UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2016
OR
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _____ to _____
Commission File Number: 814-01190
OWL ROCK CAPITAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Maryland |
47-5402460 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
|
|
245 Park Avenue, 41st Floor New York, New York |
10167 |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (212) 419-3000
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ☐ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Accelerated filer |
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☐ |
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Non-accelerated filer |
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☒ (Do not check if a small reporting company) |
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Small reporting company |
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☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of November 9, 2016, the registrant had 32,325,468 shares of common stock, $0.01 par value per share, outstanding.
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Page |
PART I. |
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Item 1. |
2 |
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Consolidated Statement of Assets and Liabilities (Unaudited) |
2 |
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3 |
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4 |
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6 |
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7 |
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8 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
20 |
Item 3. |
34 |
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Item 4. |
35 |
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PART II. |
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Item 1. |
35 |
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Item 1A. |
36 |
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Item 2. |
36 |
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Item 3. |
36 |
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Item 4. |
36 |
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Item 5. |
36 |
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Item 6. |
37 |
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38 |
i
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that involve substantial risks and uncertainties. Such statements involve known and unknown risks, uncertainties and other factors and undue reliance should not be placed thereon. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about Owl Rock Capital Corporation (the “Company,” “Owl Rock,” “we” or “our”), our current and prospective portfolio investments, our industry, our beliefs and opinions, and our assumptions. Words such as “anticipates,” “expects,” “intends,” “plans,” “will,” “may,” “continue,” “believes,” “seeks,” “estimates,” “would,” “could,” “should,” “targets,” “projects,” “outlook,” “potential,” “predicts” and variations of these words and similar expressions are intended to identify 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 difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements, including without limitation:
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• |
an economic downturn could impair our portfolio companies’ ability to continue to operate, which could lead to the loss of some or all of our investments in such portfolio companies; |
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• |
an economic downturn could disproportionately impact the companies which we intend to target for investment, potentially causing us to experience a decrease in investment opportunities and diminished demand for capital from these companies; |
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• |
an economic downtown could also impact availability and pricing of our financing; |
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• |
a contraction of available credit and/or an inability to access the equity markets could impair our lending and investment activities; |
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• |
interest rate volatility could adversely affect our results, particularly if we elect to use leverage as part of our investment strategy; |
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• |
currency fluctuations could adversely affect the results of our investments in foreign companies, particularly to the extent that we receive payments denominated in foreign currency rather than U.S. dollars; |
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• |
our future operating results; |
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• |
our business prospects and the prospects of our portfolio companies; |
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• |
our contractual arrangements and relationships with third parties; |
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• |
the ability of our portfolio companies to achieve their objectives; |
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• |
competition with other entities and our affiliates for investment opportunities; |
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• |
the speculative and illiquid nature of our investments; |
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• |
the use of borrowed money to finance a portion of our investments as well as any estimates regarding potential use of leverage; |
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• |
the adequacy of our financing sources and working capital; |
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• |
the loss of key personnel; |
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• |
the timing of cash flows, if any, from the operations of our portfolio companies; |
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• |
the ability of Owl Rock Capital Advisors LLC (the “Adviser”) to locate suitable investments for us and to monitor and administer our investments; |
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• |
the ability of the Adviser to attract and retain highly talented professionals; |
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• |
our ability to qualify for and maintain our tax treatment as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), and as a business development company (“BDC”); |
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• |
the effect of legal, tax and regulatory changes; and |
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• |
other risks, uncertainties and other factors previously identified in the reports and other documents Owl Rock Capital Corporation has filed with the Securities and Exchange Commission. |
Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be inaccurate. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this report should not be regarded as a representation by us that our plans and objectives will be achieved. These forward-looking statements apply only as of the date of this report. Moreover, we assume no duty and do not undertake to update the forward-looking statements. Because we are an investment company, the forward-looking statements and projections contained in this report are excluded from the safe harbor protection provided by Section 21E of the 1934 Act.
1
Owl Rock Capital Corporation
Consolidated Statement of Assets and Liabilities
(Amounts in thousands, except share and per share amounts)
(Unaudited)
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As of |
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September 30, 2016 |
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Assets |
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Investments at fair value (amortized cost of $637,665) |
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$ |
640,605 |
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Cash and cash equivalents |
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215,149 |
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Interest receivable |
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2,461 |
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Subscriptions receivable |
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263 |
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Prepaid expenses and other assets |
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960 |
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Total Assets |
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$ |
859,438 |
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Liabilities |
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Credit facility (net of unamortized debt issuance costs of $3,344) |
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$ |
385,656 |
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Management fees payable |
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2,474 |
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Payables to affiliates |
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1,271 |
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Accrued expenses and other liabilities |
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875 |
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Interest payable |
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308 |
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Total Liabilities |
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390,584 |
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Commitments and Contingencies (Note 7) |
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Net Assets |
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Common shares, $0.01 par value; 500,000,000 shares authorized; 32,325,468 shares issued and outstanding |
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323 |
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Additional paid-in-capital |
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464,937 |
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Accumulated net investment income |
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654 |
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Net unrealized gains on investments |
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2,940 |
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Total Net Assets |
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468,854 |
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Total Liabilities and Net Assets |
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$ |
859,438 |
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Net Asset Value Per Share |
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$ |
14.50 |
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The accompanying notes are an integral part of these consolidated financial statements.
2
Consolidated Statements of Operations
(Amounts in thousands, except share and per share amounts)
(Unaudited)
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Three Months Ended |
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Nine Months Ended |
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September 30, 2016 |
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September 30, 2016 |
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Investment Income |
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Investment income from non-controlled, non-affiliated investments: |
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Interest income |
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$ |
10,685 |
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$ |
11,313 |
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Other income |
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41 |
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42 |
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Total investment income from non-controlled, non-affiliated investments |
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10,726 |
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11,355 |
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Total Investment Income |
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10,726 |
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11,355 |
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Expenses |
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Initial organization |
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— |
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1,224 |
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Interest expense |
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774 |
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774 |
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Management fees |
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2,474 |
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4,673 |
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Professional fees |
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924 |
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2,097 |
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Directors’ fees |
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114 |
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218 |
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Other general and administrative |
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870 |
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1,715 |
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Total Expenses |
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5,156 |
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10,701 |
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Net Investment Income |
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5,570 |
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654 |
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Unrealized Gains on Investments |
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Net unrealized gains: |
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Non-controlled, non-affiliated investments |
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2,422 |
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2,940 |
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Total Net Unrealized Gains |
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2,422 |
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2,940 |
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Net Increase in Net Assets Resulting from Operations |
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$ |
7,992 |
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$ |
3,594 |
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Earnings Per Share – Basic and Diluted |
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$ |
0.27 |
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$ |
0.22 |
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Weighted Average Shares Outstanding – Basic and Diluted |
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29,634,244 |
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16,302,756 |
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The accompanying notes are an integral part of these consolidated financial statements.
3
Consolidated Schedule of Investments
As of September 30, 2016
(Amounts in thousands, except share amounts)
(Unaudited)
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Maturity |
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Principal / |
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Amortized |
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Fair |
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Percentage |
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Company(1)(4) |
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Investment |
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Interest |
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Date |
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Par |
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Cost(2) |
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Value |
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of Net Assets |
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Debt Investments |
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Aerospace and defense |
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Vencore, Inc.(3) |
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Second lien senior secured loan |
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L + 8.75% (9.75%) |
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5/23/2020 |
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$ |
50,000 |
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$ |
49,050 |
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$ |
49,500 |
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10.5 |
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% |
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Distribution |
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JM Swank, LLC(3) |
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First lien senior secured loan |
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L + 7.50% (8.50%) |
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7/25/2022 |
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84,788 |
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83,132 |
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83,092 |
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17.7 |
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% |
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Food and beverage |
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Candy Intermediate Holding, Inc.(3) |
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Second lien senior secured loan |
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L + 9.00% (10.00%) |
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12/15/2023 |
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75,000 |
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74,268 |
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75,000 |
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16.0 |
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% |
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GG Foods Acquisition Corporation(3)(6) |
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Second lien senior secured loan |
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L + 9.75% (10.75%) |
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1/29/2024 |
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28,500 |
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27,799 |
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27,787 |
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5.9 |
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% |
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Recipe Acquisition Corp.(3) |
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Second lien senior secured loan |
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L + 9.00% (10.00%) |
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3/29/2023 |
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32,000 |
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31,377 |
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31,680 |
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6.8 |
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% |
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Tall Tree Foods, Inc.(3) |
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First lien senior secured loan |
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L + 6.75% (7.75%) |
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8/12/2022 |
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60,000 |
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59,116 |
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59,100 |
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12.6 |
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% |
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195,500 |
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192,560 |
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193,567 |
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41.3 |
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% |
Healthcare equipment and services |
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ABB/Con-cise Optical Group LLC(3) |
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Second lien senior secured loan |
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L + 9.00% (10.00%) |
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6/17/2024 |
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25,000 |
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24,266 |
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24,625 |
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5.3 |
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% |
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Beaver-Visitec International Holdings, Inc.(3) |
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Second lien senior secured loan |
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L + 9.00% (10.00%) |
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8/19/2024 |
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35,000 |
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34,307 |
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34,300 |
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7.3 |
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% |
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Strategic Partners Acquisition Corp.(3) |
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First lien senior secured loan |
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L + 5.25% (6.25%) |
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6/30/2023 |
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25,000 |
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24,756 |
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24,875 |
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5.3 |
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% |
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85,000 |
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83,329 |
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83,800 |
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17.9 |
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% |
Infrastructure and environmental services |
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FR Arsenal Holdings II Corp.(3) |
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First lien senior secured loan |
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L + 7.25% (8.25%) |
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9/8/2022 |
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65,000 |
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63,713 |
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63,700 |
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13.6 |
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% |
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FR Arsenal Holdings II Corp.(3)(5) |
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First lien senior secured revolving loan |
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L + 7.25% (8.25%) |
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9/8/2021 |
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7,000 |
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6,600 |
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6,600 |
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1.4 |
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% |
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72,000 |
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70,313 |
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70,300 |
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15.0 |
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% |
Leisure and entertainment |
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UFC Holdings, LLC(3) |
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Second lien senior secured loan |
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L + 7.50% (8.50%) |
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8/18/2024 |
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35,000 |
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34,658 |
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35,203 |
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7.5 |
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% |
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Manufacturing |
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Blount International, Inc.(3) |
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First lien senior secured loan |
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L + 6.25% (7.25%) |
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4/12/2023 |
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15,000 |
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14,570 |
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15,188 |
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3.2 |
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% |
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Professional services |
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Allied Universal Holdco LLC |
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Second lien senior secured notes |
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11.00% |
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7/28/2023 |
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20,000 |
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19,606 |
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19,600 |
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4.2 |
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% |
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CD&R TZ Purchaser, Inc.(3) |
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First lien senior secured loan |
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L + 6.00% (7.00%) |
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7/21/2023 |
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35,000 |
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32,927 |
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32,900 |
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7.0 |
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% |
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Pomeroy Group LLC(3) |
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First lien senior secured loan |
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L + 6.00% (7.00%) |
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11/30/2021 |
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59,849 |
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|
57,520 |
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|
57,455 |
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12.3 |
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% |
||
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|
114,849 |
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|
110,053 |
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|
109,955 |
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23.5 |
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% |
|
Total Debt Investments |
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|
|
|
|
|
|
|
|
|
652,137 |
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|
637,665 |
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|
640,605 |
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|
136.6 |
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% |
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Total Investments |
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|
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|
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|
|
$ |
652,137 |
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|
$ |
637,665 |
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|
$ |
640,605 |
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|
|
136.6 |
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% |
4
(1) |
Certain portfolio company investments are subject to contractual restrictions on sales. |
(2) |
The amortized cost represents the original cost adjusted for the amortization of discounts and premiums, as applicable, on debt investments using the effective interest method. |
(3) |
Loan contains a variable rate structure, subject to an interest rate floor. Variable rate loans bear interest at a rate that may be determined by reference to either the London Interbank Offered Rate (“LIBOR” or “L”) (which can include one-, two-, three- or six-month LIBOR) or an alternate base rate (which can include the Federal Funds Effective Rate or the Prime Rate), at the borrower’s option, and which reset periodically based on the terms of the loan agreement. For each such loan, the Company has provided the interest rate in effect on the date presented. |
(4) |
Unless otherwise indicated, all investments are non-controlled, non-affiliated investments. Non-controlled, non-affiliated investments are defined as investments in which the Company owns less than 5% of the portfolio company’s outstanding voting securities and does not have the power to exercise control over the management or policies of such portfolio company. |
(5) |
At September 30, 2016, there was an unfunded commitment of $13.0 million. |
(6) |
This portfolio company is not a qualifying asset under Section 55(a) of the 1940 Act. Under the 1940 Act, the Company may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of total assets. |
The accompanying notes are an integral part of these consolidated financial statements.
5
Consolidated Statement of Changes in Net Assets
(Amounts in thousands)
(Unaudited)
|
|
Nine Months Ended |
|
|
|
|
September 30, 2016 |
|
|
Increase in Net Assets Resulting from Operations |
|
|
|
|
Net investment income |
|
$ |
654 |
|
Net unrealized gains on investments |
|
|
2,940 |
|
Net Increase in Net Assets Resulting from Operations |
|
|
3,594 |
|
Increase in Net Assets Resulting from Capital Share Transactions |
|
|
|
|
Issuance of common shares |
|
|
465,260 |
|
Increase in Net Assets Resulting from Capital Share Transactions |
|
|
465,260 |
|
Total Increase in Net Assets |
|
|
468,854 |
|
Net Assets, Beginning of Period |
|
|
— |
|
Net Assets, End of Period |
|
$ |
468,854 |
|
The accompanying notes are an integral part of these consolidated financial statements.
6
Consolidated Statement of Cash Flows
(Amounts in thousands)
(Unaudited)
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
September 30, 2016 |
|
|
Cash Flows from Operating Activities |
|
|
|
|
Net Increase in Net Assets Resulting from Operations |
|
$ |
3,594 |
|
Adjustments to reconcile net increase in net assets resulting from operations to net cash used in operating activities: |
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|
|
|
Net change in unrealized gains on investments |
|
|
(2,940 |
) |
Net amortization of discount on investments |
|
|
(322 |
) |
Amortization of debt issuance costs |
|
|
119 |
|
Purchases of investments, net |
|
|
(746,155 |
) |
Proceeds from investments, net |
|
|
108,812 |
|
Changes in operating assets and liabilities: |
|
|
|
|
Interest receivable |
|
|
(2,461 |
) |
Prepaid expenses and other assets |
|
|
(960 |
) |
Management fees payable to affiliate |
|
|
2,474 |
|
Payables to affiliate |
|
|
1,271 |
|
Accrued expenses and other liabilities |
|
|
875 |
|
Interest payable |
|
|
308 |
|
Net cash used in operating activities |
|
|
(635,385 |
) |
Cash Flows from Financing Activities |
|
|
|
|
Borrowings on Credit Facility |
|
|
389,000 |
|
Debt issuance costs |
|
|
(3,463 |
) |
Proceeds from issuance of common shares |
|
|
464,997 |
|
Net cash provided by financing activities |
|
|
850,534 |
|
Net increase in cash and cash equivalents |
|
|
215,149 |
|
Cash and cash equivalents, beginning of period |
|
|
— |
|
Cash and cash equivalents, end of period |
|
$ |
215,149 |
|
|
|
|
|
|
Non-cash financing activities |
|
|
|
|
Subscriptions receivable |
|
$ |
263 |
|
Supplemental Information |
|
|
|
|
Interest paid during the period |
|
$ |
347 |
|
The accompanying notes are an integral part of these consolidated financial statements.
7
Notes to Consolidated Financial Statements (Unaudited)
Note 1. Organization and Basis of Presentation
Organization
Owl Rock Capital Corporation (“Owl Rock” or the “Company”) is a Maryland corporation formed on October 15, 2015. The Company was formed primarily to originate and make loans to, and make debt and equity investments in, U.S. middle market companies. The Company invests in senior secured or unsecured loans, subordinated loans or mezzanine loans and, to a lesser extent, equity-related securities including warrants, preferred stock and similar forms of senior equity, which may or may not be convertible into a portfolio company’s common equity. The Company’s investment objective is to generate current income and to a lesser extent, capital appreciation by targeting investment opportunities with favorable risk-adjusted returns.
The Company has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). In addition, for tax purposes, the Company intends to qualify and be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).
In April 2016, the Company closed on its first portfolio company investment. On April 27, 2016, the Company formed a wholly-owned subsidiary, OR Lending LLC, a Delaware limited liability company, which holds a California finance lenders license and a Tennessee industrial loan and thrift certificate.
Because the Company has elected to be regulated as a BDC and intends to qualify as a RIC under the Code, the Company’s portfolio is subject to diversification and other requirements.
Owl Rock Capital Advisors, LLC (the “Adviser”) serves as the Company’s investment adviser. The Adviser is registered with the Securities and Exchange Commission (“SEC”) as an investment adviser under the Investment Advisers Act of 1940 (the “Advisers Act”). Subject to the overall supervision of the Company’s Board of Directors (the “Board”), the Adviser manages the day to day operations of, and provides investment advisory and management services to the Company.
The Company’s capital is used by its portfolio companies to support their organic growth, acquisitions, market or product expansion, refinancings and/or recapitalizations. The Company defines “middle market companies” to generally mean companies with earnings before interest expense, income tax expense, depreciation and amortization, or “EBITDA,” between $10 million and $250 million annually and/or annual revenue of $50 million to $2.5 billion at the time of investment. The Company may on occasion invest in smaller or larger companies if an opportunity presents itself, including when there are dislocations in the capital markets, including the high yield and large syndicated loan markets. The Company’s target credit investments will typically have maturities between three and ten years and generally range in size between $20 million and $250 million. The investment size will vary with the size of its capital base.
The Company conducts private offerings (the “Private Offering”) of its common shares to accredited investors in reliance on exemptions from the registration requirements of the Securities Act of 1933, as amended. At the closing of each Private Offering, each investor makes a capital commitment (a “Capital Commitment”) to purchase shares of the Company’s common stock pursuant to a subscription agreement entered into with the Company. Investors are required to fund drawdowns to purchase shares of the Company’s common stock up to the amount of their respective Capital Commitment on an as-needed basis each time the Company delivers a drawdown notice to its investors.
Basis of Presentation
The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The Company is an investment company and, therefore, applies the specialized accounting and reporting guidance in Accounting Standards Codification (“ASC”) Topic 946, Financial Services – Investment Companies. In the opinion of management, all adjustments, consisting solely of accruals considered necessary for the fair presentation of financial statements for interim periods, have been included. The results of operations for interim periods are not indicative of results to be expected for the full year.
Fiscal Year End
The Company’s fiscal year ends on December 31.
8
Owl Rock Capital Corporation
Notes to Consolidated Financial Statements (Unaudited) — Continued
Note 2. Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Such amounts could differ from those estimates and such differences could be material.
Cash and Cash Equivalents
Cash and cash equivalents consist of demand deposits and highly liquid investments (e.g. U.S. treasury notes) with original maturities of three months or less. Cash and cash equivalents are carried at cost, which approximates fair value. The Company deposits its cash and cash equivalents with highly-rated banking corporations and, at times, may exceed the insured limits under applicable law.
Investments at Fair Value
Investment transactions are recorded on the trade date. Realized gains or losses are measured by the difference between the net proceeds received (excluding prepayment fees, if any) and the amortized cost basis of the investment using the specific identification method without regard to unrealized gains or losses previously recognized, and include investments charged off during the period, net of recoveries. The net change in unrealized gains or losses primarily reflects the change in investment values, including the reversal of previously recorded unrealized gains or losses with respect to investments realized during the period.
Investments for which market quotations are readily available are typically valued at the bid price of those market quotations. 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 the quotations. Debt and equity securities that are not publicly traded or whose market prices are not readily available, as is the case for substantially all of the Company’s investments, are valued at fair value as determined in good faith by the Board, based on, among other things, the input of the Adviser, the Company’s Audit Committee and independent third-party valuation firm(s) engaged at the direction of the Board.
As part of the valuation process, the Board takes into account relevant factors in determining the fair value of the Company’s investments, including: the estimated enterprise value of a portfolio company (i.e., the total fair value of the portfolio company’s debt and equity), the nature and realizable value of any collateral, the portfolio company’s ability to make payments based on its earnings and cash flow, the markets in which the portfolio company does business, a comparison of the portfolio company’s securities to any similar publicly traded securities, and overall changes in the interest rate environment and the credit markets that may affect the price at which similar investments may be made in the future. When an external event such as a purchase or sale transaction, public offering or subsequent equity sale occurs, the Board considers whether the pricing indicated by the external event corroborates its valuation.
The Board undertakes a multi-step valuation process, which includes, among other procedures, the following:
|
• |
With respect to investments for which market quotations are readily available, those investments will typically be valued at the bid price of those market quotations; |
|
• |
With respect to investments for which market quotations are not readily available, the valuation process begins with the independent valuation firm(s) providing a preliminary valuation of each investment to the Adviser’s valuation committee; |
|
• |
Preliminary valuation conclusions are documented and discussed with the Adviser’s valuation committee. Agreed upon valuation recommendations are presented to the Audit Committee; |
|
• |
The Audit Committee reviews the valuation recommendations and recommends values for each investment to the Board; and |
|
• |
The Board reviews the recommended valuations and determines the fair value of each investment. |
The Company conducts this valuation process on a quarterly basis.
The Company applies Financial Accounting Standards Board Accounting Standards Codification 820, Fair Value Measurements (“ASC 820”), as amended, which establishes a framework for measuring fair value in accordance with U.S. GAAP and required disclosures of fair value measurements. ASC 820 determines fair value to be the price that would be received for an
9
Owl Rock Capital Corporation
Notes to Consolidated Financial Statements (Unaudited) — Continued
investment in a current sale, which assumes an orderly transaction between market participants on the measurement date. Market participants are defined as buyers and sellers in the principal or most advantageous market (which may be a hypothetical market) that are independent, knowledgeable, and willing and able to transact. In accordance with ASC 820, the Company considers its principal market to be the market that has the greatest volume and level of activity. ASC 820 specifies a fair value hierarchy that prioritizes and ranks the level of observability of inputs used in determination of fair value. In accordance with ASC 820, these levels are summarized below:
|
• |
Level 1 – Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. |
|
• |
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 overall fair value measurement. |
Transfers between levels, if any, are recognized at the beginning of the quarter in which the transfer occurs. In addition to using the above inputs in investment valuations, the Company applies the valuation policy approved by its Board that is consistent with ASC 820. Consistent with the valuation policy, the Company evaluates the source of the inputs, including any markets in which its investments are trading (or any markets in which securities with similar attributes are trading), in determining fair value. When an investment is valued based on prices provided by reputable dealers or pricing services (that is, broker quotes), the Company subjects those prices to various criteria in making the determination as to whether a particular investment would qualify for treatment as a Level 2 or Level 3 investment. For example, the Company, or the independent valuation firm(s), reviews pricing support provided by dealers or pricing services in order to determine if observable market information is being used, versus unobservable inputs.
Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Company’s investments may fluctuate from period to period. Additionally, the fair value of such investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that may ultimately be realized. Further, such investments are generally less liquid than publicly traded securities and may be subject to contractual and other restrictions on resale. If the Company were required to liquidate a portfolio investment in a forced or liquidation sale, it could realize amounts that are different from the amounts presented and such differences could be material.
In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the unrealized gains or losses reflected herein.
Interest and Dividend Income Recognition
Interest income is recorded on the accrual basis and includes amortization of discounts or premiums. Discounts and premiums to par value on securities purchased are amortized into interest income over the contractual life of the respective security using the effective yield method. The amortized cost of investments represents the original cost adjusted for the amortization of discounts or premiums, if any.
Loans are generally placed on non-accrual status when there is reasonable doubt that principal or interest will be collected in full. Accrued interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment regarding collectability. Non-accrual loans are restored to accrual status when past due principal and interest is paid current and, in management’s judgment, are likely to remain current. Management may make exceptions to this treatment and determine to not place a loan on non-accrual status if the loan has sufficient collateral value and is in the process of collection.
Dividend income on preferred equity securities is recorded on the 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 securities is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly-traded portfolio companies.
Other Income
From time to time, the Company may receive fees for services provided to portfolio companies by the Adviser. These fees are generally only available to the Company as a result of closing investments, are normally paid at the closing of the investments, are generally non-recurring and are recognized as revenue when earned upon closing of the investment. The services that the Adviser
10
Owl Rock Capital Corporation
Notes to Consolidated Financial Statements (Unaudited) — Continued
provides vary by investment, but can include closing, work, diligence or other similar fees and fees for providing managerial assistance to our portfolio companies.
Organization Expenses
Costs associated with the organization of the Company are expensed as incurred. These expenses consist primarily of legal fees and other costs of organizing the Company.
Offering Expenses
Costs associated with the offering of common shares of the Company are capitalized as deferred offering expenses and are included in prepaid expenses and other assets in the consolidated statement of assets and liabilities and are amortized over a twelve-month period from incurrence. These expenses consist primarily of legal fees and other costs incurred in connection with the Company’s share offerings, the preparation of the Company’s registration statement, and registration fees.
Debt Issuance Costs
The Company records origination and other expenses related to its debt obligations as deferred financing costs. These expenses are deferred and amortized over the life of the related debt instrument. Debt issuance costs are presented on the consolidated statement of assets and liabilities as a direct deduction from the debt liability. In circumstances in which there is not an associated debt liability amount recorded in the consolidated financial statements when the debt issuance costs are incurred, such debt issuance costs will be reported on the consolidated statement of assets and liabilities as an asset until the debt liability is recorded.
Reimbursement of Transaction-Related Expenses
The Company may receive reimbursement for certain transaction-related expenses in pursuing investments. Transaction-related expenses, which are generally expected to be reimbursed by third parties, are typically deferred until the transaction is consummated and are recorded in prepaid expenses and other assets on the date incurred. The costs of successfully completed investments not otherwise reimbursed are borne by the Company and are included as a component of the investment’s cost basis.
Cash advances received in respect of transaction-related expenses are recorded as cash and cash equivalents with an offset to accrued expenses and other liabilities. Accrued expenses and other liabilities are relieved as reimbursable expenses are incurred.
Income Taxes
The Company has elected to be treated as a BDC under the 1940 Act. The Company also intends to elect to be treated as a RIC under the Code for the taxable year ending December 31, 2016. So long as the Company maintains its tax treatment as a RIC, it generally will not pay corporate-level U.S. federal income taxes on any ordinary income or capital gains that it distributes at least annually to its stockholders as dividends. Instead, any tax liability related to income earned and distributed by Owl Rock represents obligations of the Company’s investors and will not be reflected in the consolidated financial statements 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 reserved and recorded as a tax benefit or expense in the current year. All penalties and interest associated with income taxes 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.
To qualify as a RIC, the Company must, among other things, meet certain source-of-income and asset diversification requirements. In addition, to qualify for RIC tax treatment, the Company must distribute to its stockholders, for each taxable year, at least 90% of its “investment company taxable income” for that year, which is generally its ordinary income plus the excess of its realized net short-term capital gains over its realized net long-term capital losses.
11
Owl Rock Capital Corporation
Notes to Consolidated Financial Statements (Unaudited) — Continued
Distributions to Common Stockholders
Distributions to common stockholders are recorded on the record date. The amount to be distributed is determined by the Board and is generally based upon the earnings estimated by the Adviser. Net realized long-term capital gains, if any, would be generally distributed at least annually, although the Company may decide to retain such capital gains for investment.
The Company has adopted a dividend reinvestment plan that provides for reinvestment of any cash distributions on behalf of stockholders, unless a stockholder elects to receive cash. As a result, if the Board authorizes and declares a cash distribution, then the stockholders who have not “opted out” of the dividend reinvestment plan will have their cash distribution automatically reinvested in additional shares of the Company’s common stock, rather than receiving the cash distribution. The Company expects to use newly issued shares to implement the dividend reinvestment plan.
Consolidation
As provided under Regulation S-X and ASC Topic 946 - Financial Services - Investment Companies, the Company will generally not consolidate its investment in a company other than a wholly-owned investment company or controlled operating company whose business consists of providing services to the Company. Accordingly, the Company consolidated the accounts of the Company's wholly-owned subsidiary in its consolidated financial statements.
Subsequent Events
The Company evaluates the need for disclosures and/or adjustments resulting from subsequent events through the date the consolidated financial statements are issued.
New Accounting Pronouncements
Management does not believe any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the accompanying consolidated financial statements.
Note 3. Agreements and Related Party Transactions
Administration Agreement
On March 1, 2016, the Company entered into an Administration Agreement (the “Administration Agreement”) with the Adviser. Under the terms of the Administration Agreement, the Adviser will perform, or oversee the performance of, required administrative services, which includes providing office space, equipment and office services, maintaining financial records, preparing reports to shareholders and reports filed with the SEC, and managing the payment of expenses and the performance of administrative and professional services rendered by others.
The Administration Agreement also provides that the Company will reimburse the Adviser for certain organization costs incurred prior to the commencement of the Company’s operations, and for certain offering costs.
The Company will reimburse the Adviser for services performed for it pursuant to the terms of the Administration Agreement. In addition, pursuant to the terms of the Administration Agreement, the Adviser may delegate its obligations under the Administration Agreement to an affiliate or to a third party and the Company will reimburse the Adviser for any services performed for it by such affiliate or third party.
For the three and nine months ended September 30, 2016, the Company incurred expenses of approximately $0.7 million and $1.8 million, respectively, for costs and expenses reimbursable to the Adviser under the terms of the Administration Agreement.
Unless earlier terminated as described below, the Administration Agreement will remain in effect until March 1, 2018 and from year to year thereafter if approved annually by (1) the vote of the Board, or by the vote of a majority of its outstanding voting securities, and (2) the vote of a majority of the Company’s directors who are not “interested persons” of the Company, of the Adviser or of any of their respective affiliates, as defined in the 1940 Act. The Administration Agreement may be terminated at any time, without the payment of any penalty, on 60 days’ written notice, by the vote of a majority of the outstanding voting securities of the Company, or by the vote of the Board or by the Administrator.
12
Owl Rock Capital Corporation
Notes to Consolidated Financial Statements (Unaudited) — Continued
No person who is an officer, director, or employee of the Adviser or its affiliates and who serves as a director of the Company receives any compensation from the Company for his or her services as a director. However, the Company reimburses the Adviser (or its affiliates) for an allocable portion of the compensation paid by the Adviser or its affiliates to the Company’s Chief Compliance Officer, Chief Financial Officer and other professionals who spend time on such related activities (based on the percentage of time those individuals devote, on an estimated basis, to the business and affairs of the Company). Directors who are not affiliated with the Adviser receive compensation for their services and reimbursement of expenses incurred to attend meetings.
Investment Advisory Agreement
On March 1, 2016, the Company entered into an Investment Advisory Agreement (the “Investment Advisory Agreement”) with the Adviser. Under the terms of the Investment Advisory Agreement, the Adviser will be responsible for managing the Company’s business and activities, including sourcing investment opportunities, conducting research, performing diligence on potential investments, structuring its investments, and monitoring its portfolio companies on an ongoing basis through a team of investment professionals.
The Adviser’s services under the Investment Advisory Agreement are not exclusive, and it is free to furnish similar services to other entities so long as its services to the Company are not impaired.
Under the terms of the Investment Advisory Agreement, the Company will pay the Adviser a base management fee and may also pay to it certain incentive fees. The cost of both the management fee and the incentive fee will ultimately be borne by the Company’s shareholders.
The management fee is payable quarterly in arrears. Prior to the future quotation or listing of the Company’s securities on a national securities exchange (an “Exchange Listing”) or the future quotation or listing of its securities on any other public trading market, the management fee is payable at an annual rate of 0.75% of the Company’s (i) average gross assets, excluding cash and cash equivalents but including assets purchased with borrowed amounts, at the end of the Company’s two most recently completed calendar quarters plus (ii) the average of any remaining unfunded Capital Commitments at the end of the two most recently completed calendar quarters. Following an Exchange Listing, the management fee is payable at an annual rate of 1.75% of the Company’s average gross assets excluding cash and cash equivalents but including assets purchased with borrowed amounts, at the end of the two most recently completed calendar quarters. The management fee for any partial month or quarter, as the case may be, will be appropriately prorated and adjusted for any share issuances or repurchases during the relevant calendar months or quarters, as the case may be.
For the three and nine months ended September 30, 2016, management fees were $2.5 million and $4.7 million, respectively.
Pursuant to the Investment Advisory Agreement, the Adviser will not be entitled to an incentive fee prior to an Exchange Listing. Following an Exchange Listing, the incentive fee will consist of two components that are independent of each other, with the result that one component may be payable even if the other is not. A portion of the incentive fee is based on the Company’s pre-incentive fee net investment income and a portion is based on the Company’s capital gains. The portion of the incentive fee based on pre-incentive fee net investment income is determined and paid quarterly in arrears commencing with the first calendar quarter following an Exchange Listing, and equals 100% of the pre-incentive fee net investment income in excess of a 1.5% quarterly “hurdle rate,” until the Adviser has received 20% of the total pre-incentive fee net investment income for that calendar quarter and, for pre-incentive fee net investment income in excess of 1.875% quarterly, 20% of all remaining pre-incentive fee net investment income for that calendar quarter.
The second component of the incentive fee, the capital gains incentive fee, payable at the end of each calendar year in arrears, equals 20% of cumulative realized capital gains from the date on which the Exchange Listing becomes effective (the “Listing Date”) to the end of each calendar year, less cumulative realized capital losses and unrealized capital depreciation from the Listing Date to the end of each calendar year, less the aggregate amount of any previously paid capital gains incentive fee for prior periods. In no event will the capital gains incentive fee payable pursuant to the Investment Advisory Agreement be in excess of the amount permitted by the Advisers Act, including Section 205 thereof.
There was no incentive fee for the three and nine months ended September 30, 2016.
13
Owl Rock Capital Corporation
Notes to Consolidated Financial Statements (Unaudited) — Continued
Unless earlier terminated as described below, the Investment Advisory Agreement will remain in effect until March 1, 2018 and will remain in effect from year-to-year thereafter if approved annually by a majority of the Board or by the holders of a majority of our outstanding voting securities and, in each case, by a majority of independent directors.
The Investment Advisory Agreement will automatically terminate within the meaning of the 1940 Act and related SEC guidance and interpretations in the event of its assignment. In accordance with the 1940 Act, without payment of any penalty, the Company may terminate the Investment Advisory Agreement with the Adviser upon 60 days’ written notice. The decision to terminate the agreement may be made by a majority of the Board or the shareholders holding a majority (as defined under the 1940 Act) of the outstanding shares of the Company’s common stock or the Adviser. In addition, without payment of any penalty, the Adviser may generally terminate the Investment Advisory Agreement upon 60 days’ written notice and, in certain circumstances, the Adviser may only be able to terminate the Investment Advisory Agreement upon 120 days’ written notice.
From time to time, the Adviser may pay amounts owed by the Company to third-party providers of goods or services, including the Board, and the Company will subsequently reimburse the Adviser for such amounts paid on its behalf. Amounts payable to the Adviser are settled in the normal course of business without formal payment terms.
Note 4. Investments
Under the 1940 Act, the Company is required to separately identify non-controlled investments where it owns 5% or more of a portfolio company’s outstanding voting securities and/or had the power to exercise control over the management or policies of such portfolio company as investments in “affiliated” companies. In addition, under the 1940 Act, the Company is required to separately identify investments where it owns more than 25% of a portfolio company’s outstanding voting securities and/or had the power to exercise control over the management or policies of such portfolio company as investments in “controlled” companies. Under the 1940 Act, "non-affiliated investments" are defined as investments that are neither controlled investments nor affiliated investments. Detailed information with respect to the Company’s non-controlled, non-affiliated; non-controlled, affiliated; and controlled affiliated investments is contained in the accompanying consolidated financial statements, including the consolidated schedule of investments. The information in the tables below is presented on an aggregate portfolio basis, without regard to whether they are non-controlled non-affiliated, non-controlled affiliated or controlled affiliated investments.
As of September 30, 2016, investments consisted of the following:
|
|
September 30, 2016 |
|
|||||
|
|
Amortized Cost |
|
|
Fair Value |
|
||
First-lien senior secured debt investments |
|
$ |
342,334 |
|
|
$ |
342,910 |
|
Second-lien senior secured debt investments |
|
|
295,331 |
|
|
|
297,695 |
|
Total Investments |
|
$ |
637,665 |
|
|
$ |
640,605 |
|
The industry composition of investments based on fair value as of September 30, 2016 was as follows:
|
|
September 30, 2016 |
|
|
|
Aerospace and defense |
|
|
7.7 |
|
% |
Distribution |
|
|
13.0 |
|
% |
Food and beverage |
|
|
30.1 |
|
% |
Healthcare equipment and services |
|
|
13.1 |
|
% |
Infrastructure and environmental services |
|
|
11.0 |
|
% |
Leisure and entertainment |
|
|
5.5 |
|
% |
Manufacturing |
|
|
2.4 |
|
% |
Professional services |
|
|
17.2 |
|
% |
Total |
|
|
100.0 |
|
% |
14
Owl Rock Capital Corporation
Notes to Consolidated Financial Statements (Unaudited) — Continued
The geographic composition of investments based on fair value as of September 30, 2016 was as follows:
|
|
September 30, 2016 |
|
|
|
United States: |
|
|
|
|
|
Midwest |
|
|
35.7 |
|
% |
Northeast |
|
|
23.2 |
|
% |
South |
|
|
22.0 |
|
% |
West |
|
|
14.8 |
|
% |
Canada |
|
|
4.3 |
|
% |
Total |
|
|
100.0 |
|
% |
Note 5. Fair Value of Investments
Investments
The following table presents the fair value hierarchy of investments as of September 30, 2016:
|
|
Fair Value Hierarchy as of September 30, 2016 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
First-lien senior secured debt investments |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
342,910 |
|
|
$ |
342,910 |
|
Second-lien senior secured debt investments |
|
|
— |
|
|
|
35,203 |
|
|
|
262,492 |
|
|
|
297,695 |
|
Total Investments at fair value |
|
$ |
— |
|
|
$ |
35,203 |
|
|
$ |
605,402 |
|
|
$ |
640,605 |
|
The following table presents changes in the fair value of investments for which Level 3 inputs were used to determine the fair value as of and for the three and nine months ended September 30, 2016 :
|
|
As of and for the Three Months Ended September 30, 2016 |
|
|||||||||||
|
|
First-lien debt investments |
|
|
|
Second-lien debt investments |
|
|
|
Total |
|
|||
Fair value, beginning of period |
|
$ |
39,825 |
|
|
|
$ |
178,860 |
|
|
|
$ |
218,685 |
|
Purchases of investments, net |
|
|
327,703 |
|
|
|
|
81,688 |
|
|
|
|
409,391 |
|
Proceeds from investments, net |
|
|
(24,862 |
) |
|
|
|
- |
|
|
|
|
(24,862 |
) |
Net change in unrealized gain |
|
|
58 |
|
|
|
|
1,819 |
|
|
|
|
1,877 |
|
Net amortization of discount on investments |
|
|
186 |
|
|
|
|
125 |
|
|
|
|
311 |
|
Transfers into (out of) Level 3 |
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
Fair value, end of period |
|
$ |
342,910 |
|
|
|
$ |
262,492 |
|
|
|
$ |
605,402 |
|
|
|
As of and for the Nine Months Ended September 30, 2016 |
|
|||||||||||
|
|
First-lien debt investments |
|
|
|
Second-lien debt investments |
|
|
|
Total |
|
|||
Fair value, beginning of period |
|
$ |
— |
|
|
|
$ |
— |
|
|
|
$ |
— |
|
Purchases of investments, net |
|
|
367,003 |
|
|
|
|
344,498 |
|
|
|
|
711,501 |
|
Proceeds from investments, net |
|
|
(24,862 |
) |
|
|
|
(83,950 |
) |
|
|
|
(108,812 |
) |
Net change in unrealized gain |
|
|
576 |
|
|
|
|
1,819 |
|
|
|
|
2,395 |
|
Net amortization of discount on investments |
|
|
193 |
|
|
|
|
125 |
|
|
|
|
318 |
|
Transfers into (out of) Level 3 |
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
Fair value, end of period |
|
$ |
342,910 |
|
|
|
$ |
262,492 |
|
|
|
$ |
605,402 |
|
The following table presents information with respect to net change in unrealized gains on investments for which Level 3 inputs were used in determining the fair value that are still held by the Company at September 30, 2016:
15
Owl Rock Capital Corporation
Notes to Consolidated Financial Statements (Unaudited) — Continued
|
Net change in Unrealized Gain for the Three Months Ended September 30, 2016 on Investments Held at September 30, 2016 |
|
|
|
Net change in Unrealized Gain for the Nine Months Ended September 30, 2016 on Investments Held at September 30, 2016 |
|
|||
First-lien senior secured debt investments |
|
$ |
58 |
|
|
|
$ |
576 |
|
Second-lien senior secured debt investments |
|
|
1,819 |
|
|
|
|
1,819 |
|
Total Investments |
|
$ |
1,877 |
|
|
|
$ |
2,395 |
|
The following table presents quantitative information about the significant unobservable inputs of the Company’s Level 3 investments as of September 30, 2016. The table is not intended to be all-inclusive but instead captures the significant unobservable inputs relevant to the Company’s determination of fair value.
|
|
As of September 30, 2016 |
||||||||||
|
|
Fair Value(1) |
|
|
Valuation Technique |
|
Unobservable Input |
|
Range (Weighted Average) |
|
Impact to Valuation from an Increase in Input |
|
First-lien senior secured debt investments |
|
$ |
302,847 |
|
|
Recent Transaction |
|
Transaction Price |
|
94.0-98.5 (97.3) |
|
Increase |
|
|
|
24,875 |
|
|
Yield Analysis |
|
Market Yield |
|
6.7% (6.7%) |
|
Decrease |
Second-lien senior secured debt investments |
|
$ |
81,688 |
|
|
Recent Transaction |
|
Transaction Price |
|
97.5-98.0 (97.8) |
|
Increase |
|
|
|
180,804 |
|
|
Yield Analysis |
|
Market Yield |
|
10.7%-11.4% (10.9%) |
|
Decrease |
________________
(1) |
Excludes an investment at fair value amounting to $15,188, which the Company valued using indicative bid prices obtained from brokers. |
The Company typically determines the fair value of its performing Level 3 debt investments utilizing a yield analysis. In a yield analysis, a price is ascribed for each investment based upon an assessment of current and expected market yields for similar investments and risk profiles. Additional consideration is given to the expected life, portfolio company performance since close, and other terms and risks associated with an investment. Among other factors, a determinant of risk is the amount of leverage used by the portfolio company relative to its total enterprise value, and the rights and remedies of the Company’s investment within each portfolio company’s capital structure.
Significant unobservable quantitative inputs typically used in the fair value measurement of the Company’s Level 3 debt investments primarily include current market yields, including relevant market indices, but may also include quotes from brokers, dealers, and pricing services as indicated by comparable investments. For the Company’s Level 3 equity investments, a market approach, based on comparable publicly-traded company and comparable market transaction multiples of revenues, earnings before income taxes, depreciation and amortization (“EBITDA”) or some combination thereof and comparable market transactions typically would be used.
Financial Instruments Not Carried at Fair Value
The fair value of the Company’s Credit Facility, which is categorized as Level 3 within the fair value hierarchy as of September 30, 2016, approximates its carrying value.
The carrying amounts of the Company’s assets and liabilities, other than investments at fair value, approximate fair value due to their short maturities or their close proximity of the originations to the measurement date. Under the fair value hierarchy, cash and cash equivalents are classified as Level 1 while the Company’s other assets and liabilities, other than investments at fair value and debt, are classified as Level 2.
16
Owl Rock Capital Corporation
Notes to Consolidated Financial Statements (Unaudited) — Continued
Note 6. Borrowings
In accordance with the 1940 Act, with certain limitations, the Company is allowed to borrow amounts such that its asset coverage, as defined in the 1940 Act, is at least 200% after such borrowing. As of September 30, 2016, the Company’s asset coverage was 220%.
On August 1, 2016 (the “Closing Date”), the Company entered into a revolving credit facility (the “Credit Facility”) with Wells Fargo Bank, National Association (“Wells Fargo”), as administrative agent (the “Administrative Agent”), and Wells Fargo, State Street Bank and Trust Company and the banks and financial institutions from time to time party thereto, as lenders.
The Credit Facility permits the Company to borrow up to $250 million, subject to availability under the “Borrowing Base”. The Borrowing Base is calculated based on the unused Capital Commitments of the investors meeting various eligibility requirements above certain concentration limits based on investors’ credit ratings. The Credit Facility includes a provision permitting the Company to increase the size of the facility on or before the first anniversary of the Closing Date up to a maximum principal amount not exceeding $500 million, subject to customary conditions, and includes a further provision permitting the Company to increase the size of the facility under certain circumstances up to a maximum principal amount not exceeding $750 million, if the existing or new lenders agree to commit to such further increase. On September 14, 2016, the Company, in accordance with the credit agreement, exercised its option to increase the size of the facility to a total of $300 million. On September 26, 2016, the Company, in accordance with the credit agreement, exercised its option to increase the size of the facility to a total of $500 million.
|
|
September 30, 2016 |
|
|||||||||||||
($ in thousands) |
|
Aggregate Principal Committed |
|
|
Outstanding Principal |
|
|
Amount Available(1) |
|
|
Net Carrying Value(2) |
|
||||
Credit Facility |
|
$ |
500,000 |
|
|
$ |
389,000 |
|
|
$ |
111,000 |
|
|
$ |
385,656 |
|
Total Debt |
|
$ |
500,000 |
|
|
$ |
389,000 |
|
|
$ |
111,000 |
|
|
$ |
385,656 |
|
________________
(1) The amount available reflects any limitations related to the Credit Facility’s borrowing base.
(2) The carrying value of the Company’s Credit Facility is presented net of deferred financing costs of $3.3 million.
Average debt outstanding during the three months ended September 30, 2016 was $99.7 million.
Borrowings under the Credit Facility bear interest, at the Company’s election at the time of drawdown, at a rate per annum equal to (i) in the case of LIBOR rate loans, an adjusted LIBOR rate for the applicable interest period plus 1.60% or (ii) in the case of reference rate loans, the greatest of (A) a prime rate plus 0.60%, (B) the federal funds rate plus 1.10%, and (C) one-month LIBOR plus 1.60%. Loans may be converted from one rate to another at any time at the Company’s election, subject to certain conditions. The Company also will pay an unused commitment fee of 0.25% per annum on the unused commitments.
For the three months ended September 30, 2016, the components of interest expense were as follows:
|
|
Three months ended |
|
|
($ in thousands) |
|
September 30, 2016 |
|
|
Interest expense |
|
$ |
655 |
|
Amortization of debt issuance costs |
|
|
119 |
|
Total Interest Expense |
|
$ |
774 |
|
Average interest rate |
|
|
2.52 |
% |
The Credit Facility will mature upon the earliest of (i) the date three (3) years from the Closing Date; (ii) the date upon which the Administrative Agent declares the obligations under the Credit Facility due and payable after the occurrence of an event of default; (iii) forty-five (45) days prior to the scheduled termination of the commitment period under the Company’s Subscription Agreements (as defined below); (iv) forty-five (45) days prior to the date of any listing of the Company’s common stock on a national securities exchange; (v) the termination of the commitment period under the Company’s Subscription Agreements (if earlier than the scheduled date); and (vi) the date the Company terminates the commitments pursuant to the Credit Facility.
The Credit Facility is secured by a perfected first priority security interest in the Company’s right, title, and interest in and to the capital commitments of the Company’s private investors, including the Company’s right to make capital calls, receive and apply capital contributions, enforce remedies and claims related thereto together with capital call proceeds and related rights, and a pledge of the collateral account into which capital call proceeds are deposited.
17
Owl Rock Capital Corporation
Notes to Consolidated Financial Statements (Unaudited) — Continued
The Credit Facility contains customary covenants, including certain limitations on the incurrence by the Company of additional indebtedness and on the Company’s ability to make distributions to its shareholders, or redeem, repurchase or retire shares of stock, upon the occurrence of certain events, and customary events of default (with customary cure and notice provisions).
Transfers of interests in the Company by investors will need to comply with certain sections of the Credit Facility and the Company shall notify the Administrative Agent before such transfers take place. Such transfers may trigger mandatory prepayment obligations.
Note 7. Commitments and Contingencies
From time to time, the Company may enter into commitments to fund investments. As of September 30, 2016, the Company had an outstanding commitment to fund a revolver loan totaling $13.0 million.
As of September 30, 2016, the Company had $2.2 billion in total Capital Commitments from investors ($1.7 billion unfunded), of which $112.4 million is from executives of the Adviser ($64.1 million unfunded).
From time to time, the Company may become a party to certain legal proceedings incidental to the normal course of its business. At September 30, 2016, management is not aware of any pending or threatened litigation.
Note 8. Net Assets
In connection with its formation, the Company has the authority to issue 500,000,000 common shares at $0.01 per share par value.
On March 1, 2016, the Company issued 100 common shares for $1,500 to the Adviser.
During the nine months ended September 30, 2016, the Company entered into subscription agreements (the “Subscription Agreements”) with investors providing for the private placement of the Company’s common shares. Under the terms of the Subscription Agreements, investors are required to fund drawdowns to purchase the Company’s common shares up to the amount of their respective Capital Commitment on an as-needed basis each time the Company delivers a drawdown notice to its investors.
On March 17, 2016, pursuant to the Subscription Agreements, the Company delivered a capital drawdown notice to its investors relating to the issuance of 3,333,344 common shares for an aggregate offering price of $50 million. The shares were issued on March 30, 2016.
On March 30, 2016, pursuant to the Subscription Agreements, the Company delivered a capital drawdown notice to its investors relating to the issuance of 17,214 common shares for an aggregate offering price of $0.3 million. The shares were issued on April 12, 2016.
On May 26, 2016, pursuant to the Subscription Agreements, the Company delivered a capital drawdown notice to its investors relating to the issuance of 20,979,021 common shares for an aggregate offering price of $300 million. The shares were issued on June 10, 2016.
On June 16, 2016, pursuant to the Subscription Agreements, the Company delivered a capital drawdown notice to its investors relating to the issuance of 5,244,760 common shares for an aggregate offering price of $75 million. The shares were issued on June 29, 2016.
On September 16, 2016, pursuant to the Subscription Agreements, the Company delivered a capital drawdown notice to its investors relating to the issuance of 2,751,029 common shares for an aggregate offering price of $40 million. The shares were issued on September 29, 2016.
On November 8, 2016, the Company’s Board declared a dividend of $2.1 million for shareholders of record on November 15, 2016, payable on November 30, 2016.
Note 9. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per common share:
18
Owl Rock Capital Corporation
Notes to Consolidated Financial Statements (Unaudited) — Continued
|
Three Months Ended September 30, 2016 |
|
|
Nine months ended September 30, 2016 |
|
|||
Increase in net assets resulting from operations |
|
$ |
7,992 |
|
|
$ |
3,594 |
|
Weighted average shares of common stock outstanding—basic and diluted |
|
|
29,634,244 |
|
|
|
16,302,756 |
|
Earnings per common share-basic and diluted |
|
$ |
0.27 |
|
|
$ |
0.22 |
|
Note 10. Financial Highlights
The following are the financial highlights for a common share outstanding during the nine months ended September 30, 2016:
(amounts in thousands, except share and per share data) |
|
Nine months ended September 30, 2016 |
|
|
|
Per Share Data |
|
|
|
|
|
Net asset value, beginning of period |
|
$ |
— |
|
|
Net investment income(1) |
|
|
0.04 |
|
|
Net unrealized gain(1) |
|
|
0.18 |
|
|
Total from operations |
|
|
0.22 |
|
|
Issuance of common shares |
|
|
14.28 |
|
|
Total increase in net assets |
|
|
14.50 |
|
|
Net asset value, end of period |
|
$ |
14.50 |
|
|
Shares outstanding, end of period |
|
|
32,325,468 |
|
|
Total Return(3) |
|
|
(3.3 |
) |
% |
Ratios / Supplemental Data |
|
|
|
|
|
Ratio of total expenses to average net assets(2) |
|
|
6.0 |
|
% |
Ratio of net investment income to average net assets(2) |
|
|
0.6 |
|
% |
Net assets, end of period |
|