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 March 31, 2016
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
COMMISSION FILE NUMBER: 1-36447
ALCENTRA CAPITAL CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
| Maryland | 46-2961489 | |
|
(State or other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
200 Park Avenue, 7 th Floor
New York, NY
(Address of Principal Executive Offices) (Zip Code)
(212) 922-8240
(Registrant’s Telephone Number, Including Area Code)
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 ¨
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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | ¨ | Accelerated filer | x | |||
| Non-accelerated filer | ¨ (do not check if a smaller reporting company) | Smaller reporting company | ¨ | |||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
There were 13,506,257 shares of the Registrant’s common stock outstanding as of May 5, 2016.
ALCENTRA CAPITAL CORPORATION
TABLE OF CONTENTS
| 2 |
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Alcentra Capital Corporation and Subsidiary
Consolidated Statements of Assets and Liabilities
|
As of
March 31, 2016 (Unaudited) |
As of
December 31, 2015 |
|||||||
| Assets | ||||||||
| Portfolio investments, at fair value | ||||||||
| Non-controlled, non-affiliated investments, at fair value (cost of $209,715,639 and $219,715,263, respectively) | $ | 205,364,448 | $ | 221,349,073 | ||||
| Non-controlled, affiliated investments, at fair value (cost of $57,337,290 and $56,426,475, respectively) | 62,734,755 | 59,243,999 | ||||||
| Controlled, affiliated investments, at fair value (cost $14,626,269 and $27,289,995, respectively) | 14,291,727 | 15,748,539 | ||||||
| Total of portfolio investments, at fair value (cost $281,679,198 and $303,431,733, respectively) | 282,390,930 | 296,341,611 | ||||||
| Cash | 3,831,847 | 4,866,972 | ||||||
| Dividends and interest receivable | 1,431,211 | 2,607,205 | ||||||
| Receivable for investments sold | 1,364,550 | — | ||||||
| Deferred financing costs | 1,960,553 | 2,183,881 | ||||||
| Deferred tax asset | 1,213,698 | 1,382,408 | ||||||
| Prepaid expenses and other assets | 61,445 | 113,730 | ||||||
| Total Assets | $ | 292,254,234 | $ | 307,495,807 | ||||
| Liabilities | ||||||||
| Credit facility payable | $ | 42,709,057 | $ | 63,504,738 | ||||
| Notes payable (net of deferred note offering costs of $1,280,837 and $1,156,622, respectively) | 44,120,163 | 38,843,378 | ||||||
| Other accrued expenses and liabilities | 265,435 | 271,801 | ||||||
| Directors’ fees payable | 79,000 | 37,025 | ||||||
| Professional fees payable | 297,747 | 481,333 | ||||||
| Interest and credit facility expense payable | 1,256,030 | 813,222 | ||||||
| Management fee payable | 1,289,036 | 1,302,213 | ||||||
| Income-based incentive fees payable | 1,487,183 | 1,081,797 | ||||||
| Distributions payable | 4,595,700 | 4,595,700 | ||||||
| Unearned structuring fee revenue | 803,769 | 689,577 | ||||||
| Income tax liability | 782,928 | 842,812 | ||||||
| Total Liabilities | 97,686,048 | 112,463,596 | ||||||
| Commitments and Contingencies (Note 12) | ||||||||
| Net Assets | ||||||||
| Common stock, par value $0.001 per share (100,000,000 shares authorized, 13,506,257 and 13,516,766 shares issued and outstanding, respectively) | 13,506 | 13,517 | ||||||
| Additional paid-in capital | 197,470,014 | 197,652,086 | ||||||
| Accumulated net realized gain (loss) | (6,091,534 | ) | 2,791,590 | |||||
| Undistributed net investment income | 2,139,519 | 1,130,327 | ||||||
| Net unrealized appreciation (depreciation) on investments, net of benefit/(provision) for taxes of $324,949 and $534,813 as of March 31, 2016 and December 31, 2015, respectively | 1,036,681 | (6,555,309 | ) | |||||
| Total Net Assets | 194,568,186 | 195,032,211 | ||||||
| Total Liabilities and Net Assets | $ | 292,254,234 | $ | 307,495,807 | ||||
| Net Asset Value Per Share | $ | 14.41 | $ | 14.43 | ||||
See notes to unaudited consolidated financial statements
| 3 |
Alcentra Capital Corporation and Subsidiary
Consolidated Statements of Operations
|
For
the three months
ended March 31, 2016 (Unaudited) |
For
the three months
ended March 31, 2015 (Unaudited) |
|||||||
| Investment Income: | ||||||||
| From non-controlled, non-affiliated investments: | ||||||||
| Interest income from portfolio investments | $ | 5,267,543 | $ | 4,157,559 | ||||
| Paid-in-kind interest income from portfolio investments | 1,351,088 | 735,724 | ||||||
| Other income from portfolio investments | 918,664 | 659,896 | ||||||
| Dividend income from portfolio investments | — | — | ||||||
| From non-controlled, affiliated investments: | ||||||||
| Interest income from portfolio investments | 910,323 | 1,219,056 | ||||||
| Paid in-kind income from portfolio investments | 851,139 | 611,499 | ||||||
| Other income from portfolio investments | 105,882 | 28,358 | ||||||
| From controlled, affiliated investments: | ||||||||
| Interest income from portfolio investments | 381,747 | 575,980 | ||||||
| Paid in-kind income from portfolio investments | 160,005 | 198,781 | ||||||
| Other income from portfolio investments | — | 37,800 | ||||||
| Total investment income | 9,946,391 | 8,224,653 | ||||||
| Expenses: | ||||||||
| Management fees | 1,289,036 | 1,148,005 | ||||||
| Income-based incentive fees | 790,727 | 806,100 | ||||||
| Capital gains incentive fees | — | 1,001,467 | ||||||
| Professional fees | 354,002 | 189,386 | ||||||
| Valuation services | 70,986 | 122,905 | ||||||
| Interest and credit facility expense | 1,308,944 | 605,888 | ||||||
| Amortization of deferred financing costs | 264,630 | 183,487 | ||||||
| Directors’ fees | 64,923 | 38,000 | ||||||
| Insurance expense | 66,610 | 69,535 | ||||||
| Other expenses | 131,641 | 84,173 | ||||||
| Total expenses | 4,341,499 | 4,248,946 | ||||||
| Waiver of capital gains incentive fees | — | (1,001,467 | ) | |||||
| Net expenses | 4,341,499 | 3,247,479 | ||||||
| Net investment income | 5,604,892 | 4,977,174 | ||||||
| Realized Gain (Loss) and Net Change in Unrealized Appreciation (Depreciation) From Portfolio Investments | ||||||||
| Net realized gain (loss) on: | ||||||||
| Non-controlled, non-affiliated investments | 1,876,638 | 254 | ||||||
| Non-controlled, affiliated investments | 394,733 | — | ||||||
| Controlled, affiliated investments | (11,154,495 | ) | — | |||||
| Net realized gain (loss) from portfolio investments | (8,883,124 | ) | 254 | |||||
| Net change in unrealized appreciation (depreciation) on: | ||||||||
| Non-controlled, non-affiliated investments | (5,985,001 | ) | (1,123,914 | ) | ||||
| Non-controlled, affiliated investments | 2,579,941 | 1,396,274 | ||||||
| Controlled, affiliated investments | 11,206,914 | (95,573 | ) | |||||
| Net change in unrealized appreciation (depreciation) from portfolio investments | 7,801,854 | 176,787 | ||||||
| Benefit/(Provision) for taxes on unrealized gain on investments | (209,864 | ) | (162,324 | ) | ||||
| Net realized gain (loss) and net change in unrealized appreciation (depreciation) from portfolio investments | (1,291,134 | ) | 14,717 | |||||
| Net Increase in Net Assets Resulting from Operations | $ | 4,313,758 | $ | 4,991,891 | ||||
| Basic and diluted: | ||||||||
| Net investment income per share | $ | 0.41 | $ | 0.37 | ||||
| Earnings per share | $ | 0.32 | $ | 0.37 | ||||
| Weighted Average Shares of Common Stock Outstanding | 13,515,498 | 13,516,766 | ||||||
| Dividends declared per common share | $ | 0.340 | $ | 0.340 | ||||
See notes to unaudited consolidated financial statements
| 4 |
Alcentra Capital Corporation and Subsidiary
Consolidated Statements of Changes in Net Assets
|
For the three months
ended March 31, 2016 (Unaudited) |
For the three months
ended March 31, 2015 (Unaudited) |
|||||||
| Increase (decrease) in net assets resulting from operations | ||||||||
| Net investment income | $ | 5,604,892 | $ | 4,977,174 | ||||
| Net realized gain (loss) on investments | (8,883,124 | ) | 254 | |||||
| Net change in unrealized appreciation (depreciation) on investments | 7,801,854 | 176,787 | ||||||
| Benefits/(Provision) for taxes on unrealized gain on investments | (209,864 | ) | (162,324 | ) | ||||
| Net increase (decrease) in net assets resulting from operations | 4,313,758 | 4,991,891 | ||||||
| Capital transactions | ||||||||
| Offering costs | (66,255 | ) | (31,168 | ) | ||||
| Repurchase of common stock (10,509 and 0 shares, respectively) | (115,828 | ) | — | |||||
| Net increase (decrease) in net assets resulting from capital transactions | (182,083 | ) | (31,168 | ) | ||||
| Distributions to shareholders from: | ||||||||
| Net investment income | (4,595,700 | ) | (4,595,700 | ) | ||||
| Realized gains | — | — | ||||||
| Total distributions to shareholders | (4,595,700 | ) | (4,595,700 | ) | ||||
| Total increase (decrease) in net assets | (464,025 | ) | 365,023 | |||||
| Net assets at beginning of period | 195,032,211 | 200,989,308 | ||||||
| Net assets at end of period [including Accumulated net investment income of $2,133,252 and $593,320, respectively] | $ | 194,568,186 | $ | 201,354,331 | ||||
See notes to unaudited consolidated financial statements
| 5 |
Alcentra Capital Corporation and Subsidiary
Consolidated Statements of Cash Flows
|
For
the three months
ended March 31, 2016 (Unaudited) |
For
the three months
ended March 31, 2015 (Unaudited) |
|||||||
| Cash Flows from Operating Activities | ||||||||
| Net increase in net assets resulting from operations | $ | 4,313,758 | $ | 4,991,891 | ||||
| Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by (used in) operating activities: | ||||||||
| Net realized (gain) loss from portfolio investments | 8,883,124 | (254 | ) | |||||
| Net change in unrealized (appreciation) depreciation of portfolio investments | (7,801,854 | ) | (176,787 | ) | ||||
| Deferred tax asset | 168,710 | — | ||||||
| Deferred tax liability | — | 159,983 | ||||||
| Paid in-kind interest income from portfolio investments | (2,362,232 | ) | (1,546,004 | ) | ||||
| Accretion of discount on debt securities | (99,533 | ) | (208,115 | ) | ||||
| Purchases of portfolio investments | (30,178,654 | ) | (21,982,468 | ) | ||||
| Net proceeds from sales/return of capital of portfolio investments | 45,509,830 | 15,519,311 | ||||||
| Amortization of deferred financing costs | 264,630 | 183,487 | ||||||
| (Increase) decrease in operating assets: | ||||||||
| Dividends and interest receivable | 1,175,994 | 655,120 | ||||||
| Receivable for investments sold | (1,364,550 | ) | 4,753 | |||||
| Deferred note offering costs | — | (201,899 | ) | |||||
| Prepaid expenses and other assets | 52,285 | 55,183 | ||||||
| Increase (decrease) in operating liabilities: | ||||||||
| Payable for investments purchased | — | (8,717 | ) | |||||
| Other accrued expenses and liabilities | (6,366 | ) | (359,853 | ) | ||||
| Directors' fees payable | 41,975 | (47,692 | ) | |||||
| Professional fees payable | (183,586 | ) | (47,077 | ) | ||||
| Interest and credit facility expense payable | 442,808 | (61,783 | ) | |||||
| Management fee payable | (13,177 | ) | 532,337 | |||||
| Income-based incentive fees payable | 405,386 | 806,100 | ||||||
| Unearned structuring fee revenue | 114,192 | (22,958 | ) | |||||
| Income tax | (59,884 | ) | (43,582 | ) | ||||
| Net cash provided by (used in) operating activities | 19,302,856 | (1,799,024 | ) | |||||
| Cash Flows from Financing Activities | ||||||||
| Financing costs paid | (41,302 | ) | — | |||||
| Offering costs paid | (190,470 | ) | (56,911 | ) | ||||
| Proceeds from credit facility payable | 16,500,000 | 52,531,684 | ||||||
| Repayments of credit facility payable | (37,295,681 | ) | (58,076,348 | ) | ||||
| Proceeds from notes payable | 5,401,000 | 5,936,000 | ||||||
| Distributions paid to shareholders | (4,595,700 | ) | (4,595,700 | ) | ||||
| Repurchase of common stock | (115,828 | ) | — | |||||
| Net cash used in financing activities | (20,337,981 | ) | (4,261,275 | ) | ||||
| Decrease in cash and cash equivalents | (1,035,125 | ) | (6,060,299 | ) | ||||
| Cash at beginning of period | 4,866,972 | 10,022,617 | ||||||
| Cash and Cash Equivalents at End of Period | $ | 3,831,847 | $ | 3,962,318 | ||||
| Supplemental and non-cash financing activities: | ||||||||
| Cash paid during the period for interest | $ | 866,136 | $ | 544,105 | ||||
| Accrued offering costs | $ | 2,485 | $ | 5,944 | ||||
| Accrued distributions payable | $ | 4,595,700 | $ | 4,595,700 | ||||
See notes to unaudited consolidated financial statements
| 6 |
Alcentra Capital Corporation and Subsidiary
Consolidated Schedule of Investments
As of March 31, 2016
(Unaudited)
See notes to unaudited consolidated financial statements
| 7 |
Alcentra Capital Corporation and Subsidiary
Consolidated Schedule of Investments (continued)
As of March 31, 2016
(Unaudited)
See notes to unaudited consolidated financial statements
| 8 |
Alcentra Capital Corporation and Subsidiary
Consolidated Schedule of Investments (continued)
As of March 31, 2016
(Unaudited)
| * | Denotes investments in which the Partnership is an “Affiliated Person” but not exercising a controlling influence, as defined in the 1940 Act, due to beneficially owning, either directly or through one or more controlled companies, more than 5% but less than 25% of the outstanding voting securities of the investment. Transactions during the three months ended March 31, 2016 in these affiliated investments are as follows: |
| Fair Value at | Interest/ | Fair Value at | ||||||||||||||||||
| December 31, | Gross | Gross | Dividend/ | March 31, | ||||||||||||||||
| Name of Issuers | 2015 | Addition | Reductions | Other Income | 2016 | |||||||||||||||
| ACT Lighting | $ | 12,753,733 | $ | - | $ | - | $ | 353,889 | $ | 13,804,000 | ||||||||||
| Battery Solutions, Inc. | 6,095,154 | - | - | 143,759 | 6,201,453 | |||||||||||||||
| DBI Holding, LLC | 22,894,780 | - | - | 727,115 | 25,850,112 | |||||||||||||||
| Show Media, Inc. | 3,610,000 | - | - | 137,548 | 3,234,000 | |||||||||||||||
| Southern Technical Institute, Inc. | 13,890,332 | - | - | 505,033 | 13,645,190 | |||||||||||||||
| $ | 59,243,999 | $ | - | $ | - | $ | 1,867,344 | $ | 62,734,755 | |||||||||||
See notes to unaudited consolidated financial statements
| 9 |
Alcentra Capital Corporation and Subsidiary
Consolidated Schedule of Investments (continued)
As of March 31, 2016
(Unaudited)
| ** | Denotes investments in which the Partnership is an “Affiliate Person” and exceeding a controlling influence, as defined in the 1940 Act, due to beneficially owning, either directly or through one or more controlled companies, more than 25% of the outstanding voting securities of the investment. Transactions during the three months ended March 31, 2016 in these affiliated and controlled investments are as follows: |
| Fair value at | Interest/ | Fair Value at | ||||||||||||||||||
| December 31, | Gross | Gross | Dividend/ | March 31, | ||||||||||||||||
| Name of Issuers | 2015 | Addition | Reductions | Other income | 2016 | |||||||||||||||
| The DRC Group | $ | 1,804,817 | $ | 133,333 | $ | 1,802,569 | $ | (4,525 | ) | $ | - | |||||||||
| FST Technical Services, LLC | 13,943,722 | - | - | 546,277 | 14,291,727 | |||||||||||||||
| $ | 15,748,539 | $ | 133,333 | $ | 1,802,569 | $ | 541,752 | $ | 14,291,727 | |||||||||||
| *** | Pledged as collateral under the Credit Facility with ING Capital LLC. |
| (1) | The cost of debt securities is adjusted for accretion of discount/amortization of premium and interest paid-in-kind on such securities. |
| (2) | The principal balance outstanding for all floating rate loans is indexed to LIBOR or an alternate base rate (e.g., prime rate), which typically resets semi-annually, quarterly, or monthly at the borrower's option. The borrower may also elect to have multiple interest reset periods for each loan. For each of these loans, the Company has provided the applicable margin over LIBOR based on each respective credit agreement. |
| (3) | The investments are portfolio companies of Enhanced Equity Fund, L.P. ("EEF"). EEF has guaranteed the portfolio company's obligations to the company pursuant to this investment. |
| (4) | The investment has an unfunded commitment as of March 31, 2016 which is excluded from the presentation (see Note 12). |
| (5) | City Carting Holding Company, Inc. is in the process of exploring strategic alternatives. As a result, maturity dates of Preferred Shares have been extended to June 1, 2016. |
| (6) | Non-income producing security. |
Abbreviation Legend
PIK -Payment-In-Kind
See notes to unaudited consolidated financial statements
| 10 |
Alcentra Capital Corporation and Subsidiary
Consolidated Schedule of Investments
As of December 31, 2015
| Company*** | Industry | Interest Rate |
Base
Rate Floor |
Maturity
Date |
No.
Shares/
Principal Amount |
Cost (1) | Fair Value |
%
of Net
Assets |
||||||||||||||||||||||||
| Investments in Non-Controlled, Non-Affiliated Portfolio Companies — 113.49% | ||||||||||||||||||||||||||||||||
| Senior Secured – First Lien — 36.58% | ||||||||||||||||||||||||||||||||
| A2Z Wireless Holdings, Inc. (2),(3) | Telecommunications | LIBOR + 11.75 | % | 3/31/2018 | 9,885,542 | $ | 9,722,622 | $ | 10,379,594 | 5.32 | % | |||||||||||||||||||||
| Aphena Pharma Solutions (4) | Packaging | 8.50% Cash, 2.0% PIK | 3/3/2019 | 3,792,657 | 3,792,657 | 3,792,657 | 1.94 | % | ||||||||||||||||||||||||
| Black Diamond Rentals | Oil & Gas Services | 12% Cash, 5.0% PIK | 7/8/2018 | 13,127,489 | 13,127,489 | 13,127,489 | 6.73 | % | ||||||||||||||||||||||||
| HealthFusion, Inc. | High Tech Industries | 13% Cash | 10/7/2018 | 4,750,000 | 4,750,000 | 4,892,913 | 2.51 | % | ||||||||||||||||||||||||
| IGT (3) | Industrial Services | LIBOR + 9.25% Cash | 1.00 | % | 12/10/2019 | 9,168,757 | 9,080,156 | 9,168,757 | 4.70 | % | ||||||||||||||||||||||
| NTI Holding, LLC (3) | Telecommunications | LIBOR + 8.0% Cash | 1.00 | % | 3/30/2021 | 7,835,625 | 7,757,269 | 7,835,625 | 4.02 | % | ||||||||||||||||||||||
| NWN Corporation (3) | Technology & IT | LIBOR + 9.0% Cash | 1.00 | % | 10/16/2020 | 4,968,750 | 4,869,375 | 4,968,750 | 2.55 | % | ||||||||||||||||||||||
| Response Team Holdings LLC (3) | Restoration Services |
LIBOR
+ 8.50% Cash,
1.00% PIK |
2.00 | % | 3/28/2019 | 9,902,334 | 9,902,334 | 10,001,000 | 5.13 | % | ||||||||||||||||||||||
| Stancor, Inc. (3) | Wholesale/Distribution | LIBOR + 8.0 | % | 0.75 | % | 8/19/2019 | 5,981,818 | 5,981,818 | 5,981,818 | 3.07 | % | |||||||||||||||||||||
| Triton Technologies (4) | Call Center Services | 8.50% Cash, 2.0% PIK | 10/23/2018 | 1,200,000 | 1,188,731 | 1,200,000 | 0.61 | % | ||||||||||||||||||||||||
| Total Senior Secured – First Lien | 70,172,451 | 71,348,603 | 36.58 | % | ||||||||||||||||||||||||||||
| Senior Secured – Second Lien — 36.51% | ||||||||||||||||||||||||||||||||
| Alpine Waste (3) | Waste Services |
LIBOR
+ 9.0% Cash,
0.5% PIK |
1.00 | % | 12/30/2020 | 11,047,685 | $ | 11,047,685 | $ | 11,047,685 | 5.66 | % | ||||||||||||||||||||
| Bioventus (3) |
Healthcare:
Orthopedic
Products |
LIBOR + 10.0% Cash | 1.00 | % | 4/10/2020 | 12,000,000 | 11,810,851 | 12,000,000 | 6.15 | % | ||||||||||||||||||||||
| Conisus LLC (3) |
Media:
Advertising,
Printing & Publishing |
LIBOR + 10.25% Cash | 1.00 | % | 6/23/2021 | 11,750,000 | 11,750,000 | 11,750,000 | 6.03 | % | ||||||||||||||||||||||
| Graco Supply Company | Aerospace | 12% Cash | 3/17/2021 | 4,000,000 | 4,000,000 | 4,000,000 | 2.05 | % | ||||||||||||||||||||||||
| Medsurant Holdings, LLC | Healthcare Services | 12.25% Cash | 6/18/2021 | 6,200,000 | 6,138,000 | 6,200,000 | 3.18 | % | ||||||||||||||||||||||||
| My Alarm Center, LLC (3) | Security | LIBOR + 11.0% Cash | 1.00 | % | 7/9/2019 | 9,500,000 | 9,500,000 | 9,500,000 | 4.87 | % | ||||||||||||||||||||||
| Nation Safe Drivers (NSD) (3) |
Automotive
Business
Services |
LIBOR + 8.0 | % | 2.00 | % | 9/29/2020 | 11,721,154 | 11,721,154 | 11,721,154 | 6.01 | % | |||||||||||||||||||||
| Xpress Global Systems, LLC (3) | Transportation Logistics |
LIBOR
+ 10.5%,
2% PIK |
1.00 | % | 4/10/2020 | 5,454,778 | 4,986,386 | 4,986,386 | 2.56 | % | ||||||||||||||||||||||
| Total Senior Secured – Second Lien | 70,954,076 | 71,205,225 | 36.51 | % | ||||||||||||||||||||||||||||
| Senior Subordinated — 26.17% | ||||||||||||||||||||||||||||||||
| Dentistry For Children, Inc. | Healthcare Services | 11% Cash, 2.25% PIK | 9/1/2017 | 14,836,488 | $ | 14,836,488 | $ | 14,836,488 | 7.61 | % | ||||||||||||||||||||||
| GST Autoleather |
Automotive
Business
Services |
11% Cash, 2.0% PIK | 1/11/2021 | 8,242,827 | 8,242,827 | 8,242,827 | 4.22 | % | ||||||||||||||||||||||||
| Media Storm, LLC | Media & Entertainment | 10% Cash | 8/28/2019 | 2,454,545 | 2,454,545 | 2,454,545 | 1.26 | % | ||||||||||||||||||||||||
| Pharmalogic Holdings Corp. | Healthcare Services | 12% Cash | 9/1/2021 | 15,500,000 | 15,500,000 | 15,500,000 | 7.95 | % | ||||||||||||||||||||||||
| Radiant Logistics (3) | Transportation Logistics | LIBOR + 11% Cash | 1.00 | % | 4/2/2021 | 10,000,000 | $ | 10,000,000 | $ | 10,000,000 | 5.13 | % | ||||||||||||||||||||
| Total Senior Subordinated | 51,033,860 | 51,033,860 | 26.17 | % | ||||||||||||||||||||||||||||
| Equity/Other — 14.23% | ||||||||||||||||||||||||||||||||
| City Carting Holding Company, Inc., Series A Preferred Shares (5) | Waste Services | 22% PIK | 4/30/2016 | 8,542,950 | $ | 8,542,950 | $ | 8,542,950 | 4.38 | % | ||||||||||||||||||||||
| Series B Preferred Shares (5) | 18% PIK | 4/30/2016 | 4,152,842 | 4,152,841 | 3,152,999 | 1.62 | % | |||||||||||||||||||||||||
| 12,695,791 | 11,695,949 | 6.00 | % | |||||||||||||||||||||||||||||
|
Dentistry
For Children, Inc.,
Class A-1 Units (6) |
Healthcare Services | 2,000,000 | 2,203,000 | 4,136,000 | 2.12 | % | ||||||||||||||||||||||||||
| HealthFusion, Inc., Warrants (6) | High Tech Industries | 418,000 | 418,000 | 2,115,000 | 1.08 | % | ||||||||||||||||||||||||||
| IGT, Preferred Shares (6) | Industrial Services | 1,079,684 | 1,079,684 | 900,000 | 0.46 | % | ||||||||||||||||||||||||||
| Common Shares (6) | 44,000 | 44,000 | — | — | ||||||||||||||||||||||||||||
| 1,123,684 | 900,000 | 0.46 | % | |||||||||||||||||||||||||||||
See notes to consolidated financial statements
| 11 |
Alcentra Capital Corporation and Subsidiary
Consolidated Schedule of Investments – (continued)
As of December 31, 2015
See notes to consolidated financial statements
| 12 |
Alcentra Capital Corporation and Subsidiary
Consolidated Schedule of Investments – (continued)
As of December 31, 2015
| * | Denotes investments in which the Partnership is an “Affiliated Person” but not exercising a controlling influence, as defined in the 1940 Act, due to beneficially owning, either directly or through one or more controlled companies, more than 5% but less than 25% of the outstanding voting securities of the investment. Transactions during the year ended December 31, 2015 in these affiliated investments are as follows: |
| Name of Issuers | Fair Value at December 31, 2014 |
Gross
Addition |
Gross Reductions | Interest/ Dividend/ Other income | Fair Value at December 31, 2015 | |||||||||||||||
| ACT Lighting | $ | 10,849,399 | $ | 321,902 | $ | — | $ | 1,393,060 | $ | 12,753,733 | ||||||||||
| Battery Solutions, Inc. | 4,576,000 | 3,688,255 | 3,333,333 | 617,795 | 6,095,154 | |||||||||||||||
| DBI Holding, LLC | 16,102,785 | 1,677,744 | — | 2,866,050 | 22,894,780 | |||||||||||||||
| Net Access Corporation | 9,412,000 | — | 10,729,267 | 34,748 | — | |||||||||||||||
| Show Media, Inc. | 4,596,000 | 3,639,487 | 3,423,107 | 651,883 | 3,610,000 | |||||||||||||||
| Southern Technical Institute, Inc. | 15,717,008 | 61,333 | — | 1,372,069 | 13,890,332 | |||||||||||||||
| $ | 61,253,192 | $ | 9,388,721 | $ | 17,485,707 | $ | 6,935,605 | $ | 59,243,999 | |||||||||||
| ** | Denotes investments in which the Partnership is an “Affiliate Person” and exceeding a controlling influence, as defined in the 1940 Act, due to beneficially owning, either directly or through one or more controlled companies, more than 25% of the outstanding voting securities of the investment. Transactions during the year ended December 31, 2015 in these affiliated and controlled investments are as follows: |
| Name of Issuers | Fair value at December 31, 2014 |
Gross
Addition |
Gross Reductions | Interest/ Dividend/ Other income | Fair Value at December 31, 2015 | |||||||||||||||
| The DRC Group | $ | 12,596,562 | $ | 533,333 | $ | — | $ | 564,704 | $ | 1,804,817 | ||||||||||
| FST Technical Services, LLC | 17,459,000 | 159,722 | — | 1,939,967 | 13,943,722 | |||||||||||||||
| $ | 30,055,562 | $ | 693,055 | $ | — | $ | 2,504,671 | $ | 15,748,539 | |||||||||||
| *** | Pledged as collateral under the Credit Facility with ING Capital LLC. |
See notes to consolidated financial statements
| 13 |
Alcentra Capital Corporation and Subsidiary
Consolidated Schedule of Investments – (continued)
As of December 31, 2015
| (1) | The cost of debt securities is adjusted for accretion of discount/amortization of premium and interest paid-in-kind on such securities. |
| (2) | The investment has an unfunded commitment as of December 31, 2015 which is excluded from the presentation (see Note 13). |
| (3) | The principal balance outstanding for all floating rate loans is indexed to LIBOR or an alternate base rate (e.g., prime rate), which typically resets semi-annually, quarterly, or monthly at the borrower's option. The borrower may also elect to have multiple interest reset periods for each loan. For each of these loans, the Company has provided the applicable margin over LIBOR based on each respective credit agreement. |
| (4) | The investments are portfolio companies of Enhanced Equity Fund, L.P. (“EEF”). EEF has guaranteed the portfolio company's obligations to the company pursuant to this investment. |
| (5) | City Carting Holding Company, Inc. is in the process of exploring strategic alternatives. As a result, maturity dates of Preferred Shares have been extended to 4/30/16. |
| (6) | Non-income producing security. |
Abbreviation Legend
PIK — Payment-In-Kind
See notes to consolidated financial statements
| 14 |
ALCENTRA CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
1. Organization and Purpose
Alcentra Capital Corporation (the “Company”, “Alcentra”, “we”, “us” or “our”) was formed as a Maryland corporation on June 6, 2013 as an externally managed, non-diversified closed-end management investment company that has elected to be regulated as a business development company under the Investment Company Act of 1940, as amended (the “1940 Act”) and is applying the guidance of Accounting Standards Codification (“ASC”) Topic 946, Financial Services Investment Companies . Alcentra is managed by Alcentra NY, LLC (the “Adviser” or “Alcentra NY”), a registered investment adviser under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). In addition, for U.S. federal income tax purposes, Alcentra has elected to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with its tax year ending December 31, 2014.
The Company was formed for the purpose of acquiring certain assets held by BNY Mellon-Alcentra Mezzanine III, L.P. (the “Partnership”). The Partnership is a Delaware limited partnership, which commenced operations on May 14, 2010 (the “Commencement Date”). BNY Mellon-Alcentra Mezzanine III (GP), L.P. (the “General Partner”), a Delaware limited liability company, is the General Partner of the Partnership. BNY Mellon-Alcentra Mezzanine Partners (the “Manager”), a division of Alcentra NY and an affiliate of the General Partner, manages the investment activities of the Partnership. Alcentra NY is wholly-owned by BNY Alcentra Group Holdings, Inc. (“Alcentra Group”), which is wholly-owned by The Bank of New York Mellon Corporation.
On May 8, 2014 (commencement of operations), the Company acquired all of the assets of the Partnership other than its investment in the shares of common stock and warrants to purchase common stock of GTT Communications (the “Fund III Acquired Assets”) for $64.4 million in cash and $91.5 million in shares of Alcentra’s common stock. Concurrent with Alcentra’s acquisition of the Fund III Acquired Assets from the Partnership, Alcentra also purchased for $29 million in cash certain debt investments (the “Warehouse Portfolio”) from Alcentra Group. The Warehouse Portfolio debt investments were originated by the investment professionals of the Adviser and purchased by Alcentra Group using funds under a warehouse credit facility provided by The Bank of New York Mellon Corporation in anticipation of the initial public offering of Alcentra’s shares of common stock. Except for the $1,500 seed capital, the Company had no assets or operations prior to the acquisition of the investment portfolios of the Partnership and as a result, the Partnership is considered a predecessor entity of the Company.
On May 14, 2014, Alcentra completed its initial public offering (the “Offering”), at a price of $15.00 per share. Through its initial public offering the Company sold 6,666,666 shares for gross proceeds of approximately $100 million. Alcentra used $94.2 million of the proceeds from the Offering to fund the purchase of the warehouse portfolio, and the cash portion of the consideration paid to Fund III. On June 6, 2014, Alcentra sold 750,000 shares through the underwriters’ exercise of the overallotment option for gross proceeds of $11,250,000.
On April 8, 2014, the Company formed Alcentra BDC Equity Holdings, LLC, a wholly-owned subsidiary for tax purposes. This subsidiary allows us to hold equity securities of portfolio companies organized as pass-through entities while continuing to satisfy the requirements of a RIC under the Code. The financial statements of this entity are consolidated into the financial statements of Alcentra. All intercompany balances and transactions have been eliminated.
The Company’s investment objective is to maximize the total return to its stockholders in the form of current income and capital appreciation through debt and related equity investments in middle-market companies. The Company seeks to achieve its investment objective by originating and investing primarily in private U.S. middle-market companies (typically those with $5.0 million to $15.0 million of EBITDA (earnings before interest, taxes, depreciation and amortization) through first lien, second lien, unitranche and mezzanine debt financing, with corresponding equity co-investments. It sources investments primarily through the network of relationships that the principals of its investment adviser have developed with financial sponsor firms, financial institutions, middle-market companies, management teams and other professional intermediaries.
Upon commencement of operations, the Company also entered into an administration and custodian agreement (the “Agreement”) with State Street Bank and Trust Company (the “Administrator”).
| 15 |
2. Summary of Significant Accounting Policies
Basis of Presentation – The accompanying financial statements of the Company have been prepared on the accrual basis of accounting in accordance with U.S. generally accepted accounting principles (“GAAP”) and pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain financial information that is normally included in annual financial statements, including certain financial statement notes, prepared in accordance with GAAP, is not required for interim reporting purposes and have been omitted. In the opinion of management, the unaudited financial results included herein contain all adjustments considered necessary for the fair presentation of financial statements for the interim periods included herein. The current period’s results of operations will not necessarily be indicative of results that ultimately may be achieved for the fiscal year ending December 31, 2016.
The accounting records of the Company are maintained in United States dollars.
Alcentra NY purchased the initial 100 shares for $1,500 on March 12, 2014.
Use of Estimates – The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates and such differences could be material. The most significant estimates relate to the valuation of the Company’s portfolio investments.
Consolidation – In accordance with Regulation S-X Article 6.03 and ASC Topic 810 - Consolidation, the Company generally will not consolidate its interest in any operating company other than in investment company subsidiaries, certain financing subsidiaries, and controlled operating companies substantially all of whose business consists of providing services to the Company.
Portfolio Investment Classification – The Company classifies its investments in accordance with the requirements of the 1940 Act. Under the 1940 Act, “Control Investments” are defined as investments in which the Company owns more than 25% of the voting securities or has rights to maintain greater than 50% of the board representation. Under the 1940 Act, “Affiliate Investments” are defined as investments in which the Company owns between 5% and 25% of the voting securities and does not have rights to maintain greater than 50% of the board representation. “Non-controlled, non-affiliate investments” are defined as investments that are neither Control Investments or Affiliate Investments.
Cash – At March 31, 2016, cash balances totaling $3.8 million exceeded FDIC insurance protection levels, subjecting the Company to risk related to the uninsured balance. All of the Company’s cash deposits are held by the Administrator and management believes that the risk of loss associated with any uninsured balance is remote.
Deferred Financing Costs – Deferred financing costs consist of fees and expenses paid in connection with the credit facility (as defined in Note 10) and are capitalized at the time of payment. These costs are amortized using the straight line method, which approximate the effective interest method over the term of the Credit Facility.
Deferred Note Offering Costs – Deferred Note Offering costs consist of fees and expenses paid in connection with the series of Senior Securities issued (as defined in Note 9) and are capitalized at this time as these fees and expenses were incurred before the issuance commenced. These costs are amortized using the straight line method, which approximate the effective interest method over the term of the Notes.
Valuation of Portfolio Investments – Portfolio investments are carried at fair value as determined by the Board of Directors (the ‘‘Board’’) of Alcentra .
The methodologies used in determining these valuations include:
(1) Preferred shares/membership units and common shares/membership units
In determining estimated fair value for common shares/membership units and preferred shares, the Company makes assessments of the methodologies and value measurements which market participants would use in pricing comparable investments, based on market data obtained from independent sources as well as from the Company’s own assumptions and taking into account all material events and circumstance which would affect the estimated fair value of such investments. Several types of factors, circumstances and events could affect the estimated fair value of the investments. These include but are not limited to the following:
| 16 |
(i) Any material changes in the (a) competitive position of the portfolio investment, (b) legal and regulatory environment within which the portfolio investment operates, (c) management or key managers of the portfolio investment, (d) terms and/or cost of financing available to the portfolio investment, and (e) financial position or operating results of the investment; (ii) pending disposition by the Company of all or a major portfolio investments; and (iii) sales prices of recent public or private transactions in identical or comparable investments.
One or a combination of the following valuation techniques are used to fair value these investments: Market Approach and Income Approach. The Market Approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The Income Approach uses valuation techniques to convert future amounts to a present amount (i.e., discounting estimated future cash flows to a net present value amount).
(2) Debt
The yield to maturity analysis is used to estimate the fair value of debt, including the unitranche facilities, which are a combination of senior and subordinated debt in one debt instrument. The calculation of yield to maturity takes into account the current market price, par value, coupon interest rate and time to maturity.
(3) Warrants
Where warrants are considered to be in the money, their incremental value is included within the valuation of the investments.
Valuation techniques are applied consistently from period to period, except when circumstances warrant a change to a different valuation technique that will provide a better estimate of fair value. The valuation process begins with each investment being initially valued by the investment professionals of the Company or its Adviser. Preliminary valuation conclusions are then documented and discussed with senior investment professional of the Company, its Adviser. The Investment Committee reviews the valuation of the investment professionals and then determines the fair value of each investment in good faith based on the input of the investment professionals.
With respect to the Company’s valuation process, the Board undertakes a similar multi-step valuation process each quarter, as described below:
• Alcentra’s quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals of the Adviser responsible for the portfolio investment;
• preliminary valuation conclusions will then be documented and discussed with Alcentra’s senior management and the Adviser;
• the audit committee of the Board then reviews these preliminary valuations;
• at least once quarterly, independent valuation firms engaged by the Board prepare preliminary valuations on a selected basis and submit the reports to the Board; and
• the Board then discusses valuations and determine the fair value of each investment in Alcentra’s portfolio in good faith, based on the input of the Adviser, the independent valuation firms and the audit committee.
The Board has authorized the engagement of independent valuation firms to provide Alcentra with valuation assistance. Alcentra intends to have independent valuation firms provide it with valuation assistance on a portion of its portfolio on a quarterly basis and its entire portfolio will be reviewed at least annually by independent valuation firms; however, the Board is ultimately and solely responsible for the valuation of its portfolio investments at fair value as determined in good faith pursuant to its valuation policy and a consistently applied valuation process.
Because of the inherent uncertainty of valuation, those estimated values may differ significantly from the values that would have been used had a readily available market for the securities existed or from those which will ultimately be realized.
Organizational and Offering Costs – Organization expenses, including reimbursement payments to the Adviser, are expensed on the Company’s Consolidated Statements of Operations. These expenses consist principally of legal and accounting fees incurred in connection with the organization of the Company and have been expensed as incurred. Offering expenses consist principally of underwriter’s fee, legal, accounting, printing fees and other related expenses associated with the filing of a registration statement. Offering costs are offset against proceeds of the offering in paid-in capital in excess of par in the Consolidated Statements of Changes in Net Assets. $1.56 million of offering costs were incurred with the initial public offering.
| 17 |
Paid-In-Capital – The Company records the proceeds from the sale of its common stock on a net basis to (i) capital stock and (ii) paid in capital in excess of par value, excluding all commissions
Earnings and Net Asset Value Per Share – Earnings per share is calculated based upon the weighted average number of shares of common stock outstanding during the reported period. Net Asset Value per share is calculated using the number of shares outstanding as of the end of the period.
Investments – Investment security transactions are accounted for on a trade date basis. Cost of portfolio investments represents the actual purchase price of the securities acquired including capitalized legal, brokerage and other fees as well as the value of interest and dividends received in-kind and the accretion of original issue discounts. Fees may be charged to the issuer by the Company in connection with the origination of a debt security financing. Such fees are reflected as a discount to the cost of the portfolio security and the discount is accreted into income over the life of the related debt security.
Original Issue Discount – When the Company receives warrants with a nominal or discounted exercise price upon origination of a debt or preferred stock investment, a portion of the cost basis is allocated to the warrants. When the investment is made concurrently with the sale of a substantial amount of equity, the value of the warrants is based on the sales price. The value of the warrants is recorded as original issue discount (“OID”) to the value of the debt or preferred stock investment and the OID is amortized over the life of the investment.
Interest and Dividend Income – Interest is recorded on the accrual basis to the extent that the Company expects to collect such amounts. The Company accrues paid in-kind interest (“PIK”) by recording income and an increase to the cost basis of the related investments. Dividend income is recorded on ex-dividend date. Dividends in-kind are recorded as an increase in cost basis of investments and as income.
Investments that are expected to pay regularly scheduled interest in cash are generally placed on non-accrual status when principal or interest cash payments are past due 30 days or more and/or when it is no longer probable that principal or interest cash payments will be collected. Such non-accrual investments are restored to accrual status if past due principal and interest are paid in cash, and in management’s judgment, are likely to continue timely payment of their remaining principal and interest obligations. Cash interest payments received on non-accrual designated investments may be recognized as income or applied to principal depending on management’s judgment. There were no non-accrual investments as of March 31, 2016 and December 31, 2015.
Other Income – The Company may also receive structuring or closing fees in connection with its investments. Such upfront fees are accreted into income over the life of the investment.
Prepayment penalties received by the Company for debt instruments paid back to the Company prior to the maturity date are recorded as income upon receipt.
Income Taxes – The Company has elected to be treated for U.S. federal income tax purposes as a RIC under Subchapter M of the Code, and to operate in a manner so as to qualify for the tax treatment applicable to RIC’s. To obtain and maintain our qualification as a RIC, the Company must, among other things, meet certain source-of-income and asset diversification requirements. In addition, the Company must distribute to our stockholders, for each taxable year, at least 90% of ‘‘investment company taxable income,’’ which is generally net ordinary taxable income plus the excess of realized net short-term capital gains over realized net long-term capital losses, or the Annual Distribution Requirement. As a RIC, the Company generally will not pay corporate-level U.S. federal income taxes on any ordinary income or capital gains that are timely distributed to stockholders as dividends.
Alcentra BDC Equity Holdings LLC has elected to be a taxable entity (the “Taxable Subsidiary”). The Taxable Subsidiary permits the Company to hold equity investments in portfolio companies which are “pass through” entities for tax purposes and continue to comply with the “source income” requirements contained in RIC tax provisions of the Code. The Taxable Subsidiary is not consolidated with the Company for income tax purposes and may generate income tax expense, benefit, and the related tax assets and liabilities, as a result of its ownership of certain portfolio investments. The income tax expense, or benefit, if any, and related tax assets and liabilities are reflected in the Company’s consolidated financial statements. For the three months ended March 31, 2016 and March 31, 2015, we recognized a provision for income tax on unrealized gain on investments of $(0.2) million and $(0.2) million, respectively, for the Taxable Subsidiaries. As of March 31, 2016 and December 31, 2015, $0 million and $0 million, respectively, was included in the deferred tax liability on the Consolidated Statements of Assets and Liabilities.
Indemnification – In the normal course of business, the Company enters into contractual agreements that provide general indemnifications against losses, costs, claims and liabilities arising from the performance of individual obligations under such agreements. The Company has had no prior claims or payments pursuant to such agreements. The Company’s individual maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Company that have not yet occurred. However, based on management’s experience, the Company expects the risk of loss to be remote.
Recently Issued Accounting Standards – In April 2015, FASB issued ASU 2015-03, Interest – Imputation of interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability rather than as an asset. Amortization of the costs will continue to be reported as interest expense. This guidance is effective for annual and interim periods beginning after December 15, 2015. The Company adopted this guidance as of March 31, 2016. The new guidance will be applied retrospectively to each prior period presented.
In May 2015, the FASB issued ASU 2015-07, Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). The update eliminates the requirement to categorize investments in the fair value hierarchy if their fair value is measured at net asset value (NAV) per share (or its equivalent) using the practical expedient in the FASB's fair value measurement guidance. Public companies are required to apply ASU 2015-07 retrospectively for interim and annual reporting periods beginning after December 15, 2015. Accordingly, the Company has evaluated the impact of ASU 2015-07 on its consolidated financial statements and determined that the adoption of ASU 2015-07 has not had a material impact on our consolidated financial statements
| 18 |
3. Fair Value of Portfolio Investments
The Company accounts for its investments in accordance with FASB Accounting Standards Codification Topic 820 (“ASC Topic 820”), Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value. ASC Topic 820 established a fair value hierarchy which prioritizes and ranks the level of market price observability used in measuring investments at fair value.
Market price observability is impacted by a number of factors, including the type of investment, the characteristics specific to the investment, and the state of the marketplace (including the existence and transparency of transactions between market participants). Investments with readily-available actively quoted prices or for which fair value can be measured from actively-quoted prices in an orderly market will generally have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.
Investments measured and reported at fair value are classified and disclosed in one of the following categories (from highest to lowest) based on inputs:
Level 1 – Quoted prices (unadjusted) are available in active markets for identical investments that the Company has the ability to access as of the reporting date. The type of investments which would generally be included in Level 1 includes listed equity securities and listed derivatives. As required by ASC Topic 820, the Company, to the extent that it holds such investments, does not adjust the quoted price for these investments, even in situations where the Company holds a large position and a sale could reasonably impact the quoted price.
Level 2 – Pricing inputs are observable for the investments, either directly or indirectly, as of the reporting date, but are not the same as those used in Level 1. Fair value is determined through the use of models or other valuation methodologies.
Level 3 – Pricing inputs are unobservable for the investment and include situations where there is little, if any, market activity for the investment. The inputs into the determination of fair value require significant judgment or estimation by the Company. The types of investments which would generally be included in this category include debt and equity securities issued by private entities.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the determination of which category within the fair value hierarchy is appropriate for any given investment is based on the lowest level of input that is significant to the fair value measurement. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment.
The following tables summarize the levels in the fair value hierarchy into which the Company’s financial instruments are categorized as of March 31, 2016 and December 31, 2015.
The fair values of our investments disaggregated into the three levels of the fair value hierarchy based upon the lowest level of significant input used in the valuation as of March 31, 2016 are as follows:
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Senior Secured - First Lien | $ | — | $ | — | $ | 84,245,127 | $ | 84,245,127 | ||||||||
| Senior Secured - Second Lien | — | — | 79,207,081 | 79,207,081 | ||||||||||||
| Subordinated Debt | — | — | 69,780,974 | 69,780,974 | ||||||||||||
| Equity/Other | — | — | 49,157,748 | 49,157,748 | ||||||||||||
| Total Investments | $ | — | $ | — | $ | 282,390,930 | $ | 282,390,930 | ||||||||
| 19 |
The fair values of our investments disaggregated into the three levels of the fair value hierarchy based upon the lowest level of significant input used in the valuation as of December 31, 2015 are as follows:
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Senior Secured - First Lien | $ | — | $ | — | $ | 88,453,325 | $ | 88,453,325 | ||||||||
| Senior Secured - Second Lien | — | — | 83,266,558 | 83,266,558 | ||||||||||||
| Subordinated Debt | — | — | 80,458,554 | 80,458,554 | ||||||||||||
| Equity/Other | — | — | 44,163,174 | 44,163,174 | ||||||||||||
| Total Investments | $ | — | $ | — | $ | 296,341,611 | $ | 296,341,611 | ||||||||
The changes in investments classified as Level 3 are as follows for the three months ended March 31, 2016 and March 31, 2015.
| As of March 31, 2016: | Senior | Senior | ||||||||||||||||||
| Secured - | Secured - | Senior | Equity/ | |||||||||||||||||
| First Lien | Second Lien | Subordinated | Other | Total | ||||||||||||||||
| Balance as of January 1, 2016 | $ | 88,453,325 | $ | 83,266,558 | $ | 80,458,554 | $ | 44,163,174 | $ | 296,341,611 | ||||||||||
| Amortized discounts/premiums | 31,666 | 34,919 | 32,948 | - | 99,533 | |||||||||||||||
| Paid in-kind interest | 663,162 | 208,399 | 642,202 | 848,469 | 2,362,232 | |||||||||||||||
| Net realized gain (loss) | (5,332,824 | ) | 11,657 | - | (3,561,957 | ) | (8,883,124 | ) | ||||||||||||
| Net change in unrealized appreciation (depreciation) | 1,023,601 | (10,422 | ) | 1,827,063 | 4,961,612 | 7,801,854 | ||||||||||||||
| Purchases | 26,487,603 | - | 1,700,000 | 6,226,331 | 34,413,934 | |||||||||||||||
| Sales/Return of capital | (27,081,406 | ) | (4,304,030 | ) | (14,879,793 | ) | (3,479,881 | ) | (49,745,110 | ) | ||||||||||
| Balance as of March 31, 2016 | $ | 84,245,127 | $ | 79,207,081 | $ | 69,780,974 | $ | 49,157,748 | $ | 282,390,930 | ||||||||||
| Net change in unrealized appreciation(depreciation) from investments still held as of March 31, 2016 | $ | (3,442,741 | ) | $ | (10,422 | ) | $ | 1,827,063 | $ | 2,238,831 | $ | 612,731 | ||||||||
| As of March 31, 2015: | Senior | Senior | ||||||||||||||||||
| Secured - | Secured - | Senior | Equity/ | |||||||||||||||||
| First Lien | Second Lien | Subordinated | Other | Total | ||||||||||||||||
| Balance as of January 1, 2015 | $ | 97,395,708 | $ | 46,748,798 | $ | 54,986,207 | $ | 51,343,141 | $ | 250,473,854 | ||||||||||
| Amortized discounts/premiums | 152,334 | 27,317 | 28,464 | - | 208,115 | |||||||||||||||
| Paid in-kind interest | 195,638 | 11,375 | 680,074 | 658,917 | 1,546,004 | |||||||||||||||
| Net realized gain (loss) | 254 | - | - | - | 254 | |||||||||||||||
| Net change in unrealized appreciation (depreciation) | 2,509,918 | (27,317 | ) | 111,102 | (2,256,916 | ) | 336,787 | |||||||||||||
| Purchases | 12,251,590 | 5,547,356 | - | 4,183,522 | 21,982,468 | |||||||||||||||
| Sales/Return of capital | (7,519,311 | ) | - | - | - | (7,519,311 | ) | |||||||||||||
| Transfers in | - | - | - | - | - | |||||||||||||||
| Transfers out | - | - | - | - | - | |||||||||||||||
| Balance as of March 31, 2015 | $ | 104,986,131 | $ | 52,307,529 | $ | 55,805,847 | $ | 53,928,664 | $ | 267,028,171 | ||||||||||
| Net change in unrealized appreciation(depreciation) from investments still held as of March 31, 2015 | $ | 2,407,882 | $ | (27,317 | ) | $ | 111,102 | $ | (2,699,916 | ) | $ | (208,249 | ) | |||||||
The following is a summary of the quantitative inputs and assumptions used for items categorized in Level 3 of the fair value hierarchy as of March 31, 2016 and December 31, 2015, respectively.
As of March 31, 2016:
| Fair Value at | Range | |||||||||||||||
| Assets at Fair Value |
March 31,
2016 |
Valuation
Technique |
Unobservable
Input |
Of
Inputs |
Weighted
Average |
|||||||||||
| Senior Secured - First Lien | $ | 84,245,127 | Yield to Maturity | Comparable Market Rate | 8.75% - 17.0% | 11.86 | % | |||||||||
| Senior Secured - Second Lien | $ | 79,207,081 | Yield to Maturity | Comparable Market Rate | 9.7% - 14.8% | 11.66 | % | |||||||||
| Senior Subordinated | $ | 69,780,974 | Yield to Maturity | Comparable Market Rate | 8.0% - 26.2% | 13.50 | % | |||||||||
| Preferred Ownership | $ | 28,789,748 | Market Approach | Enterprise Value/ LTM EBITDA Multiple |
4.00x – 13.00x |
8.12 | X | |||||||||
| Common Ownership/Common Warrants | $ | 20,368,000 | Market Approach | Enterprise Value/ LTM EBITDA Multiple |
4.00x – 13.00x |
9.68 | X | |||||||||
| Total | $ | 282,390,930 | ||||||||||||||
As of December 31, 2015:
| Fair Value at | Range | |||||||||||||||
| Assets at Fair Value |
December 31,
2015 |
Valuation
Technique |
Unobservable
Input |
of
Inputs |
Weighted
Average |
|||||||||||
| Senior Secured - First Lien | $ | 88,453,325 | Yield to Maturity | Comparable Market Rate | 8.75% - 17.0% | 12.29 | % | |||||||||
| Senior Secured - Second Lien | $ | 83,266,558 | Yield to Maturity | Comparable Market Rate | 10.0% - 13.5% | 11.28 | % | |||||||||
| Senior Subordinated | $ | 80,458,554 | Yield to Maturity | Comparable Market Rate | 8.0% - 26.2% | 13.80 | % | |||||||||
| Preferred Ownership | $ | 20,810,175 | Market Approach | Enterprise Value/ LTM EBITDA Multiple |
6.84x - 8.06x |
7.45 | X | |||||||||
| Common Ownership/ Common Warrants | $ | 23,352,999 | Market Approach | Enterprise Value/ LTM EBITDA Multiple |
8.97x - 9.14x |
9.05 | X | |||||||||
| Total | $ | 296,341,611 | ||||||||||||||
| 20 |
4. Share Transactions/Partners’ Capital
On January 18, 2016, the Board of Directors approved a $5.0 million open market stock repurchase program. Pursuant to the program, we are authorized to repurchase up to $5.0 million in the aggregate of our outstanding common stock in the open market. The timing, manner, price and amount of any share repurchases will be determined by our management, in its discretion, based upon the evaluation of economic conditions, stock price, applicable legal and regulatory requirements and other factors. The open market stock repurchase program will be in effect until the earlier of (i) January 18, 2017 or (ii) the repurchase of $5.0 million of the Company’s common stock . The program does not require us to repurchase any specific number of shares and we cannot assure that any shares will be repurchased under the program. The program may be suspended, extended, modified or discontinued at any time.
The following table sets forth the number of shares of common stock repurchased by the Company under its share repurchase program for the three months ended March 31, 2016:
| Repurchase Date | Shares Repurchased |
Repurchase Price Per
Share |
Aggregate
Consideration for Repurchased Shares |
|||||||||
| March 16, 2016 | 1,803 | $ | 10.8452 | $ | 19,626 | |||||||
| March 18, 2016 | 3,300 | $ | 10.7700 | 35,673 | ||||||||
| March 21, 2016 | 1,935 | $ | 10.9995 | 21,361 | ||||||||
| March 23, 2016 | 3,471 | $ | 11.2444 | 39,168 | ||||||||
| 10,509 | $ | 115,828 | ||||||||||
For the three months ended March 31, 2015 there was no common stock repurchased.
5. Distributions
The Company intends to make quarterly distributions of available net investment income determined on a tax basis to its stockholders. Distributions to stockholders are recorded on the record date. The amount, if any, to be distributed to stockholders is determined by the Board each quarter and is generally based upon the earnings estimated by management. Net realized capital gains, if any, will be distributed at least annually, although the Company may decide to retain such capital gains for investment and pay a 4% excise tax on such excess.
The following table reflects the Company’s dividends declared and paid or to be paid on its common stock for the three months ended March 31, 2016:
| Date Declared | Record Date | Payment Date | Amount Per Share | |||||
| March 7, 2016 | March 31, 2016 | April 7, 2016 | $ | 0.340 | ||||
The following table reflects the Company’s dividends declared and paid or to be paid on its common stock for the three months ended March 31, 2015:
| Date Declared | Record Date | Payment Date | Amount Per Share | |||||
| March 10, 2015 | March 31, 2015 | April 6, 2015 | $ | 0.340 | ||||
The Company has adopted a dividend reinvestment plan (“DRIP”) that provides for the reinvestment of dividends on behalf of its stockholders, unless a stockholder has elected to receive dividends in cash. As a result, if the Company declares a cash dividend, the stockholders who have not “opted out” of the DRIP no later than the record date will have their cash dividend automatically reinvested into additional shares of the Company’s common stock. The Company has the option to satisfy the share requirements of the DRIP through the issuance of new shares of common stock or through open market purchases of common stock by the DRIP plan administrator. Newly issued shares are valued based upon the final closing price of the common stock on the NASDAQ Global Select Market on the dividend payment date. Shares purchased in the open market to satisfy the DRIP requirements will be valued upon the average price of the applicable shares purchased by the Plan Administrator, before any associated brokerage or other costs.
6. Related Party Transactions
Management Fee
Under the Investment Advisory Agreement, the Company has agreed to pay Alcentra NY an annual base management fee based on its gross assets as well as an incentive fee based on its performance. The base management fee is calculated at an annual rate as follows: 1.75% of its gross assets (i.e., total assets held before deduction of any liabilities), including assets purchased with borrowed funds or other forms of leverage and excluding cash and cash equivalents (such as investments in U.S. Treasury Bills), if its gross assets are below $625 million; 1.625% if its gross assets are between $625 million and $750 million; and 1.5% if its gross assets are greater than $750 million. The various management fee percentages (i.e. 1.75%, 1.625% and 1.5%) would apply to the Company’s entire gross assets in the event its gross assets exceed the various gross asset thresholds. The base management fee will be payable quarterly in arrears and shall be calculated based on the average value of the Company’s gross assets, excluding cash and cash equivalents, at the end of the two most recently completed calendar quarters.
| 21 |
The incentive fee consists of two parts. The first part, which is calculated and payable quarterly in arrears, equals 20% of the Company’s ‘‘pre-incentive fee net investment income’’ for the immediately preceding quarter, subject to a hurdle rate of 2% per quarter (8% annualized), and is subject to a ‘‘catch-up’’ feature. The second part is calculated and payable in arrears as of the end of each calendar year (or, upon termination of the Investment Advisory Agreement, as of the termination date) and equals 20% of our aggregate cumulative realized capital gains from inception through the end of each calendar year, computed net of aggregate cumulative realized capital losses and aggregate cumulative unrealized capital depreciation through the end of such year, less the aggregate amount of any previously paid capital gain incentive fees. Pre-incentive fee net investment income means interest income, dividend income and any other income (including any other fees, such as commitment, origination, structuring, diligence, managerial assistance and consulting fees or other fees that the Company receives from portfolio companies) accrued during the calendar quarter, minus our operating expenses for the quarter (including the base management fee, expenses payable for administrative services under the Investment Advisory Agreement, and any interest expense and any distributions paid on any issued and outstanding preferred stock, but excluding the incentive fee and any offering expenses and other expenses not charged to operations but excluding certain reversals to the extent such reversals have the effect of reducing previously accrued incentive fees based on the deferral of non-cash interest). Pre-incentive fee net investment income excludes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with PIK interest and zero coupon securities), accrued income until the Company has received such income in cash.
For the three months ended March 31, 2016, the Company recorded expenses for base management fees of $1,289,036, of which $0 was waived by the Adviser and $1,289,036 was payable at March 31, 2016. For the three months ended March 31, 2015, the Company recorded expenses for base management fees of $1,148,005, of which $0 was waived by the Adviser and $1,148,005 were payable at March 31, 2015.
The Adviser agreed to waive its fees (base management and incentive fee), without recourse against or reimbursement by the Company, through the quarter ended June 30, 2015 and to the extent required in order for us to earn a quarterly net investment income to maintain a targeted dividend payment on shares of common stock outstanding on the relevant dividend payment dates of 9.0% (to be paid on a quarterly basis). For the three months ended March 31, 2016 and March 31, 2015, the Company incurred incentive fees of $790,727 and $1,807,567, respectively, of which $0 and $1,001,467 was waived by the Adviser and $1,487,183 and $806,100 was payable at March 31, 2016 and March 31, 2015, respectively.
For the three months ended March 31, 2016 and March 31, 2015, the Company recorded waivers of management and incentive fees which totaled $0 and $1,001,467, respectively.
7. Directors Fees
The independent directors of the Company each receive an annual fee of $40,000. They also receive $2,500 plus reimbursement of reasonable out-of-pocket expenses incurred in connection with attending in person each board of directors meeting and $1,000 plus reimbursement of reasonable out-of-pocket expenses incurred in connection with attending each board meeting telephonically. They also receive $1,000 plus reimbursement of reasonable out-of-pocket expenses incurred in connection with each committee meeting attended in person and each telephonic committee meeting. The chairman of the audit committee, the nominating and corporate governance committee and the compensation committee will receive an annual fee of $10,000, $5,000 and $5,000, respectively. The Company has obtained directors’ and officers’ liability insurance on behalf of its directors and officers.
For the three months ended March 31, 2016 and March 31, 2015 the Company recorded directors' fee expense of $64,923 and $38,000, respectively, of which $79,000 and $38,000 was payable at March 31, 2016 and March 31, 2015, respectively.
8. Purchases and Sales (Investment Transactions)
Investment purchases, sales and principal payments/paydowns are summarized below for the three months ended March 31, 2016 and March 31, 2015.
|
For the Three Months Ended March
31, |
||||||||
| 2016 | 2015 | |||||||
| Investment purchases, at cost (including PIK interest and dividends) | $ | 32,540,886 | $ | 23,528,472 | ||||
| Investment sales, proceeds (including Principal payments/paydown proceeds) | 45,509,830 | 15,519,311 | ||||||
| 22 |
9. Alcentra Capital InterNotes®
On January 30, 2015, the Company entered into a Selling Agent Agreement with Incapital LLC, as purchasing agent for our issuance of $40.0 million of Alcentra Capital InterNotes®. On January 25, 2016, the Company entered into an additional Selling Agent Agreement with Incapital LLC, as purchasing agent for the Company’s issuance of up to $15 million of Alcentra Capital InterNotes®.
These notes are direct unsecured obligations and each series of notes will be issued by a separate trust (administered by U.S. Bank). These notes bear interest at fixed interest rates and offer a variety of maturities no less than twelve months from the original date of issuance.
During the three months ended March 31, 2016, the Company issued $5.4 million in aggregate principal amount of the Alcentra Capital InterNotes® for net proceeds of $5.3 million. These notes were issued with a stated interest rate of 6.50%. These notes mature on February 15, 2021. For the three months ended March 31, 2016, the Company borrowed an average of $43.1 million with a weighted average interest rate of 6.43%.
The following table summarizes the Alcentra Capital InterNotes® issued and outstanding during the three months ended March 31, 2016.
| Tenor at | Principal | Interest | ||||||||||
| Origination | Amount | Rate | ||||||||||
| (in years) | (000’s omitted) | Range | Maturity Date Range | |||||||||
| 7 | $ | 1,331 | 6.50 | % | January 15, 2022 | |||||||
| 5 | 2,055 | 6.375 | % | February 15, 2020 | ||||||||
| 5 | 1,000 | 6.375 | % | February 15, 2020 | ||||||||
| 5 | 1,050 | 6.375 | % | February 15, 2020 | ||||||||
| 5 | 2,165 | 6.50 | % | February 15, 2021 | ||||||||
| 5 | 2,688 | 6.50 | % | February 15, 2021 | ||||||||
| 5 | 548 | 6.50 | % | February 15, 2021 | ||||||||
| 5 | 500 | 6.375 | % | March 15, 2020 | ||||||||
| 5 | 124 | 6.375 | % | April 15, 2020 | ||||||||
| 7 | 87 | 6.75 | % | April 15, 2022 | ||||||||
| 5 | 17,000 | 6.25 | % | April 15, 2020 | ||||||||
| 5 | 16,853 | 6.50 | % | April 15, 2020 | ||||||||
| $ | 45,401 | |||||||||||
During the three months ended March 31, 2016, we redeemed $0 aggregate principal amount of our Alcentra Capital InterNotes®. The net proceeds of this offering were used to repay outstanding indebtedness under the Credit Facility.
In connection with the issuance of the Alcentra Capital InterNotes®, we incurred $0.89 million of fees which are being amortized over the term of the notes and are included within deferred financing costs on the Consolidated Statements of Assets and Liabilities as of March 31, 2016. During the three months ended March 31, 2016 we recorded $0.75 million of interest costs and amortization of offering costs on the Alcentra Capital InterNotes® as interest expense.
10. Credit Facility/Line of Credit
On May 8, 2014, the Company entered into a senior secured revolving credit agreement (the “Credit Facility”) with ING Capital LLC (“ING”), as administrative agent, collateral agent and lender to provide liquidity in support of its investment and operational activities. The Credit Facility has an initial commitment of $80 million with an accordion feature that allows for an increase in the total commitments up to $160 million, subject to certain conditions and the satisfaction of specified financial covenants. The Credit Facility was amended on August 11, 2015 to increase the accordion feature to allow for a future increase of the total commitments up to $250 million, subject to satisfaction of certain conditions at the time of any such future increase. As amended, the Credit Facility has a maturity date of August 11, 2020 and bears interest, at our election, at a rate per annum equal to (i) 2.25% plus the highest of a prime rate, the Federal Funds rate plus 0.5%, three month LIBOR plus 1%, and zero or (ii) 3.25% plus the one, three or six month LIBOR rate, as applicable.
| 23 |
On March 2, 2016, we amended certain provisions of the Credit Facility relating to the treatment of approximately $38.6 million in aggregate principal amount of outstanding InterNotes that mature prior to the Credit Facility. Among other things, the amendments to the Credit Facility provide that, in the nine-month period prior to the maturity of these particular InterNotes, which mature between February 15 and April 15, 2020, our ability to borrow under the Credit Facility will be reduced by and in the amount of such InterNotes still outstanding during such time. The Credit Facility is secured primarily by the Company’s assets. Costs of $0 were incurred in connection with obtaining and amending the Credit Facility, which have been recorded as deferred financing costs on the Consolidated Statements of Assets and Liabilities and are being amortized over the life of the Credit Facility.
Amounts available to borrow under the Credit Facility are subject to a minimum borrowing /collateral base that applies an advance rate to certain investments held by the Company. The Company is subject to limitations with respect to the investments securing the Credit Facility, including, but not limited to, restrictions on sector concentrations, loan size, portfolio company leverage which may affect the borrowing base and therefore amounts available to borrow.
The Company pays a commitment fee between 0.5% and 1.0% per annum based on the size of the unused portion of the Credit Facility. This fee is included in interest expense on the Company’s Consolidated Statements of Operations.
The Company has made customary representations and warranties and is required to comply with various covenants and reporting requirements. These covenants are subject to important limitations and exceptions that are described in the documents governing the Credit Facility. As of March 31, 2016, the Company was in compliance in all material respects with the terms of the Credit Facility.
As of March 31, 2016 and December 31, 2015, the Company had United States dollar borrowings of $42.7 million and $63.5 million outstanding under the Credit Facility, respectively. For the three months ended March 31, 2016 and March 31, 2015, the Company borrowed an average of $55.2 million and $55.9 million, respectively, with a weighted average interest rate of 3.76% and 4.03%, respectively.
11. Market and Other Risk Factors
At March 31, 2016, the Company’s portfolio investments are comprised of non-publicly-traded securities. The non-publicly-traded securities trade in an illiquid marketplace. The portfolio is concentrated in the twenty-five industries listed in Note 13. Risks affecting these industries include, but are not limited to, increasing competition, rapid changes in technology, government actions and changes in economic conditions. These risk factors could have a material effect on the ultimate realizable value of the Company’s investments.
Economic conditions in 2016 continued to impact revenues and operating cash flows for most businesses and continued to impact the lending markets, leaving many businesses unable to borrow or refinance debt obligations. These restrictions on obtaining available financing, coupled with the continuing economic slowdown, have resulted in a low volume of purchase and sale transactions across all industries, which have limited the amount of observable inputs available to the Company in estimating the fair value of the Company’s investments. The Company estimates the fair value of investments for which observable market prices in active markets do not exist based on the best information available, which may differ significantly from values that would have otherwise been used had a ready market for the investments existed and the differences could be material.
Market conditions may deteriorate, which may negatively impact the estimated fair value of the Company’s investments or the amounts which are ultimately realized for such investments.
The above events are beyond the control of the Company and cannot be predicted. Furthermore, the ability to liquidate investments and realize value is subject to significant limitations and uncertainties. There may also be risk associated with the concentration of investments in one geographic region or in certain industries.
12. Commitments and Contingencies
In the normal course of business, the Company enters into contracts that contain a variety of representations and warranties and which provide general indemnifications. In addition, the Company has agreed to indemnify its officers, directors, employees, agents or any person who serves on behalf of the Company from any loss, claim, damage, or liability which such person incurs by reason of his performance of activities of the Company, provided they acted in good faith. The Company expects the risk of loss related to its indemnifications to be remote.
The Company’s investment portfolio may contain debt investments that are in the form of lines of credit and unfunded delayed draw commitments, which require the Company to provide funding when requested by portfolio companies in accordance with the terms of the underlying loan agreements. As of March 31, 2016 and December 31, 2015, the Company had $2.0 million and $1.0 million in unfunded commitments under loan and financing agreements, respectively. As of March 31, 2016 and December 31, 2015, the Company’s unfunded commitment under loan and financing agreements are presented below.
| 24 |
| As of | ||||||||
| March 31, 2016 | December 31, 2015 | |||||||
| A2Z Wireless Holdings, Inc. | $ | - | $ | 1,004,270 | ||||
| Superior Controls, Inc. | 2,000,000 | - | ||||||
| Total | $ | 2,000,000 | $ | 1,004,270 | ||||
13. Classification of Portfolio Investments
As of March 31, 2016, the Company’s portfolio investments were categorized as follows:
| Industry | Cost | Fair Value |
% of
Net Assets* |
|||||||||
| Healthcare Services | $ | 25,541,000 | $ | 27,630,000 | 14.20 | % | ||||||
| Infrastructure Maintenance | 18,064,212 | 25,850,112 | 13.29 | % | ||||||||
| Waste Services | 26,005,230 | 24,504,483 | 12.59 | % | ||||||||
| Telecommunications | 22,571,787 | 23,239,250 | 11.94 | % | ||||||||
| Automotive Business Services | 20,005,653 | 20,005,653 | 10.28 | % | ||||||||
| Transportation Logistics | 15,470,367 | 15,159,367 | 7.79 | % | ||||||||
| Technology & Telecom | 14,626,269 | 14,291,727 | 7.35 | % | ||||||||
| Wholesale | 10,426,569 | 13,804,000 | 7.09 | % | ||||||||
| Education | 14,505,459 | 13,645,190 | 7.01 | % | ||||||||
| Healthcare: Orthopedic Products | 11,821,273 | 12,000,000 | 6.17 | % | ||||||||
| Media: Advertising, Printing & Publishing | 11,750,000 | 11,750,000 | 6.04 | % | ||||||||
| High Tech Industries | 10,900,000 | 10,900,000 | 5.60 | % | ||||||||
| Oil & Gas Services | 13,293,406 | 10,156,000 | 5.22 | % | ||||||||
| Security | 9,500,000 | 9,500,000 | 4.88 | % | ||||||||
| Industrial Services | 10,216,210 | 9,158,000 | 4.71 | % | ||||||||
| Media & Entertainment | 12,406,106 | 6,725,545 | 3.46 | % | ||||||||
| Environmental/Recycling Services | 6,736,453 | 6,201,453 | 3.19 | % | ||||||||
| Wholesale/Distribution | 5,981,818 | 5,981,818 | 3.07 | % | ||||||||
| Technology & IT | 4,838,750 | 4,937,500 | 2.54 | % | ||||||||
| Restoration Services | 3,017,266 | 4,722,000 | 2.43 | % | ||||||||
| Aerospace | 4,000,000 | 4,000,000 | 2.06 | % | ||||||||
| Packaging | 3,811,832 | 3,811,832 | 1.96 | % | ||||||||
| Food & Beverage | 5,000,000 | 3,217,000 | 1.65 | % | ||||||||
| Call Center Services | 1,189,538 | 1,200,000 | 0.62 | % | ||||||||
| Total | $ | 281,679,198 | $ | 282,390,930 | 145.14 | % | ||||||
| Geographic Region | ||||||||||||
| South | $ | 75,936,229 | $ | 69,097,344 | 35.51 | % | ||||||
| Eastern | 59,429,121 | 64,466,310 | 33.13 | % | ||||||||
| South East | 38,073,738 | 41,673,199 | 21.42 | % | ||||||||
| Mid West | 37,592,739 | 37,725,202 | 19.39 | % | ||||||||
| West | 29,092,814 | 28,099,648 | 14.44 | % | ||||||||
| North East | 16,928,288 | 17,037,500 | 8.76 | % | ||||||||
| South West | 14,626,269 | 14,291,727 | 7.35 | % | ||||||||
| North West | 10,000,000 | 10,000,000 | 5.14 | % | ||||||||
| Total | $ | 281,679,198 | $ | 282,390,930 | 145.14 | % | ||||||
| Investment Type | ||||||||||||
| Senior Secured - First Lien | $ | 87,575,315 | $ | 84,245,127 | 43.30 | % | ||||||
| Senior Secured - Second Lien | 78,966,354 | 79,207,081 | 40.71 | % | ||||||||
| Senior Subordinated | 67,854,231 | 69,780,974 | 35.86 | % | ||||||||
| Equity/Other | 47,283,298 | 49,157,748 | 25.27 | % | ||||||||
| Total | $ | 281,679,198 | $ | 282,390,930 | 145.14 | % | ||||||
*Fair value as a percentage of Net Assets
| 25 |
As of December 31, 2015, the Company’s portfolio investments were categorized as follows:
| Industry | Cost | Fair Value |
% of
Net Assets* |
|||||||||
| Healthcare Services | $ | 38,677,488 | $ | 40,672,488 | 20.85 | % | ||||||
| Infrastructure Maintenance | 17,611,477 | 22,894,780 | 11.74 | % | ||||||||
| Waste Services | 23,743,476 | 22,743,634 | 11.66 | % | ||||||||
| Automotive Business Services | 19,963,981 | 19,963,981 | 10.24 | % | ||||||||
| Telecommunications | 17,829,891 | 18,825,219 | 9.65 | % | ||||||||
| Transportation Logistics | 15,475,386 | 15,475,386 | 7.93 | % | ||||||||
| Technology & Telecom | 14,466,264 | 13,943,722 | 7.15 | % | ||||||||
| Education | 14,338,600 | 13,890,332 | 7.12 | % | ||||||||
| Restoration Services | 12,830,771 | 13,232,437 | 6.78 | % | ||||||||
| Oil & Gas Services | 13,127,489 | 13,127,489 | 6.73 | % | ||||||||
| Wholesale | 10,330,768 | 12,753,733 | 6.54 | % | ||||||||
| Healthcare: Orthopedic Products | 11,810,851 | 12,000,000 | 6.15 | % | ||||||||
| Media: Advertising, Printing & Publishing | 11,750,000 | 11,750,000 | 6.02 | % | ||||||||
| Industrial Services | 10,203,840 | 10,068,757 | 5.16 | % | ||||||||
| Security | 9,500,000 | 9,500,000 | 4.87 | % | ||||||||
| High Tech Industries | 5,168,000 | 7,007,913 | 3.59 | % | ||||||||
| Media & Entertainment | 12,323,985 | 6,860,544 | 3.53 | % | ||||||||
| Environmental/Recycling Services | 6,623,154 | 6,095,154 | 3.13 | % | ||||||||
| Wholesale/Distribution | 5,981,818 | 5,981,818 | 3.07 | % | ||||||||
| Technology & IT | 4,869,375 | 4,968,750 | 2.55 | % | ||||||||
| Aerospace | 4,000,000 | 4,000,000 | 2.05 | % | ||||||||
| Packaging | 3,792,657 | 3,792,657 | 1.94 | % | ||||||||
| Food & Beverage | 5,000,000 | 3,788,000 | 1.94 | % | ||||||||
| Disaster Recovery Services | 12,823,731 | 1,804,817 | 0.93 | % | ||||||||
| Call Center Services | 1,188,731 | 1,200,000 | 0.62 | % | ||||||||
| Total | $ | 303,431,733 | $ | 296,341,611 | 151.94 | % | ||||||
| Geographic Region | ||||||||||||
| South East | $ | 78,199,153 | $ | 80,722,968 | 41.39 | % | ||||||
| Eastern | 51,779,326 | 54,523,091 | 27.95 | % | ||||||||
| South | 67,214,814 | 54,400,549 | 27.89 | % | ||||||||
| West | 34,068,929 | 34,419,331 | 17.65 | % | ||||||||
| Mid West | 32,695,872 | 33,163,200 | 17.00 | % | ||||||||
| South West | 18,466,264 | 17,943,722 | 9.20 | % | ||||||||
| North East | 11,007,375 | 11,168,750 | 5.73 | % | ||||||||
| North West | 10,000,000 | 10,000,000 | 5.13 | % | ||||||||
| Total | $ | 303,431,733 | $ | 296,341,611 | 151.94 | % | ||||||
| Investment Type | ||||||||||||
| Senior Secured - First Lien | $ | 92,807,114 | $ | 88,453,325 | 45.35 | % | ||||||
| Senior Secured - Second Lien | 83,015,409 | 83,266,558 | 42.69 | % | ||||||||
| Senior Subordinated | 80,358,874 | 80,458,554 | 41.26 | % | ||||||||
| Equity/Other | 47,250,336 | 44,163,174 | 22.64 | % | ||||||||
| Total | $ | 303,431,733 | $ | 296,341,611 | 151.94 | % | ||||||
*Fair value as a percentage of Net Assets
| 26 |
14. Financial Highlights
The following per share data and financial ratios have been derived from information provided in the consolidated financial statements of the Company. The following is a schedule of financial highlights for one share of common stock for the three months ended March 31, 2016 and March 31, 2015.
|
For the three months
ended March 31, 2016 |
For the three months
ended March 31, 2015 |
|||||||
| (Unaudited) | (Unaudited) | |||||||
| Per share data (1) | ||||||||
| Net asset value, beginning of period | $ | 14.43 | $ | 14.87 | ||||
| Net investment income (loss) | 0.41 | 0.37 | ||||||
| Net realized and unrealized gains (losses) | (0.07 | ) | 0.01 | |||||
| Provision for taxes on unrealized appreciation on investments | (0.02 | ) | (0.01 | ) | ||||
| Net increase (decrease) in net assets resulting from operations | 0.32 | 0.37 | ||||||
| Distributions to shareholders: (2) | ||||||||
| From net investment income | (0.34 | ) | (0.34 | ) | ||||
| Net asset value, end of period | $ | 14.41 | $ | 14.90 | ||||
| Market value per share, end of period | $ | 11.63 | $ | 13.30 | ||||
| Total return based on net asset value (3)(4) | 2.2 | % | 2.5 | % | ||||
| Total return based on market value (3)(4) | 3.2 | % | 9.1 | % | ||||
| Shares outstanding at end of period | 13,506,257 | 13,516,766 | ||||||
| Ratio/Supplemental Data: | ||||||||
| Net assets, at end of period | $ | 194,568,186 | $ | 201,354,331 | ||||
| Ratio of total expenses before waiver to average net assets (5) | 8.96 | % | 8.57 | % | ||||
| Ratio of interest expenses to average net assets (5) | 3.25 | % | 1.59 | % | ||||
| Ratio of incentive fees to average net assets (5) | 1.63 | % | 3.64 | % | ||||
| Ratio of waiver of management and incentive fees to average net assets (5) | — | % | 2.02 | % | ||||
| Ratio of net expenses to average net assets (5) | 8.96 | % | 6.55 | % | ||||
| Ratio of net investment income (loss) before waiver to average net assets (5) | 11.57 | % | 8.01 | % | ||||
| Ratio of net investment income (loss) after waiver to average net assets (5) | 11.57 | % | 10.03 | % | ||||
| Total Credit Facility payable outstanding | $ | 42,709,057 | $ | 56,954,490 | ||||
| Total Notes payable outstanding | $ | 45,401,000 | $ | 5,986,236 | ||||
| Asset coverage ratio (6) | 3.2 | 4.2 | ||||||
| Portfolio turnover rate (4) | 16 | % | 6 | % | ||||
| (1) | The per share data was derived by using the average shares outstanding during the period. | |
| (2) | The per share data for distributions is the actual amount of distributions paid or payable per share of common stock outstanding during the entire period. | |
| (3) | Returns are historical and are calculated by determining the percentage change in net asset value or market value with all distributions reinvested. Distributions are assumed to be reinvested at prices obtained under the Company’s dividend reinvestment plan. | |
| (4) | Not Annualized. | |
| (5) | Annualized. | |
| (6) | Asset coverage ratio is equal to (i) the sum of (A) net assets at the end of the period and (B) debt outstanding at the end of the period, divided by (ii) total debt outstanding at the end of the period. |
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15. Unconsolidated Significant Subsidiaries
In accordance with the SEC’s Regulation S-X and GAAP, we have subsidiaries that are not required to be consolidated. We have certain unconsolidated significant subsidiaries that pursuant to Rule 4-08(g) of Regulation S-X, summarized financial information is presented below in aggregate as of and for the three months ended March 31, 2016 and as of and for the year ended December 31, 2015.
| As of | For the three months ended | |||||||||
| Balance Sheet | March 31, 2016 | Income Statement | March 31, 2016 | |||||||
| Current Assets | 4,163,210 | Net Sales | 1,872,384 | |||||||
| Noncurrent Assets | 18,590,955 | Gross Profit | 559,159 | |||||||
| Current Liabilities | 771,647 | Net Income (Loss) | 107,733 | |||||||
| Noncurrent Liabilities | 12,766,392 | |||||||||
| As of | For the year ended | |||||||||
| Balance Sheet | December 31, 2015 | Income Statement | December 31, 2015 | |||||||
| Current Assets | 9,799,192 | Net Sales | 26,808,399 | |||||||
| Noncurrent Assets | 25,016,525 | Gross Profit | 4,817,956 | |||||||
| Current Liabilities | 3,982,975 | Net Income (Loss) | (8,829,955 | ) | ||||||
| Noncurrent Liabilities | 20,000,000 | |||||||||
In addition to the risks associated with our investments in general, there are unique risks associated with our investments in each of these entities.
For example, the business and growth of FST Technical Services, LLC (“FST”) depends in large part on the continued trend toward outsourcing of certain services in the semiconductor and biopharmaceutical industries. There can be no assurance that this trend in outsourcing will continue, as companies may elect to perform such services internally. A significant change in the direction of this trend generally, or a trend in the semiconductor and biopharmaceutical industry not to use, or to reduce the use of, outsourced services such as those provided by it, could significantly decrease its revenues and such decreased revenues could have a material adverse effect on it or its results operations or financial condition.
17. Subsequent Events
The Company has evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date the financial statements were issued.
Subsequent to March 31, 2016, the following activity occurred:
On April 4, 2016, we were repaid the entirety of our debt and equity investments in ACT Lighting for a total of $13.8 million.
On April 7, 2016, Alcentra paid a dividend to shareholders of record as of March 31, 2016 of $0.34 per share.
On April 13, 2016, Aphena Pharma Solutions repaid a portion of its debt in the amount of $2,000,000.
On April 22, 2016, Radiant Logistics repaid the entirety of our debt investment in the amount of $10,000,000.
On May 2, 2016, Alcentra funded an $8,500,000 investment in Healthcare Associates of Texas, Inc (“HCAT”) (12.25% second lien debt).
On May 5, 2016, Alcentra funded $8,250,000 of 13% senior subordinated debt and $500,000 of equity to Metal Powder Products, LLC (“MPP”).
On May 5, 2016, the Board of Directors approved the 2016 second quarter dividend of $0.34 per share for shareholders of record date June 30, 2016 and payable July 7, 2016.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
Some of the statements in this quarterly report on Form 10-Q constitute forward-looking statements, which relate to future events or our future performance or financial condition. The forward-looking statements contained in this quarterly report on Form 10-Q involve risks and uncertainties, including statements as to:
| • | our future operating results; |
| • | our business prospects and the prospects of our portfolio companies; |
| • | the effect of investments that we expect to make; |
| • | our contractual arrangements and relationships with third parties; |
| • | actual and potential conflicts of interest with Alcentra NY, LLC; |
| • | the dependence of our future success on the general economy and its effect on the industries in which we invest; |
| • | the ability of our portfolio companies to achieve their objectives; |
| • | the use of borrowed money to finance a portion of our investments; |
| • | the adequacy of our financing sources and working capital; |
| • | the timing of cash flows, if any, from the operations of our portfolio companies; |
| • | our ability to maintain our qualification as a business development company; and |
| • | the effect of future changes in laws or regulations (including the interpretation of these laws and regulations by regulatory authorities) and conditions in our operating areas, particularly with respect to business development companies. |
Such forward-looking statements may include statements preceded by, followed by or that otherwise include the words “may,” “might,” “will,” “intend,” “should,” “could,” “can,” “would,” “expect,” “believe,” “estimate,” “anticipate,” “predict,” “potential,” “plan” or similar words.
We have based the forward-looking statements included in this quarterly report on Form 10-Q on information available to us on the date of this quarterly report on Form 10-Q. Actual results could differ materially from those anticipated in our forward-looking statements, and future results could differ materially from historical performance. We undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law or SEC rule or regulation. You are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.
The following analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes thereto contained in this quarterly report on Form 10-Q.
Overview
Alcentra Capital Corporation (the “Company”, “Alcentra”, “ACC”, “we”, “us” or “our”) was formed as a Maryland corporation on June 4, 2013 as an externally managed, non-diversified closed-end management investment company that has elected to be regulated as a business development company under the Investment Company Act of 1940, as amended (the “1940 Act”). Alcentra is managed by Alcentra NY, LLC (the “Adviser”, or “Alcentra NY”), registered investment adviser under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). State Street Bank and Trust Company (“State Street”) provides us with financial reporting, post-trade compliance, and treasury services. In addition, for U.S. federal income tax purposes, Alcentra has elected to be treated as a regulated investment company (“RIC”), commencing with tax year ended December 31, 2014, under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).
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BNY Mellon-Alcentra Mezzanine III, L.P. (the “Partnership” or “Fund III”) is a Delaware limited partnership, which commenced operations on May 14, 2010. The Partnership was formed for the purpose of seeking current income and long-term capital appreciation by making investments in senior debt securities, subordinated debt securities, and common and preferred equity securities with equity rights or participations in U.S.-based middle market companies. BNY Mellon-Alcentra Mezzanine III (GP), L.P. (the “General Partner”), a Delaware limited liability company, is the General Partner of the Partnership. BNY Mellon-Alcentra Mezzanine Partners (the “Manager”), a division of Alcentra NY, LLC (“Alcentra Group”) and an affiliate of the General Partner, manages the investment activities of the Partnership. Alcentra NY, LLC is wholly owned by BNY Alcentra Group Holdings, Inc. which is wholly owned by The Bank of New York Mellon Corporation.
On May 14, 2014, Alcentra completed its initial public offering (the “Offering”), at a price of $15.00 per share. Through its initial public offering the Company sold 6,666,666 shares for gross proceeds of approximately $100,000,000. On June 6, 2014, Alcentra sold 750,000 shares through the underwriters' exercise of the overallotment option for gross proceeds of $11,250,000.
Immediately prior to the Offering, Fund III sold all of its assets other than its investment in the shares of common stock and warrants to purchase common stock of GTT Communications (the “Fund III Acquired Assets”) to the Company for $64.4 million in cash and $91.5 million in shares of the Company's common stock. Concurrent with the acquisition of the Fund III Acquired Assets from Fund III, the Company also purchased for $29 million in cash certain additional investments (the “Warehouse Portfolio”) from Alcentra Group. The Warehouse Portfolio consisted of approximately $29 million in debt investments originated by the investment professionals of the Manager and purchased by Alcentra Group using funds under a warehouse credit facility provided by The Bank of New York Mellon Corporation in anticipation of the Offering.
The Company entered into a senior secured term loan agreement (the “Bridge Facility”) with ING Capital LLC as lender that it used to fund the purchase of the Warehouse Portfolio and to fund the cash portion of the consideration paid to Fund III. In May 2014, the Company used $94.2 million of the proceeds from the Offering to repay the Bridge Facility in full.
The Company's investment objective is to generate both current income and capital appreciation through debt and equity investments by targeting investment opportunities with favorable risk-adjusted returns. The Company invests primarily in middle-market companies in the form of mezzanine and senior secured loans, each of which may include an equity component, and, to a lesser extent, by making direct equity investments in such companies.
The Company is required to comply with certain regulatory requirements such as not acquiring 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. Qualifying assets include investments in “eligible portfolio companies.” Under the relevant SEC rules, the term “eligible portfolio company” includes all private operating companies, operating companies whose securities are not listed on a national securities exchange, and certain public operating companies that have listed their securities on a national securities exchange and have a market capitalization of less than $250 million, in each case organized and with their principal of business in the United States.
Portfolio Composition and Investment Activity
Portfolio Composition
We originate and invest primarily in middle-market companies (typically those with $5.0 million to $15.0 million of EBITDA) through first lien, second lien, unitranche and mezzanine debt financing, often times with a corresponding equity investment.
During the three months ended March 31, 2016, we invested $27.6 million in debt and equity investments, including one new portfolio company, one refinancing and three add on investments. These investments consisted of senior secured loans ($25.5 million, or 94.22%), subordinated notes ($1.7 million, or 6.27%), and equity securities ($0.5 million, or 1.8%). During the three months ended March 31, 2016 we received proceeds from sales or repayments, including principal, return of capital dividends and net realized gains (losses), of $44.01 million. During the three months ended March 31, 2015, we invested $18.0 million in debt and equity investments, including one new portfolio company and three add on investments. These investments consisted of senior secured loans ($11.8 million, or 68.1%) and a 2 nd lien security ($5.54 million, or 31.94%). During the three months ended March 31, 2015, we received proceeds from repayments of principal, including return of capital dividends and realized gains, of $8.5 million.
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As of March 31, 2016, the fair value of our investment portfolio totaled $282.3 million and consisted of 31 portfolio companies. As of March 31, 2016, 56 % of our debt investments bore interest based on floating rates (subject to interest rate floors), such as LIBOR, and 44% bore interest at fixed rates. Our average portfolio company investment at amortized cost and fair value was approximately $9.0 million and $9.1 million, respectively, and our largest portfolio company investment by amortized cost and fair value was approximately $18.0 million and $25.8 million, respectively.
As of December 31, 2015, the fair value of our investment portfolio totaled $296.3 million and consisted of 32 portfolio companies. As of December 31, 2015, 52.1% of our debt investments bore interest based on floating rates (subject to interest rate floors), such as LIBOR, and 47.9% bore interest at fixed rates. Our average portfolio company investment at amortized cost and fair value was approximately $9.6 million and $9.3million, respectively, and our largest portfolio company investment by amortized cost and fair value was approximately $17.5 million and $22.8 million, respectively.
The weighted average yield on debt investments as of March 31, 2016 and December 31, 2015 was 12.0% and 12.4%, respectively. The weighted average yields were computed using the effective interest rates for debt investments at cost as of March 31, 2016 and December 31, 2016, including the accretion of original issue discount.
The following table shows the portfolio composition by investment type at fair value and cost with the corresponding percentage of total investments:
| Fair Value | Cost | |||||||||||||||||||||||||||||||
| March 31, 2016 | December 31, 2015 | March 31, 2016 | December 31, 2015 | |||||||||||||||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||||||||||||||
| Senior Secured - First Lien | $ | 84,245 | 29.8 | % | $ | 88,520 | 29.9 | % | $ | 87,575 | 31.1 | % | $ | 92,807 | 30.6 | % | ||||||||||||||||
| Senior Secured - Second Lien | 79,207 | 28.0 | % | 83,267 | 28.1 | % | 78,967 | 28.0 | % | 83,015 | 27.4 | % | ||||||||||||||||||||
| Senior Subordinated | 69,781 | 24.7 | % | 80,459 | 27.1 | % | 67,854 | 24.1 | % | 80,358 | 26.5 | % | ||||||||||||||||||||
| Equity/Other | 49,158 | 17.4 | % | 44,156 | 14.9 | % | 47,283 | 16.8 | % | 47,250 | 15.6 | % | ||||||||||||||||||||
| Total | $ | 282,391 | 100.0 | % | $ | 296,401 | 100.0 | % | $ | 281,679 | 100.0 | % | $ | 303,430 | 100.0 | % | ||||||||||||||||
The following table shows portfolio composition by geographic region at fair value and cost with the corresponding percentage of total investments. The geographic composition is determined by the location of the corporate headquarters of the portfolio company, which may not be indicative of the primary source of the portfolio company’s business.
| Fair Value | Cost | |||||||||||||||||||||||||||||||
| March 31, 2016 | December 31, 2015 | March 31, 2016 | December 31, 2015 | |||||||||||||||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||||||||||||||
| South | $ | 69,097 | 24.5 | % | $ | 54,401 | 18.4 | % | $ | 75,936 | 27.0 | % | $ | 67,215 | 22.2 | % | ||||||||||||||||
| South Eastern | 41,673 | 14.8 | % | 80,723 | 27.2 | % | $ | 38,074 | 13.5 | % | 78,199 | 25.8 | % | |||||||||||||||||||
| Eastern | 81,504 | 28.9 | % | 65,692 | 22.2 | % | $ | 76,357 | 27.1 | % | 62,787 | 20.7 | % | |||||||||||||||||||
| West | 38,100 | 13.5 | % | 44,419 | 15.0 | % | $ | 39,093 | 13.9 | % | 44,069 | 14.5 | % | |||||||||||||||||||
| South West | 14,292 | 5.1 | % | 17,944 | 6.1 | % | $ | 14,626 | 5.2 | % | 18,466 | 6.1 | % | |||||||||||||||||||
| Mid West | 37,725 | 13.4 | % | 33,163 | 11.2 | % | $ | 37,593 | 13.3 | % | 32,696 | 10.8 | % | |||||||||||||||||||
| Total | $ | 282,391 | 100.0 | % | $ | 296,342 | 100.0 | % | $ | 281,679 | 100.0 | % | $ | 303,432 | 100.0 | % | ||||||||||||||||
The following table shows the detailed industry composition of our portfolio at fair value and cost as a percentage of total investments:
| Fair Value | Cost | |||||||||||||||
| March 31, 2016 | December 31, 2015 | March 31, 2016 | December 31, 2015 | |||||||||||||
| Healthcare Services | 9.78 | % | 13.72 | % | 9.07 | % | 12.75 | % | ||||||||
| Infrastructure Maintenance | 9.15 | % | 7.73 | % | 6.41 | % | 5.80 | % | ||||||||
| Waste Services | 8.68 | % | 7.67 | % | 9.23 | % | 7.82 | % | ||||||||
| Telecommunications | 8.23 | % | 6.35 | % | 8.01 | % | 5.88 | % | ||||||||
| Automotive Business Services | 7.08 | % | 6.74 | % | 7.10 | % | 6.58 | % | ||||||||
| Transportation Logistics | 5.37 | % | 5.22 | % | 5.49 | % | 5.10 | % | ||||||||
| Technology & Telecom | 5.06 | % | 4.71 | % | 5.19 | % | 4.77 | % | ||||||||
| Wholesale | 4.89 | % | 4.30 | % | 3.70 | % | 3.40 | % | ||||||||
| Education | 4.83 | % | 4.69 | % | 5.15 | % | 4.73 | % | ||||||||
| Healthcare: Orthopedic Products | 4.25 | % | 4.05 | % | 4.20 | % | 3.89 | % | ||||||||
| Media: Advertising, Printing & Publishing | 4.16 | % | 3.97 | % | 4.17 | % | 3.87 | % | ||||||||
| High Tech Industries | 3.86 | % | 2.36 | % | 3.87 | % | 1.70 | % | ||||||||
| Oil & Gas Services | 3.60 | % | 4.43 | % | 4.72 | % | 4.33 | % | ||||||||
| Security | 3.36 | % | 3.21 | % | 3.37 | % | 3.13 | % | ||||||||
| Industrial Services | 3.24 | % | 3.40 | % | 3.63 | % | 3.36 | % | ||||||||
| Media & Entertainment | 2.38 | % | 2.32 | % | 4.40 | % | 4.06 | % | ||||||||
| Environmental/Recycling Services | 2.20 | % | 2.06 | % | 2.39 | % | 2.18 | % | ||||||||
| Wholesale/Distribution | 2.12 | % | 2.02 | % | 2.12 | % | 1.97 | % | ||||||||
| Technology & IT | 1.75 | % | 1.68 | % | 1.72 | % | 1.60 | % | ||||||||
| Restoration Services | 1.67 | % | 4.47 | % | 1.07 | % | 4.23 | % | ||||||||
| Aerospace | 1.42 | % | 1.35 | % | 1.42 | % | 1.32 | % | ||||||||
| Packaging | 1.35 | % | 1.28 | % | 1.35 | % | 1.25 | % | ||||||||
| Food & Beverage | 1.14 | % | 1.28 | % | 1.78 | % | 1.65 | % | ||||||||
| Call Center Services | 0.42 | % | 0.40 | % | 0.42 | % | 0.39 | % | ||||||||
| Disaster Recovery Services | 0.00 | % | 0.61 | % | 0.00 | % | 4.23 | % | ||||||||
| Total | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | ||||||||
$88.4 million of the portfolio (32%) had a first credit exposure at 0.0x – 1.0x EBITDA; $152.3 million of the portfolio (55%) had a first credit exposure at 1.0x – 3.0x EBITDA; $18.5 million of the portfolio (7%) had a first credit exposure at 3.0x – 4.0x EBITDA; and $18 million of the portfolio (7%) had a first credit exposure at >4.5x EBITDA.
Portfolio Asset Quality
We currently do not use a rating system to monitor portfolio performance. As the portfolio grows in size, we would expect to implement a portfolio rating system.
Non-Accrual
We will generally not accrue interest on loans and debt securities if principal or interest cash payments are past due 30 days or we have reason to doubt our ability to collect such interest.
As of March 31, 2016 and December 31, 2015, we had no loans on non-accrual status.
Discussion and Analysis of Results of Operations
Comparison of three months ended March 31, 2016 and March 31, 2015
Investment Income
For the three months ended March 31, 2016, total investment income was $9.9 million, an increase of $1.7 million, or 20.7% over the $8.2 million of total investment income for the three months ended March 31, 2015. This increase was primarily attributable to an increase in interest income with the addition of 9 portfolio companies, an increase in PIK of 4 portfolio companies, $.900 million in prepayment penalties and $.100 in Amendment fees.
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We generate revenue in the form of interest income on debt investments and capital gains and distributions, if any, on investment securities that we may acquire in portfolio companies. Our debt investments typically have a term of five to seven years and bear interest at a fixed or floating rate. Interest on our debt securities is payable both quarterly and monthly. Payments of principal on our debt investments may be amortized over the stated term of the investment, deferred for several years or due entirely at maturity. In some cases, our debt investments may pay interest in-kind, or PIK. Any outstanding principal amount of our debt securities and any accrued but unpaid interest will generally become due at the maturity date. The level of interest income we receive is directly related to the balance of interest-bearing investments multiplied by the weighted average yield of our investments. We expect that the total dollar amount of interest and any dividend income that we earn to increase as the size of our investment portfolio increases. In addition, we may generate revenue in the form of prepayment fees, commitment, loan origination, structuring or due diligence fees, fees for providing significant managerial assistance and consulting fees.
Expenses
For the three months ended March 31, 2016, total expenses were $4.3 million, which was an increase of $1.1 million, or 34.3%, over the $3.2 million for the three months ended March 31, 2015. Interest and financing expenses for the three months ended March 31, 2016 were $1.6 million, an increase of $0.784 million from $0.789 million for the three months ended March 31, 2015. This is largely due to the issuance of $45 million in Alcentra Internotes® and deferred financing costs in relation to a credit facility amendment. The base management fee increased $0.142 million, or 12%, to $1.289 million for the three months ended March 31, 2016 due to higher average total assets less cash and cash equivalents than the comparable period in 2015. The incentive fee for the three months ended March 31, 2016 was $0.796, a 1.1% decrease from the comparable period in 2015. The administrative service fee, professional fees and other general and administrative expenses totaled $0.687 million for the three months ended March 31, 2016 compared to a total of $0.502 million for the three months ended March 31, 2015.
Net Investment Income
Net investment income for the three months ended March 31, 2016 was $5.6 million, an increase of $0.621 million, or 12.5%, compared to net investment income of $4.9 million during the three months ended March 31, 2015 as a result of the $1.7 million increase in total investment income and the $1.1 million increase in total expenses.
Net Increase in Net Assets Resulting From Operations
For the three months ended March 31, 2016, the net realized loss from portfolio investments was $8.8 million. Significant realized losses stemmed from the sale of DRC Emergency Services on January 19, 2016. There were immaterial gains from portfolio investments for the three months ended March 31, 2015.
During the three months ended March 31, 2016, we recorded a net change in unrealized depreciation from portfolio investments of $7.8 million attributable to (i) the reversal of net unrealized depreciation on investments of $10.6 million related to the sale of investments, resulting in unrealized appreciation , (ii) net unrealized depreciation of $2.1 million on debt investments and (iii) net unrealized depreciation of $0.6 on equity investments. During the three months ended March 31, 2015, the net change in unrealized appreciation was $.0176 million.
As a result of these events, our net increase in net assets resulting from operations during the three months ended March 31, 2016 was $4.3 million, a decrease of $0.678 million, or 13.5%, compared to a net increase in net assets resulting from operations of $4.9 million during the three months ended March 31, 2015.
Provision for Taxes on Unrealized Appreciation on Investments
We have direct wholly owned subsidiaries that have elected to be taxable entities (the "Taxable Subsidiaries"). The Taxable Subsidiaries permit us to hold equity investments in portfolio companies which are "pass through" entities for tax purposes and continue to comply with the "source income" requirements contained in RIC tax provisions of the Code. The Taxable Subsidiaries are not consolidated with us for income tax purposes and may generate income tax expense, benefit, and the related tax assets and liabilities, as a result of their ownership of certain portfolio investments. The income tax expense, or benefit, if any, and related tax assets and liabilities are reflected in our consolidated financial statements. For the three months ended March 31, 2016, we recognized a benefit for income tax on unrealized gains on investments of $0.325 million.
Liquidity and Capital Resources
As of March 31, 2016, we had $3.8 million in cash and cash equivalents and our net assets totaled $192.0 million. We believe that our current cash and cash equivalents on hand, our credit facility and our anticipated cash flows from operations will provide adequate capital resources with which to operate and finance our investment business and make distributions to our stockholders for at least the next 12 months. We intend to generate additional cash primarily from future debt offerings and future borrowings, as well as cash flows from operations, including income earned from investments in our portfolio companies. On both a short-term and long-term basis, our primary use of funds will be investments in portfolio companies and cash distributions to our stockholders.
Cash Flows
For the three months ended March 31, 2016, we experienced a net decrease in cash and cash equivalents in the amount of $1.0 million. During that period, we received $19.3 million in cash from operating acitivities, primarily from the return of capital from portfolio investments of approximately $45.5 million. This was partially offset by the investment in new portfolio companies of approximately $28.5 million. During the same period, financing activities reduced cash by $20.3 million primarily due to the repayment of the credit facility.
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For the three months ended March 31, 2015, we experienced a decrease in cash and cash equivalents in the amount of $6.0 million. During that period, our operating activities used $1.8 million in cash, primarily in connection with the purchase/repayments of investments and the increase in liabilities due to an increase in management and incentive fees. In addition, financing activities reduced cash by $4.2 million primarily from the paydown of our credit facility. As of March 31, 2015, we had $3.9 million of cash on hand.
Capital Resources
Our liquidity and capital resources are derived from the capital contributions and cash flows from operations, including investment sales and repayments, and income earned. Our primary use of funds from operations includes investments in portfolio companies and other operating expenses we incur, as well as distributions to our stockholders. We expect to use these capital resources as well as proceeds from turnover within our portfolio, borrowings under the Credit Facility and from public and private offerings of securities to finance our investment activities.
In May 2014, Alcentra entered into a senior secured revolving credit agreement (“Credit Facility”) with ING Capital LLC, as administrative agent and lender. The Credit Facility had an initial commitment of $80 million with an accordion feature that allows for an increase in total commitments to $160 million. The Credit Facility was amended on August 11, 2015 to increase the accordion feature to allow for a future increase of the total commitments up to $250.0 million, subject to satisfaction of certain conditions at the time of any such future increase. As amended, the Credit Facility has a maturity date of August 11, 2020 and bears interest, at our election, at a rate per annum equal to (i) 2.25% plus the highest of a prime rate, the Federal Funds rate plus 0.5%, three month LIBOR plus 1.0% and zero or (ii) 3.00% plus the one, three or six month LIBOR rate, as applicable.
On March 2, 2016, we amended certain provisions of the Credit Facility relating to the treatment of approximately $38.6 million in aggregate principal amount of outstanding InterNotes that mature prior to the Credit Facility. Among other things, the amendments to the Credit Facility provide that, in the nine-month period prior to the maturity of these particular InterNotes, which mature between February 15 and April 15, 2020, our ability to borrow under the Credit Facility will be reduced by and in the amount of such InterNotes still outstanding during such time. The Credit Facility is secured by a first priority security interest in all of our portfolio investments, the equity interests in certain of its direct and indirect subsidiaries and substantially all of its other assets. We are also subject to customary covenants and events of default typical of a facility of this type.
As of March 31, 2016, we are in compliance with all covenants of the Credit Facility and there was $42.7 million outstanding.
Also, as a business development company, we generally are required to meet a coverage ratio of total assets, less liabilities and indebtedness not represented by senior securities, to total senior securities, which include all of our borrowings and any outstanding preferred stock, of at least 200%. We were in compliance with the asset coverage ratios at all times. As of March 31, 2015 our asset coverage ratio was 321%.
Recently Issued Accounting Standards
In April 2015, FASB issued ASU 2015-03, Interest – Imputation of interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs , which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability rather than as an asset. Amortization of the costs will continue to be reported as interest expense. This guidance is effective for annual and interim periods beginning after December 15, 2015. We have adopted this guidance as of March 31, 2016. The new guidance will be applied retrospectively to each prior period presented.
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Regulated Investment Company Status and Distributions
We have elected to be treated as a RIC under Subchapter M of the Code beginning the fiscal year ending December 31, 2014. If we qualify as a RIC, we will not be taxed on our investment company taxable income or realized net capital gains, to the extent that such taxable income or gains are distributed, or deemed to be distributed, to stockholders on a timely basis.
Taxable income generally differs from net income for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses, and generally excludes net unrealized appreciation or depreciation until realized. Dividends declared and paid by us in a year may differ from taxable income for that year as such dividends may include the distribution of current year taxable income or the distribution of prior year taxable income carried forward into and distributed in the current year. Distributions also may include returns of capital.
To qualify for RIC tax treatment, we must, among other things, distribute, with respect to each taxable year, at least 90% of our investment company net taxable income (i.e., our net ordinary income and our realized net short-term capital gains in excess of realized net long-term capital losses, if any). If we qualify as a RIC, we will also be subject to a federal excise tax, based on distributive requirements of our taxable income on a calendar year basis.
We intend to distribute to our stockholders between 90% and 100% of our annual taxable income (which includes our taxable interest and fee income).
Investment Advisory Agreement
Under the Advisory Agreement, Alcentra pays Alcentra NY, LLC (the "Adviser") a base management fee calculated at an annual rate as follows: 1.75% of its gross assets (i.e., total assets held before deduction of any liabilities), including assets purchased with borrowed funds or other forms of leverage and excluding cash and cash equivalents (such as investments in U.S. Treasury Bills), if its gross assets are below $625 million; 1.625% of its total gross assets if our gross assets are between $625 million and $750 million; and 1.5% of its gross assets if its assets are greater than $750 million. These various management fee percentages (i.e. 1.75%, 1.625% and 1.5%) would apply to ACC's entire gross assets in the event its gross assets exceed the various gross asset thresholds.
In addition, Alcentra pays the Adviser an incentive fee under the Advisory Agreement which consists of two parts. The first part, which is calculated and payable quarterly in arrears, equals 20% of ACC's "pre-incentive fee net investment income" for the immediately preceding quarter, subject to a hurdle rate of 2% per quarter (8% annualized), and is subject to a "catch-up" feature. The second part is calculated and payable in arrears as of the end of each calendar year (or, upon termination of the Advisory Agreement, as of the termination date) and equals 20% of ACC's aggregate cumulative realized capital gains from inception through the end of each calendar year, computed net of aggregate cumulative realized capital losses and aggregate cumulative unrealized capital depreciation through the end of such year, less the aggregate amount of any previously paid capital gain incentive fees. See Note 7.
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The Adviser agreed to waive its fees (base management and incentive fee), without recourse against or reimbursement by us, through the quarter ended June 30, 2015 and to the extent required in order for us to earn a quarterly net investment income to maintain a targeted dividend payment on shares of common stock outstanding on the relevant dividend payment dates of 9.0% (to be paid on a quarterly basis).
Critical Accounting Policies
The preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Changes in the economic environment, financial markets and any other parameters used in determining such estimates could cause actual results to differ.
Valuation of portfolio investments
We generally invest in illiquid loans and securities including debt and equity securities of middle-market companies. Debt and equity securities that are not publicly traded or whose market prices are not readily available are valued at fair value as determined in good faith by ACC's board of directors. Such determination of fair values may involve subjective judgments and estimates, although we engage independent valuation providers to review the valuation of each portfolio investment that does not have a readily available market quotation at least once annually. With respect to unquoted securities, we value each investment considering, among other measures, discounted cash flow models, comparisons of financial ratios of peer companies and other factors.
Because there is not a readily available market for substantially all of the investments in our portfolio, we value most of our portfolio investments at fair value as determined in good faith by ACC's board of directors 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.
With respect to investments for which market quotations are not readily available, ACC's board of directors undertakes a multi-step valuation process each quarter, as described below:
| • | Our quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals of the Adviser responsible for the portfolio investment; |
| • | Preliminary valuation conclusions are then documented and discussed with our senior management and the Adviser committee; |
| • | The audit committee of ACC's board of directors then reviews these preliminary valuations; |
| • | At least once quarterly, independent valuation firms engaged by ACC's board of directors will prepare valuations on a selected basis and submit reports to the board of directors; and |
| • | The board of directors then discusses valuations and determines the fair value of each investment in our portfolio in good faith, based the input of Adviser, the independent valuation firm and the audit committee. |
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Revenue Recognition
We record interest income on an accrual basis to the extent that we expect to collect such amounts. For loans and debt securities with contractual PIK interest, which represents contractual interest accrued and added to the loan balance that generally becomes due at maturity, we do not accrue PIK interest if the portfolio company valuation indicates that such PIK interest is not collectible. We will not accrue interest on loans and debt securities if principal or interest cash payments are past due 30 days or more and/or we have reason to doubt our ability to collect such interest.
Loan origination fees, original issue discount and market discount or premium are capitalized, and we then accrete or amortize such amounts using the effective interest method as interest income. Upon the prepayment of a loan or debt security, any unamortized loan origination is recorded as interest income. We record prepayment premiums on loans and debt securities as interest income.
Off-Balance Sheet Arrangements
We may be a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of our portfolio companies. As of March 31, 2016, we had off-balance sheet arrangements consisting of one unfunded commitment totaling $2.0 million. As of December 31, 2015, we had one unfunded commitment totaling $1.0 million.
Recent Developments
Subsequent to March 31, 2016, the following activity occurred:
On April 4, 2016, we were repaid our debt and equity investments in ACT Lighting for a total of $13.8 million.
On April 7, 2016, Alcentra paid a dividend to shareholders of record as of March 31, 2016 of $0.34 per share.
On April 13, 2016, Aphena Pharma Solutions repaid a portion of its debt in the amount of $2,000,000.
On April 22, 2016, Radiant Logistics repaid the entirety of our debt investment in the amount of $10,000,000.
On May 2, 2016, Alcentra funded an $8,500,000 investment in Healthcare Associates of Texas, Inc (“HCAT”) (12.25% second lien debt).
On May 5, 2016, Alcentra funded $8,250,000 of 13% senior subordinated debt and $500,000 of equity to Metal Powder Products, LLC (“MPP”).
On May 5, 2016, the Board of Directors approved the 2016 second quarter dividend of $0.34 per share for shareholders of record date June 30, 2016 and payable July 7, 2016.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are subject to financial market risks, including changes in interest rates. All of the floating rate loans in the portfolio have interest rate floors, which have effectively converted the loans to fixed rate loans in the current interest rate environment. For the three months ended March 31, 2016, 14 loans in the portfolio bore interest at floating rates, or 57% of the fair value of our portfolio. For the year ended December 31, 2015, 14 of the loans in the portfolio bore interest at floating rates, or 52% of the fair value of our portfolio. In the future, we expect other loans in our portfolio will have floating rates. Assuming that the Statement of Assets and Liabilities as of March 31, 2016, were to remain constant and no actions were taken to alter the existing interest rate sensitivity, a hypothetical one or two percent increase in LIBOR would have less than a 2.5% effect on our portfolio’s income. Although we believe that this measure is indicative of our sensitivity to interest rate changes, it does not adjust for potential changes in credit quality, size and composition of the assets on the balance sheet and other business developments that could affect net increase in net assets resulting from operations, or net income. Accordingly, no assurances can be given that actual results would not differ materially from the potential outcome simulated by this estimate. We may hedge against interest rate fluctuations by using standard hedging instruments such as futures, options and forward contacts subject to the requirements of the 1940 Act. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in the benefits of lower interest rates with respect to our portfolio of investments. As of March 31, 2016 and March 31, 2015, we did not engage in hedging activities.
Changes in interest rates will affect our cost of funding. Our interest expense will be affected by changes in certain published indices such as the LIBOR rate in connection with the Credit Facility.
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Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
The Company’s management, under the supervision and with the participation of various members of management, including its Chief Executive Officer (“CEO”) and its Chief Accounting Officer (“CAO”), has evaluated the effectiveness of its disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s CEO and CAO have concluded that the Company’s disclosure controls and procedures are effective as of the end of the period covered by this report.
(b) Changes in Internal Control Over Financial Reporting
Management did not identify any change in the Company’s internal control over financial reporting that occurred during the quarter ended March 31, 2016 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II — OTHER INFORMATION
The Company is not currently subject to any material legal proceedings, nor, to its knowledge, is any material legal proceeding threatened against it. From time to time, the Company may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of its rights under contracts with its portfolio companies. While the outcome of these legal proceedings cannot be predicted with certainty, the Company does not expect that these proceedings will have a material effect upon its financial condition or results of operations.
There has been no material change in the information provided under the heading “Risk Factors” in the Company’s annual report on Form 10-K filed with the SEC on March 9, 2016. Additional risks and uncertainties not currently known to the Company or that it currently deems to be immaterial may materially affect its business, financial condition and/or operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Stock Repurchase Program
On January 18, 2016 , our board of directors authorized a $5.0 million stock repurchase program that was put into effect in March 2016. The timing and amount of any stock repurchases will depend on the terms and conditions of the repurchase program and no assurances can be given that any common stock, or any particular amount, will be purchased. Unless extended by our board of directors, the stock repurchase program will terminate on the earlier of (i) one year from the date of its approval or (ii) the repurchase of $5.0 million of the Company’s common stock and may be modified or terminated at any time for any reason without prior notice. We have provided our stockholders with notice of our intention to repurchase shares of our common stock in accordance with 1940 Act requirements. We will retire immediately all such shares of common stock that we purchase in connection with the stock repurchase program.
The following table summarizes our share repurchases under our stock repurchase program for the three months ended March 31, 2016:
| Jan | Feb | Mar | |||||||||||||
| 2016 | 2016 | 2016 | |||||||||||||
| Dollar amount repurchased | — | — | $ | 115,408 | |||||||||||
| Shares repurchased | — | — | 10,509 | ||||||||||||
| Average price per share (including commission) | N/A | N/A | $ | 11.26 | |||||||||||
| Weighted average discount to net asset value | N/A | N/A | 20.85 | % | |||||||||||
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
None.
The following exhibits are filed as part of this report or hereby incorporated by reference to exhibits previously filed with the SEC:
| Exhibit Number | Description | |
| 10.1 | Amendment No. 4 and Limited Waiver to the Senior Revolving Credit Agreement, dated March 2, 2016, by and among the Company, as borrower, the lenders party thereto and ING Capital, LLC, as Administrative Agent and bookrunner* | |
| 11.1 | Computation of Per Share Earnings (1) | |
| 31.1 | Chief Executive Officer Certification Pursuant to Exchange Act Rule 13a-14 (a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002* | |
| 31.2 | Chief Accounting Officer Certification Pursuant to Exchange Act Rule 13a-14 (a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002* | |
| 32.1 | Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002* | |
| 32.2 | Chief Accounting Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002* |
| * | Filed herewith. |
| (1) | Included in the notes to the consolidated financial statements contained in this report |
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Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: May 5, 2016
| By: | /s/ Paul J. Echausse | |
| Name: Paul J. Echausse | ||
| Title: Chief Executive Officer and President | ||
| By: | /s/ Ellida McMillan | |
| Name: Ellida McMillan | ||
| Title: Chief Accounting Officer, Secretary, and Treasurer |
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EXHIBIT INDEX
| Exhibit Number | Description | |
| 10.1 |
Amendment No. 4 and Limited Waiver to the Senior Revolving Credit Agreement, dated March 2, 2016, by and among the Company, as borrower, the lenders party thereto and ING Capital, LLC as Administrative Agent and bookrunner* |
|
| 11.1 | Computation of Per Share Earnings (1) | |
| 31.1 | Chief Executive Officer Certification Pursuant to Exchange Act Rule 13a-14 (a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002* | |
| 31.2 | Chief Accounting Officer Certification Pursuant to Exchange Act Rule 13a-14 (a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002* | |
| 32.1 | Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002* | |
| 32.2 | Chief Accounting Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002* |
| * | Filed herewith. |
| (1) | Included in the notes to the consolidated financial statements contained in this report |
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Exhibit 10.1
EXECUTION VERSION
AMENDMENT NO. 4 AND LIMITED WAIVER
TO
SENIOR SECURED REVOLVING CREDIT AGREEMENT
This AMENDMENT NO. 4 AND LIMITED WAIVER TO SENIOR SECURED REVOLVING CREDIT AGREEMENT (this “ Amendment” ), dated as of March 2, 2016, is made with respect to the Senior Secured Revolving Credit Agreement, dated as of May 8, 2014 (as amended, restated, supplemented or otherwise modified from time to time, the “ Credit Agreement ”), among ALCENTRA CAPITAL CORPORATION, a Maryland corporation (the “ Borrower ”), the several banks and other financial institutions or entities from time to time party to the Credit Agreement as lenders (the “ Lenders ”), and ING CAPITAL LLC, as administrative agent for the Lenders under the Credit Agreement (in such capacity, together with its successors in such capacity, the “ Administrative Agent ”). Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Credit Agreement (as amended hereby).
W I T N E S S E T H :
WHEREAS, pursuant to the Credit Agreement, the Lenders have made certain loans and other extensions of credit to the Borrower;
WHEREAS, certain Events of Default have occurred and are continuing under the Credit Agreement as more fully set forth herein; and
WHEREAS, the Borrower has requested that the Lenders and the Administrative Agent amend certain provisions of the Credit Agreement and waive such Events of Default and the Lenders signatory hereto and the Administrative Agent have agreed to do so on the terms and subject to the conditions contained in this Amendment.
NOW THEREFORE, in consideration of the promises and the mutual agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
SECTION I AMENDMENTS TO CREDIT AGREEMENT
Effective as of the Amendment No. 3 Effective Date, and subject to the terms and conditions set forth below, the Credit Agreement is hereby amended as follows:
(a) Section 1.01 of the Credit Agreement is hereby amended by inserting the following defined terms in the appropriate alphabetical order:
“ ‘ 2020 Notes ’ means, in each case as in effect on the Amendment No. 3 Effective Date, the Borrower’s (a) 6.375% Notes due 2020 in the initial aggregate principal amount of $2,055,000 due February 15, 2020, (b) 6.375% Notes due 2020 in the initial aggregate principal amount of $1,000,000 due February 15, 2020, (c) 6.375% Notes due 2020 in the initial aggregate principal amount of $1,050,000 due February 15, 2020, (d) 6.375% Notes due 2020 in the initial aggregate principal amount of $500,000 due March 15, 2020, (e) 6.375% Notes due 2020 in the initial aggregate principal amount of $124,000 due April 15, 2020, (f) 6.25% Notes due 2020 in the initial aggregate principal amount of $17,000,000 due April 15, 2020 and (g) 6.50% Notes due 2020 in the initial aggregate principal amount of $16,853,000 due April 15, 2020.”
(b) Section 1.01 of the Credit Agreement is hereby amended by deleting the term “Unsecured Longer-Term Indebtedness” in its entirety and replacing it with the following defined term in the appropriate alphabetical order (solely for the sake of convenience in reviewing this Amendment, the language changed in this definition of Unsecured Longer-Term Indebtedness is set forth in bold italics):
“ ‘ Unsecured Longer-Term Indebtedness ’ means any Indebtedness for borrowed money of the Borrower that (a) has no amortization, or mandatory redemption, repurchase or prepayment prior to, and a final maturity date not earlier than, six months after the Maturity Date, (b) is incurred pursuant to terms that are substantially comparable to market terms for substantially similar debt of other similarly situated borrowers as reasonably determined in good faith by the Borrower (other than financial covenants and events of default (other than events of default customary in indentures or similar instruments that have no analogous provisions in this Agreement or credit agreements generally), which shall be no more restrictive upon the Borrower and the other Obligors, while any commitments or Loans are outstanding, than those set forth in this Agreement) (it being understood that (i) put rights or repurchase or redemption obligations arising out of circumstances that would constitute a “fundamental change” (as such term is customarily defined in convertible note offerings) or be Events of Default under the Revolving Facility shall not violate clauses (a) or (b) for purposes of this definition and (ii) the “Survivor’s Option” described in the draft Registration Statement on Form N-2 provided by the Company via email to the Administrative Agent at 7:52 PM ET on January 11, 2015 shall not violate clauses (a) or (b) for the purposes of this definition), and (c) is not secured by any assets of any Obligor.
Notwithstanding the foregoing, the 2020 Notes shall continue to be deemed Unsecured Longer-Term Indebtedness in all respects despite the fact that the maturity dates of the 2020 Notes are prior to the Maturity Date so long as the 2020 Notes continue to comply with all other requirements of this definition; provided , that, with respect to any class, series, issuance or set of notes referred to in the definition of 2020 Notes, from and after the date that is 9 months prior to the scheduled maturity of such 2020 Notes, such 2020 Notes shall be reclassified as Unsecured Shorter-Term Indebtedness. ”
(c) Section 1.01 of the Credit Agreement is hereby amended by deleting the term “Unsecured Shorter-Term Indebtedness” in its entirety and replacing it with the following defined term in the appropriate alphabetical order (solely for the sake of convenience in reviewing this Amendment, the language changed in this definition of Unsecured Shorter-Term Indebtedness is set forth in bold italics):
“ ‘ Unsecured Shorter-Term Indebtedness ’ means, collectively, (a) any Indebtedness of the Borrower or any Subsidiary (other than a Financing Subsidiary) that is not secured by any assets of any Obligor and that does not constitute Unsecured Longer-Term Indebtedness (including, with respect to any class, series, issuance or set of notes referred to in the definition of 2020 Notes, such 2020 Notes from and after the date that is 9 months prior to the scheduled maturity of such 2020 Notes) and (b) any Indebtedness of the Borrower or any Subsidiary (other than a Financing Subsidiary) that is designated as “Unsecured Shorter-Term Indebtedness” pursuant to Section 6.11(a) .”
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(d) Section 6.01 of the Credit Agreement is hereby amended by deleting clause (b) in its entirety and replacing it with the following (solely for the sake of convenience in reviewing this Amendment, the language changed in this clause (b) of Section 6.01 of the Credit Agreement is set forth in bold italics):
“(b) (i) Unsecured Shorter-Term Indebtedness in an aggregate principal amount not to exceed $5,000,000 plus , without duplication, with respect to any class, series, issuance or set of notes referred to in the definition of 2020 Notes, the outstanding principal amount of such 2020 Notes from and after the date that is 9 months prior to the maturity date of such 2020 Notes and (ii) Secured Longer-Term Indebtedness, in each case, so long as (w) no Default exists at the time of the incurrence thereof (or immediately after the incurrence thereof), (x) prior to and immediately after giving effect to the incurrence thereof, the Borrower is in pro forma compliance with each of the covenants set forth in Sections 6.07(a), (b), (d) and (e) after giving effect to the incurrence thereof and on the date of such incurrence the Borrower delivers to the Administrative Agent a certificate of a Financial Officer to such effect, (y) prior to and immediately after giving effect to the incurrence thereof, the Covered Debt Amount does not or would not exceed the Borrowing Base then in effect, and (z) on the date the incurrence thereof, the Borrower delivers to the Administrative Agent and each Lender a Borrowing Base Certificate as at such date demonstrating compliance with subclause (y) after giving effect to such incurrence. For purposes of preparing such Borrowing Base Certificate, (A) the fair market value of Quoted Investments shall be the most recent quotation available for such Eligible Portfolio Investment and (B) the fair market value of Unquoted Investments shall be the Value set forth in the Borrowing Base Certificate most recently delivered by the Borrower to the Administrative Agent pursuant to Section 5.01(d) or if an Unquoted Investment is acquired after the delivery of the Borrowing Base Certificate most recently delivered, then the Value of such Unquoted Investment shall be the lower of the cost of such Unquoted Investment and the Internal Value of such Unquoted Investment; provided , that the Borrower shall reduce the Value of any Eligible Portfolio Investment referred to in this sub-clause (B) to the extent necessary to take into account any events of which the Borrower has knowledge that adversely affect the value of such Eligible Portfolio Investment;”
SECTION II LIMITED WAIVER
2.1. Limited Waiver . Effective as of the date hereof and subject to the terms and conditions set forth in Section 3.1 and in reliance upon the representations and warranties made by the Borrower in Section 3.2, the Administrative Agent and the Lenders hereby waive, as of the Amendment No. 3 Effective Date, any Default or Event of Default solely to the extent that such Default or Event of Default resulted from (a) any class, series, issuance or set of 2020 Notes being Unsecured Shorter-Term Indebtedness at any time on or following the Amendment No. 3 Effective Date, including (i) any Default or Event of Default under Section 6.01(b) of the Credit Agreement, (ii) the failure of any Borrowing Base Certificate or other certificate delivered by the Borrower to the Administrative Agent under the Credit Agreement to be true and correct and (iii) any breach of the representations in Sections 3.16 and 4.02(b) of the Credit Agreement made prior to the date hereof and (b) (i) the taking of any action, or the failure to take any action, when a Default or Event of Default has occurred and is continuing, in each case, not permitted under the Credit Agreement solely as a result of the occurrence and continuance of a Default or Event of Default described in the preceding clause (a) or (ii) the failure to give notice of (or other information with respect to) a Default or Event of Default described in the preceding clause (a). The limited waiver in this Section 2.1 shall be effective only in this specific instance and for the specific purpose set forth herein and does not allow for any other or further departure from the terms and conditions of the Credit Agreement or any other Loan Document, which terms and conditions shall continue in full force and effect.
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SECTION III MISCELLANEOUS
3.1. Conditions to Effectiveness of Amendment . This Amendment shall become effective when the Borrower and the Subsidiary Guarantors have satisfied each of the following conditions precedent (unless a condition shall have been waived in accordance with Section 9.02 of the Credit Agreement):
(a) Executed Counterparts . The Administrative Agent shall have received from each party hereto either (1) a counterpart of this Amendment signed on behalf of such party or (2) written evidence satisfactory to the Administrative Agent (which may include telecopy transmission or electronic mail of a signed signature page to this Amendment) that such party has signed a counterpart of this Amendment.
(b) Corporate Documents . The Administrative Agent shall have received (x) signature and incumbency certificates of the officers of such Person executing the Amendment and the other Loan Documents to which it is a party and (y) resolutions of the board of directors or similar governing body of each Obligor approving and authorizing the execution, delivery and performance of this Amendment and the other Loan Documents to which it is a party or by which it or its assets may be bound as of the date hereof, certified as of the date hereof by its secretary or an assistant secretary as being in full force and effect without modification or amendment.
(c) Consents . The Borrower shall have obtained and delivered to the Administrative Agent certified copies of all consents, approvals, authorizations, registrations, or filings (other than any filing required under the Exchange Act or the rules or regulations promulgated thereunder, including, without limitation, any filing required on Form 8-K) required to be made or obtained by the Borrower and all guarantors in connection with this Amendment, such consents, approvals, authorizations, registrations, filings and orders shall be in full force and effect and all applicable waiting periods shall have expired and no investigation or inquiry by any Governmental Authority regarding the Amendment or any transaction being financed with the proceeds of the Loans shall be ongoing.
(d) No Litigation . There shall not exist any action, suit, investigation, litigation or proceeding or other legal or regulatory developments pending or threatened in any court or before any arbitrator or Governmental Authority that relates to the Amendment or that could have a Material Adverse Effect.
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(e) Fees and Expenses . The Borrower shall have paid in full to the Administrative Agent and the Lenders all fees and expenses related to this Amendment and the Credit Agreement owing as of the date hereof.
(f) Default . After giving effect to this Amendment, including the limited waiver set forth in Section II hereof, no Default or Event of Default shall have occurred and be continuing under the Credit Agreement, this Amendment or under any Material Indebtedness immediately before and after giving effect to the Amendment.
(g) Other Documents . The Administrative Agent shall have received such other documents as the Administrative Agent may reasonably request in form and substance satisfactory to the Administrative Agent.
3.2. Representations and Warranties . To induce the other parties hereto to enter into this Amendment, the Borrower represents and warrants to the Administrative Agent and each of the Lenders that, as of the date hereof and after giving effect to this Amendment, including the limited waiver set forth in Section II hereof:
(a) This Amendment has been duly authorized, executed and delivered by the Borrower and the Subsidiary Guarantor and constitutes a legal, valid and binding obligation of the Borrower and the Subsidiary Guarantor enforceable in accordance with its terms. The Credit Agreement, as amended by the Amendment, constitutes the legal, valid and binding obligation of the Borrower enforceable in accordance with its respective terms.
(b) The representations and warranties set forth in Article III of the Credit Agreement and the representations and warranties in each other Loan Document are true and correct in all material respects (other than any representation or warranty already qualified by materiality or Material Adverse Effect, which shall be true and correct in all respects) on and as of the date hereof or as to any such representations and warranties that refer to a specific date, as of such specific date, with the same effect as though made on and as of the date hereof.
3.3. Counterparts . This Amendment may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Amendment constitutes the entire contract between and among the parties relating to the subject matter hereof and supersedes any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Delivery of an executed counterpart of this Amendment by telecopy or electronic mail shall be effective as delivery of a manually executed counterpart of this Amendment.
3.4. Payment of Expenses . The Borrower agrees to pay and reimburse the Administrative Agent for all of its reasonable and documented out-of-pocket costs and expenses incurred in connection with this Amendment, including, without limitation, the reasonable fees, charges and disbursements of legal counsel to the Administrative Agent.
3.5. GOVERNING LAW . THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK.
3.6. WAIVER OF JURY TRIAL . EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AMENDMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AMENDMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
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3.7. Incorporation of Certain Provisions . The provisions of Sections 9.01, 9.07, 9.09 and 9.12 of the Credit Agreement are hereby incorporated by reference mutatis mutandis as if fully set forth herein.
3.8. Effect of Amendment . Except as expressly set forth herein, this Amendment shall not by implication or otherwise limit, impair, constitute a waiver of, or otherwise affect the rights and remedies of the Lenders, the Administrative Agent, the Collateral Agent, the Borrower or the Subsidiary Guarantor under the Credit Agreement or any other Loan Document, and, except as expressly set forth herein, shall not alter, modify, amend or in any way affect any of the other terms, conditions, obligations, covenants or agreements contained in the Credit Agreement or any other Loan Document, all of which are ratified and affirmed in all respects and shall continue in full force and effect. Nothing herein shall be deemed to entitle any Person to a consent to, or a waiver, amendment, modification or other change of, any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement or any other Loan Document in similar or different circumstances. This Amendment shall apply and be effective only with respect to the provisions amended or waived herein of the Credit Agreement. Upon the effectiveness of this Amendment, each reference in the Credit Agreement to “this Agreement,” “hereunder,” “hereof,” “herein” or words of similar import shall mean and be a reference to the Credit Agreement as amended by this Amendment and each reference in any other Loan Document shall mean the Credit Agreement as amended hereby. This Amendment shall constitute a Loan Document.
3.9. Consent and Affirmation . Without limiting the generality of the foregoing, by its execution hereof, each of the Borrower and the Subsidiary Guarantor hereby, as of the date hereof, (i) consents to this Amendment and the transactions contemplated hereby, (ii) agrees that the Guarantee and Security Agreement and each of the other Security Documents is in full force and effect, (iii) confirms its guarantee (solely in the case of the Subsidiary Guarantor) and affirms its obligations under the Guarantee and Security Agreement and confirms its grant of a security interest in its assets as Collateral for the Secured Obligations (as defined in the Guarantee and Security Agreement), and (iv) acknowledges and affirms that such guarantee and/or grant is in full force and effect in respect of, and to secure, the Secured Obligations (as defined in the Guarantee and Security Agreement).
3.10. Release . Each of the Borrower and the Subsidiary Guarantor hereby acknowledges and agrees that: (a) neither it nor any of its Affiliates has any claim or cause of action against the Administrative Agent, the Collateral Agent or any Lender (or any of their respective Affiliates, officers, directors, employees, attorneys, consultants or agents) including, but not limited to, under the Credit Agreement and the other Loan Documents (and each other document entered into in connection therewith), and (b) the Administrative Agent, the Collateral Agent and each Lender has heretofore properly performed and satisfied in a timely manner all of its obligations to the Obligors and their Affiliates under the Credit Agreement and the other Loan Documents (and each other document entered into in connection therewith) that are required to have been performed on or prior to the date hereof. Accordingly, for and in consideration of the agreements contained in this Amendment and other good and valuable consideration, each of the Borrower and the Subsidiary Guarantor (for itself and its Affiliates and the successors, assigns, heirs and representatives of each of the foregoing) (collectively, the “ Releasors ”) does hereby fully, finally, unconditionally and irrevocably release and forever discharge the Administrative Agent, the Collateral Agent, each Lender and each of their respective Affiliates, officers, directors, employees, attorneys, consultants and agents (collectively, the “ Released Parties ”) from any and all debts, claims, obligations, damages, costs, attorneys’ fees, suits, demands, liabilities, actions, proceedings and causes of action, in each case, whether known or unknown, contingent or fixed, direct or indirect, and of whatever nature or description, and whether in law or in equity, under contract, tort, statute or otherwise, which any Releasor has heretofore had or now or hereafter can, shall or may have against any Released Party by reason of any act, omission or thing whatsoever done or omitted to be done on or prior to the date hereof directly arising out of, connected with or related to this Amendment, the Credit Agreement or any other Loan Document (or any other document entered into in connection therewith), or any act, event or transaction related or attendant thereto, or the agreements of the Administrative Agent, the Collateral Agent or any Lender contained therein, or the possession, use, operation or control of any of the assets of any of the Borrower or the Subsidiary Guarantor, or the making of any Loans or other advances, or the management of such Loans or advances or the Collateral.
| 6 |
[Signature pages follow]
| 7 |
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the day and year first above written.
ALCENTRA CAPITAL CORPORATION,
as Borrower
By:
Name:
Title:
ALCENTRA BDC EQUITY HOLDINGS, LLC,
as Subsidiary Guarantor
By:
Name:
Title:
[Signature Page to Amendment No. 4 and Limited Waiver to Senior Secured Revolving Credit Agreement]
ING CAPITAL LLC, as Administrative Agent and as a Lender
By:
Name:
Title:
By:
Name:
Title:
[Signature Page to Amendment No. 4 and Limited Waiver to Senior Secured Revolving Credit Agreement]
STATE STREET BANK AND TRUST COMPANY, as Lender
By:
Name:
Title:
[Signature Page to Amendment No. 4 and Limited Waiver to Senior Secured Revolving Credit Agreement]
EVERBANK COMMERCIAL FINANCE, INC., as Lender
By:
Name:
Title:
[Signature Page to Amendment No. 4 and Limited Waiver to Senior Secured Revolving Credit Agreement]
ALOSTAR BANK OF COMMERCE, as Lender
By:
Name:
Title:
[Signature Page to Amendment No. 4 and Limited Waiver to Senior Secured Revolving Credit Agreement]
STIFEL BANK & TRUST, as Lender
By:
Name:
Title:
[Signature Page to Amendment No. 4 and Limited Waiver to Senior Secured Revolving Credit Agreement]
RAYMOND JAMES BANK, N.A., as Lender
By:
Name:
Title:
[Signature Page to Amendment No. 4 and Limited Waiver to Senior Secured Revolving Credit Agreement]
Exhibit 31.1
I, Paul J. Echausse, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Alcentra Capital Corporation; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal financial control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting: and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 5, 2016
|
/s/ Paul J. Echausse |
|
| Paul J. Echausse | |
| Chief Executive Officer |
Exhibit 31.2
I, Ellida McMillan, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Alcentra Capital Corporation; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal financial control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting: and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 5, 2016
|
/s/ Ellida McMillan |
|
| Ellida McMillan | |
| Chief Accounting Officer |
Exhibit 32.1
Certification of Chief Executive Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)
In connection with this Quarterly Report on Form 10-Q (the “Report”) of Alcentra Capital Corporation (the “Registrant”), as filed with the Securities and Exchange Commission on the date hereof, I, Paul J. Echausse, the Chief Executive Officer of the Registrant, hereby certify, to the best of my knowledge, that:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. |
|
/s/ Paul J. Echausse |
||
| Name: | Paul J. Echausse | |
| Date: | May 5, 2016 | |
Exhibit 32.2
Certification of Chief Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)
In connection with this Quarterly Report on Form 10-Q (the “Report”) of Alcentra Capital Corporation (the “Registrant”), as filed with the Securities and Exchange Commission on the date hereof, I, Ellida McMillan, the Chief Accounting Officer of the Registrant, hereby certify, to the best of my knowledge, that:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. |
|
/s/ Ellida McMillan |
||
| Name: | Ellida McMillan | |
| Date: | May 5, 2016 | |