss)
6,439
(2,204
9,228
(4,984
Net change in unrealized appreciation (depreciation)
(8,372
(5,111
6,909
253
Stockholder distributions:
Distributions from net investment income
(21,176
(13,484
(42,283
(24,094
Net decrease in net assets resulting from stockholder distributions
Capital share transactions:
Issuance of common stock, net
125,548
250,975
Reinvestment of stockholder distributions
3,322
1,856
3,186
Net increase in net assets resulting from capital share transactions
127,404
254,161
Total increase in net assets
1,368
120,087
19,573
247,593
Net assets at beginning of period
1,019,834
634,469
506,963
Net assets at end of period
754,556
Net asset value per common share
20.14
Common stock outstanding at end of period
51,649,812
37,456,468
Consolidated Statements of Cash Flows
Cash flows from operating activities
Adjustments to reconcile net increase in net assets from operations to net cash used in operating activities:
Purchases of investments
(782,161
(375,022
Proceeds from principal payments and sales of investments
562,549
126,574
Net realized loss from investments
1,156
1,846
312
Net change in unrealized (appreciation) depreciation on forward currency exchange contracts
9,149
(7,594
Net change in unrealized appreciation on investments
(15,758
7,316
Net change in unrealized depreciation on foreign currency translation
(300
26
Increase in investments due to PIK
(194
Accretion of discounts and amortization of premiums
(1,697
(710
Amortization of deferred financing costs and debt issuance costs
644
711
Changes in operating assets and liabilities:
(1,980
3,602
(7,280
(1,048
89
Distribution receivable
(305
8,417
(5,391
Other receivable
(1,484
6,058
175
3,416
634
1,190
295
2,188
22
Excise tax payable
(5
Net cash used in operating activities
(157,240
(230,994
Cash flows from financing activities
Borrowings on revolving credit facilities
626,091
144,000
Repayments on revolving credit facilities
(333,300
(148,481
Payments of financing costs
(409
Payments of offering costs
(89
Proceeds from issuance of common stock
Stockholder distributions paid
(38,894
(15,166
Net cash provided by financing activities
253,399
231,328
Net increase in cash, foreign cash, restricted cash and cash equivalents
96,159
334
Effect of foreign currency exchange rates
(527
(262
Cash, foreign cash, restricted cash and cash equivalents, beginning of period
33,271
140,918
Cash, foreign cash, restricted cash and cash equivalents, end of period
128,903
140,990
Supplemental disclosure of cash flow information:
Cash interest paid during the period
20,463
8,728
Cash paid for excise taxes during the period
Supplemental disclosure of non-cash information:
Net distribution to the Company from ABCS JV
346,329
As of June 30,
Cash
125,786
Restricted cash
Foreign cash
15,204
Total cash, foreign cash, restricted cash, and cash equivalents shown in the consolidated statements of cash flows
Consolidated Schedule of Investments
As of June 30, 2019
(In thousands)
Control Type
Industry
Portfolio Company
Investment Type
Spread Above Index (1)
Interest Rate
Maturity Date
Principal/Shares (9)
Cost
Market Value
% of NAV (4)
Non-Controlled/Non-Affiliate Investments
Aerospace & Defense
Forming & Machining Industries Inc. (18) (19) (21)
Second Lien Senior Secured Loan
L+ 8.25%
10.58
%
10/9/2026
6,540
6,478
6,278
Forming & Machining Industries Inc. (12) (18) (19) (26)
First Lien Senior Secured Loan
L+ 4.25%
6.58
10/9/2025
14,863
14,794
14,491
MRO Holdings, Inc. (6) (18) (26)
L+ 5.00%
7.48
6/4/2026
3,251
3,235
3,247
Novetta, LLC (12) (15) (21)
7.41
10/17/2022
6,616
6,519
Salient CRGT, Inc. (12) (15) (26)
L+ 6.00%
8.40
2/28/2022
12,905
12,957
12,389
TCFI Aevex LLC (3) (15) (19)
First Lien Senior Secured Loan - Revolver
L+ 6.25%
8.58
5/13/2025
415
353
366
TCFI Aevex LLC (12) (15) (19) (21)
8.66
38,708
38,011
38,031
TECT Power Holdings, LLC (15) (19) (21)
L+ 8.50%
10.90
12/27/2021
14,758
14,576
14,759
WCI-HSG HOLDCO, LLC (14) (19) (25)
Preferred equity
675
732
WCI-HSG Purchaser, Inc. (3) (15) (19)
L+ 4.50%
6.90
2/24/2025
672
631
WCI-HSG Purchaser, Inc. (12) (15) (19) (21)
17,868
17,619
17,600
WP CPP Holdings, LLC. (12) (15) (21) (26)
L+ 7.75%
10.34
4/30/2026
11,724
11,616
11,709
Aerospace & Defense Total
127,467
126,752
12.4
Automotive
CST Buyer Company (3) (5) (15) (19)
3/1/2023
CST Buyer Company (12) (15) (19)
7.40
9,162
9,066
OEConnection LLC (12) (15) (19) (26)
L+ 4.00%
6.41
11/22/2024
11,120
11,067
11,037
OEConnection LLC (15) (19) (21)
L+ 8.00%
10.41
11/24/2025
6,313
6,273
6,250
Automotive Total
26,398
26,449
2.6
Banking
Transaction Network Services, Inc. (12) (15) (21) (26)
6.59
8/15/2022
18,375
18,158
18,168
Banking Total
1.8
Beverage, Food & Tobacco
Hearthside Food Solutions, LLC
Corporate Bond
8.50
6/1/2026
10,000
9,804
8,925
NPC International, Inc. (12) (15) (21)
L+ 7.50%
9.94
4/18/2025
9,159
9,187
5,644
NPC International, Inc. (15) (26)
L+ 3.50%
5.94
4/19/2024
4,975
5,005
4,036
Beverage, Food & Tobacco Total
23,996
18,605
Capital Equipment
Dorner Manufacturing Corp. (3) (5) (15) (19)
3/15/2022
(15
Dorner Manufacturing Corp. (12) (15) (19)
L+ 5.75%
8.15
3/15/2023
7,911
7,768
DXP Enterprises, Inc. (6) (15) (19) (26)
L+ 4.75%
7.15
8/29/2023
5,112
5,165
EXC Holdings III Corp. (12) (15) (21) (26)
10.10
12/1/2025
8,240
8,254
8,268
FCG Acquisitions, Inc. (14) (19) (25)
4,251
4,416
FFI Holdings I Corp (2) (3) (5) (15) (19) (34)
First Lien Senior Secured Loan - Delayed Draw
1/24/2025
(106
(81
FFI Holdings I Corp (3) (15) (19)
8.19
2,555
2,480
2,501
FFI Holdings I Corp (7) (12) (15) (19)
8.29
61,273
60,645
60,661
Tidel Engineering, L.P. (3) (15) (19)
Tidel Engineering, L.P. (7) (15) (19)
3/1/2024
38,302
Velvet Acquisition B.V. (6) (18) (19) (21)
EURIBOR+ 8.00%
8.00
4/17/2026
€
6,013
7,321
6,839
Capital Equipment Total
134,012
133,982
13.1
Chemicals, Plastics & Rubber
AP Plastics Group, LLC (3) (15) (19)
8/2/2021
AP Plastics Group, LLC (7) (15) (19)
L+ 5.25%
7.69
8/1/2022
21,237
20,882
21,025
Niacet b.v. (6) (15) (19) (21)
EURIBOR+ 4.50%
5.50
2/1/2024
3,691
3,953
4,187
Niacet Corporation (12) (15) (19)
2,123
2,107
2,118
Plaskolite, Inc. (15) (26)
6.64
12/15/2025
8,978
8,808
8,922
PRCC Holdings, Inc. (7) (15) (19)
P+ 5.50%
11.00
2/1/2021
5,286
32,846
PRCC Holdings, Inc. (3) (15) (19)
Chemicals, Plastics & Rubber Total
73,882
74,384
7.3
Construction & Building
Chase Industries, Inc. (3) (15) (19) (21)
6.54
5/12/2025
1,124
1,108
1,105
Chase Industries, Inc. (12) (15) (19) (21) (27)
6.34
11,891
11,840
11,832
Crown Subsea (12) (18) (26)
8.44
11/3/2025
13,065
12,882
13,016
PP Ultimate Holdings B, LLC (14) (19) (25)
Equity Interest
1,351
1,414
Profile Products LLC (2) (3) (5) (15) (19)
12/20/2024
(70
(77
Profile Products LLC (7) (15) (19)
8.14
35,179
34,486
34,475
Regan Development Holdings Limited (6) (17) (19)
EURIBOR+ 6.50%
7.00
4/18/2022
2,051
2,235
2,333
665
755
756
6,226
6,693
7,081
Construction & Building Total
71,280
71,935
7.0
Consumer Goods: Durable
Home Franchise Concepts, Inc. (3) (5) (15) (19)
7/9/2024
Home Franchise Concepts, Inc. (7) (15) (19)
37,234
New Milani Group LLC (12) (15) (19) (21)
6.69
6/6/2024
17,230
17,083
16,885
Stanton Carpet Corp. (3) (15) (19)
11/21/2022
Stanton Carpet Corp. (7) (15) (19) (33)
L+ 5.50%
7.96
23,490
Consumer Goods: Durable Total
77,792
77,609
7.6
Consumer Goods: Non-Durable
FineLine Technologies, Inc. (3) (15) (19)
6.83
11/4/2022
197
169
183
FineLine Technologies, Inc. (12) (15) (19) (21)
6.56
31,544
31,349
31,386
Kronos Acquisition Holdings Inc. (18) (19) (21)
L+ 7.00%
9.40
5/15/2023
2,660
2,614
2,653
Kronos Acquisition Holdings Inc.
9.00
8/15/2023
9,411
8,850
Kronos Acquisition Holdings Inc. (12) (15) (26)
6.40
13,181
13,139
12,465
MND Holdings III Corp (15) (21) (26)
5.83
6/19/2024
11,702
11,730
11,563
RoC Opco LLC (2) (3) (5) (15) (19)
2/25/2025
(193
(205
RoC Opco LLC (12) (15) (19) (21)
L+ 7.25%
9.58
40,793
39,836
39,977
Solaray, LLC (3) (7) (15) (19) (31)
8.38
9/11/2023
13,361
13,435
Solaray, LLC (3) (15) (19)
7.04
9/9/2022
9,067
9,013
Solaray, LLC (7) (15) (19) (32)
8.53
42,940
43,155
WU Holdco, Inc. (2) (3) (5) (15) (19) (34)
3/26/2026
(58
(113
WU Holdco, Inc. (2) (3) (5) (15) (19)
3/26/2025
(61
(79
WU Holdco, Inc. (7) (15) (19)
7.83
39,905
39,074
39,108
Consumer Goods: Non-Durable Total
212,324
211,445
20.7
Containers, Packaging & Glass
Terminator Bidco AS (6) (18) (19) (21)
6.92
6/20/2022
15,100
14,841
Containers, Packaging & Glass Total
1.5
Energy: Electricity
Infinite Electronics International Inc. (12) (18) (19) (21) (30)
7/2/2025
19,853
19,839
19,753
Infinite Electronics International Inc. (18) (19) (21)
10.33
7/2/2026
2,431
Energy: Electricity Total
22,270
22,233
2.2
Energy: Oil & Gas
Amspec Services, Inc. (3) (15) (19)
P+ 3.75%
9.25
7/2/2024
5,023
4,964
Amspec Services, Inc. (7) (15) (19)
8.08
40,073
39,640
39,672
Blackbrush Oil & Gas, L.P. (12) (15) (19) (21)
10.46
2/9/2024
32,075
31,553
31,754
Energy: Oil & Gas Total
76,157
76,449
7.5
Environmental Industries
Adler & Allan Group Limited (6) (17) (19) (21) (22)
First Lien Last Out
GBP LIBOR+ 8.25% (2% PIK)
11.05
9/30/2022
£
13,192
16,685
16,749
Environmental Industries Total
1.6
FIRE: Insurance
Ivy Finco Limited (2) (3) (5) (6) (18) (19)
5/19/2025
(245
(247
Ivy Finco Limited (6) (18) (19) (21)
GBP LIBOR+ 5.25%
5.97
7,217
8,923
8,911
Margaux Acquisition Inc. (3) (7) (15) (19)
8.59
12/19/2024
2,197
2,015
2,080
Margaux Acquisition, Inc. (2) (3) (5) (15) (19)
(53
(36
Margaux Acquisition Inc. (7) (15) (19)
29,062
28,492
28,699
Margaux UK Finance Limited (2) (3) (5) (6) (15) (19)
(12
(2
Margaux UK Finance Limited (6) (7) (15) (19)
GBP LIBOR+ 6.00%
7,745
9,903
9,808
Wink Holdco, Inc. (15) (26)
L+ 6.75%
9.16
3,409
3,404
3,439
Wink Holdco, Inc. (15) (21)
L+ 3.00%
5.40
12/2/2024
6,758
6,729
6,626
FIRE: Insurance Total
59,156
59,278
5.8
FIRE: Real Estate
Spectre (Carrisbrook House) Limited (6) (15) (19)
EURIBOR+ 7.50%
8/9/2021
9,300
10,756
10,577
FIRE: Real Estate Total
1.0
Forest Products & Paper
Solenis International LLC (18) (21)
11.02
6/26/2026
10,601
10,288
10,450
Solenis International LLC (12) (18) (26)
6.77
6/26/2025
13,281
13,224
13,141
Forest Products & Paper Total
23,512
23,591
2.3
Healthcare & Pharmaceuticals
Clinical Innovations, LLC (3) (15) (19) (22) (23)
First Lien Last Out - Revolver
8.67
432
Clinical Innovations, LLC (12) (15) (19) (21) (22)
7.90
10/17/2023
10,972
10,782
11,000
CB Titan Holdings, Inc. (14) (19) (25)
1,953
CPS Group Holdings, Inc. (2) (3) (5) (15) (19)
3/3/2025
(49
CPS Group Holdings, Inc. (7) (15) (19)
8.09
56,186
55,632
55,624
Datix Bidco Limited (2) (3) (5) (6) (18) (19)
10/28/2024
(23
(9
Datix Bidco Limited (6) (18) (19) (21)
GBP LIBOR+ 7.75%
8.69
4/27/2026
12,134
16,293
15,405
BBSW+ 4.50%
6.11
4/28/2025
AUD
4,212
3,201
2,934
Golden State Buyer, Inc. (18) (19) (21) (26)
7.13
6/19/2026
15,306
15,153
15,230
Great Expressions Dental Centers PC (3) (13) (15) (19)
L+ 4.75% (0.5% PIK)
9/28/2022
440
431
423
Great Expressions Dental Centers PC (12) (15) (19)
7.45
9/28/2023
7,590
7,513
7,476
Island Medical Management
Holdings, LLC (15) (19) (21)
L+ 6.50%
8.90
9/1/2022
9,214
9,120
8,385
Medical Depot Holdings, Inc. (12) (15) (21)
1/3/2023
16,109
14,683
11,276
Mendel Bidco, Inc. (18) (19) (21)
4.50
6/17/2027
10,033
11,119
11,126
6.81
19,966
19,468
19,467
Mertus 522. GmbH (2) (3) (5) (6) (18) (19)
5/15/2026
(400
(411
Mertus 522. GmbH (6) (18) (19) (21)
EURIBOR+ 5.75%
5.75
22,468
24,412
24,850
TecoStar Holdings, Inc. (12) (15) (19) (21)
10.91
11/1/2024
9,472
9,277
U.S. Anesthesia Partners, Inc. (12) (15) (19) (21)
9.65
6/23/2025
16,520
16,316
16,355
Healthcare & Pharmaceuticals Total
215,275
211,466
High Tech Industries
AMI US Holdings Inc. (3) (6) (15) (19)
7.94
4/1/2024
349
314
AMI US Holdings Inc. (6) (12) (15) (19) (21)
4/1/2025
13,223
12,968
12,959
Appriss Holdings, Inc. (2) (3) (5) (18) (19)
5/30/2025
(69
(94
Appriss Holdings, Inc. (7) (18) (19)
5/29/2026
40,518
39,917
39,707
CMI Marketing Inc (3) (5) (15) (19)
5/24/2023
(17
CMI Marketing Inc (12) (15) (19) (21)
5/24/2024
15,333
Drilling Info Holdings, Inc (3) (12) (18) (21)
7/30/2025
Drilling Info Holdings, Inc (12) (18) (21)
6.65
22,643
22,563
22,559
Element Buyer, Inc. (3) (7) (15) (19)
7.66
7/18/2025
3,383
3,493
3,496
Element Buyer, Inc. (3) (15) (19)
P+ 4.25%
9.75
7/19/2024
567
513
Element Buyer, Inc. (7) (15) (19)
37,964
38,332
38,343
Elo Touch Solutions, Inc. (12) (18) (26)
8.93
18,469
17,594
18,400
Everest Bidco (6) (15) (19) (21)
GBP LIBOR+ 7.50%
7/3/2026
10,216
13,082
12,581
Impala Private Investments, LLC (14) (19) (25)
1,500
152
Lighthouse Network, LLC (12) (15) (26)
7.08
24,974
24,905
25,013
MeridianLink, Inc. (15) (19) (26)
1,834
1,812
1,816
Netsmart Technologies, Inc. (12) (15) (26)
L+ 3.75%
6.15
4/19/2023
10,789
10,813
10,702
Netsmart Technologies, Inc. (15) (19) (21)
9.90
10/19/2023
2,749
nThrive, Inc. (15) (19) (21)
L+ 9.75%
12.15
4/20/2023
8,000
7,988
7,760
Park Place Technologies (15) (21)
10.40
3/30/2026
6,733
6,683
6,674
Park Place Technologies (12) (15) (26)
3/31/2025
10,599
10,566
10,546
Symplr Software, Inc. (3) (18) (19)
8.33
11/30/2023
2,845
2,824
2,783
Symplr Software, Inc. (7) (18) (19)
11/28/2025
61,368
60,462
60,600
VPARK BIDCO AB (6) (16) (19) (21)
CIBOR+ 4.00%
4.75
3/10/2025
DKK
56,999
9,147
8,686
NIBOR+ 4.00%
5.34
NOK
74,020
9,184
8,675
Zywave, Inc. (3) (15) (19)
7.39
11/17/2022
428
418
416
Zywave, Inc. (12) (15) (19) (21)
7.58
17,460
17,388
17,285
High Tech Industries Total
328,835
328,022
32.1
Hotel, Gaming & Leisure
Aimbridge Acquisition Co., Inc. (12) (18) (19)
2/1/2027
13,068
12,798
12,839
Captain D’s LLC (3) (15) (19) (24)
7.36
12/15/2023
695
681
677
Captain D’s LLC (12) (15) (19) (21)
6.89
13,105
12,997
12,974
K-Mac Holdings Corp. (12) (18)
9.15
3/16/2026
1,200
1,197
1,196
Quidditch Acquisition, Inc. (12) (15) (19) (21) (26)
3/21/2025
19,120
19,106
19,311
Tacala Investment Corp. (18) (21)
1/30/2026
6,323
6,305
6,379
Hotel, Gaming & Leisure Total
53,084
53,376
5.2
9
Media: Advertising, Printing & Publishing
A-L Parent LLC (12) (15) (21)
9.66
4,050
4,025
Ansira Holdings, Inc. (3) (7) (15) (19)
8.16
12/20/2022
2,951
2,940
2,929
Ansira Holdings, Inc. (3) (15) (19)
P+ 4.00%
9.50
1,643
Ansira Holdings, Inc. (7) (15) (19)
36,059
35,969
35,879
Cambium Learning Group, Inc. (12) (18) (19) (26)
12/18/2025
12,264
11,685
12,156
Cruz Bay Publishing, Inc. (3) (15) (19)
P+ 5.00%
10.50
2/28/2020
397
352
Cruz Bay Publishing (3) (15) (19)
P+ 3.00%
2,267
Cruz Bay Publishing, Inc. (7) (15) (19) (28)
8.36
4,954
Cruz Bay Publishing, Inc. (7) (15) (19) (29)
1,654
Media: Advertising, Printing & Publishing Total
65,482
65,904
6.5
Media: Broadcasting & Subscription
Micro Holding Corp. (18) (26)
9/13/2024
8,938
8,905
8,796
Vital Holdco Limited (6) (15) (19) (21)
7.80
5/2/2026
35,357
34,485
34,473
Vital Holdco Limited (6) (18) (19) (21)
EURIBOR+ 5.25%
5.25
7,917
8,599
8,779
Media: Broadcasting & Subscription Total
51,989
52,048
5.1
Media: Diversified & Production
Efficient Collaborative Retail Marketing Company, LLC (3) (15) (19)
6/15/2022
Efficient Collaborative Retail Marketing Company, LLC (7) (15) (19)
9.08
15,095
15,203
9,994
10,066
Getty Images, Inc. (12) (18) (26)
6.94
2/19/2026
22,012
21,811
21,939
International Entertainment Investments Limited (6) (18) (21) (19)
GBP LIBOR+ 4.75%
5.66
5/31/2023
8,685
10,627
11,027
Media: Diversified & Production Total
57,707
58,055
5.7
Retail
Batteries Plus Holding Corporation (3) (15) (19)
7/6/2022
Batteries Plus Holding Corporation (7) (15) (19)
30,258
Calceus Acquisition, Inc. (12) (18) (26)
2/12/2025
9,112
9,041
9,069
Retail Total
39,299
39,327
3.9
Services: Business
Advantage Sales & Marketing Inc. (12) (15) (26)
L+ 3.25%
5.58
7/23/2021
11,671
11,492
10,711
AMCP Clean Acquisition Company, LLC (12) (18) (21)
6/16/2025
3,914
3,901
3,882
16,175
16,130
16,044
Comet Bidco Limited (6) (18) (21)
GBP LIBOR+ 5.00%
5.72
9/30/2024
10,261
13,104
12,832
Hightower Holding, LLC (2) (3) (5) (15) (19)
1/31/2025
(13
Hightower Holding, LLC (12) (15) (19) (21)
7.44
25,600
25,478
25,536
LegalZoom.com, Inc. (18) (26)
11/21/2024
7,880
7,806
7,934
New Insight Holdings, Inc.(12) (15) (26)
20,425
19,968
20,400
TEI Holdings Inc. (3) (15) (19)
1,983
1,973
TEI Holdings Inc. (7) (15) (19)
12/20/2023
52,920
52,787
Valet Waste Holdings, Inc (12) (18) (21) (26)
9/29/2025
30,503
30,434
30,408
Services: Business Total
183,071
182,494
17.9
Services: Consumer
GI Chill Acquisition LLC (18) (21) (26)
6.32
8/6/2025
11,895
11,858
Pearl Intermediate Parent LLC (18) (26)
8.65
2/13/2026
2,571
2,589
2,513
Surrey Bidco Limited (6) (17) (19) (21)
6.80
5/11/2026
5,000
6,127
6,158
The Knot Worldwide Inc. (18) (19) (21) (26)
10.65
12/21/2026
6,187
6,130
6,179
The Knot Worldwide Inc. (12) (18) (19) (26)
12/19/2025
15,389
15,428
15,446
Trafalgar Bidco Limited (6) (18) (19) (21)
9/11/2024
6,011
7,712
7,441
Trident LS Merger Sub Corp (12) (18)
5/1/2026
2,246
2,226
2,237
Services: Consumer Total
52,070
51,869
Telecommunications
Conterra Ultra Broadband Holdings, Inc. (18) (26)
6,483
6,451
6,507
Horizon Telcom, Inc. (3) (12) (15) (19) (21)
6.91
6/15/2023
250
232
233
Horizon Telcom, Inc. (2) (3) (5) (15) (19)
(3
Horizon Telcom, Inc. (12) (15) (19) (21)
13,799
13,628
13,661
Masergy Holdings, Inc. (15) (26)
9.83
12/16/2024
857
863
844
683
680
673
Telecommunications Total
21,851
21,906
2.1
Transportation: Cargo
A&R Logistics, Inc. (3) (15) (19)
8.27
5/5/2025
687
563
550
A&R Logistics, Inc. (7) (15) (19)
44,197
43,294
43,202
2,479
2,427
2,423
ARL Holdings, LLC. (14) (19)
ENC Holding Corporation (12) (18) (26)
6.33
10,321
10,307
10,218
Grammer Investment Holdings LLC (14) (19) (25)
1,011
1,122
Grammer Investment Holdings LLC (19) (25)
Preferred Equity
10% PIK
10.00
615
646
Warrants
122
134
Grammer Purchaser, Inc. (3) (15) (19)
Grammer Purchaser, Inc. (12) (15) (19)
6.95
10,258
10,093
Omni Logistics, LLC (15) (19)
Subordinated Debt
L+ 11.50%
13.90
1/19/2024
15,000
14,737
14,775
PS HoldCo, LLC (12) (15) (26)
3/13/2025
23,395
23,385
23,205
Toro Private Investments II, L.P. (6) (14) (19)
3,090
Transportation: Cargo Total
109,929
110,028
10.8
Transportation: Consumer
Direct Travel, Inc. (3) (15) (19)
12/1/2021
Direct Travel, Inc. (3) (7) (15) (19)
8.99
1,043
Direct Travel, Inc. (7) (15) (19)
49,921
Toro Private Holdings III, Ltd (6) (12) (18) (26)
L+ 9.00%
11.54
5/28/2027
8,998
8,489
8,683
Transportation: Consumer Total
59,453
59,647
Utilities: Electric
CSVC Acquisition Corp
7.75
6/15/2025
13,478
12,539
10,378
Utilities: Electric Total
Wholesale
Abracon Group Holding, LLC. (14) (19) (25)
1,800
1,717
Abracon Group Holding, LLC. (2) (3) (5) (15) (19)
7/18/2024
(21
Abracon Group Holding, LLC. (7) (15) (19)
36,185
36,007
35,914
Aramsco, Inc. (3) (18) (19)
8/28/2024
339
293
279
Aramsco, Inc. (7) (18) (19)
7.65
24,411
23,984
Armor Group, LP (14) (19) (25)
10
1,012
1,152
PetroChoice Holdings, Inc. (12) (15) (26)
7.57
8/19/2022
9,904
9,981
PetroChoice Holdings, Inc. (15) (26)
3,610
3,581
3,604
PT Holdings, LLC (12) (15) (26)
12/9/2024
21,562
21,528
20,897
Specialty Building Products Holdings, LLC (12) (18) (26)
10/1/2025
16,902
16,806
16,849
SRS Distribution Inc. (18) (21) (26)
5.65
5/23/2025
18,900
18,458
18,167
Wholesale Total
133,349
132,523
13.0
Non-Controlled/Non-Affiliate Investments Total
2,372,619
231.1
Non-Controlled/Affiliate Investments
ADT Pizza, LLC (10) (14) (19) (25)
0.7
Non-Controlled/Affiliate Investments Total
Controlled Affiliate Investments
ACC Holdco, LLC (10) (11) (19)
16.00
11,706
Air Comm Corporation LLC (10) (11) (12) (18) (19) (21)
8.83
7/1/2025
27,435
26,605
26,612
BCC Jetstream Holdings Aviation (Off I), LLC (6) (10) (11) (19) (20) (25)
11,863
14,350
BCC Jetstream Holdings Aviation (On II), LLC (10) (11) (19) (20) (25)
1,334
BCC Jetstream Holdings Aviation (On II), LLC (10) (11) (19) (20)
6/2/2022
6,344
57,630
5.9
Controlled Affiliate Investments Total
Investments Total
2,436,969
2,427,415
237.7
Cash Equivalents
Goldman Sachs Financial Square Government Fund Institutional Share Class
2.26
68,601
Goldman Sachs US Treasury Liquid Reserves Fund
2.31
58,878
Cash Equivalents Total
127,479
12.5
Investments and Cash Equivalents Total
2,564,448
2,554,894
250.2
Forward Foreign Currency Exchange Contracts
Currency Purchased
Currency Sold
Counterparty
Settlement Date
Unrealized Appreciation (Depreciation) (8)
US DOLLARS 8,720
POUND STERLING 6,400
Bank of New York Mellon
9/21/2020
463
POUND STERLING 6,220
US DOLLARS 8,192
(167
US DOLLARS 12,177
EURO 10,370
1/10/2020
190
US DOLLARS 11,874
EURO 10,300
6/15/2020
(155
US DOLLARS 412
POUND STERLING 310
Citibank
US DOLLARS 3,001
AUSTRALIAN DOLLARS 4,290
Goldman Sachs
(32
US DOLLARS 8,885
DANISH KRONE 57,000
(55
US DOLLARS 53,994
EURO 46,450
(253
US DOLLARS 68,701
POUND STERLING 53,430
(73
US DOLLARS 8,590
NORWEGIAN KRONE 74,020
9/20/2019
(111
US DOLLARS 25,257
POUND STERLING 19,410
378
173
(1) The investments bear interest at a rate that may be determined by reference to the London Interbank Offered Rate (“LIBOR” or “L”), the Euro Interbank Offered Rate (“EURIBOR” or “E”), British Pound Sterling LIBOR Rate (“GBP LIBOR”), the Norwegian Interbank Offered Rate (“NIBOR” or “N”), the Copenhagen Interbank Offered Rate (“CIBOR” or “C”), the Bank Bill Swap Rate (“BBSW”), or the Prime Rate (“Prime” or “P”) and which reset daily, monthly, quarterly or semiannually. Investments or a portion thereof may bear Payment-in-Kind (“PIK”). For each, the Company has provided the PIK or the spread over LIBOR, EURIBOR, GBP LIBOR, NIBOR, CIBOR, BBSW, or Prime and the current weighted average interest rate in effect at June 30, 2019. Certain investments are subject to a LIBOR, EURIBOR, GBP LIBOR, NIBOR, CIBOR, BBSW, or Prime interest rate floor.
(2) The negative fair value is the result of the capitalized discount on the loan or the unfunded commitment being valued below par.
(3) Position or portion thereof is an unfunded loan commitment, and no interest is being earned on the unfunded portion. The investment may be subject to an unused/letter of credit facility fee.
(4) Percentages are based on the Company’s net assets of $1,021,202 as of June 30, 2019.
(5) The negative amortized cost is the result of the capitalized discount being greater than the principal amount outstanding on the loan.
(6) The investment is not a qualifying asset under Section 55(a) of the Investment Company Act of 1940. The Company may not acquire any non-qualifying asset unless, at the time of acquisition, qualifying assets represent at least 70% of the Company’s total assets. As of June 30, 2019, non-qualifying assets totaled 10.6% of the Company’s total assets.
(7) Assets or a portion thereof are pledged as collateral for the BCSF Complete Financing Solution LLC. See Note 6 “Borrowings”.
(8) Unrealized appreciation/(depreciation) on forward currency exchange contracts.
(9) The principal amount (par amount) for all debt securities is denominated in U.S. dollars, unless otherwise noted. £ represents Pound Sterling, € represents Euro, NOK represents Norwegian krone, AUD represents Australian and DKK represents Kroner.
(10) As defined in the 1940 Act, the Company is deemed to be an “Affiliated Investment” of the Company as the Company owns 5% or more of the portfolio company’s securities.
(11) As defined in the 1940 Act, the Company is deemed to “Control” this portfolio company as the Company either owns more than 25% of the portfolio company’s outstanding voting securities or has the power to exercise control over management or policies of such portfolio company.
(12) Assets or a portion thereof are pledged as collateral for the 2018-1 Issuer. See Note 6 “Borrowings”.
(13) $207 of the total par amount for this security is at P+ 3.75%.
(14) Non-Income Producing.
(15) Loan includes interest rate floor of 1.00%.
(16) Loan includes interest rate floor of 0.75%.
(17) Loan includes interest rate floor of 0.50%.
(18) Loan includes interest rate floor of 0.00%.
(19) Security valued using unobservable inputs (Level 3).
(20) The Company holds non-controlling, affiliate interest in an aircraft-owning special purpose vehicle through this investment.
(21) Assets or a portion thereof are pledged as collateral for the BCSF Revolving Credit Facility. See Note 6 “Borrowings”.
(22) The Company generally earns a higher interest rate on the “last out” tranche of debt, to the extent the debt has been allocated to “first out” and “last out” tranches, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.
(23) $154 of the total par amount for this security is at P+ 4.50%.
(24) $155 of the total par amount for this security is at P+ 3.50%.
(25) Security exempt from registration under the Securities Act of 1933 (the “Securities Act”), and may be deemed to be “restricted securities” under the Securities Act. As of June 30, 2019, the aggregate fair value of these securities is $51,570 or 5.05% of the Company’s net assets. The acquisition dates of the restricted securities are as follows:
Investment
Acquisition Date
BCC Jetstream Holdings Aviation (On II), LLC - Equity Interest
6/1/2017
BCC Jetstream Holdings Aviation (Off I), LLC - Equity Interest
CB Titan Holdings, Inc. - Preferred Equity
11/14/2017
Impala Private Investments, LLC - Equity Interest
11/10/2017
Abracon Group Holding, LLC. - Equity Interest
7/18/2018
Armor Group, LP - Equity Interest
8/28/2018
Grammer Investment Holdings LLC - Warrants
10/1/2018
Grammer Investment Holdings LLC - Equity Interest
Grammer Investment Holdings LLC - Preferred Equity
ADT Pizza, LLC - Equity Interest
10/29/2018
PP Ultimate Holdings B, LLC - Equity Interest
12/20/2018
FCG Acquisitions, Inc. - Preferred equity
1/24/2019
WCI-HSG HOLDCO, LLC - Preferred equity
2/22/2019
Toro Private Investments II, L.P.
3/19/2019
ARL Holdings, LLC. - Equity Interest
5/3/2019
ACC Holdco, LLC. - Equity Interest
6/28/2019
(26) Assets or a portion thereof are pledged as collateral for the Citibank Revolving Credit Agreement. See Note 6 “Borrowings”.
(27) $30 of the total par amount for this security is at P+ 3.00%.
(28) $58 of the total par amount for this security is at P+ 4.75%.
(29) $19 of the total par amount for this security is at P+ 5.75%.
(30) $50 of the total par amount for this security is at P+ 3.00%.
(31) $34 of the total par amount for this security is at P+ 5.00%.
(32) $110 of the total par amount for this security is at P+ 5.00%.
(33) $669 of the total par amount for this security is at P+ 4.50%.
(34) Assets or a portion thereof are pledged as collateral for the BCSF Complete Financing Solution Holdco LLC. See Note 6 “Borrowings”.
11
As of December 31, 2018
API Technologies Corp. (2) (3) (5) (15) (19)
4/22/2024
(46
(11
10.85
6,475
Forming & Machining Industries Inc. (12) (18) (21)
6.85
14,937
14,713
Jazz Acquisition, Inc. (15) (21)
9.55
14,396
14,136
Novetta, LLC (12) (15)
7.53
3,815
3,750
3,738
Salient CRGT, Inc. (12) (15) (19) (21)
13,086
13,155
12,890
StandardAero Aviation Holdings, Inc. (12) (15) (21)
6.27
7/7/2022
19,771
19,870
19,583
14,538
14,906
WP CPP Holdings, LLC. (12) (15) (21)
6.28
4/30/2025
4,715
4,704
4,562
10.28
11,608
11,533
103,313
102,525
10.2
7.52
9,310
9,208
OEConnection LLC (12) (15) (21)
6.53
14,079
14,009
13,762
10.53
6,274
6,265
29,482
29,337
2.9
Transaction Network Services, Inc. (15) (21)
6.71
8/14/2022
13,394
13,260
13,235
1.3
GOBP Holdings, Inc. (12) (18) (21)
6.55
10/22/2025
16,632
16,621
16,217
9,793
NPC International, Inc. (15) (21)
6.02
4,987
5,020
4,676
31,434
28,893
Dorner Manufacturing Corp. (3) (15) (19)
P+ 4.75%
55
37
8.55
7,986
7,878
DXP Enterprises, Inc. (6) (12) (15)
7.27
5,178
5,134
5,158
EXC Holdings III Corp. (12) (15) (21)
9.85
7,870
7,313
6,949
Wilsonart LLC (12) (15) (21)
6.06
12/19/2023
15,393
15,438
14,778
44,054
42,796
4.3
8/1/2021
ASP Chromaflo Intermediate Holdings, Inc. (15) (21)
11/20/2023
505
503
493
ASP Chromaflo Intermediate Holdings, Inc. (6) (15) (21)
656
654
642
3,777
4,044
4,304
7.02
2,173
2,156
2,162
Plaskolite, Inc. (15) (19) (21)
12,030
11,790
11,910
19,147
19,511
1.9
Bolt Infrastructure Merger Sub, Inc. (12) (15)
6/21/2024
2,670
2,662
2,617
Chase Industries, Inc. (3) (15) (21)
First Lien Senior Secured Loan - Delayed Draw Term Loan
6.82
199
182
Chase Industries, Inc. (12) (15) (21)
6.61
5/11/2025
11,921
11,826
Crown Subsea (12) (18) (21)
8.35
11/2/2025
13,400
13,201
12,931
1,352
(76
EURIBOR+ 7.00%
7.50
2,557
2,785
2,928
829
941
949
8,330
8,887
41,240
41,582
4.2
Home Franchise Concepts, Inc. (2) (3) (5) (15) (19)
(16
(25
17,273
17,114
17,098
17,248
1.7
6.79
11/2/2021
459
425
445
7.06
11/2/2022
31,703
31,466
31,545
9,356
7,700
Kronos Acquisition Holdings Inc. (12) (15) (21)
6.52
13,142
12,522
MND Holdings III Corp (15) (19) (21)
6.30
13,767
13,815
13,560
Solaray, LLC (3) (15) (19) (23)
5,667
5,605
73,809
71,439
7.1
BWAY Holding Company
7.25
4/15/2025
9,755
9,012
BWAY Holding Company (12) (18) (21)
4/3/2024
12,812
12,836
12,100
Technimark LLC (12) (18)
8/8/2025
2,826
2,823
2,784
5/22/2022
14,798
40,212
38,694
Infinite Electronics International Inc. (12) (18) (19) (21)
19,953
19,938
10.52
22,368
22,283
931
866
Blackbrush Oil & Gas, L.P. (12) (15) (21)
10.89
31,200
30,675
30,264
31,541
31,195
3.1
9.14
13,062
16,489
16,482
FIRE: Finance
Badger Merger Sub, Inc. (12) (18)
9/12/2025
3,642
3,624
3,560
FIRE: Finance Total
0.4
12
Alliant Holdings Intermediate, LLC (12) (18) (21)
L+ 2.75%
5.21
5/9/2025
16,598
16,650
15,735
Margaux Acquisition, Inc. (3) (15) (19)
616
558
Margaux UK Finance Limited (2) (3) (5) (6) (19)
9.28
13,638
13,578
12,887
Wink Holdco, Inc. (12) (15) (21)
5.52
12,568
12,514
11,939
43,287
41,106
4.1
10,714
10,650
1.1
11.21
15,601
15,235
14,821
Solenis International LLC (12) (18) (21)
7,335
7,280
7,082
22,515
21,903
Clinical Innovations, LLC (3) (15) (19) (22)
7.93
38
19
33
8.02
11,028
10,817
10,973
2,207
Concentra Inc. (12) (15) (21)
8.88
6/1/2023
14,105
13,861
14,052
(19
8.68
16,272
15,311
Datix Bidco Limited (6) (19) (21)
6.57
3,197
2,922
Drive DeVilbiss (12) (15) (21)
8.30
8,529
7,867
7,399
Genesis Supply Acquisition Co. (19)
4/23/2021
25,000
8.70
954
943
936
7.63
7,982
7,894
7,862
Island Medical Management Holdings, LLC (15) (19) (21)
9.02
9,268
9,158
8,619
9,263
9.77
16,313
U.S. Anesthesia Partners, Inc. (12) (15) (21)
6/24/2024
4,641
4,573
4,458
127,105
125,745
12.6
Caliper Software, Inc. (3) (18) (19)
8.04
124
88
87
15,411
15,271
Drilling Info Holdings, Inc (2) (3) (5) (12) (18) (21)
(7
20,178
20,094
20,102
Element Buyer, Inc. (2) (3) (5) (15) (19)
(59
Elo Touch Solutions, Inc. (18) (21)
12/7/2025
18,943
17,996
18,256
13,060
12,631
126
Lighthouse Network, LLC (12) (15) (19) (21)
7.03
16,088
16,024
16,008
Netsmart Technologies, Inc. (12) (15) (21)
21,623
21,657
21,352
10.03
2,735
6,684
6,598
Park Place Technologies (12) (15) (21)
10,324
10,293
10,118
12.27
Qlik Technologies (12) (15) (21)
4/26/2024
22,725
22,666
22,015
SolarWinds Holdings, Inc. (18) (21)
5.27
2/5/2024
14,763
14,845
14,228
CIBOR+ 5.00%
3/8/2025
9,134
8,743
NIBOR+ 5.00%
9,174
8,558
767
17,549
17,458
205,845
202,999
20.3
Aimbridge Hospitality LP (12) (15) (19) (21)
6/22/2022
4,264
4,206
Aimbridge Hospitality LP (3) (5) (15) (19)
Aimbridge Hospitality LP (15) (19) (21)
25,584
25,251
788
773
7.30
13,389
13,269
13,154
3,200
3,193
3,024
10.02
9,194
8,655
Quidditch Acquisition, Inc. (12) (15) (19) (21)
9.47
15,903
15,859
15,824
9.52
6,306
6,039
Tacala Investment Corp. (12) (18) (21)
5.77
3,504
3,451
81,487
80,683
8.1
Cambium Learning Group, Inc. (12) (18) (21)
12,325
11,771
6/6/2019
Learfield Communications LLC (12) (15) (19) (21)
9.78
4,016
19,635
19,731
2.0
Micro Holding Corp. (12) (18) (21)
6.25
21,931
21,868
20,945
Getty Images, Inc. (21) (26)
10/18/2019
19,947
19,744
19,420
International Entertainment Investments Limited (6) (18) (19) (21)
10,620
11,071
30,364
30,491
3.0
CH Hold Corp. (12) (15)
1,498
1,495
1,485
2/3/2025
1,215
1,211
1,209
CVS Holdings I, LP (12) (15) (21)
5.28
2/6/2025
14,912
14,893
14,167
CVS Holdings I, LP (15) (19) (21)
2/6/2026
14,110
14,120
13,334
Eyemart Express LLC (12) (15) (21)
5.46
8/5/2024
11,506
11,544
11,189
43,263
41,384
13
Advantage Sales & Marketing Inc. (12) (15) (21)
15,743
15,500
13,972
AMCP Clean Acquisition Company, LLC (3) (12) (18) (21)
6.93
1,489
1,483
1,432
7.05
15,773
15,725
15,537
5.98
13,081
12,719
Lakeland Tours, LLC (12) (15)
2,887
2,878
2,820
LegalZoom.com, Inc. (18) (19) (21)
15,839
New Insight Holdings, Inc. (12) (15) (21)
20,529
20,041
20,349
Sovos Compliance, LLC (3) (15) (19)
8.52
3/1/2022
3,958
3,910
Sovos Compliance, LLC (2) (3) (5) (15) (19)
(10
Sovos Compliance, LLC (12) (15) (19)
8,601
8,541
8,515
708
666
Valet Waste Holdings, Inc (12) (18) (21)
28,761
28,686
28,402
XO Management Holding Inc. (18) (19) (21)
8.49
12/4/2021
12,355
11,490
137,816
135,398
13.5
GI Chill Acquisition LLC (12) (18) (19) (21)
11,464
11,441
McKissock, LLC (3) (15) (19)
P+ 2.25%
7.68
8/5/2021
992
Pearl Intermediate Parent LLC (18) (21)
8.75
2,590
2,544
5/1/2025
4,186
4,177
4,102
2,225
2,221
Travel Leaders Group, LLC (12) (18)
6.46
1/25/2024
528
527
524
WeddingWire, Inc. (18) (21)
11.04
6,125
6,156
7.29
13,218
13,251
13,020
41,328
41,023
Horizon Telcom, Inc. (2) (3) (5) (12) (15) (19) (21)
13,869
13,712
Horizon Telcom, Inc. (2) (3) (15) (19)
Masergy Holdings, Inc. (15)
10.31
Masergy Holdings, Inc. (15) (21)
6.05
686
684
664
15,240
15,122
Direct ChassisLink, Inc. (12) (18) (19) (21)
27,685
27,631
26,716
ENC Holding Corporation (2) (3) (5) (18)
(1
ENC Holding Corporation (12) (18) (27)
9,775
9,761
9,628
600
Grammer Purchaser, Inc. (3) (15) (18) (19)
105
Grammer Purchaser, Inc. (12) (15) (19) (21)
10,500
10,332
10,342
Omni Logistics, LLC (15) (19) (21)
14.02
14,711
14,625
PS HoldCo, LLC (12) (15) (21)
7.28
21,459
21,458
20,922
85,198
83,513
8.3
0.0
12,483
10,311
1,992
(39
(28
Aramsco, Inc. (3) (15) (19)
7.77
226
177
133
1,009
PetroChoice Holdings, Inc. (15) (19) (21)
8/22/2022
3,638
3,603
PT Holdings, LLC (12) (15) (21)
21,671
21,631
21,184
Specialty Building Products Holdings, LLC (12) (18) (19) (21)
16,944
16,841
16,436
SRS Distribution Inc. (18) (21)
20,000
19,505
18,725
64,530
63,053
6.3
1,449,749
142.0
13,480
731
1,243
4,163
BCC Jetstream Holdings Aviation (On II), LLC (7) (10) (11) (14) (19) (20)
First Lien Senior Secured Loan - Unfunded Commitment
16,757
18,886
Investment Vehicles
Antares Bain Capital Complete Financing Solution LLC (6) (10) (11) (19) (25)
Investment Vehicle
279,891
279,363
Investment Vehicles Total
27.9
296,648
29.8
1,753,117
1,727,806
172.5
2.52
877
0.1
1,753,994
1,728,683
172.6
U.S. DOLLARS 8,720
355
U.S. DOLLARS 27,914
EURO 22,118
1/18/2019
2,185
U.S. DOLLARS 11,541
POUND STERLING 8,262
U.S. DOLLARS 12,042
EURO 10,080
6/21/2019
344
U.S. DOLLARS 10,065
DANISH KRONE 59,805
568
U.S. DOLLARS 9,957
NORWEGIAN KRONE 77,560
335
U.S. DOLLARS 3,169
AUSTRALIAN DOLLARS 4,127
4/11/2019
82
U.S. DOLLARS 13,192
POUND STERLING 9,260
699
U.S. DOLLARS 412
U.S. DOLLARS 3,578
POUND STERLING 2,630
214
U.S. DOLLARS 3,091
AUD 4,130
6/14/2019
176
U.S. DOLLARS 8,938
DANISH KRONE 55,570
291
U.S. DOLLARS 11,719
EURO 9,790
365
U.S. DOLLARS 60,094
POUND STERLING 44,750
2,679
U.S. DOLLARS 8,994
NORWEGIAN KRONE 72,170
14
(1) The investments bear interest at a rate that may be determined by reference to the London Interbank Offered Rate (“LIBOR” or “L”), the Euro Interbank Offered Rate (“EURIBOR” or “E”),British Pound Sterling LIBOR Rate (“GBP LIBOR”), the Norwegian Interbank Offered Rate (“NIBOR” or “N”), the Copenhagen Interbank Offered Rate (“CIBOR” or “C”), the Bank Bill Swap Rate (“BBSW”), or the Prime Rate (“Prime” or “P”) and which reset daily, monthly, quarterly or semiannually. Investments or a portion thereof may bear Payment-in-Kind (“PIK”). For each, the Company has provided the PIK or the spread over LIBOR, EURIBOR, GBP LIBOR, NIBOR, CIBOR, BBSW, or Prime and the current weighted average interest rate in effect at December 31, 2018. Certain investments are subject to a LIBOR, EURIBOR, GBP LIBOR, NIBOR, CIBOR, BBSW, or Prime interest rate floor.
(4) Percentages are based on the Company’s net assets of $1,001,629 as of December 31, 2018.
(6) The investment is not a qualifying asset under Section 55(a) of the Investment Company Act of 1940. The Company may not acquire any non-qualifying asset unless, at the time of acquisition, qualifying assets represent at least 70% of the Company’s total assets. As of December 31, 2018, non-qualifying assets totaled 24.4% of the Company’s total assets.
(7) The assets to be issued will be determined at the time the funds are called.
(10) As defined in the 1940 Act, the Company is deemed to be an “Affiliated Investment” of the Company as the Company owns five percent or more of the portfolio company’s securities.
(13) $690 of the total par amount for this security is at P+ 3.75%.
(23) $2,267 of the total par amount for this security is at P+ 3.50%.
(24) $472 of the total par amount for this security is at P+ 3.50%.
(25) Security exempt from registration under the Securities Act of 1933 (the “Securities Act”), and may be deemed to be “restricted securities” under the Securities Act. As of December 31, 2018, the aggregate fair value of these securities is $308,692 or 30.8% of the Company’s net assets. The acquisition dates of the restricted securities are as follows:
Antares Bain Capital Complete Financing Solution LLC - Investment Vehicle
11/29/2017
CB Titan Holdings, Inc. - Equity Interest
(26) Loan includes interest rate floor of 1.25%.
15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1. Organization
Bain Capital Specialty Finance, Inc. (the “Company”) was formed on October 5, 2015 and commenced investment operations on October 13, 2016. The Company has elected to be treated and is regulated as a business development company (a “BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). In addition, for tax purposes the Company has elected to be treated, and intends to operate in a manner so as to continuously qualify as a regulated investment company (a “RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), commencing concurrently with its election to be treated as a BDC. The Company is externally managed by BCSF Advisors, LP (the “Advisor” or “BCSF Advisors”), our investment adviser that is registered with the Securities and Exchange Commission (the “SEC”) under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). The Advisor also provides the administrative services necessary for the Company to operate (in such capacity, the “Administrator” or “BCSF Advisors”).
On November 19, 2018, the Company closed its initial public offering (the “IPO”), which was a Qualified IPO, issuing 7,500,000 shares of its common stock at a public offering price of $20.25 per share. Shares of common stock of the Company began trading on the New York Stock Exchange under the symbol “BCSF” on November 15, 2018.
The Company’s primary focus is capitalizing on opportunities within its Advisor’s Senior Direct Lending Strategy, which seeks to provide risk-adjusted returns and current income to its stockholders by investing primarily in middle-market companies with between $10.0 million and $150.0 million in EBITDA. The Company focuses on senior investments with a first or second lien on collateral and strong structures and documentation intended to protect the lender. The Company generally seeks to retain voting control in respect of the loans or particular classes of securities in which the Company invests through maintaining affirmative voting positions or negotiating consent rights that allow the Company to retain a blocking position. The Company may also invest in mezzanine debt and other junior securities and in secondary purchases of assets or portfolios, as described below. Investments are likely to include, among other things, (i) senior first lien, stretch senior, senior second lien, unitranche, (ii) mezzanine debt and other junior investments and (iii) secondary purchases of assets or portfolios that primarily consist of middle-market corporate debt. The Company may also invest, from time to time, in equity securities, distressed debt, debtor-in-possession loans, structured products, structurally subordinate loans, investments with deferred interest features, zero-coupon securities and defaulted securities.
Our operations comprise only a single reportable segment.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The Company’s consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”). The Company’s consolidated financial statements and related financial information have been prepared pursuant to the requirements for reporting on Form 10-Q and Regulation S-X. These consolidated financial statements reflect adjustments that in the opinion of the Company are necessary for the fair statement of the financial position and results of operations for the periods presented herein and are not necessarily indicative of the full fiscal year. The Company has determined it meets the definition of an investment company and follows the accounting and reporting guidance in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946 — Financial Services — Investment Companies. The functional currency of the Company is U.S. dollars and these consolidated financial statements have been prepared in that currency. Prior period information has been reclassified to conform to the current period presentation and this had no effect on the Company’s consolidated financial position or the consolidated results of operations as previously reported.
The information included in this Form 10-Q should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2018.
Basis of Consolidation
The Company will generally consolidate any wholly, or substantially, owned subsidiary when the design and purpose of the subsidiary is to act as an extension of the Company’s investment operations and to facilitate the execution of the Company’s investment strategy. Accordingly, the Company consolidated the results of its subsidiaries BCSF I, LLC, BCSF II-C, LLC, BCSF CFSH, LLC, BCSF CFS, LLC and BCC Middle Market CLO 2018-1, LLC in its consolidated financial statements. All intercompany transactions and balances have been eliminated in consolidation. Since the Company is an investment company, portfolio investments held by the Company are not consolidated into the consolidated financial statements. The portfolio investments held by the Company (including its investments held by consolidated subsidiaries) are included on the consolidated statements of assets and liabilities as investments at fair value.
Use of Estimates
The preparation of the consolidated financial statements in conformity with US GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates and such differences could be material.
Valuation of Portfolio Investments
Investments for which market quotations are readily available are typically valued at such market quotations. Market quotations are obtained from an independent pricing service, where available. If a price cannot be obtained from an independent pricing service or if the independent pricing service is not deemed to be current with the market, certain investments held by the Company will be valued on the basis of prices provided by principal market makers. Generally investments marked in this manner will be marked at the mean of the bid and ask of the independent broker quotes obtained. To validate market quotations, the Company utilizes a number of factors to determine if the quotations are representative of fair value, including the source and number of quotations. Debt and equity securities that are not publicly traded or whose market prices are not readily available are valued at fair value, subject at all times to the oversight and approval of the Board of Directors of the Company (the “Board”), based on, among other things, the input of the Advisor, the Company’s audit committee of the Board (the “Audit Committee) and one or more independent third party valuation firms engaged by the Board.
With respect to unquoted securities, the Company will value each investment considering, among other measures, discounted cash flow models, comparisons of financial ratios of peer companies that are public and other factors. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, the Company will use the pricing indicated by the external event to corroborate and/or assist us in our valuation. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may differ significantly from the values that would have been used had a readily available market value existed for such investments, and the differences could be material.
With respect to investments for which market quotations are not readily available, the Advisor will undertake a multi-step valuation process, which includes among other things, the below:
· The Company’s quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals of the Advisor responsible for the portfolio investment or by an independent valuation firm;
· Preliminary valuation conclusions are then documented and discussed with the Company’s senior management and the Advisor. Agreed upon valuation recommendations are presented to the Audit Committee;
· The Audit Committee of the Board reviews the valuations presented and recommends values for each of the investments to the Board; and
· The Board will discuss valuations and determine the fair value of each investment in good faith based upon, among other things, the input of the Advisor, independent valuation firms, where applicable, and the Audit Committee.
In following this approach, the types of factors that are taken into account in the fair value pricing of investments include, as relevant, but are not limited to: comparison to publicly traded securities, including factors such as yield, maturity and measures of credit quality; the enterprise value of a portfolio company; the nature and realizable value of any collateral; the portfolio company’s ability to make payments and its earnings and discounted cash flows; and the markets in which the portfolio company does business. In cases where an independent valuation firm provides fair valuations for investments, the independent valuation firm provides a fair valuation report, a description of the methodology used to determine the fair value and their analysis and calculations to support their conclusion.
The Company applies ASC Topic 820, Fair Value Measurement (“ASC 820”), which establishes a framework for measuring fair value in accordance with US GAAP and required disclosures of fair value measurements. The fair value of a financial instrument is the amount that would be received in an orderly transaction between market participants at the measurement date. The Company determines the fair value of investments consistent with its valuation policy. The Company discloses the fair value of its investments in a hierarchy which prioritizes and ranks the level of market observability used in the determination of fair value. In accordance with ASC 820, these levels are summarized below:
17
· Level 1 — Valuations based on quoted prices (unadjusted) in active markets for identical assets or liabilities at the measurement date.
· Level 2 — Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
· Level 3 — Valuations based on inputs that are unobservable and significant to the fair value measurement.
A financial instrument’s level within the hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuations of Level 2 investments are generally based on quotations received from pricing services, dealers or brokers. Consideration is given to the source and nature of the quotations and the relationship of recent market activity to the quotations provided.
Transfers between levels, if any, are recognized at the beginning of the reporting period in which the transfers occur. The Company evaluates the source of inputs used in the determination of fair value, including any markets in which the investments, or similar investments, are trading. When the fair value of an investment is determined using inputs from a pricing service (or principal market makers), the Company considers various criteria in determining whether the investment should be classified as a Level 2 or Level 3 investment. Criteria considered includes the pricing methodologies of the pricing services (or principal market makers) to determine if the inputs to the valuation are observable or unobservable, as well as the number of prices obtained and an assessment of the quality of the prices obtained. The level of an investment within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. However, the determination of what constitutes “observable” requires significant judgment.
The value assigned to these investments is based upon available information and may fluctuate from period to period. In addition, it does not necessarily represent the amount that might ultimately be realized upon sale. Due to inherent uncertainty of valuation, the estimated fair value of investments may differ from the value that would have been used had a ready market for the security existed, and the difference could be material.
Securities Transactions, Revenue Recognition and Expenses
The Company records its investment transactions on a trade date basis. The Company measures realized gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, using the specified identification method. Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis. Discount and premium to par value on investments acquired are accreted and amortized, respectively, into interest income over the life of the respective investment using the effective interest method. Commitment fees are recorded on an accrual basis and recognized as interest income. Loan origination fees, original issue discount and market discount or premium are capitalized and amortized against or accreted into interest income using the effective interest method or straight-line method, as applicable. For the Company’s investments in revolving bank loans, the cost basis of the investment purchased is adjusted for the cash received for the discount on the total balance committed. The fair value is also adjusted for price appreciation or depreciation on the unfunded portion. As a result, the purchase of commitments not completely funded may result in a negative value until it is offset by the future amounts called and funded. Upon prepayment of a loan or debt security, any prepayment premium, unamortized upfront loan origination fees and unamortized discount are recorded as interest income.
Dividend income on preferred equity investments is recorded on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity investments is recorded on the record date for private portfolio companies and on the ex-dividend date for publicly traded portfolio companies. Distributions received from a limited liability company or limited partnership investment are evaluated to determine if the distribution should be recorded as dividend income or a return of capital.
Certain investments may have contractual payment-in-kind (“PIK”) interest or dividends. PIK represents accrued interest or accumulated dividends that are added to the loan principal of the investment on the respective interest or dividend payment dates rather than being paid in cash and generally becomes due at maturity or upon being called by the issuer. PIK is recorded as interest or dividend income, as applicable. If at any point the Company believes PIK is not expected to be realized, the investment generating PIK will be placed on non-accrual status. Accrued PIK interest or dividends are generally reversed through interest or dividend income, respectively, when an investment is placed on non-accrual status.
Certain structuring fees and amendment fees are recorded as other income when earned. Administrative agent fees received by the Company are recorded as other income when the services are rendered.
Expenses are recorded on an accrual basis.
18
Non-Accrual Loans
Loans or debt securities are placed on non-accrual status when there is reasonable doubt that principal or interest will be collected. Accrued interest generally is reversed when a loan or debt security is placed on non-accrual status. Interest payments received on non-accrual loans or debt securities may be recognized as income or applied to principal depending upon management’s judgment. Non-accrual loans and debt securities are restored to accrual status when past due principal and interest are paid and, in management’s judgment, principal and interest payments are likely to remain current. The Company may make exceptions to this treatment if a loan has sufficient collateral value and is in the process of collection. As of June 30, 2019 and December 31, 2018, no loans or debt securities had been placed on non-accrual status.
Distributions
Distributions to common stockholders are recorded on the record date. The amount to be distributed, if any, is determined by the Board each quarter, and is generally based upon the earnings estimated by the Advisor. Distributions from net investment income and net realized capital gains are determined in accordance with U.S. federal income tax regulations, which may differ from those amounts determined in accordance with US GAAP. The Company may pay distributions to its stockholders in a year in excess of its investment company taxable income and net capital gain for that year and, accordingly, a portion of such distributions may constitute a return of capital for U.S. federal income tax purposes. This excess generally would be a tax-free return of capital in the period and generally would reduce the stockholder’s tax basis in its shares. These book/tax differences are either temporary or permanent in nature. To the extent these differences are permanent; they are charged or credited to paid-in capital in excess of par, accumulated undistributed net investment income or accumulated net realized gain (loss), as appropriate, in the period that the differences arise. Temporary and permanent differences are primarily attributable to differences in the tax treatment of certain loans and the tax characterization of income and non-deductible expenses.
The Company intends to timely distribute to its stockholders substantially all of its annual taxable income for each year, except that the Company may retain certain net capital gains for reinvestment and, depending upon the level of the Company’s taxable income earned in a year, the Company may choose to carry forward taxable income for distribution in the following year and incur applicable U.S. federal excise tax. The specific tax characteristics of the Company’s distributions will be reported to stockholders after the end of the calendar year. All distributions will be subject to available funds, and no assurance can be given that the Company will be able to declare such distributions in future periods.
The Company distributes net capital gains (i.e., net long-term capital gains in excess of net short-term capital losses), if any, at least annually out of the assets legally available for such distributions. However, the Company may decide in the future to retain such capital gains for investment, incur a corporate-level tax on such capital gains, and elect to treat such capital gains as deemed distributions to stockholders.
Dividend Reinvestment Plan
The Company has adopted a dividend reinvestment plan that provides for the reinvestment of cash dividends and distributions. Prior to the IPO, stockholders who elected to “opt in” to the Company’s dividend reinvestment plan had their cash dividends and distributions automatically reinvested in additional shares of the Company’s common stock, rather than receiving cash dividends and distributions.
Subsequent to the IPO, stockholders who do not “opt out” of the Company’s dividend reinvestment plan will have their cash dividends and distributions automatically reinvested in additional shares of the Company’s common stock, rather than receiving cash dividends and distributions.
Organizational and Offering Costs
Organizational costs consist of primarily legal, incorporation and accounting fees incurred in connection with the organization of the Company. Organizational costs are expensed as incurred and are shown in the Company’s consolidated statements of operations.
Offering costs consist primarily of fees and expenses incurred in connection with the offering of shares, legal, printing and other costs associated with the preparation and filing of applicable registration statements. To the extent such expenses relate to equity offerings, these expenses are charged as a reduction of paid-in-capital upon each such offering.
20
Cash, Restricted Cash, and Cash Equivalents
Cash and cash equivalents consist of deposits held at custodian banks and highly liquid investments, such as money market funds, with original maturities of three months or less. Cash and cash equivalents are carried at cost or amortized cost, which approximates fair value. The Company may deposit its cash and cash equivalents in financial institutions and, at certain times, such balances may exceed the Federal Deposit Insurance Corporation insurance limits. Cash equivalents are presented separately on the consolidated schedules of investments. Restricted cash is collected and held by the trustee who has been appointed as custodian of the assets securing certain of the Company’s financing transactions.
Foreign Currency Translation
The accounting records of the Company are maintained in U.S. dollars. The fair values of foreign securities, foreign cash and other assets and liabilities denominated in foreign currency are translated to U.S. dollars based on the current exchange rates at the end of each business day. Income and expenses denominated in foreign currencies are translated at current exchange rates when accrued or incurred. Unrealized gains and losses on foreign currency holdings and non-investment assets and liabilities attributable to the changes in foreign currency exchange rates are included in the net change in unrealized appreciation (depreciation) on foreign currency translation on the consolidated statements of operations. Net realized gains and losses on foreign currency holdings and non-investment assets and liabilities attributable to changes in foreign currency exchange rates are included in net realized gain (loss) on foreign currency transactions on the consolidated statements of operations. The portion of both realized and unrealized gains and losses on investments that result from changes in foreign currency exchange rates is not separately disclosed, but is included in net realized gain (loss) on investments and net change in unrealized appreciation (depreciation) on investments, respectively, on the consolidated statements of operations.
Forward Currency Exchange Contracts
The Company may enter into forward currency exchange contracts to reduce the Company’s exposure to foreign currency exchange rate fluctuations in the value of foreign currencies. A forward currency exchange contract is an agreement between two parties to buy and sell a currency at a set price on a future date. The Company does not utilize hedge accounting and as such the Company recognizes the value of its derivatives at fair value on the consolidated statements of assets and liabilities with changes in the net unrealized appreciation (depreciation) on forward currency exchange contracts recorded on the consolidated statements of operations. Forward currency exchange contracts are valued using the prevailing forward currency exchange rate of the underlying currencies. Unrealized appreciation (depreciation) on forward currency exchange contracts are recorded on the consolidated statements of assets and liabilities by counterparty on a net basis, not taking into account collateral posted which is recorded separately, if applicable. Cash collateral maintained in accounts held by counterparties is included in collateral on forward currency exchange contracts on the consolidated statements of assets and liabilities. Notional amounts and the gross fair value of forward currency exchange contracts assets and liabilities are presented separately on the consolidated schedules of investments.
Changes in net unrealized appreciation (depreciation) are recorded on the consolidated statements of operations in net change in unrealized appreciation (depreciation) on forward currency exchange contracts. Net realized gains and losses are recorded on the consolidated statements of operations in net realized gain (loss) on forward currency exchange contracts. Realized gains and losses on forward currency exchange contracts are determined using the difference between the fair market value of the forward currency exchange contract at the time it was opened and the fair market value at the time it was closed or covered. Additionally, losses, up to the fair value, may arise if the counterparties do not perform under the contract terms.
Deferred Financing Costs and Debt Issuance Costs
The Company records costs related to issuance of revolving debt obligations as deferred financing costs. These costs are deferred and amortized using the straight-line method over the stated maturity life of the obligation. The Company records costs related to the issuance of term debt obligations as debt issuance costs. These costs are deferred and amortized using the effective interest method. These costs are presented as a reduction to the outstanding principal amount of the term debt obligations on the consolidated statements of assets and liabilities.
Income Taxes
The Company has elected to be treated for U.S. federal income tax purposes as a RIC under the Code. So long as the Company maintains its status as a RIC, it will generally not be subject to corporate-level U.S. federal income taxes on any ordinary income or capital gains that it distributes at least annually as dividends to its stockholders. As a result, any tax liability related to income earned and distributed by the Company represents obligations of the Company’s stockholders and will not be reflected in the consolidated financial statements of the Company.
21
The Company intends to comply with the applicable provisions of the Code pertaining to RICs and to make distributions of taxable income sufficient to relieve it from substantially all federal income taxes. Accordingly, no provision for income taxes is required in the consolidated financial statements. For income tax purposes, distributions made to stockholders are reported as ordinary income, capital gains, non-taxable return of capital, or a combination thereof. The tax character of distributions paid to stockholders through June 30, 2019 may include return of capital, however, the exact amount cannot be determined at this point. The final determination of the tax character of distributions will not be made until the Company files the tax return for the tax year ending December 31, 2019. The character of income and gains that the Company will distribute is determined in accordance with income tax regulations that may differ from GAAP. BCSF I, LLC; BCSF II-C, LLC; BCSF CFSH, LLC; BCSF CFS, LLC; and BCC Middle Market CLO 2018-1, LLC are disregarded entities for tax purposes and are consolidated with the tax return of the Company.
The Company evaluates tax positions taken or expected to be taken in the course of preparing its consolidated financial statements to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority. Tax positions not deemed to meet the “more-likely-than-not” threshold are reversed and recorded as a tax benefit or expense in the current year. All penalties and interest associated with income taxes, if any, are included in income tax expense. Conclusions regarding tax positions are subject to review and may be adjusted at a later date based on factors including, but not limited to, on-going analyses of tax laws, regulations and interpretations thereof. Management has analyzed the Company’s tax positions, and has concluded that no liability for unrecognized tax benefits related to uncertain tax positions on returns to be filed by the Company for all open tax years should be recorded. The Company identifies its major tax jurisdiction as the United States, and the Company is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months. As of June 30, 2019, the tax years that remain subject to examination are from the inception on October 5, 2015 forward.
Recent Accounting Pronouncements
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement.” ASU 2018-13 is part of the disclosure framework project and eliminates certain disclosure requirements for fair value measurements, requires entities to disclose new information, and modifies existing disclosure requirements. The new guidance is effective for fiscal years and interim periods beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact this change will have on its consolidated financial statements and disclosures.
Note 3. Investments
The following table shows the composition of the investment portfolio, at amortized cost and fair value as of June 30, 2019 (with corresponding percentage of total portfolio investments):
Amortized Cost
Percentage of Total Portfolio
Fair Value
First Lien Senior Secured Loans
2,118,201
86.9
2,112,729
87.0
First Lien Last Out Loans
27,882
28,181
1.2
Second Lien Senior Secured Loans
196,831
192,007
7.9
0.6
Corporate Bonds
28,153
Equity Interests
28,368
31,456
19,196
0.8
19,980
Total
100.0
The following table shows the composition of the investment portfolio, at amortized cost and fair value as of December 31, 2018 (with corresponding percentage of total portfolio investments):
1,074,413
61.3
1,058,839
27,325
27,488
263,759
15.0
258,139
14.9
39,711
39,625
41,387
2.4
35,023
Investment Vehicles (1)
16.0
16.2
24,078
1.4
26,522
2,553
2,807
0.2
(1) Represents equity investment in ABCS.
The following table shows the composition of the investment portfolio by geographic region, at amortized cost and fair value as of June 30, 2019 (with corresponding percentage of total portfolio investments):
United States
2,191,122
89.9
2,183,219
United Kingdom
126,701
125,595
Germany
24,012
24,439
Ireland
20,439
20,747
Sweden
18,331
17,361
Norway
France
0.5
Netherlands
11,274
11,026
Luxembourg
0.3
Jersey
8,678
8,664
The following table shows the composition of the investment portfolio by geographic region, at amortized cost and fair value as of December 31, 2018 (with corresponding percentage of total portfolio investments):
United States (1)
1,613,203
92.0
1,589,936
59,621
3.4
58,473
22,770
23,414
18,308
17,301
0.9
11,357
11,253
(1) Includes equity investment in ABCS.
23
The following table shows the composition of the investment portfolio by industry, at amortized cost and fair value as of June 30, 2019 (with corresponding percentage of total portfolio investments):
8.8
8.7
185,097
187,098
7.7
5.5
4.5
3.2
2.7
2.5
FIRE: Insurance(1)
30,716
25,325
FIRE: Real Estate(1)
(1) Finance, Insurance, and Real Estate (“FIRE”).
The following table shows the composition of the investment portfolio by industry, at amortized cost and fair value as of December 31, 2018 (with corresponding percentage of total portfolio investments):
11.7
7.8
120,070
6.8
121,411
4.9
4.8
4.6
4.7
3.7
3.6
FIRE: Insurance (2)
38,154
35,613
24
FIRE: Real Estate (2)
FIRE: Finance (2)
(2) Finance, Insurance, and Real Estate (“FIRE”).
Antares Bain Capital Complete Financing Solution
Prior to April 30, 2019, the Company was party to a limited liability company agreement with Antares Midco Inc. (“Antares”) pursuant to which it invested in ABC Complete Financing Solution LLC, which made investments through its subsidiary, Antares Bain Capital Complete Financing Solution LLC (together with ABC Complete Financing Solution LLC, “ABCS”). ABCS, an unconsolidated Delaware limited liability company, was formed on September 27, 2017 and commenced operations on November 29, 2017. ABCS’ principal purpose was to make investments, primarily in senior secured unitranche loans. The Company recorded its investment in ABCS at fair value. Distributions of income received from ABCS, if any, were recorded as dividend income from controlled affiliate investments in the consolidated statements of operations. Distributions received from ABCS in excess of income earned at ABCS, if any, were recorded as a return of capital and reduced the amortized cost of controlled affiliate investments.
The Company and Antares, as members of ABCS, agreed to contribute capital up to (subject to the terms of their agreement) $950.0 million in aggregate to purchase equity interests in ABCS, with the Company and Antares contributing up to $425.0 million and $525.0 million, respectively. Funding of such commitments generally required the consent of both Antares Credit Opportunities Manager LLC and the Advisor on behalf of Antares and the Company, respectively. ABCS was capitalized with capital contributions from its members on a pro-rata basis based on their maximum capital contributions as transactions were funded after they had been approved.
Investment decisions of ABCS required the consent of both the Advisor and Antares Credit Opportunities Manager LLC, as representatives of the Company and Antares, respectively. Each of the Advisor and Antares sourced investments for ABCS.
On April 30, 2019, the Company formed BCSF Complete Financing Solution Holdco, LLC (“BCSF CFSH, LLC”) and BCSF Complete Financing Solution, LLC (“BCSF Unitranche” or “BCSF CFS, LLC”), wholly-owned, newly-formed, subsidiaries. The Company received its proportionate share of all assets which represented 44.737% of ABCS. The portfolio of investments that was distributed comprised of 25 senior secured unitranche loans with a fair value of $919.0 million and cash of $3.2 million. The Company also assumed the obligation to fund outstanding unfunded commitments of $31.4 million. In connection with the distribution, the Company recognized a realized gain of $0.3 million. The Company is no longer a member of ABCS. The distribution of assets received by the Company have been included in the Company’s consolidated financial statements and notes thereto.
In conjunction with the distribution from ABCS, on April 30, 2019, BCSF CFS, LLC entered into a loan and security agreement (the “JPM Credit Agreement” or the “JPM Credit Facility”) as borrower, with JPMorgan Chase Bank, National Association, as Administrative Agent, and Wells Fargo Bank, National Association as Collateral Administrator, Collateral Agent, Securities Intermediary and Bank. On the date of the ABCS distribution, the Company had $577.5 million outstanding on the JPM Credit Facility. See Note 6 for additional information on the JPM Credit Facility.
25
Below is selected balance sheet information for ABCS as of December 31, 2018:
Selected Balance Sheet Information
Loans, net of allowance of $17,616 (1)
1,616,795
Cash, restricted cash and other assets
52,240
Total assets
1,669,035
Debt (2)
1,027,615
Other liabilities
30,762
Total liabilities
1,058,377
Members’ equity
610,658
Total liabilities and members’ equity
(1) ABCS is not considered an investment company and does not follow the accounting and reporting guidelines in ASC 946. ABCS applies an allowance for loan loss methodology prescribed by FASB ASC 310, Receivables, and FASB ASC 450 Contingencies. The allowance for loan loss as of December 31, 2018 is a general allowance, there was no specific allowance for loan losses during the period. The Company estimates a fair value for each loan in the ABCS portfolio, which is presented in the Antares Bain Capital Complete Financing Solution schedule of investments below, which is an input to the Company’s valuation of ABCS as a whole.
(2) Net of $3.6 million deferred financing costs for the ABCS Facility, December 31, 2018.
Below is selected statements of operations information for the three and six months ended June 30, 2019 and 2018:
Selected Statements of Operations Information
For the Three Months Ended
For the Six Months Ended
June 30, 2019 (1)
June 30, 2018
June 30. 2019
Interest Income
14,583
23,210
53,494
43,128
Fee income
29
867
217
947
Total revenues
14,612
24,077
53,711
44,075
Credit facility expenses
5,748
22,008
19,720
Other fees and expenses
1,595
1,130
6,661
2,478
Total expenses
7,343
11,943
28,669
22,198
7,269
25,042
21,877
Net increase in members’ capital from operations
(1) The ABCS distribution was effective April 30, 2019.
Schedule of Investments
(In Thousands)
Principal/ Par Amount
Carrying Value
Fair Value (2)
Investments
Corporate Debt
Delayed Draw Term Loan
PRCC Holdings, Inc.
11,878
Total Chemicals, Plastics & Rubber
Solaray, LLC
9/9/2023
26,680
26,389
26,547
Solaray, LLC (3)
(33
Total Consumer Goods: Non-Durable
26,514
Margaux Acquisition Inc. (3)
(417
Total FIRE: Insurance
Element Buyer, Inc. (3)
7/19/2025
(133
Element Buyer, Inc.
7.76
7,600
7,473
7,543
Total High Tech Industries
7,410
Ansira Holdings, Inc.
2,472
2,459
Ansira Holdings, Inc. (3)
(56
Total Media: Advertising, Printing & Publishing
2,403
McKissock, LLC
2,605
2,583
Total Services: Consumer
Direct Travel, Inc.
9.12
1,672
1,669
Total Transportation: Consumer
Total Delayed Draw Term Loan
52,464
52,065
First lien senior secured loan
API Technologies Corp.
4/20/2024
117,861
116,559
117,566
Total Aerospace & Defense
Tidel Engineering, L.P.
9.05
86,442
86,415
Total Capital Equipment
AP Plastics Group, LLC
7.60
48,398
48,348
47,914
73,813
122,161
121,727
Profile Products LLC
8.54
78,832
77,614
77,256
Total Construction & Building
Home Franchise Concepts, Inc.
7.43
69,091
68,773
68,400
Stanton Carpet Corp. (7)
60,231
60,179
59,629
Total Consumer Goods: Durable
128,952
128,029
96,230
95,175
95,749
Amspec Services, Inc.
90,025
88,986
86,874
Total Energy: Oil & Gas
Margaux Acquisition Inc.
8.80
65,125
63,766
63,822
Margaux UK Finance Limited
17,356
21,651
21,665
85,417
85,487
Caliper Software, Inc.
68,182
67,509
67,159
7.78
85,287
83,863
84,647
151,372
151,806
81,011
80,874
80,404
Cruz Bay Publishing, Inc. (5)
11,418
Cruz Bay Publishing, Inc. (6)
9.57
3,813
96,105
95,635
Efficient Collaborative Retail Marketing Company, LLC
22,800
22,722
22,572
9.56
33,741
33,241
33,404
Total Media: Diversified & Production
55,963
55,976
Batteries Plus Holding Corporation
9.27
68,156
Total Retail
TEI Holdings Inc.
118,589
117,726
117,403
Total Services: Business
8,071
8,004
42,144
41,792
42,460
49,796
50,531
9.30
112,153
111,789
Abracon Group Holding, LLC. (4)
8.56
81,497
80,367
80,682
Aramsco, Inc.
50,343
49,394
48,958
Total Wholesale
129,761
129,640
Total First Lien Senior Secured
1,581,947
1,580,430
Total Corporate Debt
1,634,411
1,632,495
Total Investments
(1) The investments bear interest at a rate that may be determined by reference to the London Interbank Offered Rate (“LIBOR” or “L”) which reset daily, monthly, quarterly or semiannually. For each, the Company has provided the spread over LIBOR and the current weighted average interest rate in effect at December 31, 2018. Certain investments are subject to a LIBOR interest rate floor.
(2) Fair Value determined by the Advisor.
(3) The negative fair value is the result of the capitalized discount on the loan or the unfunded commitment being valued below par.
(4) $204 of the total par amount for this security is at P + 4.75%.
(5) $158 of the total par amount for this security is at P + 4.75%.
(6) $53 of the total par amount for this security is at P + 5.75%.
(7) $391 of the total par amount for this security is at P + 4.50%.
27
Note 4. Fair Value Measurements
Fair Value Disclosures
The following table presents fair value measurements of investments by major class, cash equivalents and derivatives as of June 30, 2019, according to the fair value hierarchy:
Fair Value Measurements
Level 1
Level 2
Level 3
Investments:
472,599
1,640,130
72,061
119,946
572,813
1,854,602
Cash equivalents
Forward currency exchange contracts (asset)
Forward currency exchange contracts (liability)
The following table presents fair value measurements of investments by major class, cash equivalents and derivatives as of December 31, 2018, according to the fair value hierarchy:
619,352
439,487
112,585
145,554
766,960
960,846
The following table provides a reconciliation of the beginning and ending balances for investments that use Level 3 inputs for the six months ended June 30, 2019:
Balance as of January 1, 2019
27,487
145,555
26,521
960,845
Purchases of investments and other adjustments to cost
455,611
422
20,096
64,741
4,290
561,787
Distribution to Company from ABCS
918,870
(346,329
572,541
Paid-in-kind interest
194
Net accretion of discounts (amortization of premiums)
817
49
136
1,028
Proceeds from principal repayments and sales of investments
(201,336
(82
(35,216
(25,000
(160
(260,362
Net change in unrealized appreciation (depreciation) on investments
333
645
530
4,833
Net realized gains (losses) on investments
270
160
Transfers out of Level 3
(97,869
(17,384
(115,253
Transfers to Level 3
122,153
128,309
Balance as of June 30, 2019
Change in unrealized appreciation (depreciation) attributable to investments still held at June 30, 2019
1,995
(581
2,983
28
Transfers between levels, if any, are recognized at the beginning of the quarter in which transfers occur. For the six months ended June 30, 2019, transfers from Level 2 to Level 3 were primarily due to decreased price transparency. For the six months ended June 30, 2019, transfers from Level 3 to Level 2 were primarily due to increased price transparency.
The following table provides a reconciliation of the beginning and ending balances for investments that use Level 3 inputs for the six months ended June 30, 2018:
Balance as of January 1, 2018
215,339
30,516
84,722
178,410
9,763
1,964
520,714
204,803
230
34,569
21,934
2,913
264,449
Net accretion of discounts
310
98
446
(75,429
(51
(5,971
(1,310
(82,761
(1,668
(1,267
(1,409
1,255
750
205
(2,134
Net realized gains on investments
(5,283
14,701
Balance as of June 30, 2018
338,082
29,466
126,729
200,289
13,426
2,169
710,161
Change in unrealized appreciation attributable to investments still held at June 30, 2018
(1,438
(1,904
Transfers between levels, if any, are recognized at the beginning of the quarter in which transfers occur. For the six months ended June 30, 2018, transfers from Level 2 to Level 3 were primarily due to decreased price transparency. For the six months ended June 30, 2018, the transfer from Level 3 to Level 2 was primarily due to increased price transparency.
Significant Unobservable Inputs
ASC 820 requires disclosure of quantitative information about the significant unobservable inputs used in the valuation of assets and liabilities classified as Level 3 within the fair value hierarchy. Disclosure of this information is not required in circumstances where a valuation (unadjusted) is obtained from a third-party pricing service and the information regarding the unobservable inputs is not reasonably available to the Company and as such, the disclosures provided below exclude those investments valued in that manner.
Fair Value of Level 3 Assets(1)
Valuation Technique
Range of Significant Unobservable Inputs (Weighted Average (2))
Comparable Company Multiple
Book Value Multiple
1.0x-1.0x (1.0x)
1,022,096
Discounted Cash Flows
Comparative Yields
4.5%-12.5% (7.6%)
18,000
Collateral Analysis
Recovery Rate
100%
7.1%-13.0% (10.6%)
98,490
5.9%-13.5% (9.8%)
15.1%-15.1% (15.1%)
15,684
15,215
EBITDA Multiple
6.5x-13.5x (8.8x)
8,274
6.5x-12.0x (10.7x)
6.5x-6.5x (6.5x)
Total investments
1,227,193
(1) Included within the Level 3 assets of $1,854,602 is an amount of $627,409 for which the Advisor did not develop the unobservable inputs for the determination of fair value (examples include single source quotation and prior or pending transactions).
(2) Weighted average is calculated by weighing the significant unobservable input by the relative fair value of each investment in the category.
The Company used the income approach, collateral analysis approach, and market approach to determine the fair value of certain Level 3 assets as of June 30, 2019. The significant unobservable input used in the income approach is the comparative yield. The comparative yield is used to discount the estimated future cash flows expected to be received from the underlying investment. An increase/decrease in the comparative yield would result in a decrease/increase, respectively, in the fair value. The significant unobservable input used in the collateral analysis approach is the recovery rate. The recovery rate represents the extent to which proceeds can be recovered. An increase/decrease in the recovery rate would result in an increase/decrease, respectively, in the fair value. The significant unobservable input used in the market approach is the comparable company multiple. The multiple is used to estimate the enterprise value of the underlying investment. An increase/decrease in the multiple would result in an increase/decrease, respectively, in the fair value.
The valuation techniques and significant unobservable inputs used in Level 3 fair value measurements of assets as of December 31, 2018 were as follows:
Range of Significant Unobservable Inputs (Weighted Average(2))
248,967
5.4%-12.8% (8.1%)
1x-1x (1x)
11,500
27,454
8.6%-14.5% (12.1%)
85,980
6.6%-14.5% (10.6%)
10.0%-16.2% (12.3%)
Investment Vehicles (3)
Other
30
3,000
13.3x-13.5x (13.4x)
14,723
10.5x-10.5x (10.5x)
716,982
(1) Included within the Level 3 assets of $960,846 is an amount of $243,864 for which the Advisor did not develop the unobservable inputs for the determination of fair value (examples include single source quotation and prior or pending transactions).
(3) Represents equity investment in ABCS. The Company determines the fair value of its investment in ABCS giving consideration to the assets and liabilities of ABCS, at fair value, including consideration of any necessary adjustments. The fair value of the loans held by ABCS have been determined based upon recent transactions or the use of discounted cash flows, with comparative yields ranging from 7.7% to 10.9% and a weighted average of 8.9%. The carrying value of the ABCS Facility approximates fair value.
The Company used the income approach and market approach to determine the fair value of certain Level 3 assets as of December 31, 2018. The significant unobservable input used in the income approach is the comparative yield. The comparative yield is used to discount the estimated future cash flows expected to be received from the underlying investment. An increase/decrease in the comparative yield would result in a decrease/increase, respectively, in the fair value. The significant unobservable input used in the market approach is the comparable company multiple. The multiple is used to estimate the enterprise value of the underlying investment. An increase/decrease in the multiple would result in an increase/decrease, respectively, in the fair value.
The fair value of the BCSF Revolving Credit Facility (as defined in Note 6), which is categorized as Level 3 within the fair value hierarchy as of June 30, 2019 and December 31, 2018, approximates the carrying value of such facility. The fair values of the 2018-1 Notes (as defined in Note 6), which are categorized as Level 3 within the fair value hierarchy as of June 30, 2019, approximate the carrying value of such facilities. The fair value of the Citibank Revolving Credit Facility (as defined in Note 6), which is categorized as Level 3 within the fair value hierarchy as of June 30, 2019, approximates the carrying value of such facility. The fair value of the JPM Credit Facility (as defined in Note 6), which is categorized as Level 3 within the fair value hierarchy as of June 30, 2019, approximates the carrying value of such facility.
Note 5. Related Party Transactions
Investment Advisory Agreement
The Company has entered into the first amended and restated investment advisory agreement as of November 14, 2018 (the “Investment Advisory Agreement”) with the Advisor, pursuant to which the Advisor manages the Company’s investment program and related activities. On November 28, 2018, the Board, including a majority of the Independent Directors, approved a second amended and restated advisory agreement (the “Amended Advisory Agreement”) between the Company and BCSF Advisors, LP (“the Advisor”). On February 1, 2019, Shareholders approved the Amended Advisory Agreement which replaced the existing Investment Advisory Agreement.
Base Management Fee
The Company pays the Advisor a base management fee (the “Base Management Fee”), accrued and payable quarterly in arrears. The Base Management Fee is calculated at an annual rate of 1.50% (0.375% per quarter) of the average value of the Company’s gross assets (excluding cash and cash equivalents, but including assets purchased with borrowed amounts) at the end of each of the two most recently completed calendar quarters (and, in the case of our first quarter, our gross assets as of such quarter-end). Such amount shall be appropriately adjusted (based on the actual number of days elapsed relative to the total number of days in such calendar quarter) for any share issuance or repurchases by the Company during a calendar quarter. The Base Management Fee for any partial quarter will be appropriately prorated. Effective February 1, 2019, the base management fee has been revised to a tiered management fee structure so that the base management fee of 1.5% (0.375% per quarter) of the average value of the Company’s gross assets (excluding cash and cash equivalents, but including assets purchased with borrowed amounts) will continue to apply to assets held at an asset coverage ratio down to 200%, but a lower base management fee of 1.0% (0.25% per quarter) of the average value of the Company’s gross assets (excluding cash and cash equivalents, but including assets purchased with borrowed amounts) will apply to any amount of assets attributable to leverage decreasing the Company’s asset coverage ratio below 200%.
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The Advisor, however, contractually waived its right to receive the Base Management Fee in excess of 0.75% of the aggregate gross assets excluding cash (including capital drawn to pay the Company’s expenses) during any period prior to the IPO. Additionally, for the period from the date of the IPO through December 31, 2018, the Advisor voluntarily waived its right to receive the Base Management Fee in excess of 0.75%. The Advisor was not permitted to recoup any waived amounts. In certain previous filings, management fees were presented on a net basis.
For the three months ended June 30, 2019 and 2018 management fees were $8.0 million and $3.8 million, respectively. For the six months ended June 30, 2019 and 2018 management fees were $14.7 million and $7.0 million, respectively. For the three months ended June 30, 2019, $0.0 million was contractually waived and $1.6 million was voluntarily waived. For the six months ended June 30, 2019, $0.0 million was contractually waived and $3.9 million was voluntarily waived. For the three months ended June 30, 2018, $1.9 million was contractually waived and $0.0 million was voluntarily waived. For the six months ended June 30, 2018, $3.5 million was contractually waived and $0.0 million was voluntarily waived.
As of June 30, 2019 and December 31, 2018, management fees payable were $6.4 million and $3.0 million, respectively.
Incentive Fee
For the periods ended June 30, 2019 and 2018, the incentive fee consists of two parts that are determined independently of each other such that one component may be payable even if the other is not.
The first part, the Incentive Fee based on income (the “Income Fee”), is calculated and payable quarterly in arrears as detailed below.
The second part, the capital gains incentive fee, is determined and payable in arrears as detailed below.
Incentive Fee on Pre-Incentive Fee Net Investment Income
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 and consulting fees or other fees that the Company receives from portfolio companies but excluding fees for providing managerial assistance) accrued during the calendar quarter, minus operating expenses for the quarter (including the Base Management Fee, any expenses payable under the Administration Agreement, and any interest expense and dividends paid on any outstanding preferred stock, but excluding the incentive fee). Pre-incentive fee net investment income includes, in the case of investments with a deferred interest feature such as market discount, original issue discount (“OID”), debt instruments with PIK interest, preferred stock with PIK dividends and zero-coupon securities, accrued income that the Company has not yet received in cash.
Pre-incentive fee net investment income does not include any realized or unrealized capital gains or losses or unrealized capital appreciation or depreciation. Because of the structure of the incentive fee, it is possible that the Company may pay an incentive fee in a quarter where the Company incurs a loss. For example, if the Company receives pre-incentive fee net investment income in excess of the Hurdle rate for a quarter, the Company will pay the applicable incentive fee even if the Company has incurred a loss in that quarter due to realized and unrealized capital losses.
Prior to the calendar quarter that commences on January 1, 2019 the incentive on income was calculated as follows:
(i) 15.0% of the pre-incentive fee net investment income for the current quarter prior to the IPO; or
(ii) 17.5% of the pre-incentive fee net income for the current quarter after the IPO;: and
(i) 15.0% of all remaining pre-incentive fee net investment income above the “catch-up” prior to the IPO, or
(ii) 17.5% of all remaining pre-incentive fee net investment income above the “catch-up” after the IPO.
Beginning with the calendar quarter that commences on January 1, 2019, the incentive fee based on income is calculated and payable quarterly in arrears based on the aggregate pre-incentive fee net investment income in respect of the current calendar quarter and the eleven preceding calendar quarters beginning with the calendar quarter that commences on or after January 1, 2019 (or the appropriate portion thereof in the case of any of the Company’s first eleven calendar quarters that commence on or after January 1, 2019) (in either case, the “Trailing Twelve Quarters”). This calculation is referred to as the “Three-Year Lookback.”
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With respect to any calendar quarter that commences on or after January 1, 2019, pre-incentive fee net investment income in respect of the relevant Trailing Twelve Quarters is compared to a “Hurdle Amount” equal to the product of (i) the hurdle rate of 1.5% per quarter (6% annualized) and (ii) the sum of our net assets (defined as total assets less indebtedness and before taking into account any incentive fees payable during the period) at the beginning of each applicable calendar quarter comprising the relevant Trailing Twelve Quarters. The Hurdle Amount will be calculated after making appropriate adjustments to our NAV at the beginning of each applicable calendar quarter for our subscriptions (which shall include all issuances by us of shares of our Common Stock, including issuances pursuant to the Company’s dividend reinvestment plan) and distributions during the applicable calendar quarter.
Commencing on January 1, 2019, the quarterly incentive fee based on income is calculated, subject to the Incentive Fee Cap (as defined below), based on the amount by which (A) aggregate pre-incentive fee net investment income in respect of the relevant Trailing Twelve Quarters exceeds (B) the Hurdle Amount for such Trailing Twelve Quarters. The amount of the excess of (A) over (B) described in this paragraph for such Trailing Twelve Quarters is referred to as the “Excess Income Amount.” The incentive fee based on income that is paid to the Advisor in respect of a particular calendar quarter will equal the Excess Income Amount less the aggregate incentive fees based on income that were paid to the Advisor in the preceding eleven calendar quarters (or portion thereof) comprising the relevant Trailing Twelve Quarters.
The incentive fee based on income for each calendar quarter is determined as follows:
(i) No incentive fee based on income is payable to the Advisor for any calendar quarter for which there is no Excess Income Amount;
(ii) 100% of the aggregate pre-incentive fee net investment income in respect of the Trailing Twelve Quarters with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds the Hurdle Amount, but is less than or equal to an amount, which the Company refers to as the “Catch-up Amount,” determined as the sum of 1.8182% multiplied by our NAV at the beginning of each applicable calendar quarter comprising the relevant Trailing Twelve Quarters; and
(iii) 17.5% of the aggregate pre-incentive fee net investment income in respect of the Trailing Twelve Quarters that exceeds the Catch-up Amount.
Incentive Fee Cap
With respect to any calendar quarter that commences on or after January 1, 2019, the incentive fee based on income is subject to a cap (the “Incentive Fee Cap”). The Incentive Fee Cap in respect of any calendar quarter is an amount equal to 17.5% of the Cumulative Net Return (as defined below) during the relevant Trailing Twelve Quarters less the aggregate incentive fees based on income that were paid to the Advisor in the preceding eleven calendar quarters (or portion thereof) comprising the relevant Trailing Twelve Quarters.
“Cumulative Net Return” during the relevant Trailing Twelve Quarters means (x) the pre-incentive fee net investment income in respect of the relevant Trailing Twelve Quarters less (y) any Net Capital Loss, if any, in respect of the relevant Trailing Twelve Quarters. If, in any quarter, the Incentive Fee Cap is zero or a negative value, the Company will pay no incentive fee based on income to the Advisor in respect of that quarter. If, in any quarter, the Incentive Fee Cap for such quarter is a positive value but is less than the incentive fee based on income that is payable to the Advisor for such quarter calculated as described above, the Company will pay an incentive fee based on income to the Advisor equal to the Incentive Fee Cap in respect of such quarter. If, in any quarter, the Incentive Fee Cap for such quarter is equal to or greater than the incentive fee based on income that is payable to the Advisor for such quarter calculated as described above, the Company will pay an incentive fee based on income to the Advisor equal to the incentive fee calculated as described above for such quarter without regard to the Incentive Fee Cap.
“Net Capital Loss” in respect of a particular period means the difference, if positive, between (i) aggregate capital losses, whether realized or unrealized, in respect of such period and (ii) aggregate capital gains, whether realized or unrealized, in respect of such period.
For the three months ended June 30, 2019 and 2018, the Company incurred $4.5 million and $2.0 million, respectively, of income incentive fees (before waivers), which are included in incentive fees on the consolidated statements of operations. The Advisor has voluntarily waived $0.0 million and $1.0 million, respectively, of the income incentive fees earned by the Advisor during the three months ended June 30, 2019 and 2018. Such income incentive fee waiver is irrevocable and such waived income incentive fees will not be subject to recoupment in future periods. This income incentive fee waiver does not impact any income incentive fees earned by the Advisor in future periods.
For the six months ended June 30, 2019 and 2018, the Company incurred $8.6 million and $3.6 million, respectively, of income incentive fees (before waivers), which are included in incentive fees on the consolidated statements of operations. The Advisor has voluntarily waived $2.0 million and $1.0 million, respectively, of the income incentive fees earned by the Advisor during the six months ended June 30, 2019 and 2018. Such income incentive fee waiver is irrevocable and such waived income incentive fees will not be subject to recoupment in future periods. This income incentive fee waiver does not impact any income incentive fees earned by the Advisor in future periods.
As a result of the income incentive fee waivers, the Company incurred $4.5 and $6.6 million of income incentive fees (after waivers) for the three and six months ended June 30, 2019, respectively. As a result of the income incentive fee waivers, the Company incurred $1.0 and $2.6 million of income incentive fees (after waivers) for the three and six months ended June 30, 2018, respectively.
As of June 30, 2019 and December 31, 2018, there was $4.5 million and $3.3 million, respectively, related to the income incentive fee accrued in incentive fee payable on the consolidated statements of assets and liabilities.
On October 11, 2018, the Board approved, subject to completion of the IPO, the Investment Advisory Agreement. Beginning with the calendar quarter that commenced January 1, 2019, this Investment Advisory Agreement incorporates (i) a three-year lookback provision and (ii) a cap on quarterly income incentive fee payments based on net realized or unrealized capital loss, if any, during the applicable three-year lookback period. The Amended Advisory Agreement approved by Stockholders on February 1, 2019 contains the same provisions.
Annual Incentive Fee Based on Capital Gains
The second part of the incentive fee is a capital gains incentive fee that will be determined and payable in arrears in cash as of the end of each fiscal year (or upon termination of the Amended Advisory Agreement, as of the termination date), and equals (i) 15% of our realized capital gains as of the end of the fiscal year prior to the IPO, and (ii) 17.5% of our realized capital gains as of the end of the fiscal year after the IPO. In determining the capital gains incentive fee payable to the Advisor, the Company calculates the cumulative aggregate realized capital gains and cumulative aggregate realized capital losses since our inception, and the aggregate unrealized capital depreciation as of the date of the calculation, as applicable, with respect to each of the investments in our portfolio. For this purpose, cumulative aggregate realized capital gains, if any, equals the sum of the differences between the net sales price of each investment, when sold, and the cost of such investment. Cumulative aggregate realized capital losses equals the sum of the amounts by which the net sales price of each investment, when sold, is less than the cost of such investment. Aggregate unrealized capital depreciation equals the sum of the difference, if negative, between the valuation of each investment as of the applicable calculation date and the cost of such investment. At the end of the applicable year, the amount of capital gains that serves as the basis for our calculation of the capital gains incentive fee equals the cumulative aggregate realized capital gains less cumulative aggregate realized capital losses, less aggregate unrealized capital depreciation, with respect to our portfolio of investments. If this number is positive at the end of such year, then the capital gains incentive fee for such year will equal 15% before the IPO or 17.5% after the IPO, as applicable, of such amount, less the aggregate amount of any capital gains incentive fees paid in respect of our portfolio in all prior years.
Because the IPO occurred on a date other than the first day of a fiscal year, a capital gains incentive fee was calculated as of the day before the IPO, with such capital gains incentive fee paid to the Advisor following the end of the fiscal year in which the IPO occurred. For the avoidance of doubt, such capital gains incentive fee was equal to 15% of the Company’s realized capital gains on a cumulative basis from inception through the day before the IPO, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gains incentive fees. Following the IPO, solely for the purposes of calculating the capital gains incentive fee, the Company will be deemed to have previously paid capital gains incentive fees prior to the IPO equal to the product obtained by multiplying (a) the actual aggregate amount of previously paid capital gains incentive fees for all periods prior to the IPO by (b) the percentage obtained by dividing (x) 17.5% by (y) 15%. In the event that the Investment Advisory Agreement shall terminate as of a date that is not a fiscal year end, the termination date shall be treated as though it were a fiscal year end for purposes of calculating and paying a capital gains incentive fee.
There was no capital gains incentive fee payable to the Advisor under the Amended Advisory Agreement as of June 30, 2019 and December 31, 2018.
US GAAP requires that the incentive fee accrual consider the cumulative aggregate unrealized capital appreciation of investments or other financial instruments in the calculation, as an incentive fee would be payable if such unrealized capital appreciation were realized, even though such unrealized capital appreciation is not permitted to be considered in calculating the fee actually payable under the Amended Advisory Agreement (“GAAP Incentive Fee”). There can be no assurance that such unrealized appreciation will be realized in the future. Accordingly, such fee, as calculated and accrued, would not necessarily be payable under the Amended Advisory Agreement, and may never be paid based upon the computation of incentive fees in subsequent period.
For the three months ended June 30, 2019 the Company incurred $0.0 million of incentive fees related to the GAAP Incentive Fee which is included in incentive fees on the consolidated statements of operations. For the three months ended June 30, 2018, there
34
was a reduction of $1.1 million in incentive fees related to the GAAP Incentive Fee, which is included in incentive fees on the consolidated statements of operations. For the six months ended June 30, 2019 the Company incurred $0.0 million of incentive fees related to the GAAP Incentive Fee which is included in incentive fees on the consolidated statements of operations. For the six months ended June 30, 2018, there was a reduction of $0.7 million in incentive fees related to the GAAP Incentive Fee which is included in incentive fees on the consolidated statements of operations. As of June 30, 2019 and December 31, 2018, there was $0.0 million and $0.0 million related to the GAAP Incentive Fee accrued in incentive fee payable on the consolidated statements of assets and liabilities.
Administration Agreement
The Company has entered into an administration agreement (the “Administration Agreement”) with the advisor (in such capacity, the “Administrator”), pursuant to which the Administrator will provide the administrative services necessary for us to operate, and the Company will utilize the Administrator’s office facilities, equipment and recordkeeping services. Pursuant to the Administration Agreement, the Administrator has agreed to oversee our public reporting requirements and tax reporting and monitor our expenses and the performance of professional services rendered to us by others. The Administrator has also hired a sub-administrator to assist in the provision of administrative services. The Company will reimburse the Administrator for its costs and expenses and our allocable portion of overhead incurred by it in performing its obligations under the Administration Agreement, including certain compensation paid to or compensatory distributions received by our officers (including our Chief Compliance Officer and Chief Financial Officer) and any of their respective staff who provide services to us, operations staff who provide services to us, and internal audit staff, if any, to the extent internal audit performs a role in our Sarbanes-Oxley internal control assessment. Our allocable portion of overhead will be determined by the Administrator, which expects to use various methodologies such as allocation based on the percentage of time certain individuals devote, on an estimated basis, to the business and affairs of the Company, and will be subject to oversight by the Board. The Company incurred expenses related to the Administrator of $0.4 million and $0.0 million for the three months ended June 30, 2019 and 2018, respectively, which is included in other general and administrative expenses on the consolidated statements of operations. The Company incurred expenses related to the Administrator of $0.5 million and $0.0 million for the six months ended June 30, 2019 and 2018, respectively, which is included in other general and administrative expenses on the consolidated statements of operations. The sub-administrator is paid its compensation for performing its sub-administrative services under the sub-administration agreement. The Company incurred expenses related to the sub-administrator of $0.1 million and $0.2 million for the three months ended June 30, 2019 and 2018, respectively, which is included in other general and administrative expenses on the consolidated statements of operations. The Company incurred expenses related to the sub-administrator of $0.3 million and $0.3 million for the six months ended June 30, 2019 and 2018, respectively, which is included in other general and administrative expenses on the consolidated statements of operations. The Administrator will not seek reimbursement in the event that any such reimbursements would cause any distributions to our stockholders to constitute a return of capital. In addition, the Administrator is permitted to delegate its duties under the Administration Agreement to affiliates or third parties and the Company will reimburse the expenses of these parties incurred and paid by the Advisor on our behalf.
Resource Sharing Agreement
The Company’s investment activities are managed by the Advisor, an investment adviser that is registered with the SEC under the Advisers Act. The Advisor is responsible for originating prospective investments, conducting research and due diligence investigations on potential investments, analyzing investment opportunities, negotiating and structuring our investments and monitoring our investments and portfolio companies on an ongoing basis.
The Advisor has entered into a Resource Sharing Agreement (the “Resource Sharing Agreement”) with Bain Capital Credit, LP (“Bain Capital Credit”), pursuant to which Bain Capital Credit provides the Advisor with experienced investment professionals (including the members of the Advisor’s Credit Committee) and access to the resources of Bain Capital Credit so as to enable the Advisor to fulfill its obligations under the Amended Advisory Agreement. Through the Resource Sharing Agreement, the Advisor intends to capitalize on the significant deal origination, credit underwriting, due diligence, investment structuring, execution, portfolio management and monitoring experience of Bain Capital Credit’s investment professionals. There can be no assurance that Bain Capital Credit will perform its obligations under the Resource Sharing Agreement. The Resource Sharing Agreement may be terminated by either party on 60 days’ notice, which if terminated may have a material adverse consequence on the Company’s operations.
Co-investments
The Company will invest alongside our affiliates, subject to compliance with applicable regulations and our allocation procedures. Certain types of negotiated co-investments will be made only in accordance with the terms of the exemptive order the Company received from the SEC initially on August 23, 2016, as amended on March 23, 2018 (the “Order”). Under the terms of the Order, a “required majority” (as defined in Section 57(o) of the 1940 Act) of our independent directors must be able to reach certain conclusions in connection with a co-investment transaction, including that (1) the terms of the proposed transaction are reasonable and fair to us and our stockholders and do not involve overreaching of our or its stockholders on the part of any person concerned, and (2) the transaction is consistent with the interests of our stockholders and is consistent with our Board’s approved criteria. In certain situations where co-investment with one or more funds managed by the Advisor or its affiliates is not covered by the Order, the personnel of the Advisor or its affiliates will need to decide which funds will proceed with the investment. Such personnel will make these determinations based on policies and procedures, which are designed to reasonably ensure that investment opportunities are allocated fairly and equitably among affiliated funds over time and in a manner that is consistent with applicable laws, rules and regulations.
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Related Party Commitments
Prior to the IPO, the Advisor made commitments of $10.8 million to the Company as of December 31, 2018, of which $7.8 million had been called by the Company as of December 31, 2018. As of June 30, 2019 and December 31, 2018, the Advisor held 389,582.42 and 389,476.18 shares of the Company’s common stock, respectively. An affiliate of the Advisor is the investment manager to certain pooled investment vehicles which are investors in the Company. Collectively, these investors had made commitments to the Company of $555.3 million as of December 31, 2018 of which $388.7 million had been called by the Company as of December 31, 2018. These investors held 10,427,487.49 and 19,306,284.66 shares of the Company at June 30, 2019 and December 31, 2018, respectively.
All outstanding commitments were cancelled due the completion of the IPO on November 15, 2018.
Non-Controlled/Affiliate and Controlled Affiliate Investments
Transactions during the six months ended June 30, 2019 in which the issuer was either an Affiliated Person or an Affiliated Person that the Company is deemed to Control are as follows:
Fair Value as of December 31, 2018
Gross Addition
Gross Reductions
Change in Unrealized Gains (Losses)
Realized Gains (Losses)
Fair Value as of June 30, 2019
Dividend and Interest Income
Other Income
Non-Controlled/affiliate investment
ADT Pizza, LLC, Equity Interest (1)
Total Non-Controlled/affiliate investment
Controlled affiliate investment
ACC Holdco, LLC, Preferred Equity
11,703
Air Comm Corporation LLC, First Lien Senior Secured Loan
Antares Bain Capital Complete Financing Solution LLC, Investment Vehicle
(281,589
529
13,875
BCC Jetstream Holdings Aviation (On II), LLC, Equity Interest
384
(293
56
BCC Jetstream Holdings Aviation (On II), LLC, First Lien Senior Secured Loan
2,199
(18
223
BCC Jetstream Holdings Aviation (Off I), LLC, Equity Interest
870
582
Total Controlled affiliate investment
58,464
42,323
(281,607
14,752
65,184
304,969
67,066
(1) Non-income producing.
Transactions during the year ended December 31, 2018 in which the issuer was either an Affiliated Person or an Affiliated Person a portfolio company that the Company is deemed to Control are as follows:
Fair Value as of December 31, 2017
103,148
(885
24,492
BCC Jetstream Holdings Aviation (On II), LLC, Unfunded Commitment (1)
424
407
412
1,837
2,326
7,839
4,459
1,181
13,479
188,510
110,340
298,248
25,700
303,368
117,060
304,968
Note 6. Borrowings
In accordance with applicable SEC staff guidance and interpretations, as a BDC, with certain exceptions, effective February 2, 2019, the Company is permitted to borrow amounts such that its asset coverage ratio is at least 150% after such borrowing (if certain requirements are met), rather than 200%, as previously required. As of June 30, 2019 and December 31, 2018, the Company’s asset coverage ratio based on aggregated borrowings outstanding was 168% and 257%, respectively.
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The Company’s outstanding borrowings as of June 30, 2019 and December 31, 2018 were as follows:
Total Aggregate Principal Amount Committed
Principal Amount Outstanding
Carrying Value (1)
BCSF Revolving Credit Facility
500,000
361,865
2018-1 Notes
365,700
Citibank Revolving Credit Facility
350,000
192,129
JPM Credit Facility
666,581
587,357
Total Debt
1,882,281
1,507,051
1,505,096
865,700
636,965
634,925
(1) Carrying value represents aggregate principal amount outstanding less unamortized debt issuance costs.
The combined weighted average interest rate (excluding deferred upfront financing costs and unused fees) of the aggregate borrowings outstanding for the six months ended June 30, 2019 and year ended December 31, 2018 were 4.9% and 4.3%, respectively.
The following table shows the contractual maturities of our debt obligations as of June 30, 2019:
Payments Due by Period
Less than 1 year
1 — 3 years
3 — 5 years
More than 5 years
Total Debt Obligations
949,222
SMBC Revolving Credit Agreement
On December 22, 2016, the Company entered into the revolving credit agreement (the “SMBC Revolving Credit Agreement”). The maximum commitment amount under the SMBC Revolving Credit Facility was $150.0 million, and may be increased up to $350.0 million (“Maximum Commitment”) with the consent of SMBC or reduced upon our request. Effective July 31, 2018, the Company reduced the commitment amount under the SMBC Revolving Credit Facility to $85.0 million. Proceeds under the SMBC Revolving Credit Facility may be used for any purpose permitted under our organizational documents, including general corporate purposes such as the making of investments. The SMBC Revolving Credit Agreement contains certain covenants, including maintaining an asset coverage ratio of total assets to total borrowings of at least 200%.
Borrowings under the SMBC Revolving Credit Facility bear interest at the London Interbank Offered Rate (“LIBOR”) plus a margin. The SMBC Revolving Credit Facility was accruing interest expense at a rate of LIBOR plus 1.40%. The Company pays an unused commitment fee of: (a) where the Maximum Commitment which is unused on such date is greater than fifty (50) percent of the Maximum Commitment, a rate of 20 basis points (0.20%) per annum; or (b) where the Maximum Commitment which is unused on such date is less than or equal to fifty (50) percent of the Maximum Commitment, a rate of 15 basis points (0.15%) per annum. Interest is payable in arrears either on a one month, two month, three month or six month LIBOR period. Any amounts borrowed under the SMBC Revolving Credit Facility, and all accrued and unpaid interest, will be due and payable, on the earliest of: (a) December 22, 2019; (b) the date upon which SMBC declares the obligations, or the obligations become, due and payable after the occurrence of an event of default under the SMBC Revolving Credit Facility; (c) the date upon which the Company terminates the commitments under the SMBC Revolving Credit Facility; and (d) 45 days prior to the earlier of (1) the date upon which the commitment period under the subscription agreements terminates and (2) the date upon which the ability to make capital calls and receive capital contributions otherwise terminates.
On November 21, 2018, the SMBC Revolving Credit Facility was terminated. The proceeds from the initial public offering on November 15, 2018, were used to repay the total outstanding debt.
For the three months ended June 30, 2019 and 2018, the components of interest expense related to the Revolving Credit Facility were as follows:
Borrowing interest expense
Unused facility fee
Amortization of deferred financing costs and upfront commitment fees
91
Total interest and debt financing expenses
1,113
For the six months ended June 30, 2019 and 2018, the components of interest expense related to the Revolving Credit Facility were as follows:
2,066
181
2,264
On October 4, 2017, the Company entered into the revolving credit agreement (the “BCSF Revolving Credit Facility”) with us, as equity holder, BCSF I, LLC, a Delaware limited liability company and a wholly owned and consolidated subsidiary of the Company, as borrower, and Goldman Sachs Bank USA, as sole lead arranger (“Goldman Sachs”). The BCSF Revolving Credit Facility was subsequently amended on May 15, 2018 to reflect certain clarifications regarding margin requirements and hedging currencies. The maximum commitment amount under the BCSF Revolving Credit Facility is $500.0 million, and may be increased up to $750.0 million. Proceeds of the loans under the BCSF Revolving Credit Facility may be used to acquire certain qualifying loans and such other uses as permitted under the BCSF Revolving Credit Facility. The BCSF Revolving Credit Facility includes customary affirmative and negative covenants, including certain limitations on the incurrence of additional indebtedness and liens, as well as usual and customary events of default for revolving credit facilities of this nature. As of June 30, 2019 and December 31, 2018, the Company was in compliance with these covenants.
Assets that are pledged as collateral for the BCSF Revolving Credit Facility are not directly available to the creditors of the Company to satisfy any obligations of the Company other than the Company’s obligations under the BCSF Revolving Credit Facility.
Borrowings under the BCSF Revolving Credit Facility bear interest at LIBOR plus a margin. As of June 30, 2019 and December 31, 2018, the BCSF Revolving Credit Facility was accruing interest expense at a rate of LIBOR plus 2.50%. The Company pays an unused commitment fee of 30 basis points (0.30%) per annum. Interest is payable quarterly in arrears. Any amounts borrowed under the BCSF Revolving Credit Facility, and all accrued and unpaid interest, will be due and payable, on the earliest of: (a) October 5, 2022 and (b) the date upon which all loans shall become due and payable in full, whether by acceleration or otherwise.
As of June 30, 2019 and December 31, 2018 there were $361.9 million and $271.3 million borrowings under the BCSF Revolving Credit Facility.
For the three months ended June 30, 2019 and 2018, the components of interest expense related to the BCSF Revolving Credit Facility were as follows:
4,415
3,807
120
139
266
4,801
For the six months ended June 30, 2019 and 2018, the components of interest expense related to the BCSF Revolving Credit Facility were as follows:
9,403
6,503
207
317
10,139
7,350
On September 28, 2018 (the “2018-1 Closing Date”), the Company, through BCC Middle Market CLO 2018-1 LLC (the “2018-1 Issuer”), a Delaware limited liability company and a wholly owned and consolidated subsidiary of the Company, completed its $451.2 million term debt securitization (the “CLO Transaction”). The notes issued in connection with the CLO Transaction (the “2018-1 Notes”) are secured by a diversified portfolio of the Issuer consisting primarily of middle market loans and participation interests in middle market loans, the majority of which are senior secured loans (the “2018-1 Portfolio”). At the 2018-1 Closing Date, the 2018-1 Portfolio was comprised of assets transferred from the Company and its consolidated subsidiaries. All transfers were eliminated in consolidation and there were no realized gains or losses recognized in the CLO Transaction.
The CLO Transaction was executed through a private placement of the following 2018-1 Notes:
Principal Amount
Spread above Index
Interest rate at June 30, 2019
Class A-1 A
205,900
1.55% + 3 Month LIBOR
4.14
Class A-1 B
45,000
1.50% + 3 Month LIBOR (first 24 months)
4.09
1.80% + 3 Month LIBOR (thereafter)
Class A-2
55,100
2.15% + 3 Month LIBOR
4.74
Class B
29,300
3.00% + 3 Month LIBOR
5.59
Class C
30,400
4.00% + 3 Month LIBOR
Total 2018-1 Notes
Membership Interests
85,450
Non-interest bearing
Not applicable
451,150
The Class A-1 A, A-1 B, A-2, B and C 2018-1 Notes were issued at par and are scheduled to mature on October 20, 2030. The Company received 100% of the membership interests (the “Membership Interests”) in the 2018-1 Issuer in exchange for its sale to the 2018-1 Issuer of the initial closing date loan portfolio. The Membership Interests do not bear interest.
The Class A-1 A, A-1 B, A-2, B and C 2018-1 Notes are included in the consolidated financial statements of the Company. The Membership Interests are eliminated in consolidation.
The Company serves as portfolio manager of the 2018-1 Issuer pursuant to a portfolio management agreement between the Company and the 2018-1 Issuer. For so long as the Company serves as portfolio manager, the Company will not charge any management fee or subordinated interest to which it may be entitled.
During the reinvestment period (four years from the closing date of the CLO Transaction), pursuant to the indenture governing the 2018-1 Notes, all principal collections received on the underlying collateral may be used by the 2018-1 Issuer to purchase new collateral under the direction of the Company in its capacity as portfolio manager of the 2018-1 Issuer and in accordance with the 2018-1 Issuer’s investment strategy and the terms of the indenture.
The Company has agreed to hold on an ongoing basis the Membership Interests with an aggregate dollar purchase price at least equal to 5% of the aggregate amount of all obligations issued by the 2018-1 Issuer for so long as the 2018-1 Notes remain outstanding.
The 2018-1 Issuer pays ongoing administrative expenses to the trustee, independent accountants, legal counsel, rating agencies and independent managers in connection with developing and maintaining reports, and providing required services in connection with the administration of the 2018-1 Issuer.
As of June 30, 2019, there were 63 first lien and second lien senior secured loans with a total fair value of approximately $423.5 million and cash of $27.9 million securing the 2018-1 Notes. Assets that are pledged as collateral for the 2018-1 Notes are not
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directly available to the creditors of the Company to satisfy any obligations of the Company other than the Company’s obligations under the indenture governing the 2018-1 Notes. As of December 31, 2018, there were 75 first lien and second lien senior secured loans with a total fair value of approximately $437.2 million and cash of $18.0 million securing the 2018-1 Notes. Such assets are included in the Company’s consolidated financial statements. The creditors of the 2018-1 Issuer have received security interests in such assets and such assets are not intended to be available to the creditors of the Company (or an affiliate of the Company). The 2018-1 Portfolio must meet certain requirements, including asset mix and concentration, term, agency rating, collateral coverage, minimum coupon, minimum spread and sector diversity requirements in the indenture governing the 2018-1 Notes. As of June 30, 2019 and December 31, 2018, the Company was in compliance with its covenants related to the 2018-1 Notes.
Costs of $2.1 million were incurred in connection with debt securitization of the 2018-1 Notes by the 2018-1 Issuer which have been recorded as debt issuance costs and presented as a reduction to the outstanding principal amount of the 2018-1 Notes on the consolidated statements of assets and liabilities and are being amortized over the life of the 2018-1 Issuer using the effective interest method. The balance of the unamortized deferred financing costs related to the 2018-1 Issuer was $2.0 million and $2.0 million as of June 30, 2019 and December 31, 2018, respectively.
For the three months ended June 30, 2019 and 2018, the components of interest expense related to the 2018-1 Issuer were as follows:
4,238
43
4,281
For the six months ended June 30, 2019 and 2018, the components of interest expense related to the 2018-1 Issuer were as follows:
8,477
86
8,563
On February 19, 2019, the Company entered into a credit and security agreement (the “Credit Agreement” or the “Citibank Revolving Credit Facility”) with the Company as equity holder and servicer, BCSF II-C, LLC as Borrower, Citibank, N.A., as Administrative Agent, and Wells Fargo Bank, National Association as Collateral Administrator, Collateral Agent and Custodian. The Credit Agreement is effective as of February 19, 2019.
The facility amount under the Credit Agreement is $350.0 million. Proceeds of the loans under the Credit Agreement may be used to acquire certain qualifying loans and such other uses as permitted under the Credit Agreement. The period from the closing date until February 19, 2020 is referred to as the reinvestment period and during such reinvestment period, the Borrower may request drawdowns under the Credit Agreement. The final maturity date is the earliest of: (a) the business day designated by the Borrower as the final maturity date upon not less than three business days’ prior written notice to the Administrative Agent, the Collateral Agent, the Lenders, the Custodian and the Collateral Administrator, (b) February 19, 2022 and (c) the date on which the Administrative Agent provides notice of the declaration of the final maturity date after the occurrence of an event of default. The Credit Agreement includes customary affirmative and negative covenants, including certain limitations on the incurrence of additional indebtedness and liens, as well as usual and customary events of default for revolving credit facilities of this nature. As of June 30, 2019, the Company was in compliance with these covenants.
Assets that are pledged as collateral for the Citibank Revolving Credit Facility are not directly available to the creditors of the Company to satisfy any obligations of the Company other than the Company’s obligations under the Citibank Revolving Credit Facility.
Borrowings under the Citibank Revolving Credit Facility bear interest at the London Interbank Offered Rate (“LIBOR”) plus a margin. During the period prior to the last day of the reinvestment period, borrowings under the Credit Agreement will bear interest at a rate equal to the three-month LIBOR plus 1.60%. Commencing on the last day of the reinvestment period, the interest rate on borrowings under the Credit Agreement will reset to three month LIBOR plus 2.60% for the remaining term of the Credit Agreement. The Company pays an unused commitment fee based on a corresponding utilization rate; (i) 0 basis points (0.00%) per annum when
40
greater than or equal to 85.0% utilization, (ii) 25 basis points (0.25%) per annum when greater than or equal to 75.0% but less than 85.0% utilization, (iii) 50 basis points (0.50%) per annum when greater than or equal to 50.0% but less than 75.0% utilization, (iv) 75 basis points (0.75%) per annum when greater than or equal to 25.0% but less than 50% utilization, or (v) 100 basis points (1.00%) per annum when less than 25.0% utilization.
As of June 30, 2019, there were $192.1 million borrowings under the Citibank Revolving Credit Facility.
For the three months ended June 30, 2019 and 2018, the components of interest expense related to the Citibank Revolving Credit Facility were as follows:
2,024
209
2,243
For the six months ended June 30, 2019 and 2018, the components of interest expense related to the Citibank Revolving Credit Facility were as follows:
2,930
3,169
On April 30, 2019, the Company entered into a loan and security agreement (the “JPM Credit Agreement” or the “JPM Credit Facility”) as Borrower, with JPMorgan Chase Bank, National Association, as Administrative Agent, and Wells Fargo Bank, National Association as Collateral Administrator, Collateral Agent, Securities Intermediary and Bank.
The facility amount under the JPM Credit Agreement is $666.6 million. Proceeds of the loans under the JPM Credit Facility may be used to acquire certain qualifying loans and such other uses as permitted under the JPM Credit Agreement. The period from the effective date until November 29, 2020 is referred to as the reinvestment period and during such reinvestment period, the Borrower may request drawdowns under the JPM Credit Facility.
The maturity date is the earliest of: (a) November 29, 2022, (b) the date on which the secured obligations become due and payable following the occurrence of an event of default, (c) the date on which the advances are repaid in full and (d) the date after a market value cure failure occurs on which all portfolio investments have been sold and proceeds therefrom have been received by the Borrower. The stated maturity date of November 29, 2022 may be extended for successive one year periods by mutual agreement of the Borrower and the Administrative Agent.
Borrowings under the JPM Credit Facility bear interest at LIBOR plus a margin. As of June 30, 2019, JPM Credit Facility was accruing interest expense at a rate of LIBOR plus 2.75%. The Company pays an unused commitment fee of 75 basis points (0.75%) per annum. Interest is payable quarterly in arrears.
The JPM Credit Agreement includes customary affirmative and negative covenants, including certain limitations on the incurrence of additional indebtedness and liens, as well as usual and customary events of default for revolving credit facilities of this nature.
As of June 30, 2019, there were $587.4 million borrowings under the JPM Credity Facility.
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For the three months ended June 30, 2019 and 2018, the components of interest expense related to the JPM Credit Facility were as follows:
5,155
5,294
For the six months ended June 30, 2019 and 2018, the components of interest expense related to the JPM Credit Facility were as follows:
Note 7. Derivatives
The Company is subject to foreign currency exchange rate risk in the normal course of pursuing its investment objectives. The value of foreign investments held by the Company may be significantly affected by changes in foreign currency exchange rates. The dollar value of a foreign security generally decreases when the value of the dollar rises against the foreign currency in which the security is denominated and tends to increase when the value of the dollar declines against such foreign currency.
The Company may enter into forward currency exchange contracts to reduce the Company’s exposure to foreign currency exchange rate fluctuations in the value of foreign currencies, as described in Note 2. The fair value of derivative contracts open as of June 30, 2019 and December 31, 2018 is included on the consolidated schedule of investments by contract. The Company posted collateral of $2.0 million and $0.0 million with the counterparties on foreign currency exchange contracts at June 30, 2019 and December 31, 2018, respectively. Collateral amounts posted are included in collateral on forward currency exchange contracts on the consolidated statements of assets and liabilities.
For the three and six months ended June 30, 2019, the Company’s average U.S. dollar notional exposure to forward currency exchange contracts was $161.8 million and $158.6 million, respectively. For the three and six months ended June 30, 2018, the Company’s average U.S. dollar notional exposure to forward currency exchange contracts was $109.7 million and $97.5 million, respectively.
By using derivative instruments, the Company is exposed to the counterparty’s credit risk—the risk that derivative counterparties may not perform in accordance with the contractual provisions offset by the value of any collateral received. The Company’s exposure to credit risk associated with counterparty non-performance is limited to collateral posted and the unrealized gains inherent in such transactions that are recognized in the consolidated statements of assets and liabilities. The Company minimizes counterparty credit risk through credit monitoring procedures, executing master netting arrangements and managing margin and collateral requirements, as appropriate.
The Company presents forward currency exchange contracts on a net basis by counterparty on the consolidated statements of assets and liabilities. The Company has elected not to offset assets and liabilities in the consolidated statements of assets and liabilities that may be received or paid as part of collateral arrangements, even when an enforceable master netting arrangement or other arrangement is in place that provides the Company, in the event of counterparty default, the right to liquidate collateral and the right to offset a counterparty’s rights and obligations.
The following table presents both gross and net information about derivative instruments eligible for offset in the consolidated statements of assets and liabilities as of June 30, 2019:
Account in the consolidated statements of assets and liabilities
Gross amount of assets on the consolidated statements of assets and liabilities
Gross amount of (liabilities) on the consolidated statements of assets and liabilities
Net amount of assets or (liabilities) presented on the consolidated statements of assets and liabilities
Cash Collateral paid (received) (1)
Net Amounts (2)
Bank of New York
Unrealized appreciation on forward currency contracts
Unrealized depreciation on forward currency contracts
(146
42
(1) Amount excludes excess cash collateral paid.
(2) Net amount represents the net amount due (to) from counterparty in the event of default based on the contractual set-off rights under the agreement. Net amount excludes any over-collateralized amounts.
The following table presents both gross and net information about derivative instruments eligible for offset in the consolidated statements of assets and liabilities as of December 31, 2018:
3,329
1,676
4,317
The effect of transactions in derivative instruments to the consolidated statements of operations during the three months ended June 30, 2019 and 2018 was as follows:
Net realized gain on forward currency exchange contracts
Total net realized and unrealized gains (losses) on forward currency exchange contracts
7,097
Included in total net gains (losses) on the consolidated statements of operations is net gains (losses) of ($0.8) million and ($6.4) million related to realized and unrealized gains and losses on investments, foreign currency holdings and non-investment assets and liabilities attributable to the changes in foreign currency exchange rates for the three months ended June 30, 2019 and 2018, respectively. Including the total net realized and unrealized gains (losses) on forward currency exchange contracts of $1.2 million and $7.1 million, respectively, included in the above table, the net impact of foreign currency on total net gains (losses) on the consolidated statements of operations is $0.4 million and $0.7 million for the three months ended June 30, 2019 and 2018, respectively.
The effect of transactions in derivative instruments to the consolidated statements of operations during the six months ended June 30, 2019 and 2018 was as follows:
1,547
4,721
Included in total net gains (losses) on the consolidated statements of operations is net gains (losses) of ($0.4) million and ($3.8) million related to realized and unrealized gains and losses on investments, foreign currency holdings and non-investment assets and liabilities attributable to the changes in foreign currency exchange rates for the six months ended June 30, 2019 and 2018, respectively. Including the total net realized and unrealized gains (losses) on forward currency exchange contracts of $1.5 million and $4.7 million, respectively, included in the above table, the net impact of foreign currency on total net gains (losses) on the consolidated statements of operations is $1.1 million and $0.9 million for the six months ended June 30, 2019 and 2018, respectively.
Note 8. Distributions
The Company’s distributions are recorded on the record date. The following table summarizes distributions declared during the six months ended June 30, 2019:
Date Declared
Record Date
Payment Date
Amount Per Share
Total Distributions
February 21, 2019
March 29, 2019
April 12, 2019
21,107
May 7, 2019
June 28, 2019
July 29, 2019
Total distributions declared
42,283
The distributions declared during the six months ended June 30, 2019 were derived from investment company taxable income and net capital gain, if any.
The Company’s distributions are recorded on the record date. The following table summarizes distributions declared during the six months ended June 30, 2018:
March 28, 2018
May 17, 2018
0.34
10,610
June 28, 2018
August 10, 2018
0.36
13,484
0.70
24,094
The distributions declared during the six months ended June 30, 2018 were derived from investment company taxable income and net capital gain, if any.
The federal income tax characterization of distributions declared and paid for the fiscal year will be determined at fiscal year-end based upon the Company’s investment company taxable income for the full fiscal year and distributions paid during the full year.
Note 9. Common Stock/Capital
The Company has authorized 100,000,000,000 shares of its common stock with a par value of $0.001 per share. The Company has authorized 10,000,000,000 shares of its preferred stock with a par value of $0.001 per share. Shares of preferred stock have not been issued.
Prior to the IPO, the Company had issued 43,982,137.46 shares in the private placement of the Company’s common shares (the “Private Offering”). Each investor had entered into a separate subscription agreement relating to the Company’s common stock (the “Subscription Agreements”). Each investor had made a capital commitment to purchase shares of the Company’s common stock pursuant to the Subscription Agreements. Investors were required to make capital contributions to purchase shares of the Company’s common stock each time the Company delivered a drawdown notice, which were delivered at least 10 business days prior to the required funding date in an aggregate amount not to exceed their respective capital commitments. The number of shares to be issued to a stockholder was determined by dividing the total dollar amount of the contribution by a stockholder by the net asset value per share of the common stock as of the last day of the Company’s fiscal quarter or such other date and price per share as determined by the Board in accordance with the requirements of the 1940 Act. As of December 31, 2018, aggregate commitments relating to the Private Offering were $1.3 billion. All outstanding commitments related to these Subscription Agreements were cancelled due to the completion of the IPO on November 15, 2018. As of June 30, 2019 and December 31, 2018, BCSF Advisors, LP contributed in aggregate $7.8 million to the Company and received 389,582.42 shares of the Company and contributed $7.8 million to the Company and received 389,476.18 shares of the Company, respectively. At June 30, 2019 and December 31, 2018, BCSF Advisors, LP owned 0.75% and 0.76%, respectively, of the outstanding common stock of the Company.
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On November 19, 2018, the Company closed its initial public offering (the “IPO”) issuing 7,500,000 shares of its common stock at a public offering price of $20.25 per share. Shares of common stock of the Company began trading on the New York Stock Exchange under the symbol “BCSF” on November 15, 2018. The offering generated proceeds, before expenses, of $147.3 million. All outstanding commitments were cancelled due the completion of the initial public offering.
The following table summarizes the total shares issued and amount received related to capital drawdowns delivered pursuant to the Subscription Agreements and shares issued pursuant to the dividend reinvestment plan during the three months ended June 30, 2019 and 2018:
Shares
Amount
Total capital drawdowns
6,160,339.53
Dividend reinvestment
167,674.81
91,296.97
Total capital drawdowns and dividend reinvestment
6,251,636.50
The following table summarizes the total shares issued and amount received related to capital drawdowns delivered pursuant to the Subscription Agreements and shares issued pursuant to the dividend reinvestment plan during the six months ended June 30, 2019 and 2018:
12,323,862.05
156,793.49
12,480,655.54
BCSF Investments, LLC and certain individuals, including Michael A. Ewald, the Company’s Chief Executive Officer and a Managing Director of Bain Capital Credit; Jonathan S. Lavine, Co-Managing Partner of Bain Capital, LP and Founder and Chief Investment Officer of Bain Capital Credit; John Connaughton, Co-Managing Partner of Bain Capital, LP; Jeffrey B. Hawkins, Chairman of the Company’s Board of Directors and a Managing Director of Bain Capital Credit; and Michael J. Boyle, the Company’s Vice President and Treasurer and a Managing Director of Bain Capital Credit, which such parties will buy up to $20 million in the aggregate of the Company’s common stock in the open market during the period beginning after four full calendar weeks after the closing of the IPO and ending on the earlier of the date on which the capital committed to the 10b5-1 has been exhausted or one year after the closing of the IPO. For the six months ended June 30, 2019, 827,933 shares were purchased at a weighted average price of $18.78, inclusive of commissions, for a total cost of $15.6 million. As of February 21, 2019, zero dollars remain under the 10b5-1 Plan and no further purchases are intended under the 10b5-1 Plan.
On May 7, 2019, the Company’s Board of Directors authorized the Company to repurchase up to $50 million of its outstanding common stock in accordance with safe harbor rules under the Securities Exchange Act of 1934. Any such repurchases will depend upon market conditions and there is no guarantee that the Company will repurchase any particular number of shares or any shares at all. As of June 30, 2019, there have been no repurchases of common stock.
Note 10. Commitments and Contingencies
Commitments
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.
45
As of June 30, 2019, the Company had $186.6 million of unfunded commitments under loan and financing agreements as follows:
Expiration Date (1)
Unfunded Commitments (2)
A&R Logistics, Inc. — Revolver
5,409
Abracon Group Holding, LLC. — Revolver
2,833
AMI US Holdings Inc. — Revolver
1,395
Amspec Services, Inc. — Revolver
643
Ansira Holdings, Inc. — Delayed Draw
1,509
Ansira Holdings, Inc. — Revolver
5,440
AP Plastics Group, LLC — Revolver
8,500
Appriss Holdings, Inc. — Revolver
4,711
Aramsco, Inc. — Revolver
3,048
Batteries Plus Holding Corporation — Revolver
4,250
Captain D’s LLC — Revolver
1,167
Chase Industries, Inc. — Delayed Draw
2,619
Clinical Innovations, LLC — Revolver
719
CMI Marketing Inc — Revolver
2,112
CPS Group Holdings, Inc. — Revolver
4,933
Cruz Bay Publishing, Inc. — Delayed Draw
Cruz Bay Publishing, Inc. — Revolver
CST Buyer Company — Revolver
897
Datix Bidco Limited — Revolver
1,235
Direct Travel, Inc. — Delayed Draw
1,883
Direct Travel, Inc. — Revolver
Dorner Manufacturing Corp — Revolver
1,099
Drilling Info Holdings, Inc — Delayed Draw
Efficient Collaborative Retail Marketing Company, LLC — Revolver
3,542
Element Buyer, Inc. — Delayed Draw
7,933
Element Buyer, Inc. — Revolver
3,683
FFI Holdings I Corp — Delayed Draw
8,138
FFI Holdings I Corp — Revolver
2,877
Fineline Technologies, Inc. — Revolver
2,424
Grammer Purchaser, Inc. — Revolver
1,050
Great Expressions Dental Center PC — Revolver
727
Hightower Holding, LLC — Delayed Draw
5,120
Home Franchise Concepts, Inc. — Revolver
2,530
Horizon Telcom, Inc. — Delayed Draw
1,487
Horizon Telcom, Inc. — Revolver
1,159
Ivy Finco Limited — First Lien Senior Secured Loan
8,985
Margaux Acquisition Inc. — Delayed Draw
7,139
Margaux Acquisition Inc. — Revolver
2,872
Margaux UK Finance Limited — Revolver
Mertus 522. GmbH — Delayed Draw
14,933
PRCC Holdings, Inc. — Revolver
Profile Products LLC — Revolver
3,833
RoC Opco LLC — Revolver
10,241
Solaray, LLC — Delayed Draw
Solaray, LLC — Revolver
Stanton Carpet Corp. — Revolver
Symplr Software, Inc. — Revolver
2,120
TCFI Aevex LLC — Revolver
2,350
TEI Holdings Inc. — Revolver
Tidel Engineering, L.P. — Revolver
WCI-HSG Purchaser, Inc. — Revolver
WU Holdco, Inc. — Delayed Draw
5,635
WU Holdco, Inc. — Revolver
3,944
Zywave, Inc. — Revolver
851
Total First Lien Senior Secured Loans
186,609
(1) Commitments are generally subject to borrowers meeting certain criteria such as compliance with covenants and certain operational metrics. These amounts may remain outstanding until the commitment period of an applicable loan expires, which may be shorter than its maturity.
(2) Unfunded commitments denominated in currencies other than U.S. dollars have been converted to U.S. dollars using the applicable foreign currency exchange rate as of June 30, 2019.
46
As of December 31, 2018, the Company had $110.2 million of unfunded commitments under loan and financing agreements as follows:
Unfunded Commitments (2) (3)
Abracon Group Holding, LLC — Revolver
Aimbridge Hospitality LP — Revolver
1,177
AMCP Clean Acquisition Company, LLC — Delayed Draw Term Loan
2,315
4,735
AP Plastics Group, LLC— Revolver
API Technologies Corp. — Revolver
4,183
3,161
Caliper Corporation — Revolver
2,358
1,074
Chase Industries, Inc. — Delayed Draw Term Loan
3,544
CMI Marketing Inc. — Revolver
1,240
Dorner Manufacturing Corp. — Revolver
1,044
Drilling Info Holdings, Inc. — Delayed Draw Term Loan
1,663
ENC Holding Corporation — Delayed Draw Term Loan
595
FineLine Technologies, Inc. — Revolver
945
Great Expressions Dental Centers PC — Revolver
213
Horizon Telcom, Inc. — Delayed Draw Term Loan
1,738
Margaux UK Finance — Revolver
636
Margaux Acquisition Inc.— Revolver
2,257
McKissock, LLC — Revolver
1,842
7,084
Sovos Compliance, LLC — Delayed Draw Term Loan
871
Sovos Compliance, LLC — Revolver
1,452
512
107,661
Other Unfunded Commitments
BCC Jetstream Holdings Aviation (On II), LLC
2,562
Total Other Unfunded Commitments
110,223
(2) Unfunded commitments denominated in currencies other than U.S. dollars have been converted to U.S. dollars using the applicable foreign currency exchange rate as of December 31, 2018.
(3) Unfunded commitments represent unfunded commitments to fund investments, excluding the Company’s investment in ABCS as of December 31, 2018.
47
Contingencies
In the normal course of business, the Company may enter into certain contracts that provide a variety of indemnities. The Company’s maximum exposure under these indemnities is unknown as it would involve future claims that may be made against the Company. Currently, the Company is not aware of any such claims and no such claims are expected to occur. As such, the Company does not consider it necessary to record a liability in this regard.
Note 11. Financial Highlights
The following is a schedule of financial highlights for the six months ended June 30, 2019 and 2018:
For The Six months Ended June 30,
Per share data:
Net asset value at beginning of period
20.30
Net investment income (1)
Net realized gain (loss) (1) (7)
0.18
(0.15
Net change in unrealized appreciation (1) (2) (8)
0.13
0.00
Net increase in net assets resulting from operations (1) (9) (10)
1.13
Stockholder distributions from income (3)
(0.82
(0.70
Net asset value at end of period
Shares outstanding at end of period
51,649,812.27
37,456,467.53
Per share market value at end of period
18.62
N/A
Total return based on market value (12)
15.83
Total return based on net asset value (4)
5.85
2.67
Ratios:
Ratio of net investment income to average net assets (5)(11)(13)
8.73
Ratio of total net expenses to average net assets (5)(11)(13)
9.32
4.82
Supplemental data:
Ratio of interest and debt financing expenses to average net assets (5)(13)
5.42
2.96
Ratio of expenses (without incentive fees) to average net assets (5) (11)(13)
4.53
Ratio of incentive fees and management fees, net of contractual and voluntary waivers, to average net assets (5)(11)(13)
3.21
1.91
Average principal debt outstanding
1,061,061
421,390
Portfolio turnover (6)
28.72
13.58
Total committed capital, end of period
1,255,319
Ratio of total contributed capital to total committed capital, end of period
60.03
(1) The per share data was derived by using the weighted average shares outstanding during the period.
(2) Net change in unrealized appreciation (depreciation) on investments per share may not be consistent with the consolidated statements of operations due to the timing of shareholder transactions.
(3) The per share data for distributions reflects the actual amount of distributions declared during the period.
(4) Total return based on net asset value is calculated as the change in net asset value per share during the period, assuming dividends and distributions, including those distributions that have been declared. Total return has not been annualized.
(5) The computation of average net assets during the period is based on averaging net assets for the periods reported.
(6) Portfolio turnover rate is calculated using the lesser of year-to-date sales or year-to-date purchases over the average of the invested assets at fair value for the periods reported. Year-to-date sales and year-to-date purchases for the 6 months ended June 30, 2019 exclude the ABCS distribution transaction.
(7) Net realized gain (loss) includes net realized gain (loss) on investments, net realized gain (loss) on forward currency exchange contracts and net realized gain (loss) on foreign currency transactions.
(8) Net change in unrealized appreciation (depreciation) includes net change in unrealized appreciation (depreciation) on investments, net change in unrealized appreciation (depreciation) on forward currency exchange contracts and net change in unrealized appreciation (depreciation) on foreign currency translation.
(9) The sum of quarterly per share amounts presented in previously filed financial statements on Form 10-Q may not equal earnings per share. This is due to changes in the number of weighted average shares outstanding and the effects of rounding.
(10) Net increase in net assets resulting from operations per share in these financial highlights may be different from the net increase in net assets per share on the consolidated statements of operations due to rounding.
(11) Ratio of voluntary incentive fee waiver to average net assets was (0.20%) for the six months ended June 30, 2019 (Note 5). Ratio of voluntary management fee waiver to average net assets was (0.38%) for the six months ended June 30, 2019 (Note 5).
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The ratio of net investment income without the voluntary incentive fee waiver and voluntary management fee waiver to average net assets for the six months ended June 30, 2019 would be 8.15%. The ratio of total expenses without the voluntary incentive fee waiver and voluntary management fee waiver to average net assets for the six months ended June 30, 2019 would be 9.90%. No fees were voluntarily waived for the six months ended June 30, 2018.
(12) Total return based on market value (not annualized) is calculated as the change in market value per share during the period, assuming dividends and distributions, plus the declared distributions, divided by the beginning market price for the period. Total return has not been annualized.
(13) Ratio is annualized. Incentive fees, voluntary incentive fee waivers, and voluntary management fee waivers, if any, included within the ratio are not annualized.
Note 12. Subsequent Events
On July 17, 2019, the Board of Directors (the “Board”) appointed Amy Butte and Clare Richer as Class I independent directors of Bain Capital Specialty Finance, Inc. (the “Company”). Effective upon the appointments of Ms. Butte and Ms. Richer as directors, the size of the Board was expanded from five to seven members. The Board appointed Ms. Butte and Ms. Richer to the Nominating and Corporate Governance Committee, the Audit Committee and the Compensation Committee. These appointments are effective August 1, 2019.
On August 1, 2019, with effect as of August 31, 2019, the Board of the Company amended its dividend reinvestment plan to incorporate certain clarifying changes (i) with respect to the mechanism by which the Company may issue new shares of common stock or make open market purchases of its common stock under its dividend reinvestment plan, (ii) to delete references to provisions that would apply prior to a listing of the common stock of the Company on an exchange and (iii) updating the notice provision to Shareholders to reflect the Company’s exchange listing.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following analysis of our financial condition and results of operations in conjunction with our financial statements and related notes appearing in our Annual Report on Form 10-K (the “Annual Report”) for the year ended December 31, 2018, filed with the U.S. Securities and Exchange Commission (“SEC”) on February 28, 2019. The information contained in this section should also be read in conjunction with our unaudited financial statements and related notes and other financial information appearing elsewhere in this Quarterly Report on Form 10-Q (the “Quarterly Report”).
Overview
Bain Capital Specialty Finance, Inc. (the “Company”, “we”, “our” and “us”) is an externally managed specialty finance company focused on lending to middle market companies. We have elected to be regulated as a business development company (a “BDC”) under the Investment Company Act of 1940, as amended (together with the rules and regulations promulgated thereunder, the “1940 Act”). We are managed by BCSF Advisors, LP (our “Advisor” or “BCSF Advisors”), a subsidiary of Bain Capital Credit, LP (“Bain Capital Credit”). Our Advisor is registered as an investment adviser with the SEC under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). Our Advisor also provides the administrative services necessary for us to operate (in such capacity, our “Administrator” or “BCSF Advisors”). Since we commenced operations on October 13, 2016 through June 30, 2019, we have invested approximately $2.9 billion in aggregate principal amount of debt and equity investments prior to any subsequent exits or repayments. We seek to generate current income and, to a lesser extent, capital appreciation through direct originations of secured debt, including first lien, first lien/last-out, unitranche and second lien debt, investments in strategic joint ventures, equity investments and, to a lesser extent, corporate bonds.
On November 19, 2018, we closed our initial public offering (the “IPO”) issuing 7,500,000 shares of our common stock at a public offering price of $20.25 per share. Shares of common stock of the Company began trading on the New York Stock Exchange under the symbol “BCSF” on November 15, 2018.
Our primary focus is capitalizing on opportunities within our Senior Direct Lending strategy, which seeks to provide risk-adjusted returns and current income to our stockholders by investing primarily in middle-market companies with between $10.0 million and $150.0 million in annual earnings before interest, taxes, depreciation and amortization (“EBITDA”). However, we may, from time to time, invest in larger or smaller companies. We generally seek to retain effective voting control in respect of the loans or particular classes of securities in which we invest through maintaining affirmative voting positions or negotiating consent rights that allow us to retain a blocking position. We focus on senior investments with a first or second lien on collateral and strong structures and documentation intended to protect the lender. We may also invest in mezzanine debt and other junior securities, including common and preferred equity, on an opportunistic basis, and in secondary purchases of assets or portfolios but such investments are not the principal focus of our investment strategy. In addition, we may invest, from time to time, in distressed debt, debtor-in-possession loans, structured products, structurally subordinate loans, investments with deferred interest features, zero-coupon securities and defaulted securities.
We generate revenues primarily through receipt of interest income from the investments we hold. In addition, we generate income from various loan origination and other fees, dividends on direct equity investments and capital gains on the sales of investments. The companies in which we invest use our capital for a variety of reasons, including to support organic growth, to fund changes of control, to fund acquisitions, to make capital investments and for refinancing and recapitalizations.
We expect that our level of investment activity may vary substantially from period to period depending on many factors, including the amount of debt and equity capital available to middle-market companies, the level of merger and acquisition activity for such companies, the level of investment and capital expenditures of such companies, the general economic environment, the amount of capital we have available to us and the competitive environment for the type of investments we make.
As a BDC, we may not acquire any assets other than “qualifying assets” specified in the 1940 Act, unless, at the time the acquisition is made, at least 70% of our total assets are qualifying assets (with certain limited exceptions). Qualifying assets include investments in “eligible portfolio companies.” Pursuant to rules adopted by the SEC, “eligible portfolio companies” include certain companies that do not have any securities listed on a national securities exchange and public companies whose securities are listed on a national securities exchange but whose market capitalization is less than $250 million.
As a BDC, we may also invest up to 30% of our portfolio opportunistically in “non-qualifying” portfolio investments, such as investments in non-U.S. companies.
Revenues
We primarily generate revenue in the form of interest income on debt investments and distributions on equity investments and, to a lesser extent, capital gains, if any, on equity securities that we may acquire in portfolio companies. Some of our investments may provide for deferred interest payments or payment-in-kind (“PIK”) interest. The principal amount of the debt investments and any accrued but unpaid interest generally becomes due at the maturity date. In addition, we may generate revenue in the form of commitment, origination, structuring or diligence fees, fees for providing managerial assistance and consulting fees. Loan origination fees, original issue discount and market discount or premium are capitalized, and we accrete or amortize such amounts into or against income over the life of the loan. We record contractual prepayment premiums on loans and debt securities as interest income.
Our debt investment portfolio consists of primarily floating rate loans. As of June 30, 2019 and December 31, 2018, 98.5% and 95.5%, respectively, of our debt investments, based on fair value, bore interest at floating rates, which may be subject to interest rate floors. Variable-rate investments subject to a floor generally reset periodically to the applicable floor, only if the floor exceeds the index. Trends in base interest rates, such as LIBOR, may affect our net investment income over the long term. In addition, our results may vary from period to period depending on the interest rates of new investments made during the period compared to investments that were sold or repaid during the period; these results reflect the characteristics of the particular portfolio companies that we invested in or exited during the period and not necessarily any trends in our business or macroeconomic trends.
Dividend income on preferred equity investments is recorded on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity investments is recorded on the record date for private portfolio companies and on the ex-dividend date for publicly traded portfolio companies.
Our primary operating expenses may include the payment of fees to our Advisor under the second amended and restated investment advisory agreement (the “Amended Advisory Agreement”), our allocable portion of overhead expenses under the administration agreement (the “Administration Agreement”) and other operating costs, including those described below. The Base Management Fee and Incentive Fee compensate our Advisor for its work in identifying, evaluating, negotiating, closing and monitoring our investments. We bear all other out-of-pocket costs and expenses of our operations and transactions, including:
· our operational and organizational cost;
· the costs of any public offerings of our common stock and other securities, including registration and listing fees;
· costs of calculating our net asset value (including the cost and expenses of any third-party valuation services);
· fees and expenses payable to third parties relating to evaluating, making and disposing of investments, including our Advisor’s or its affiliates’ travel expenses, research costs and out-of-pocket fees and expenses associated with performing due diligence and reviews of prospective investments, monitoring our investments and, if necessary, enforcing our rights;
· interest payable on debt and other borrowing costs, if any, incurred to finance our investments;
· costs of effecting sales and repurchases of our common stock and other securities;
· the base management fee and any incentive fee;
· distributions on our common stock;
· transfer agent and custody fees and expenses;
· the allocated costs incurred by the Administrator in providing managerial assistance to those portfolio companies that request it;
· other expenses incurred by BCSF Advisors or us in connection with administering our business, including payments made to third-party providers of goods or services;
· brokerage fees and commissions;
· federal and state registration fees;
· U.S. federal, state and local taxes;
· Independent Director fees and expenses;
· costs associated with our reporting and compliance obligations under the 1940 Act and applicable U.S. federal and state securities laws;
· costs of any reports, proxy statements or other notices to our stockholders, including printing costs;
· costs of holding stockholder meetings;
· our fidelity bond;
· directors’ and officers’ errors and omissions liability insurance, and any other insurance premiums;
· litigation, indemnification and other non-recurring or extraordinary expenses;
· direct costs and expenses of administration and operation, including printing, mailing, long distance telephone, staff, audit, compliance, tax and legal costs;
· fees and expenses associated with marketing efforts;
· dues, fees and charges of any trade association of which we are a member; and
· all other expenses reasonably incurred by us or the Administrator in connection with administering our business.
To the extent that expenses to be borne by us are paid by BCSF Advisors, we will generally reimburse BCSF Advisors for such expenses. To the extent the Administrator outsources any of its functions, the Company will pay the fees associated with such functions on a direct basis without profit to the Administrator. We will also reimburse the Administrator for its costs and expenses and our allocable portion of overhead incurred by it in performing its obligations under the Administration Agreement, including certain rent and compensation paid to or compensatory distributions received by our officers (including our Chief Compliance Officer and Chief Financial Officer) and any of their respective staff who provide services to us, operations staff who provide services to us, internal audit staff, if any, to the extent internal audit performs a role in our Sarbanes-Oxley internal control assessment and fees paid to third-party providers for goods or services. Our allocable portion of overhead will be determined by the Administrator, which expects to use various methodologies such as allocation based on the percentage of time certain individuals devote, on an estimated basis, to our business and affairs, and will be subject to oversight by our Board of Directors (our “Board”). We incurred expenses related to the Administrator of $0.4 million and $0.0 million for the three months ended June 30, 2019 and 2018, respectively, and $0.5 million and $0.0 million for the six months ended June 30, 2019 and 2018, respectively, which is included in other general and administrative expenses on the consolidated statements of operations. The sub-administrator is paid its compensation for performing its sub-administrative services under the sub-administration agreement. We incurred expenses related to the sub-administrator of $0.1 million and $0.2 million for the three months ended June 30, 2019 and 2018, respectively, and $0.3 million and $0.3 million for the six months ended June 30, 2019 and 2018, respectively, which is included in other general and administrative expenses on the consolidated statements of operations. BCSF Advisors will not be reimbursed to the extent that such reimbursements would cause any distributions to our stockholders to constitute a return of capital. All of the foregoing expenses are ultimately borne by our stockholders.
Leverage
We may borrow money from time to time. However, our ability to incur indebtedness (including by issuing preferred stock), as of June 30, 2019, is limited by applicable regulations such that our asset coverage, as defined in the 1940 Act, must equal at least 150%. We do not intend to change our primary focus of capitalizing on opportunities within our Senior Direct Lending strategy, which seeks to provide risk-adjusted returns and current income to our stockholders by investing primarily in middle market companies. In determining whether to borrow money, we will analyze the maturity, covenant package and rate structure of the proposed borrowings as well as the risks of such borrowings compared to our investment outlook.
Portfolio and Investment Activity
During the three months ended June 30, 2019, we invested $403.1 million, including PIK, in 42 portfolio companies, including ABCS as a single portfolio company, and had $378.1 million in aggregate amount of principal repayments and sales, resulting in a net increase in investments of $25.0 million for the period. These amounts exclude the ABCS distribution transaction on April 30, 2019. On April 30, 2019, the Company received a distribution from ABCS. The portfolio of investments that were distributed comprised of 25 senior secured unitranche loans with a fair value of $919.0 million.
During the three months ended June 30, 2018, we invested $229.7 million in 33 portfolio companies, including ABCS as a single portfolio company, and had $62.5 million in aggregate amount of principal repayments and sales, resulting in a net increase in investments of $167.2 million for the period.
During the six months ended June 30, 2019, we invested $678.7 million, including PIK, in 68 portfolio companies, including ABCS as a single portfolio company, and had $570.3 million in aggregate amount of principal repayments and sales, resulting in a net increase in investments of $108.4 million for the period. These amounts exclude the ABCS distribution transaction on April 30, 2019. On April 30, 2019, the Company received a distribution from ABCS. The portfolio of investments that were distributed comprised of 25 senior secured unitranche loans with a fair value of $919.0 million.
During the six months ended June 30, 2018, we invested $373.5 million in 47 portfolio companies, including ABCS as a single portfolio company, and had $127.4 million in aggregate amount of principal repayments and sales, resulting in a net increase in investments of $246.0 million for the period.
The following table shows the composition of the investment portfolio and associated yield data as of June 30, 2019 (dollars in thousands):
Weighted Average Yield
First Lien Senior Secured Loans (1)
First Lien Last Out Loans (1)
9.8
Second Lien Senior Secured Loans (1)
10.0
Subordinated Debt (1)
13.9
Corporate Bonds (1)
8.0
(1) Computed for debt investments based upon the annual interest rate as of June 30, 2019, divided by the total par amount of investments. For investments with floating interest rates, the yield calculation is computed using the contract rate as of June 30, 2019. The weighted average yield does not represent the total return to our stockholders.
The following table shows the composition of the investment portfolio and associated yield data as of December 31, 2018 (dollars in thousands):
9.7
11.2
Investment Vehicles (1) (2)
14.0
53
(1) Computed for debt investments based upon the annual interest rate, including PIK, at December 31, 2018, divided by the total par amount of investments. For investments with floating interest rates, the yield calculation is computed using the contract rate at December 31, 2018. Weighted average yield for Investment Vehicles represents the weighted average levered yield of our proportionate investment in ABCS at December 31, 2018. Weighted average yield for Investment Vehicles is computed based upon (1) the weighted average of the interest rate of investments held by ABCS less (2) the weighted average interest rate of the ABCS Facility, divided by our par amount in ABCS. Total weighted average yield is the weighted average of the yields of the debt investments and the Investment Vehicles in ABCS. The weighted average yield does not represent the total return to our stockholders.
(2) Represents equity investment in ABCS.
The following table presents certain selected information regarding our investment portfolio as of June 30, 2019:
Number of portfolio companies
123
Percentage of debt bearing a floating rate (1)
98.5
Percentage of debt bearing a fixed rate (1)
(1) Measured on a fair value basis.
The following table presents certain selected information regarding our investment portfolio as of December 31, 2018:
Number of portfolio companies (2)
132
95.5
(2) Includes ABCS as a single portfolio company. For details of portfolio companies held within ABCS, refer to the selected financial data of ABCS.
The following table shows the amortized cost and fair value of our performing and non-accrual investments as of June 30, 2019 (dollars in thousands):
Percentage at Amortized Cost
Percentage at Fair Value
Performing
100
Non-accrual
The following table shows the amortized cost and fair value of our performing and non-accrual investments as of December 31, 2018 (dollars in thousands):
Loans or debt securities are placed on non-accrual status when there is reasonable doubt that principal or interest will be collected. Accrued interest generally is reversed when a loan or debt security is placed on non-accrual status. Interest payments received on non-accrual loans or debt securities may be recognized as income or applied to principal depending upon management’s judgment. Non-accrual loans and debt securities are restored to accrual status when past due principal and interest is paid and, in management’s judgment, are likely to remain current. We may make exceptions to this treatment if the loan has sufficient collateral value and is in the process of collection.
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The following table shows the amortized cost and fair value of the investment portfolio, cash and cash equivalents and foreign cash as of June 30, 2019 (dollars in thousands):
Percentage of Total
545
82.6
2,565,818
2,556,318
The following table shows the amortized cost and fair value of the investment portfolio, cash and cash equivalents and foreign cash as of December 31, 2018 (dollars in thousands):
589
60.1
14.8
14.6
15.8
15.9
1,786,386
1,761,077
The following table shows the composition of the investment portfolio by industry, at amortized cost and fair value as of June 30, 2019 (with corresponding percentage of total portfolio investments) (dollars in thousands):
(1) Finance, Insurance and Real Estate (“FIRE”).
The following table shows the composition of the investment portfolio by industry, at amortized cost and fair value as of December 31, 2018 (with corresponding percentage of total portfolio investments) (dollars in thousands):
(2) Finance, Insurance and Real Estate (“FIRE”).
Our Advisor monitors our portfolio companies on an ongoing basis. It monitors the financial trends of each portfolio company to determine if they are meeting their respective business plans and to assess the appropriate course of action for each company. The Advisor has several methods of evaluating and monitoring the performance and fair value of our investments, which may include the following:
· assessment of success in adhering to the portfolio company’s business plan and compliance with covenants;
· periodic or regular contact with portfolio company management and, if appropriate, the financial or strategic sponsor to discuss financial position, requirements and accomplishments;
· comparisons to our other portfolio companies in the industry, if any;
· attendance at and participation in board meetings or presentations by portfolio companies; and
· review of monthly and quarterly financial statements and financial projections of portfolio companies.
Our Advisor rates the investments in our portfolio at least quarterly and it is possible that the rating of a portfolio investment may be reduced or increased over time. For investments rated 3 or 4, Advisor enhances its level of scrutiny over the monitoring of such portfolio company. Our internal performance ratings do not constitute any rating of investments by a nationally recognized statistical rating organization or represent or reflect any third-party assessment of any of our investments.
· An investment is rated 1 if, in the opinion of our Advisor, it is performing above underwriting expectations, and the business trends and risk factors are generally favorable, which may include the performance of the portfolio company or the likelihood of a potential exit.
· An investment is rated 2 if, in the opinion of our Advisor, it is performing as expected at the time of our underwriting and there are generally no concerns about the portfolio company’s performance or ability to meet covenant requirements, interest payments or principal amortization, if applicable. All new investments or acquired investments in new portfolio companies are initially given a rating of 2.
· An investment is rated 3 if, in the opinion of our Advisor, the investment is performing below underwriting expectations and there may be concerns about the portfolio company’s performance or trends in the industry, including as a result of factors such as declining performance, non-compliance with debt covenants or delinquency in loan payments (but generally not more than 180 days past due).
· An investment is rated 4 if, in the opinion of our Advisor, the investment is performing materially below underwriting expectations. For debt investments, most of or all of the debt covenants are out of compliance and payments are substantially delinquent. Investments rated 4 are not anticipated to be repaid in full, if applicable, and there is significant risk that we may realize a substantial loss on our investment.
The following table shows the composition of our portfolio on the 1 to 4 rating scale as of June 30, 2019 (dollars in thousands):
Investment Performance Rating
Number of Companies(1)
32,461
2,367,656
97.5
119
96.0
27,298
(1) Number of investment rated companies may not agree to total portfolio companies due to investments across investment types and structures.
The following table shows the composition of our portfolio on the 1 to 4 rating scale as of December 31, 2018 (dollars in thousands):
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Number of Companies
1,684,494
128
97.0
26,011
Prior to April 30, 2019, we were party to a limited liability company agreement with Antares Midco Inc. (“Antares”) pursuant to which it invested in ABC Complete Financing Solution LLC, which made investments through its subsidiary, Antares Bain Capital Complete Financing Solution LLC (together with ABC Complete Financing Solution LLC, “ABCS”). ABCS, an unconsolidated Delaware limited liability company, was formed on September 27, 2017 and commenced operations on November 29, 2017. ABCS’ principal purpose was to make investments, primarily in senior secured unitranche loans. We recorded our investment in ABCS at fair value. Distributions of income received from ABCS, if any, were recorded as dividend income from controlled affiliate investments in the consolidated statements of operations. Distributions received from ABCS in excess of income earned at ABCS, if any, were recorded as a return of capital and reduced the amortized cost of controlled affiliate investments.
We and Antares, as members of ABCS, agreed to contribute capital up to (subject to the terms of their agreement) $950.0 million in aggregate to purchase equity interests in ABCS, with us and Antares contributing up to $425.0 million and $525.0 million, respectively. Funding of such commitments generally required the consent of both Antares Credit Opportunities Manager LLC and the Advisor on behalf of Antares and us, respectively. ABCS was capitalized with capital contributions from its members on a pro-rata basis based on their maximum capital contributions as transactions were funded after they had been approved.
Investment decisions of ABCS required the consent of both the Advisor and Antares Credit Opportunities Manager LLC, as representatives of us and Antares, respectively. Each of the Advisor and Antares sourced investments for ABCS.
On April 30, 2019, we formed BCSF Complete Financing Solution Holdco, LLC (“BCSF CFSH, LLC”) and BCSF Complete Financing Solution, LLC (“BCSF Unitranche” or “BCSF CFS, LLC”), wholly-owned, newly-formed, subsidiaries. We received our proportionate share of all assets which represented 44.737% of ABCS. The portfolio of investments that was distributed comprised of 25 senior secured unitranche loans with a fair value of $919.0 million and cash of $3.2 million. The Company also assumed the obligation to fund outstanding unfunded commitments of $31.4 million. In connection with the distribution, we recognized a realized gain of $0.3 million. The Company is no longer a member of ABCS. The distribution of assets received by the Company have been included in the Company’s consolidated financial statements and notes thereto.
In conjunction with the distribution from ABCS, on April 30, 2019, BCSF CFS, LLC entered into a loan and security agreement (the “JPM Credit Agreement” or the “JPM Credit Facility”) as borrower, with JPMorgan Chase Bank, National Association, as Administrative Agent, and Wells Fargo Bank, National Association as Collateral Administrator, Collateral Agent, Securities Intermediary and Bank. On the date of the ABCS distribution, the Company had $577.5 million outstanding on the JPM Credit Facility.
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59
60
Results of Operations
Our operating results for the three months ended June 30, 2019 and 2018 were as follows (dollars in thousands):
Our operating results for the six months ended June 30, 2019 and 2018 were as follows (dollars in thousands):
Net increase in net assets resulting from operations can vary from period to period as a result of various factors, including additional financing, new investment commitments, the recognition of realized gains and losses and changes in unrealized appreciation and depreciation on the investment portfolio. Due to these factors, comparisons may not be meaningful.
Investment Income
The composition of our investment income for the three months ended June 30, 2019 and 2018 was as follows (dollars in thousands):
Interest income
45,073
15,898
373
Interest income from investments, which includes interest and accretion of discounts and fees, increased to $45.1 million for the three months ended June 30, 2019 from $15.9 million for the three months ended June 30, 2018, primarily due to the growth of our investment portfolio. Our investment portfolio at amortized cost increased to $2,437.0 million from $1,066.1 million as of June 30, 2019 and 2018, respectively. Dividend income decreased to $5.2 million for the three months ended June 30, 2019 from $5.4 million for the three months ended June 30, 2018, primarily due to the closing of the ABCS distribution transaction on April 30, 2019. As of June 30, 2019, the weighted average yield of our investment portfolio decreased to 8.0% from 8.5% as of June 30, 2018.
The composition of our investment income for the six months ended June 30, 2019 and 2018 was as follows (dollars in thousands):
75,568
28,535
14,526
395
61
Interest income from investments, which includes interest and accretion of discounts and fees, increased to $75.6 million for the six months ended June 30, 2019 from $28.5 million for the six months ended June 30, 2018, primarily due to the growth of our investment portfolio. Our investment portfolio at amortized cost increased to $2,437.0 million from $1,066.1 million as of June 30, 2019 and 2018, respectively. Dividend income increased to $14.5 million for the six months ended June 30, 2019 from $10.1 million for the six months ended June 30, 2018, primarily due to the growth in our joint venture, ABCS. As of June 30, 2019, the weighted average yield of our investment portfolio decreased to 8.0% from 8.5% as of June 30, 2018.
Operating Expenses
The composition of our operating expenses for the three months ended June 30, 2019 and 2018 was as follows (dollars in thousands):
Total expenses, before fee waivers
The composition of our operating expenses for the six months ended June 30, 2019 and 2018 was as follows (dollars in thousands):
Interest and Debt Financing Expenses
Interest and debt financing expenses on our borrowings totaled approximately $16.6 million and $5.3 million for the three months ended June 30, 2019 and 2018, respectively. Interest and debt financing expenses on our borrowings totaled approximately $27.2 million and $9.6 million for the six months ended June 30, 2019 and 2018, respectively. Interest and debt financing expense for the six months ended June 30, 2019 as compared to June 30, 2018, increased primarily due to higher principal balances outstanding of our revolving credit facilities and the issuance of our 2018-1 Notes in September 2018. On February 19, 2019 the Company entered into a new revolving credit facility agreement with Citibank N.A., the Citibank Revolving Credit Facility. On April 30, 2019, the Company entered into a new loan and security agreement with JPMorgan Chase Bank, N.A., and Wells Fargo Bank, N.A., the JPM Credit Facility. Our SMBC Revolving Credit Facility was terminated on November 21, 2018.
The weighted average interest rate (excluding deferred upfront financing costs and unused fees) on our debt outstanding was 4.9% and 4.3% as of June 30, 2019 and December 31, 2018, respectively.
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Management Fees
Management fee (net of waivers) increased to $6.4 million for the three months ended June 30, 2019 from $1.9 million for the three months ended June 30, 2018. Management fees (gross of waivers) increased to $8.0 million for the three months ended June 30, 2019 from $3.8 million for the three months ended June 30, 2018, primarily due to an increase in assets to $2.6 billion as of June 30, 2019 from $1.2 billion as of June 30, 2018. Management fees waived for the three months ended June 30, 2019 and 2018 were $1.6 million and $1.9 million, respectively.
Management fee (net of waivers) increased to $10.9 million for the six months ended June 30, 2019 from $3.5 million for the six months ended June 30, 2018. Management fees (gross of waivers) increased to $14.7 million for the six months ended June 30, 2019 from $7.0 million for the six months ended June 30, 2018, primarily due to an increase in assets to $2.6 billion as of June 30, 2019 from $1.2 billion as of June 30, 2018. Management fees waived for the six months ended June 30, 2019 and 2018 were $3.9 million and $3.5 million, respectively.
Incentive Fees
Incentive fee (net of waivers) increased to $4.5 million for the three months ended June 30, 2019 from ($0.1) million for the three months ended June 30, 2018. Incentive fee waivers related to pre-incentive fee net investment income consisted of voluntary waivers of $0.0 million for the three months ended June 30, 2019 and $1.0 million for the three months ended June 30, 2018. For the three months ended June 30, 2019 there were no incentive fees related to the GAAP Incentive Fee.
Incentive fee (net of waivers) increased to $6.6 million for the six months ended June 30, 2019 from $1.9 million for the six months ended June 30, 2018. Incentive fee waivers related to pre-incentive fee net investment income consisted of voluntary waivers of $2.0 million for the six months ended June 30, 2019 and $1.0 million for the six months ended June 30, 2018. For the six months ended June 30, 2019 there were no incentive fees related to the GAAP Incentive Fee.
Professional Fees and Other General and Administrative Expenses
Professional fees and other general and administrative expenses increased to $1.9 million for the three months ended June 30, 2019 from $0.8 million for the three months ended June 30, 2018, due to an increase in costs associated with servicing our investment portfolio.
Professional fees and other general and administrative expenses increased to $3.3 million for the six months ended June 30, 2019 from $1.5 million for the six months ended June 30, 2018, due to an increase in costs associated with servicing our investment portfolio.
Net Realized and Unrealized Gains and Losses
The following table summarizes our net realized and unrealized gains (losses) for the three months ended June 30, 2019 and 2018 (dollars in thousands):
Net realized gain on investments
980
Net realized loss on investments
(1,286
(2,186
Net realized gain on foreign currency transactions
(323
(556
471
Net realized loss on forward currency exchange contracts
(27
Net realized gains (losses)
Change in unrealized gains on investments
11,557
1,889
Change in unrealized losses on investments
(14,562
(13,645
Net change in unrealized gains (losses) on investments
(3,005
(11,756
Unrealized appreciation (depreciation) on foreign currency translation
Unrealized appreciation (depreciation) on forward currency exchange contracts
Net change in unrealized appreciation (depreciation) on foreign currency and forward currency exchange contracts
(5,367
6,645
Net change in unrealized gains (losses)
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For the three months ended June 30, 2019, and 2018, we had net realized gains (losses) on investments of ($0.3) million and ($2.1) million, respectively. For the three months ended June 30, 2019, and 2018, we had net realized gains (losses) on foreign currency transactions of ($0.3) million and ($0.5) million, respectively. For the three months ended June 30, 2019 and 2018, we had net realized gains (losses) on forward currency contracts of $7.1 million and $0.4 million, respectively, primarily as a result of settling GBP, AUD, DKK, EUR and NOK forward contracts.
For the three months ended June 30, 2019, we had $11.6 million in unrealized appreciation on 83 portfolio company investments, which was offset by $14.6 million in unrealized depreciation on 57 portfolio company investments. Net unrealized depreciation for the three months ended June 30, 2019 resulted from a decrease in fair value, primarily due to negative valuation adjustments.
For the three months ended June 30, 2018, we had $1.9 million in unrealized appreciation on 19 portfolio company investments, which was offset by $13.6 million in unrealized depreciation on 68 portfolio company investments. Net unrealized depreciation for the three months ended June 30, 2018 resulted from a decrease in fair value, primarily due to negative valuation adjustments.
For the three months ended June 30, 2019 and 2018, we had unrealized appreciation (depreciation) on forward currency exchange contracts of ($5.9) million and $6.7 million, respectively. For the three months ended June 30, 2019, unrealized depreciation on forward currency exchange contracts was due to EUR, GBP, DKK, NOK and AUD forward contracts. For the three months ended June 30, 2018, unrealized appreciation on forward currency exchange contracts was due to EUR, GBP, DKK, NOK and AUD forward contracts.
The following table summarizes our net realized and unrealized gains (losses) for the six months ended June 30, 2019 and 2018 (dollars in thousands):
1,412
359
(2,568
(2,205
(316
(446
(2,884
27,122
5,029
(11,364
(12,344
15,758
(8,849
7,568
For the six months ended June 30, 2019, and 2018, we had net realized gains (losses) on investments of ($1.2) million and ($1.8) million, respectively. For the six months ended June 30, 2019, and 2018, we had net realized gains (losses) on foreign currency transactions of ($0.3) million and ($0.3) million, respectively. For the six months ended June 30, 2019 and 2018, we had net realized gains (losses) on forward currency contracts of $10.7 million and ($2.9) million, respectively, primarily as a result of settling GBP, AUD, DKK, EUR and NOK forward contracts.
For the six months ended June 30, 2019, we had $27.1 million in unrealized appreciation on 102 portfolio company investments, which was offset by $11.4 million in unrealized depreciation on 38 portfolio company investments. Net unrealized appreciation for the six months ended June 30, 2019 resulted from an increase in fair value, primarily due to positive valuation adjustments.
For the six months ended June 30, 2018, we had $5.0 million in unrealized appreciation on 25 portfolio company investments, which was offset by $12.3 million in unrealized depreciation on 63 portfolio company investments. Net unrealized
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depreciation for the six months ended June 30, 2018 resulted from a decrease in fair value, primarily due to negative valuation adjustments.
For the six months ended June 30, 2019 and 2018, we had unrealized appreciation (depreciation) on forward currency exchange contracts of ($9.1) million and $7.6 million, respectively. For the six months ended June 30, 2019, unrealized appreciation on forward currency exchange contracts was due to EUR, GBP, DKK, NOK and AUD forward contracts. For the six months ended June 30, 2018, unrealized appreciation on forward currency exchange contracts was due to EUR, GBP, DKK, NOK and AUD forward contracts.
The following table summarizes the impact of foreign currency for the three months ended June 30, 2019 and 2018 (dollars in thousands):
For the Three months ended June 30,
Net change in unrealized appreciation (depreciation) on investments due to foreign currency
(1,072
(5,859
Net realized gain on investments due to foreign currency
66
Foreign currency impact to net increase in net assets resulting from operations
372
692
The following table summarizes the impact of foreign currency for the six months ended June 30, 2019 and 2018 (dollars in thousands):
For the Six months ended June 30,
(426
(3,494
1,175
Net Increase (Decrease) in Net Assets Resulting from Operations
For the three months ended June 30, 2019 and 2018, the net increase in net assets resulting from operations was $19.2 million and $6.2 million, respectively. Based on the weighted average shares of common stock outstanding for the three months ended June 30, 2019 and 2018, our per share net increase in net assets resulting from operations was $0.37 and $0.17, respectively.
For the six months ended June 30, 2019 and 2018, the net increase in net assets resulting from operations was $58.5 million and $17.5 million, respectively. Based on the weighted average shares of common stock outstanding for the six months ended June 30, 2019 and 2018, our per share net increase in net assets resulting from operations was $1.14 and $0.54, respectively.
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Financial Condition, Liquidity and Capital Resources
Our liquidity and capital resources are derived primarily from proceeds from equity issuances, advances from our credit facilities, 2018-1 Notes, and cash flows from operations. The primary uses of our cash are for (1) investments in portfolio companies and other investments and to comply with certain portfolio diversification requirements; (2) the cost of operations (including payments to the Advisor under the Investment Advisory and Administration Agreements); (3) debt service, repayment, and other financing costs; and, (4) cash distributions to the holders of our common shares.
We intend to continue to generate cash primarily from cash flows from operations, future borrowings and future offerings of securities. We may from time to time enter into additional debt facilities, increase the size of existing facilities or issue debt securities. Any such incurrence or issuance would be subject to prevailing market conditions, our liquidity requirements, contractual and regulatory restrictions and other factors. We are required to meet an asset coverage ratio, defined under the 1940 Act as the ratio of our total assets (less all liabilities and indebtedness not represented by senior securities) to our outstanding senior securities, of at least 150% after each issuance of senior securities. As of June 30, 2019 and December 31, 2018, our asset coverage ratio was 168% and 257%, respectively.
At June 30, 2019 and December 31, 2018, we had $128.9 million and $33.3 million in cash, foreign cash, restricted cash and cash equivalents, respectively.
At June 30, 2019 we had approximately $138.1 million of availability on our BCSF Revolving Credit Facility, $157.9 million of availability on our Citibank Revolving Credit Facility, and $79.2 million of availability on our JPM Credit Facility, subject to existing terms and regulatory requirements. At December 31, 2018 we had approximately $228.7 million of availability on our BCSF Revolving Credit Facility, subject to existing terms and regulatory requirements.
For the six months ended June 30, 2019, cash, foreign cash, restricted cash, and cash equivalents increased by $95.6 million. During the six months ended June 30, 2019, we used $157.2 million in cash for operating activities, primarily to purchase investments of $782.2 million, which was offset by proceeds from principal payments and sales of investments of $562.5 million, and a net increase in net assets resulting from operations of $58.5 million. During the six months ended June 30, 2019, we generated $253.4 million from financing activities, primarily from borrowings on our BCSF Revolving Credit Facility, Citibank Revolving Credit Facility, and our JPM Credit Facility, together referred to as the “Revolving Credit Facilities,” of $626.1 million, offset by repayments on our Revolving Credit Facilities of $333.3 million and distributions paid during the period of $38.9 million.
For the six months ended June 30, 2018, cash, foreign cash and cash equivalents increased by $0.1 million. During the same period, we used $231.0 million in operating activities, primarily as a result of purchases of investments, slightly offset by proceeds from principal payments of investments. During the six months ended June 30, 2018, we generated $231.3 million from financing activities, primarily from borrowings on our Revolving Credit Facilities and the issuance of common stock, offset by repayments on our Revolving Credit Facilities.
Equity
On November 19, 2018, we closed our initial public offering (the “IPO”) issuing 7,500,000 shares of its common stock at a public offering price of $20.25 per share. Shares of common stock of the Company began trading on the New York Stock Exchange under the symbol “BCSF” on November 15, 2018. The offering generated net proceeds, after expenses, of $145.4 million. All outstanding capital commitments from the Company’s Private Offering, were cancelled as of the completion of the IPO.
BCSF Investments, LLC and certain individuals adopted the 10b5-1 Plan in accordance with Rules 10b5-1 and 10b-18 under the Exchange Act, under which such parties will buy up to $20 million in the aggregate of our common stock in the open market during the period beginning after four full calendar weeks after the closing of the IPO and ending on the earlier of the date on which the capital committed to the 10b5-1 has been exhausted or one year after the closing of the IPO. For the six months ended June 30, 2019, 827,933 shares have been purchased under the 10b5-1 Plan at a weighted average price of $18.78, inclusive of commissions, for a total cost of $15.6 million. As of June 30, 2019, zero dollars remain under the 10b5-1 Plan and no further purchases are intended under the 10b5-1 Plan.
During the six months ended June 30, 2019, we issued 167,674.81 shares of our common stock to investors who have opted into our dividend reinvestment plan. During the six months ended June 30, 2018, we issued 156,793.49 shares of our common stock to investors who have opted into our dividend reinvestment plan.
Debt
Debt consisted of the following as of June 30, 2019, and December 31, 2018 (dollars in thousands):
On December 22, 2016, we entered into the revolving credit agreement (the “SMBC Revolving Credit Agreement”). The maximum commitment amount under the SMBC Revolving Credit Facility was $150.0 million, and may be increased up to $350.0 million (“Maximum Commitment”) with the consent of SMBC or reduced upon our request. Effective July 31, 2018, we reduced the commitment amount under the SMBC Revolving Credit Facility to $85.0 million. Proceeds under the SMBC Revolving Credit Facility may be used for any purpose permitted under our organizational documents, including general corporate purposes such as the making of investments. The SMBC Revolving Credit Agreement contains certain covenants, including maintaining an asset coverage ratio of total assets to total borrowings of at least 200%.
Borrowings under the SMBC Revolving Credit Facility bear interest at the London Interbank Offered Rate (“LIBOR”) plus a margin. The SMBC Revolving Credit Facility was accruing interest expense at a rate of LIBOR plus 1.40%. We pay an unused commitment fee of: (a) where the Maximum Commitment which is unused on such date is greater than fifty (50) percent of the Maximum Commitment, a rate of 20 basis points (0.20%) per annum; or (b) where the Maximum Commitment which is unused on such date is less than or equal to fifty (50) percent of the Maximum Commitment, a rate of 15 basis points (0.15%) per annum. Interest is payable in arrears either on a one month, two month, three month or six month LIBOR period. Any amounts borrowed under the SMBC Revolving Credit Facility, and all accrued and unpaid interest, will be due and payable, on the earliest of: (a) December 22, 2019; (b) the date upon which SMBC declares the obligations, or the obligations become, due and payable after the occurrence of an event of default under the SMBC Revolving Credit Facility; (c) the date upon which we terminate the commitments under the SMBC Revolving Credit Facility; and (d) 45 days prior to the earlier of (1) the date upon which the commitment period under the subscription agreements terminates and (2) the date upon which the ability to make capital calls and receive capital contributions otherwise terminates.
For the three months ended June 30, 2019 and 2018, the components of interest expense related to the Revolving Credit Facility were as follows (dollars in thousands):
For the six months ended June 30, 2019 and 2018, the components of interest expense related to the Revolving Credit Facility were as follows (dollars in thousands):
On October 4, 2017, we entered into the revolving credit agreement (the “BCSF Revolving Credit Facility”) with us, as equity holder, BCSF I, LLC, a Delaware limited liability company and a wholly owned and consolidated subsidiary of the Company, as borrower, and Goldman Sachs Bank USA, as sole lead arranger (“Goldman Sachs”). The BCSF Revolving Credit Facility was subsequently amended on May 15, 2018 to reflect certain clarifications regarding margin requirements and hedging currencies. The maximum commitment amount under the BCSF Revolving Credit Facility is $500.0 million, and may be increased up to $750.0 million. Proceeds of the loans under the BCSF Revolving Credit Facility may be used to acquire certain qualifying loans and such other uses as permitted under the BCSF Revolving Credit Facility. The BCSF Revolving Credit Facility includes customary affirmative and negative covenants, including certain limitations on the incurrence of additional indebtedness and liens, as well as usual and customary events of default for revolving credit facilities of this nature. As of June 30, 2019 and December 31, 2018, we were in compliance with these covenants.
Borrowings under the BCSF Revolving Credit Facility bear interest at LIBOR plus a margin. As of June 30, 2019 and December 31, 2018, the BCSF Revolving Credit Facility was accruing interest expense at a rate of LIBOR plus 2.50%. We pay an unused commitment fee of 30 basis points (0.30%) per annum. Interest is payable quarterly in arrears. Any amounts borrowed under the BCSF Revolving Credit Facility, and all accrued and unpaid interest, will be due and payable, on the earliest of: (a) October 5, 2022 and (b) the date upon which all loans shall become due and payable in full, whether by acceleration or otherwise.
For the three months ended June 30, 2019 and 2018, the components of interest expense related to the BCSF Revolving Credit Facility were as follows (dollars in thousands):
For the six months ended June 30, 2019 and 2018, the components of interest expense related to the BCSF Revolving Credit Facility were as follows (dollars in thousands):
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The CLO Transaction was executed through a private placement of the following 2018-1 Notes (dollars in thousands):
As of June 30, 2019, there were 63 first lien and second lien senior secured loans with a total fair value of approximately $423.5 million and cash of $27.9 million securing the 2018-1 Notes. Assets that are pledged as collateral for the 2018-1 Notes are not directly available to the creditors of the Company to satisfy any obligations of the Company other than the Company’s obligations under the indenture governing the 2018-1 Notes. As of December 31, 2018, there were 75 first lien and second lien senior secured loans with a total fair value of approximately $437.2 million and cash of $18.0 million securing the 2018-1 Notes. Such assets are included in the Company’s consolidated financial statements. The creditors of the 2018-1 Issuer have received security interests in such assets and such assets are not intended to be available to the creditors of the Company (or an affiliate of the Company). The 2018-1 Portfolio must meet certain requirements, including asset mix and concentration, term, agency rating, collateral coverage, minimum coupon, minimum spread and sector diversity requirements in the indenture governing the 2018-1 Notes. As of June 30, 2019 and December 31, 2018, the Company was in compliance with its covenants related to the 2018-1 Notes.
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For the three months ended June 30, 2019 and 2018, the components of interest expense related to the 2018-1 Issuer were as follows (dollars in thousands):
For the six months ended June 30, 2019 and 2018, the components of interest expense related to the 2018-1 Issuer were as follows (dollars in thousands):
The facility amount under the Credit Agreement is $350.0 million. Proceeds of the loans under the Credit Agreement may be used to acquire certain qualifying loans and such other uses as permitted under the Credit Agreement. The period from the closing date until February 19, 2020 is referred to as the reinvestment period and during such reinvestment period, the Borrower may request drawdowns under the Credit Agreement. The final maturity date is the earliest of: (a) the business day designated by the Borrower as the final maturity date upon not less than three business days’ prior written notice to the Administrative Agent, the Collateral Agent, the Lenders, the Custodian and the Collateral Administrator, (b) February 19, 2022 and (c) the date on which the Administrative Agent provides notice of the declaration of the final maturity date after the occurrence of an event of default. The Credit Agreement includes customary affirmative and negative covenants, including certain limitations on the incurrence of additional indebtedness and liens, as well as usual and customary events of default for revolving credit facilities of this nature. As of June 30, 2019, we were in compliance with these covenants.
Borrowings under the Citibank Revolving Credit Facility bear interest at the London Interbank Offered Rate (“LIBOR”) plus a margin. During the period prior to the last day of the reinvestment period, borrowings under the Credit Agreement will bear interest at a rate equal to the three-month LIBOR plus 1.60%. Commencing on the last day of the reinvestment period, the interest rate on borrowings under the Credit Agreement will reset to three month LIBOR plus 2.60% for the remaining term of the Credit Agreement. We pay an unused commitment fee based on a corresponding utilization rate; (i) 0 basis points (0.00%) per annum when greater than or equal to 85.0% utilization, (ii) 25 basis points (0.25%) per annum when greater than or equal to 75.0% but less than 85.0% utilization, (iii) 50 basis points (0.50%) per annum when greater than or equal to 50.0% but less than 75.0% utilization, (iv) 75 basis points (0.75%) per annum when greater than or equal to 25.0% but less than 50% utilization, or (v) 100 basis points (1.00%) per annum when less than 25.0% utilization.
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For the three months ended June 30, 2019 and 2018, the components of interest expense related to the Citibank Revolving Credit Facility were as follows (dollars in thousands):
For the six months ended June 30, 2019 and 2018, the components of interest expense related to the Citibank Revolving Credit Facility were as follows (dollars in thousands):
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Borrowings under the JPM Credit Facility bear interest at LIBOR plus a margin. As of June 30, 2019, JPM Credit Facility was accruing interest expense at a rate of LIBOR plus 2.75%. We pay an unused commitment fee of 75 basis points (0.75%) per annum. Interest is payable quarterly in arrears.
As of June 30, 2019, there were $587.4 million borrowings under the JPM Credit Facility.
For the three months ended June 30, 2019 and 2018, the components of interest expense related to the JPM Credit Facility were as follows (dollars in thousands):
For the six months ended June 30, 2019 and 2018, the components of interest expense related to the JPM Credit Facility were as follows (dollars in thousands):
Distribution Policy
The following table summarizes distributions declared during the six months ended June 30, 2019 (dollars in thousands, except per share data):
The following table summarizes distributions declared during the six months ended June 30, 2018 (dollars in thousands, except per share data):
Distributions to common stockholders are recorded on the record date. To the extent that we have income available, we intend to distribute quarterly distributions to our stockholders. Our quarterly distributions, if any, will be determined by the Board. Any distributions to our stockholders will be declared out of assets legally available for distribution.
We have elected to be treated, and intend to operate in a manner so as to continuously qualify, as, a regulated investment company (a “RIC) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), beginning with our taxable year ended December 31, 2016. To qualify for and maintain RIC tax treatment, among other things, we must distribute dividends to our stockholders in respect of each taxable year of an amount generally at least equal to 90% of the sum of our net ordinary income and net short-term capital gains in excess of our net long-term capital losses. In order to avoid the imposition of certain excise taxes imposed on RICs, we must distribute dividends to our stockholders in respect of each calendar year of an amount at least equal to the sum of: (1) 98% of our net ordinary income (taking into account certain deferrals and elections) for such calendar year; (2) 98.2% of our capital gains in excess of capital losses, adjusted for certain ordinary losses, generally for the one-year period ending on October 31 of such calendar year; and (3) the sum of any net ordinary income plus capital gains net income for preceding years that were not distributed during such years and on which we paid no federal income tax.
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We intend to distribute net capital gains (i.e., net long-term capital gains in excess of net short-term capital losses), if any, at least annually out of the assets legally available for such distributions. However, we may decide in the future to retain all or a portion of our net capital gains for investment, incur a corporate-level tax on such capital gains, and elect to treat such capital gains as deemed distributions to our stockholders.
We have adopted a dividend reinvestment plan that provides for the reinvestment of cash dividends and distributions. Prior to the IPO, stockholders who “opted in” to our dividend reinvestment plan had their cash dividends and distributions automatically reinvested in additional shares of our common stock, rather than receiving cash dividends and distributions. Subsequent to the IPO, stockholders who do not “opt out” of our dividend reinvestment plan will have their cash dividends and distributions automatically reinvested in additional shares of our common stock, rather than receiving cash dividends and distributions. Stockholders could elect to “opt in” or “opt out” of our dividend reinvestment plan in their subscription agreements, through the private offering. The elections of stockholders that make an election prior to the IPO shall remain effective after the IPO.
The U.S. federal income tax characterization of distributions declared and paid for the fiscal year will be determined at fiscal year-end based upon our investment company taxable income for the full fiscal year and distributions paid during the full year.
Commitments and Off-Balance Sheet Arrangements
We may become a party to financial instruments with off-balance sheet risk in the normal course of our business to fund investments and to meet the financial needs of our portfolio companies. These instruments may include commitments to extend credit and involve, to varying degrees, elements of liquidity and credit risk in excess of the amount recognized on the statements of assets and liabilities.
As of June 30, 2019, the Company had $186.6 million of unfunded commitments under loan and financing agreements as follows (dollars in thousands):
Drilling Info Holdings, Inc. — Delayed Draw
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As of December 31, 2018, the Company had $110.2 million of unfunded commitments under loan and financing agreements as follows (dollars in thousands):
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(3) Unfunded commitments represent unfunded commitments to fund investments, excluding our investment in ABCS as of December 31, 2018.
Significant Accounting Estimates and Critical Accounting Policies
The Company’s unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”). The Company’s unaudited consolidated financial statements and related financial information have been prepared pursuant to the requirements for reporting on Form 10-Q and Articles 1, 6, 10 and 12 of Regulation S-X. These consolidated financial statements reflect adjustments that in the opinion of the Company are necessary for the fair statement of the financial position and results of operations for the periods presented herein and are not necessarily indicative of the full fiscal year. We have determined we meet the definition of an investment company and follow the accounting and reporting guidance in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946 — Financial Services — Investment Companies (“ASC 946”). Our financial currency is U.S. dollars and these consolidated financial statements have been prepared in that currency.
The preparation of the consolidated financial statements in conformity with US GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
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consolidated financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates and such differences could be material.
Revenue Recognition
We record our investment transactions on a trade date basis. We record realized gains and losses based on the specific identification method. We record interest income, adjusted for amortization of premium and accretion of discount, on an accrual basis. Discount and premium to par value on investments acquired are accreted and amortized, respectively, into interest income over the life of the respective investment using the effective interest method. Loan origination fees, original issue discount and market discount or premium are capitalized and amortized into or against interest income using the effective interest method or straight-line method, as applicable. We record any prepayment premiums, unamortized upfront loan origination fees and unamortized discounts received upon prepayment of a loan or debt security as interest income.
Dividend income on preferred equity investments is recorded on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity investments is recorded on the record date for such distributions in the case of private portfolio companies, and on the ex-dividend date for publicly traded portfolio companies. Distributions received from a limited liability company or limited partnership investment are evaluated to determine if the distribution should be recorded as dividend income or a return of capital.
Certain investments may have contractual PIK interest or dividends. PIK represents accrued interest or accumulated dividends that are added to the loan principal of the investment on the respective interest or dividend payment dates rather than being paid in cash and generally becomes due at maturity or upon being called by the issuer. We record PIK as interest or dividend income, as applicable. If at any point we believe PIK may not be realized, we place the investment generating PIK on non-accrual status. When a PIK investment is placed on non-accrual status, the accrued, uncapitalized interest or dividends are generally reversed through interest or dividend income, as applicable.
Certain structuring fees and amendment fees are recorded as other income when earned. We record administrative agent fees received as other income when the services are rendered.
Investments for which market quotations are readily available are typically valued at such market quotations. Market quotations are obtained from an independent pricing service, where available. If we cannot obtain a price from an independent pricing service or if the independent pricing service is not deemed to be representative with the market, we value certain investments held by us on the basis of prices provided by principal market makers. Generally investments marked in this manner will be marked at the mean of the bid and ask of the independent broker quotes obtained, in some cases, primarily illiquid securities, multiple quotes may not be available and the mid of the bid/ask from one broker will be used. To validate market quotations, we utilize a number of factors to determine if the quotations are representative of fair value, including the source and number of quotations. Debt and equity securities that are not publicly traded or whose market prices are not readily available are valued at fair value, subject at all times to the oversight and approval of the Board, based on the input of our Advisor, our Audit Committee and one or more independent third party valuation firms engaged by our Board.
With respect to unquoted securities, we value each investment considering, among other measures, discounted cash flow models, comparisons of financial ratios of peer companies that are public and other factors. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, we use the pricing indicated by the external event to corroborate and/or assist us in our valuation. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may differ significantly from the values that would have been used had a readily available market value existed for such investments, and the differences could be material.
· Our quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals of our Advisor responsible for the portfolio investment or by an independent valuation firm;
· Preliminary valuation conclusions are then documented and discussed with our senior management and our Advisor. Agreed upon valuation recommendations are presented to our Audit Committee;
· Our Audit Committee of our Board reviews the valuations presented and recommends values for each of the investments to our Board;
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· At least once annually, the valuation for each portfolio investment constituting a material portion of the Company’s portfolio will be reviewed by an independent valuation firm; and
· Our Board discusses valuations and determines the fair value of each investment in good faith based upon, among other things, the input of our Advisor, independent valuation firms, where applicable, and our Audit Committee.
In following this approach, the types of factors that are taken into account in the fair value pricing of investments include, as relevant, but are not limited to: comparison to publicly traded securities, including factors such as yield, maturity and measures of credit quality; the enterprise value of a portfolio company; the nature and realizable value of any collateral; the portfolio companies ability to make payments and its earnings and discounted cash flows; and the markets in which the portfolio company does business. In cases where an independent valuation firm provides fair valuations for investments, the independent valuation firm provides a fair valuation report, a description of the methodology used to determine the fair value and their analysis and calculations to support their conclusion.
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.” ASU 2018-13 is part of the disclosure framework project and eliminates certain disclosure requirements for fair value measurements, requires entities to disclose new information, and modifies existing disclosure requirements. The new guidance is effective after December 15, 2019. Early adoption is permitted. We are currently evaluating the impact this change will have on our consolidated financial statements and disclosures.
Contractual Obligations
We have entered into the Amended Advisory Agreement with our Advisor (which supercedes the Investment Advisory Agreement dated November 14, 2018 we had previously entered into). Our Advisor has agreed to serve as our investment adviser in accordance with the terms of the Amended Advisory Agreement. Under the Amended Advisory Agreement, we have agreed to pay an annual base management fee as well as an incentive fee based on our investment performance.
On October 11, 2018 the Board approved, subject to completion of the IPO, the Investment Advisory Agreement. Beginning with the calendar quarter that commences January 1, 2019, this Investment Advisory Agreement incorporates (i) a three-year lookback provision and (ii) a cap on quarterly income incentive fee payments based on net realized or unrealized capital loss, if any, during the applicable three-year lookback period.
On November 28, 2018, our Board, including a majority of our Independent Directors, approved the Amended Advisory Agreement. On February 1, 2019 the Company’s stockholders approved the Amended Advisory Agreement. Pursuant to this Agreement, effective February 1, 2019, the base management fee of 1.5% (0.375% per quarter) of the average value of the Company’s gross assets (excluding cash and cash equivalents, but including assets purchased with borrowed amounts) will continue to apply to assets held at an asset coverage ratio of 200%, but a lower base management fee of 1.0% (0.25% per quarter) of the average value of the Company’s gross assets (excluding cash and cash equivalents, but including assets purchased with borrowed amounts) will apply to any amount of assets attributable to leverage decreasing the Company’s asset coverage ratio below 200%.
We have entered into an Administration Agreement with the Administrator pursuant to which the Administrator will furnish us with administrative services necessary to conduct our day-to-day operations. We reimburse the Administrator for its costs and expenses and our allocable portion of overhead incurred by it in performing its obligations under the Administration Agreement, including certain compensation paid to or compensatory distributions received by our officers (including our Chief Compliance Officer and Chief Financial Officer) and any of their respective staff who provide services to us, operations staff who provide services to us, and internal audit staff, if any, to the extent internal audit performs a role in our Sarbanes-Oxley internal control assessment.
If any of our contractual obligations discussed above are terminated, our costs may increase under any new agreements that we enter into as replacements. We would also likely incur expenses in locating alternative parties to provide the services we expect to receive under our Amended Advisory Agreement and Administration Agreement.
A summary of the maturities of our principal amounts of debt and other contractual payment obligations as of June 30, 2019 are as follows (dollars in thousands):
Subsequent Events
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are subject to financial market risks, including changes in interest rates. We will generally invest in illiquid loans and securities including debt and equity securities of middle-market companies. Because we expect that there will not be a readily available market for many of the investments in our portfolio, we expect to value many of our portfolio investments at fair value as determined in good faith by the Board using a documented 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 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.
Assuming that the statement of financial condition as of June 30, 2019 were to remain constant and that we took no actions to alter our existing interest rate sensitivity, the following table shows the annualized impact of hypothetical base rate changes in interest rates.
Net Increase
Increase (Decrease) in
(Decrease) in
Change in Interest Rates
Interest Expense
Net Investment Income
Down 25 basis points
(5,661
(3,768
(1,893
Up 100 basis points
23,166
15,071
8,095
Up 200 basis points
46,710
30,141
16,569
Up 300 basis points
70,318
45,212
25,106
From time to time, we may make investments that are denominated in a foreign currency. These investments are translated into U.S. dollars at the balance sheet date, exposing us to movements in foreign exchange rates. We may employ hedging techniques to minimize these risks, but we cannot assure you that such strategies will be effective or without risk to us. We may seek to utilize instruments such as, but not limited to, forward contracts to seek to hedge against fluctuations in the relative values of our portfolio positions from changes in currency exchange rates.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of June 30, 2019 (the end of the period covered by this report), our management has carried out an evaluation, under the supervision of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15 under the Exchange Act). Based on that evaluation our Chief Executive Officer and Chief Financial Officer have concluded that our current disclosure controls and procedures are effective in timely alerting management, including the Chief Executive Officer and Chief Financial Officer, to material information relating to us that is required to be disclosed by us in the reports we file or submit under the Exchange Act. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Changes in Internal Controls Over Financial Reporting
There have been no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, that occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are not currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us. From time to time, we may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of our rights under loans to or other contracts with our portfolio companies.
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, which could materially affect our business, financial condition and/or operating results. The risks described in our Annual Report on Form 10-K are not the only risks we face. Additional risks and uncertainties are not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. During the six months ended June 30, 2019, there have been no material changes from the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2018.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Item 6. Exhibits, Financial Statement Schedules
The following exhibits are included, or incorporated by reference, in this Quarterly Report on Form 10-Q for the six months ended June 30, 2019 (and are numbered in accordance with Item 601 of Regulation S-K under the Securities Act).
Exhibit Number
Description of Document
Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form 10 (File No. 000-55528) filed on October 6, 2016).
Bylaws (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form 10 (File No. 000-55528) filed on October 6, 2016).
Dividend Reinvestment Plan (incorporated by reference to Exhibit 10.5 to the Company’s Registration Statement on Form 10 (File No. 000-55528) filed on October 6, 2016).
10.1
Second Amended and Restated Investment Advisory Agreement, dated February 1, 2019, by and between the Company and the Advisor (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 814-01175), filed on February 1, 2019).
Administration Agreement, dated October 6, 2016, by and between the Company and the Administrator (incorporated by reference to Exhibit 10.2 to the Company’s Registration Statement on Form 10 (File No. 000-55528) filed on October 6, 2016).
10.3
Form of Advisory Fee Waiver Agreement by and between the Company and the Advisor (incorporated by reference to Exhibit 10.3 to the Company’s Registration Statement on Form 10 (File No. 000-55528) filed on October 6, 2016).
10.4
Form of Subscription Agreement (incorporated by reference to Exhibit 10.4 to the Company’s Registration Statement on Form 10 (File No. 000-55528) filed on October 6, 2016).
10.5
Form of Custodian Agreement by and between the Company and U.S. Bank National Association (incorporated by reference to Exhibit 10.6 to the Company’s Registration Statement on Form 10 (File No. 000-55528) filed on October 6, 2016).
10.6
Revolving Credit Agreement, dated December 22, 2016, among the Company, as Borrower, BCSF Holdings, L.P., as the Feeder Fund, and BCSF Holdings Investors, L.P., as the Feeder Fund General Partner and Sumitomo Mitsui Banking Corporation, as Sole Lead Arranger, Administrative Agent, Letter of Credit Issuer and Lender. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 814-01175), filed on December 23, 2016).
10.7
Revolving Credit Agreement, dated October 4, 2017, among the Company as Equity Holder, BCSF I, LLC as Borrower, and Goldman Sachs Bank USA, as Sole Lead Arranger, Syndication Agent and Administrative Agent, and U.S. Bank National Association as Collateral Administrator, Collateral Agent and Collateral Custodian (incorporated by reference to Exhibit 10.7. to the Company’s Quarterly Report on Form 10-Q (File No. 814-01175), filed on November 13, 2017).
Omnibus Amendment No. 1, dated May 15, 2018, to Revolving Credit Agreement, dated October 4, 2017, among the Company as Equity Holder, BCSF I, LLC as Borrower, and Goldman Sachs Bank USA, as Sole Lead Arranger, Syndication Agent and Administrative Agent, and U.S. Bank National Association as Collateral Administrator, Collateral Agent and Collateral Custodian (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 814-01175), filed on May 17, 2018).
10.9
Credit and Security Agreement, dated February 19, 2019, by and among the Company as Equityholder and Servicer, BCSF II-C, LLC as Borrower, Citibank, N.A., as Administrative Agent, and Wells Fargo Bank, National Association as Collateral Administrator, Collateral Agent and Custodian (incorporated by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K (File No. 814-01175), filed on February 28, 2019).
Loan and Security Agreement, dated April 30, 2019, by and among BCSF Complete Financing Solution LLC, as Borrower, JPMorgan Chase Bank, National Association, as Administrative Agent and Wells Fargo Bank, National Association as Collateral Administrator, Collateral Agent, Securities Intermediary and Bank.
14.1
Code of Conduct (incorporated by reference to Exhibit 14.1 to the Company’s Current Report on Form 8-K (File No. 814-01175), filed on November 15, 2018).
24.1
Powers of Attorney (incorporated by reference to Exhibit 24.1 to the Company’s Annual Report on Form 10-K (File No. 814-01175), filed on March 29, 2017).
31.1*
Certification of Chief Executive Officer pursuant to Rule 13a-14 under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended.
31.2*
Certification of Chief Financial Officer pursuant to Rule 13a-14 under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended.
32*
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended.
* Filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: August 7, 2019
By:
/s/ Michael A. Ewald
Name:
Michael A. Ewald
Title:
Chief Executive Officer
/s/ Sally F. Dornaus
Sally F. Dornaus
Chief Financial Officer