As filed with the Securities and Exchange Commission on March 3, 2015
Registration No. 333-187642
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-2
x | REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |
x | PRE-EFFECTIVE AMENDMENT NO. 7 |
¨ | POST-EFFECTIVE AMENDMENT NO. |
¨ | REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |
GOLDMAN SACHS BDC, INC.
(Exact name of Registrant as Specified in Charter)
200 West Street New York, New York 10282
(Address of Principal Executive Offices)
Registrants Telephone Number, including Area Code: (212) 902-0300
Jonathan Lamm
Goldman Sachs BDC, Inc.
200 West Street
New York, New York 10282
(Name and Address of Agent for Service)
Copies of information to:
Stuart Gelfond, Esq.
Fried, Frank, Harris, Shriver & Jacobson LLP One New York Plaza New York, New York 10004 Telephone: (212) 859-8000 Facsimile: (212) 859-4000 |
Geoffrey R.T. Kenyon, Esq. Richard Horowitz, Esq.
Dechert LLP
New York, NY 10036
Telephone: (212) 698-3500
Monica J. Shilling, Esq.
|
Margery K. Neale, Esq.
James G. Silk, Esq.
787 Seventh Avenue New York, New York 10019 Telephone: (212) 728-8000 Facsimile: (212) 728-9294 |
Approximate Date of Proposed Public Offering: As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form will be offered on a delayed or continuous basis in reliance on Rule 415 under the Securities Act of 1933, other than Securities offered in connection with a dividend reinvestment plan, check the following box. ¨
It is proposed that this filing will become effective (check appropriate box):
¨ | when declared effective pursuant to section 8(c). |
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED MARCH 3, 2015
PRELIMINARY PROSPECTUS
SHARES
GOLDMAN SACHS BDC, INC.
We are an externally managed specialty finance company that is a non-diversified, closed-end management investment company that has elected to be regulated as a business development company (a BDC) under the Investment Company Act of 1940, as amended (the Investment Company Act). We were formed by The Goldman Sachs Group, Inc. (Group Inc.) to invest primarily in middle-market companies in the United States. Our investment objective is to generate current income and, to a lesser extent, capital appreciation through direct originations of secured debt, including first lien, first lien/last-out unitranche and second lien debt, unsecured debt, including mezzanine debt and, to a lesser extent, investments in equities.
We are managed by our investment adviser, Goldman Sachs Asset Management, L.P. (GSAM), a wholly-owned subsidiary of Group Inc. Group Inc., together with Goldman, Sachs & Co., GSAM and its other subsidiaries and affiliates, is referred to herein as Goldman Sachs.
This is an initial public offering of our shares of common stock (the IPO). All of the shares of common stock offered by this prospectus are being sold by us.
Our shares of common stock have no history of public trading . We currently expect that the initial public offering price per share of our common stock will be between $ and $ . Our common stock has been approved for listing on the New York Stock Exchange (NYSE) under the symbol GSBD.
Goldman, Sachs & Co. has adopted a 10b5-1 plan (the 10b5-1 Plan) in accordance with Rules 10b5-1 and 10b-18 under the Securities Exchange Act of 1934, as amended (the Exchange Act), under which Goldman, Sachs & Co. will buy in the open market up to the lesser of $25.00 million in the aggregate of our common stock or such amount that would not bring its collective ownership (with Group Inc.) of our common stock over 19.9%. Any such purchases under the 10b5-1 Plan will occur during the period beginning after four full calendar weeks after the closing of this offering and ending on the earlier of the date on which all the capital committed to the plan has been exhausted or one year after the closing of this offering, subject to certain conditions. See Related Party Transactions and Certain Relationships. Furthermore, the Companys Board of Directors has approved a common stock repurchase plan (the Company Repurchase Plan), pursuant to which we may purchase, from time to time, up to $35.00 million of our common stock in the open market during open trading periods. The Company Repurchase Plan will not begin until capital committed to the 10b5-1 Plan has been exhausted and will expire one year after the closing of this offering, subject to renewal. Purchases of our common stock in the open market pursuant to the Company Repurchase Plan will be subject to certain conditions and conducted in accordance with Rule 10b-18 under the Exchange Act and other applicable securities laws and regulations that set certain restrictions on the method, timing, price and volume of stock repurchases.
We are an emerging growth company within the meaning of the Jumpstart Our Business Startups (JOBS) Act.
This prospectus contains important information you should know before investing in our common stock. Please read it before you invest and keep it for future reference. Upon completion of this offering, we will file annual, quarterly and current reports, proxy statements and other information about us with the Securities and Exchange Commission (the SEC). This information will be available by written or oral request and free of charge by contacting us at , or by calling us collect at . Information contained on our website is not incorporated by reference into this prospectus, and you should not consider that information to be a part of this prospectus. The SEC also maintains a website at http://www.sec.gov that contains this information.
Shares of closed-end investment companies that are listed on an exchange, including BDCs, frequently trade at a discount to their net asset value (NAV) per share. If our shares trade at a discount to our NAV, it may increase the risk of loss for purchasers in this offering. Assuming an initial public offering price of $ per share (the mid-point of the estimated initial public offering price range), purchasers in this offering will experience immediate dilution of approximately $ per share. See Dilution for more information.
Our distributions may be funded from offering proceeds or borrowings, which may constitute a return of capital and reduce the amount of capital available to us for investment. Any capital returned to stockholders through distributions will be distributed after payment of fees and expenses.
Neither the SEC nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Investing in our common stock involves a high degree of risk, including credit risk and the risk of the use of leverage, and is highly speculative. The securities in which we invest will generally not be rated by any rating agency, and if they were rated, they would be below investment grade. These securities, which may be referred to as junk bonds, have predominantly speculative characteristics with respect to the issuers capacity to pay interest and repay principal. Before buying any shares of our common stock, you should read the discussion of the material risks of investing in our common stock in Risk Factors beginning on page 25 of this prospectus.
Per Share |
Total |
|||||||
Public offering price |
$ | $ | ||||||
Sales load (1) |
$ | $ | ||||||
Proceeds, before expenses, to us (2) |
$ | $ |
(1) | See Underwriting for a more complete description of underwriting compensation. |
(2) | We estimate that we will incur offering expenses of approximately $ , or approximately $ per share, in connection with this offering. |
The underwriters may exercise their over-allotment option to purchase up to an additional shares from us, at the public offering price, less the underwriting discount, for 30 days after the date of this prospectus. If the underwriters exercise this over-allotment option in full, the total underwriting discount will be $ , and total proceeds to us, before expenses, will be $ .
The shares will be delivered on or about , 2015.
Joint Book-Running Managers
BofA Merrill Lynch | Goldman Sachs & Co. | Morgan Stanley |
Citigroup | Credit Suisse | Wells Fargo Securities |
The date of this prospectus is , 2015.
1 | ||||
12 | ||||
19 | ||||
23 | ||||
25 | ||||
56 | ||||
65 | ||||
67 | ||||
68 | ||||
70 | ||||
71 | ||||
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
72 | |||
95 | ||||
96 | ||||
109 | ||||
113 | ||||
128 | ||||
130 | ||||
131 | ||||
133 | ||||
141 | ||||
142 | ||||
144 | ||||
151 | ||||
163 | ||||
164 | ||||
165 | ||||
170 | ||||
170 | ||||
170 | ||||
F-1 | ||||
A-1 |
You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized any other person to provide you with different information or to make any representations not contained in this prospectus. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should not assume the information contained in this prospectus is accurate after the date on the front cover of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.
TRADEMARKS
This prospectus contains trademarks and service marks owned by Goldman Sachs. This prospectus may also contain trademarks and service marks owned by third parties.
This summary highlights some of the information contained elsewhere in this prospectus. This summary may not contain all of the information that you should consider before investing in our common stock offered by this prospectus. You should review the more detailed information contained in this prospectus, especially the information set forth under the heading Risk Factors.
Unless indicated otherwise in this prospectus or the context requires otherwise, the terms Company, we, us or our refer to Goldman Sachs BDC, Inc., or for periods prior to our conversion from a limited liability company to a corporation (the Conversion),Goldman Sachs Liberty Harbor Capital, LLC. The terms GSAM or our investment adviser refer to Goldman Sachs Asset Management, L.P. The term Group Inc. refers to The Goldman Sachs Group, Inc. The term Goldman Sachs refers to Group Inc., together with Goldman, Sachs & Co., GSAM and its other subsidiaries and affiliates.
We have elected to be regulated as a BDC under the Investment Company Act. In addition, for U.S. federal income tax purposes, we have elected to be treated as a regulated investment company, or RIC, under the Internal Revenue Code of 1986, as amended, or the Code.
Unless indicated otherwise, the information in this prospectus assumes no exercise by the underwriters of their over-allotment option.
Goldman Sachs BDC
We are a specialty finance company focused on lending to middle-market companies. Since we were formed in 2012, we have originated more than $1.27 billion in aggregate principal amount of debt and equity investments prior to any subsequent exits or repayments. We seek to generate current income and, to a lesser extent, capital appreciation through direct originations of secured debt, including first lien, first lien/last-out unitranche and second lien debt, unsecured debt, including mezzanine debt and, to a lesser extent, investments in equities. Unitranche loans are first lien loans that may extend deeper in a companys capital structure than traditional first lien debt and may provide for a waterfall of cash flow priority between different lenders in the unitranche loan. We use the term mezzanine, when applicable, to refer to a loan that ranks senior only to a borrowers equity securities and ranks junior in right of payment to all of such borrowers other indebtedness.
We invest primarily in U.S. middle-market companies, which we believe have been underserved in recent years by traditional providers of capital such as banks and the public debt markets. In describing our business, we generally use the term middle-market to refer to companies with earnings before interest expense, income tax expense, depreciation and amortization (EBITDA) of between $5 million and $75 million annually. However, we may from time to time invest in larger or smaller companies. We generate revenues primarily through receipt of interest income from the investments we hold. In addition, we generate income from various loan origination and other fees, dividends on direct equity investments and capital gains on the sales of investments. The companies in which we invest use our capital for a variety of reasons, including to support organic growth, fund acquisitions, make capital investments and for refinancings and recapitalizations.
Investment Strategy
Our origination strategy focuses on leading the negotiation and structuring of the loans or securities in which we invest and holding the investments in our portfolio to maturity. In many cases we are the sole investor in the loan or security in our portfolio. Where there are multiple investors, we generally seek to control or obtain significant influence over the rights of investors in the loan or security. Our investments typically have maturities
1
between three and ten years and generally range in size between $10 million and $75 million, although we may make larger or smaller investments on occasion. In addition, part of our strategy involves an investment in a new joint venture, Senior Credit Fund, LLC (the Senior Credit Fund), with the Regents of the University of California (Cal Regents), as further discussed below.
Investment Portfolio
As of December 31, 2014, our portfolio (which term does not include our investment in a money market fund managed by an affiliate of Group Inc.) on a fair value basis, was comprised of approximately 94.3% secured debt investments (55.9% in first lien debt (including 30.2% in first lien/last-out unitranche loans) and 38.4% in second lien debt), 2.9% in preferred stock, 0.1% in common stock and 2.7% in investment funds & vehicles.
As of December 31, 2014, our portfolio was invested across 23 different industries. The largest industries in our portfolio, based on fair value as of December 31, 2014, were diversified telecommunication services, electronic equipment, instruments & components and real estate management and development, which represented, as a percentage of our portfolio at fair value, 11.1%, 8.7% and 8.2%, respectively.
As of December 31, 2014, we had 45 investments in 34 portfolio companies with an aggregate fair value of $913.95 million. As of December 31, 2014, 99.3% of our portfolio investments at fair value were in U.S. domiciled companies. As of December 31, 2014, on a fair value basis, approximately 84.5% of our debt investments were invested in debt bearing a floating interest rate with an interest rate floor and approximately 15.5% of our debt investments were in debt bearing a fixed interest rate (including preferred stock investments).
As of December 31, 2014, the weighted average gross yield of our total portfolio (excluding our investment in a money market fund managed by an affiliate of Group Inc.) at cost and fair value was 10.9% and 11.2%, respectively. At December 31, 2014, no investments in our portfolio were on non-accrual status. As of December 31, 2014, the weighted average net debt to EBITDA and the weighted average interest coverage ratio of our portfolio companies was 4.1 times and 2.9 times, respectively. The weighted average net debt to EBITDA of our portfolio companies represents our portfolio companies last dollar of invested debt capital (net of cash) as a multiple of EBITDA. The weighted average interest coverage ratio (EBITDA to total interest expense) of our portfolio companies reflects our portfolio companies EBITDA as a multiple of interest expense. Portfolio company credit statistics are derived from the most recently available financial statements of such portfolio company.
As of December 31, 2014, we and Cal Regents each had contributed $25.00 million to the Senior Credit Fund. As of December 31, 2014, the Senior Credit Fund was invested across seven industries. The largest industries in the Senior Credit Funds portfolio, based on fair value as of December 31, 2014, were auto components, capital markets, professional services and food products, which represented, as a percentage of the Senior Credit Funds portfolio at fair value, 21.8%, 20.3%, 13.4% and 13.4%, respectively.
As of December 31, 2014, the Senior Credit Fund had eight investments in eight portfolio companies with an aggregate fair value of $111.17 million. As of December 31, 2014, 100% of the Senior Credit Funds portfolio investments were in U.S. domiciled companies and invested in debt bearing a floating interest rate with an interest rate floor.
As of December 31, 2013, we had 26 investments in 25 portfolio companies with an aggregate fair value of $493.42 million. As of December 31, 2013, over 99.1% of our portfolio investments at fair value were in U.S. domiciled companies. As of December 31, 2013, on a fair value basis, approximately 80.5% of our portfolio investments were in debt bearing a floating rate with an interest rate floor and approximately 19.5% of our portfolio investments were in debt bearing a fixed interest rate (including preferred stock investments).
Since we began investing on November 15, 2012 through December 31, 2014, our fully exited investments have resulted in an aggregate cash flow realized gross internal rate of return to us of approximately
2
14.6% (based on cash invested of approximately $163 million and total proceeds from these exited investments of approximately $183 million). Investments are considered to be fully realized when the original investment has been fully exited. Investments that were transferred to the Senior Credit Fund are not considered fully exited. For a description of how we calculate gross internal rates of return, see Managements Discussion and Analysis of Financial Condition and Results of OperationsResults of OperationsAggregate Cash Flow Realized Gross Internal Rate of Return.
Our Investment Adviser
GSAM, a Delaware limited partnership, serves as our investment adviser and has been registered as an investment adviser with the SEC since 1990. Subject to the supervision of our Board of Directors, a majority of which is made up of independent directors (including an independent Chairman), GSAM manages our day-to-day operations and provides us with investment advisory and management services and certain administrative services. GSAM is part of Group Inc., a public company that is a bank holding company, financial holding company and a world-wide, full-service financial services organization. Group Inc. is the general partner and owner of GSAM. GSAM has been providing financial solutions for investors since 1988 and had approximately $1.02 trillion of assets under supervision as of December 31, 2014.
The Private Credit Group of GSAM (the GSAM Private Credit Group) is responsible for identifying investment opportunities, conducting research and due diligence on prospective investments, structuring our investments and monitoring and servicing our investments. As of February 2015, the GSAM Private Credit Group was comprised of 16 investment professionals, all of whom are predominantly dedicated to the Company. These professionals are supported by an additional 17 investment professionals who are primarily focused on investment strategies in syndicated, liquid credit (together with the GSAM Private Credit Group, GSAM Liberty Harbor). These individuals may have additional responsibilities other than those relating to us, but generally allocate a significant portion of their time in support of our business and our investment objective as a whole. In addition, GSAM believes that it has best in class support personnel, including expertise in risk management, legal, accounting, tax, information technology and compliance, among others. We expect to benefit from the support provided by these personnel in our operations.
The GSAM Private Credit Group takes a bottom-up, fundamental research approach to investing and focuses primarily on corporate credit investment opportunities in North America. The senior members of the GSAM Private Credit Group have been working together since 2006 and have an average of over 15 years of experience in leveraged finance and private transactions. The voting members of our investment committee collectively have over 50 years of experience in middle-market investing and activities related to middle-market investing.
The GSAM Private Credit Group has an investment committee comprised of five voting members, including our Chief Executive Officer, Brendan McGovern, two senior investment professionals, Salvatore Lentini and Scott Turco, our Head of Research, David Yu, and our Chief Operating Officer, Jon Yoder, as well as three non-voting members with operational and legal expertise. See ManagementBiographical Information for a description of the experience of each of the individual voting members of our investment committee. The investment committee is responsible for approving all of our investments. The investment committee also monitors investments in our portfolio and approves all asset dispositions. The investment committee engages in each stage of the investment process in order to prioritize and direct the underwriting of each potential investment opportunity. The extensive and varied experience of the investment professionals serving on our investment committee includes expertise in privately originated and publicly traded leveraged credit, stressed and distressed debt, bankruptcy, mergers and acquisitions and private equity. This diverse skill set provides a range of perspectives in the evaluation of each investment opportunity.
3
Allocation of Opportunities
The GSAM Private Credit Group is currently the only business unit of GSAM that is primarily engaged in pursuing middle-market direct lending opportunities. By middle-market direct lending opportunities we mean opportunities to underwrite and fund loans to operating businesses generating between $5 million and $75 million of EBITDA annually. Middle-market direct lending opportunities do not include opportunities to purchase loans from other underwriters or in secondary market transactions, or lending opportunities backed by real property or a personal guarantee collateralized by personal cash, securities or other personal assets. In some cases, due to information barriers that are in place, other Goldman Sachs funds or accounts may compete with the Company for specific investment opportunities without being aware that they are competing against each other.
In addition to the GSAM Private Credit Groups significant resources, including dedicated employees committed to sourcing middle-market direct lending opportunities, the Investment Management Division of Goldman Sachs currently has in place a practice designed to refer all middle-market direct lending opportunities sourced by Goldman Sachs Private Wealth Management business to the GSAM Private Credit Group. From time to time, other business units of GSAM and other divisions of Goldman Sachs, including the Investment Banking Division, the Securities Division and the Merchant Banking Division, may refer middle-market direct lending opportunities to the GSAM Private Credit Group; however, there are currently no procedures or practices in place designed to do so and in most cases the GSAM Private Credit Group will not get referrals of middle-market direct lending opportunities from these other business units or divisions. Whether sourced by the GSAM Private Credit Group or referred to the GSAM Private Credit Group by another business unit or division of Goldman Sachs, determinations regarding the allocation of middle-market direct lending opportunities to the Company will be made on a case-by-case basis in accordance with GSAMs allocation policies and procedures. For a further explanation of the allocation of opportunities and other conflicts and the risks related thereto, please see Potential Conflicts of Interest.
Corporate Structure
We were formed as a private fund in September 2012 and commenced operations in November 2012, using seed capital contributions we received from Group Inc. In March 2013, we elected to be treated as a BDC. We currently have over 700 stockholders, and no individual stockholder owns greater than 3% of our common stock other than Group Inc., which owned approximately 19.85% of our common stock as of December 31, 2014. As of December 31, 2014, we had raised approximately $505.43 million, subsequent to the Conversion, in connection with the private placement of our common stock. See BusinessFormation Transactions.
The following chart depicts our ownership structure after giving effect to this offering:
(1) | Reflects % held by Group Inc. and % held by employees of Goldman Sachs. |
4
Competitive Advantages
The Goldman Sachs Platform: Goldman Sachs is a leading global financial institution that provides a wide range of financial services to a substantial and diversified client base, including companies and high net worth individuals, among others. The firm is headquartered in New York, and maintains offices across the United States and in all major financial centers around the world. Group Inc.s asset management subsidiary, GSAM, is one of the worlds leading investment managers with over 700 investment professionals and approximately $1.02 trillion of assets under supervision as of December 31, 2014. GSAMs investment teams, including the GSAM Private Credit Group, capitalize on the relationships, market insights, risk management expertise, technology and infrastructure of Goldman Sachs. We believe the Goldman Sachs platform delivers a meaningful competitive advantage to us in the following ways:
| Origination of Investment Opportunities: Goldman Sachs has a preeminent network of relationships and the ability to provide valued intellectual, as well as financial, capital to middle-market borrowers which we believe significantly enhances our origination capability. We believe that many borrowers prefer to do business with Goldman Sachs and its advised funds because of its ability to offer further services to middle-market companies as they grow in their life cycle, including financial advice, acquisition opportunities and capital markets expertise. The GSAM Private Credit Group is also able to leverage the Goldman Sachs platform to provide middle-market companies with access to Goldman Sachs broad client network, which can be utilized to find new customers and partners as the GSAM Private Credit Group seeks to grow and execute its strategic plans. |
| Evaluation of Investment Opportunities: The GSAM Private Credit Group is comprised of seasoned professionals with significant private credit investing experience. The team draws on a diverse array of skill sets, spanning fundamental credit and portfolio management, as well as legal and transactional structuring expertise. The GSAM Private Credit Group is trained in, and utilizes, proprietary investment practices and procedures developed over many decades by Goldman Sachs, including those related to performing due diligence on prospective portfolio investments and reviewing the backgrounds of potential partners. Further, Goldman Sachs is an active participant in a wide array of industries, both in service to clients operating in many different industries and acting as a principal or customer in such industries. Accordingly, Goldman Sachs houses a tremendous amount of industry knowledge and experience. The GSAM Private Credit Group is able to draw upon these industry insights and expertise as it evaluates investment opportunities. |
| Risk Monitoring of Investments: The GSAM Private Credit Group team has significant processes and procedures in place, including proprietary information technology systems, to monitor and evaluate the performance of its investments at the asset level. In addition, we benefit from Goldman Sachs extensive risk management capabilities, which have been developed and honed over many investment cycles. Our portfolio is regularly reviewed and stressed under various scenarios by senior risk management personnel within Goldman Sachs. These scenarios are drawn from the expertise developed by Goldman Sachs for its own balance sheet. This risk monitoring is designed to minimize the risk of capital loss and maintain an investment portfolio that is expected to perform in a broad range of economic conditions. |
|
Financing of Portfolio: As one of the worlds largest asset management firms, GSAM is a significant counterparty to many providers of capital. In addition, GSAM has a world-class asset management infrastructure, including significant resources in operations, legal, compliance and other support functions. This scale, combined with the institutional infrastructure to support it, gives capital providers an incentive to do business with GSAM and confidence that their capital will be well guarded. Accordingly, we believe that we have been able to obtain favorable terms from |
5
financing providers, including attractive interest rates, advance rates, durations and covenants. We believe that we will continue to benefit from GSAMs scale and infrastructure through attractive financing terms as we seek additional sources of capital in the future. |
Existing Portfolio of Performing, Predominantly Senior, Floating Rate Loans: As an operating BDC for over a year, we have built up a sizable existing portfolio. As of December 31, 2014, we had 45 investments in 34 portfolio companies with an aggregate fair value of $913.95 million. As of December 31, 2014, 99.3% of our portfolio investments at fair value were in U.S. domiciled companies. As of December 31, 2014, on a fair value basis, approximately 84.5% of our debt investments were invested in debt bearing a floating interest rate with an interest rate floor and approximately 15.5% of our debt investments were in debt bearing a fixed interest rate (including preferred stock investments). We believe that this portfolio will generate attractive risk adjusted levels of income that will help support a dividend payment to our stockholders.
Strategic Joint Venture: Additionally, on July 18, 2014, we agreed to co-invest with Cal Regents through the Senior Credit Fund, LLC (the Senior Credit Fund), an unconsolidated Delaware limited liability company. The purpose of the Senior Credit Fund is to take advantage of attractive long-term financing and invest primarily in more conservative first lien loans to middle-market companies, often bearing comparatively lower interest rates. The Senior Credit Fund is expected to utilize a debt-to-equity ratio of approximately 2 to 1 and is currently targeting a mid-teens return on our investment, although this target may change over time depending on market conditions. The Senior Credit Fund is managed by a six-member board of managers, on which we and Cal Regents each have equal representation. Investment decisions generally must be unanimously approved by a quorum of the board of managers. Establishing a quorum for the Senior Credit Funds board of managers requires at least four members to be present at a meeting, including at least two of our representatives and two of Cal Regents representatives. If there are five members present at a meeting, all three representatives of Cal Regents must be present to constitute a quorum. We and Cal Regents each have 50% economic ownership of the Senior Credit Fund and each have subscribed to fund $100.00 million. As of December 31, 2014, we and Cal Regents each had contributed $25.00 million to the Senior Credit Fund. Our objective is to increase the weighted average yield on our portfolio as the capital we contributed to the Senior Credit Fund is deployed. As of December 31, 2014, the Senior Credit Fund was invested across seven industries. The largest industries in the Senior Credit Funds portfolio, based on fair value as of December 31, 2014, were auto components, capital markets, professional services and food products, which represented, as a percentage of the Senior Credit Funds portfolio at fair value, 21.8%, 20.3%, 13.4% and 13.4%, respectively. As of December 31, 2014, the Senior Credit Fund had eight investments in eight portfolio companies with an aggregate fair value of $111.17 million. As of December 31, 2014, 100% of the Senior Credit Funds portfolio investments were in U.S. domiciled companies and were invested in debt bearing a floating interest rate with an interest rate floor. See Managements Discussion and Analysis of Financial Condition and Results of OperationsSenior Credit Fund, LLC.
Broad Existing Shareholder Base: We currently have over 700 stockholders and no individual stockholder owns greater than 3% of our common stock other than Group Inc., which owned approximately 19.85% of our common stock as of December 31, 2014. We believe that the breadth of our shareholder base and our proven ability to attract investors will continue to support our future growth plans. These investors committed to our business with limited opportunity for liquidity, and have agreed to a lock-up period following completion of this offering. Goldman, Sachs & Co., a wholly-owned subsidiary of Group Inc., has adopted the 10b5-1 Plan in accordance with Rules 10b5-1 and 10b-18 under the Exchange Act, under which Goldman, Sachs & Co. will buy in the open market up to the lesser of $25.00 million in the aggregate of our common stock or such amount that would not bring Goldman, Sachs & Co.s collective ownership (with Group Inc.) over 19.9% of our outstanding common stock. Any such purchases under the 10b5-1 Plan will occur during the period beginning after four full calendar weeks after the closing of this offering and ending on the earlier of the date on which all the capital committed to the plan has been exhausted or one year after the closing of this offering, subject to certain conditions. See Related Party Transactions and Certain Relationships.
6
Market Opportunity
The GSAM Private Credit Group believes that existing market conditions and regulatory changes have combined to create an attractive investment environment for us. Specifically:
| Recent changes in the regulatory capital charges imposed on the banking sector for unrated, illiquid assets have caused banks to reduce their lending activities to middle-market companies . Stakeholders in banks, including their shareholders, lenders and regulators, continue to exert pressure to contain the amount of illiquid, unrated assets held on bank balance sheets. Examples of this include moves to codify the BASEL III accords in the United States, which would increase the regulatory capital charge for lower rated and unrated assets in most instances, and continued investor focus on the amount of illiquid assets whose fair value cannot be determined by using observable measures, or Level 3 assets, held on bank balance sheets. As a result, the GSAM Private Credit Group believes that many banks have been forced to reduce their lending to middle-market companies, creating an opportunity for alternative lenders such as us to fill the void. |
| Changes in business strategy by banks have further reduced the supply of capital to middle-market companies . The trend of consolidation of regional banks into money center banks has reduced the focus of these businesses on middle-market lending. Money center banks traditionally focus on lending and providing other services to large corporate clients to whom they can deploy larger amounts of capital more efficiently. The GSAM Private Credit Group believes that this has resulted in fewer bank lenders to U.S. middle-market companies and reduced the availability of debt capital to the companies we target. |
| The capital markets have been unable to fill the void in middle-market finance left by banks . While underwritten bond and syndicated loan markets have been robust in recent years, middle-market companies are rarely able to access these markets as participants are generally highly focused on the liquidity characteristics of the bond or loan being issued. For example, mutual funds and exchange traded funds (ETFs) are significant buyers of underwritten bonds. However, mutual funds and ETFs generally require the ability to liquidate their investments quickly in order to fund investor redemptions. Accordingly, the existence of an active secondary market for bonds is an important consideration in the initial investment decision. Because there is typically no active secondary market for the debt of U.S. middle-market companies, mutual funds and ETFs generally do not provide capital to U.S. middle-market companies. The GSAM Private Credit Group believes that this is likely to be a persistent problem for the capital markets and creates an advantage for investors like us who have a more stable capital base and can therefore invest in illiquid assets. |
| It is difficult for new lending platforms to enter the middle market and fill the capital void because it is very fragmented . While the middle market is a very large component of the U.S. economy, it is a highly fragmented space with thousands of companies operating in many different geographies and industries. Typically, companies that need capital find lenders and investors based on pre-existing relationships, referrals and word of mouth. Developing the many relationships required and wide-spread recognition as a source of capital to the middle market is a time consuming, highly resource-intensive endeavor. As a result, the GSAM Private Credit Group believes that it is difficult for new lending platforms to successfully enter the middle market, thereby providing insulation from rapid shifts in the supply of capital to the middle market that might otherwise disrupt pricing of capital. |
Operating and Regulatory Structure
We have elected to be treated as a BDC under the Investment Company Act. As a BDC, we are generally prohibited from acquiring assets other than qualifying assets unless, after giving effect to any
7
acquisition, at least 70% of our total assets are qualifying assets. Qualifying assets generally include securities of eligible portfolio companies, cash, cash equivalents, U.S. government securities and high-quality debt instruments maturing in one year or less from the time of investment. Under the rules of the Investment Company Act, eligible portfolio companies include (i) private U.S. operating companies, (ii) public U.S. operating companies whose securities are not listed on a national securities exchange (e.g., the NYSE) or registered under the Exchange Act, and (iii) public U.S. operating companies having a market capitalization of less than $250 million. Public U.S. operating companies whose securities are quoted on the over-the-counter bulletin board and through OTC Markets Group Inc. are not listed on a national securities exchange and therefore are eligible portfolio companies. See Regulation.
We have elected to be treated, and intend to qualify annually, as a RIC under Subchapter M of the Code, commencing with our taxable year ended December 31, 2013. As a RIC, we generally will not have to pay corporate-level U.S. federal income taxes on any net ordinary income or capital gains that we timely distribute to our stockholders as dividends if we meet certain source of income, distribution and asset diversification requirements. We intend to timely distribute to our stockholders substantially all of our annual taxable income for each year, except that we may retain certain net capital gains for reinvestment and, depending upon the level of taxable income earned in a year, we may choose to carry forward taxable income for distribution in the following year and pay any applicable U.S. federal excise tax. In addition, the distributions we pay to our stockholders in a year may exceed our net ordinary income and capital gains for that year and, accordingly, a portion of such distributions may constitute a return of capital for U.S. federal income tax purposes. See Distributions.
Use of Leverage
Our Revolving Credit Facility (as defined below) allows us to borrow money and lever our investment portfolio, subject to the limitations of the Investment Company Act, with the objective of increasing our yield. This is known as leverage and could increase or decrease returns to our stockholders. The use of leverage involves significant risks. As a BDC, with certain limited exceptions, we are only permitted to borrow amounts such that our asset coverage ratio, as defined in the Investment Company Act, equals at least 2 to 1 after such borrowing. Certain trading practices and investments, such as reverse repurchase agreements, may be considered borrowings or involve leverage and thus subject to Investment Company Act restrictions. In accordance with applicable SEC staff guidance and interpretations, if we engage in such transactions, instead of maintaining asset coverage ratio of at least 2 to 1 we intend to segregate or earmark liquid assets, or enter into an offsetting position, in an amount at least equal to our exposure, on a mark-to-market basis, to such transactions (as calculated pursuant to requirements of the SEC). Short-term credits necessary for the settlement of securities transactions and arrangements with respect to securities lending will not be considered borrowings for these purposes. Practices and investments that may involve leverage but are not considered borrowings are not subject to the Investment Company Acts asset coverage requirement and we will not otherwise segregate or earmark liquid assets or enter into offsetting positions for such transactions. The amount of leverage that we employ will depend on our investment advisers and our Board of Directors assessment of market conditions and other factors at the time of any proposed borrowing.
Recent Developments
Investment Activity
From January 1, 2015 through February 27, 2015, we made new investment commitments in the Senior Credit Fund with an aggregate fair value of approximately $ , of which approximately $ were funded. Of these new commitments, 100% were in secured debt investments, comprised of % in first lien debt and % in second lien debt. All of the new investment commitments were in debt bearing a floating interest rate with an interest rate floor. The weighted average gross yield of our new investment commitments in the Senior
8
Credit Fund during the period at cost and fair value was approximately % and %, respectively. These investments benefit from the Senior Credit Funds financing to produce a gross levered yield that is substantially higher than the stated gross yield.
From January 1, 2015 through February 27, 2015, we exited approximately $ of investments. All of these investments were in second lien debt bearing a floating interest rate with an interest rate floor. The weighted average gross yield of our total portfolio exited or repaid during the period at cost and fair value was approximately % and %, respectively. Of the approximately $ million of investments exited from January 1, 2015 through February 27, 2015, we recognized total net realized gains of approximately $ .
Revolving Credit Facility
In January 2015, the Company exercised a portion of the accordion feature of its senior secured revolving credit agreement (as amended, the Revolving Credit Facility) with SunTrust Bank, as administrative agent, and increased the size of the Revolving Credit Facility to $535.00 million. The remaining available balance under the accordion feature is $365.00 million. See Managements Discussion and Analysis of Financial Condition and Results of OperationsFinancial Condition, Liquidity and Capital ResourcesRevolving Credit Facility.
Investment Management Agreement
Our Board of Directors determined at an in person meeting held in November 2014 to approve certain changes to our investment management agreement with our investment adviser (as amended and restated, the Investment Management Agreement), and at a special meeting of stockholders held in January 2015, our stockholders approved the Investment Management Agreement, which became effective as of January 1, 2015. The amendment revised the method of calculating our incentive fee based on our performance, which consists of two parts, one based on income and the other based on capital gains (collectively, the Incentive Fee). See ManagementInvestment Management Agreement.
Distributions
Our Board of Directors has declared a distribution of $0.45 per share for the quarter ending March 31, 2015 to stockholders of record as of March 31, 2015. Shares of common stock offered pursuant to this prospectus will be entitled to receive this distribution, which is payable on April 30, 2015. We anticipate that this distribution will be paid from income generated primarily by interest income earned on our investment portfolio.
Exemptive Relief Application
We and our investment adviser have submitted an application seeking exemptive relief from the SEC to permit us to participate in negotiated co-investments with other funds managed by our investment adviser or its affiliates in a manner consistent with our investment objectives, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors. However, there can be no assurance that we will obtain any such exemptive relief. See Regulation.
Implications of Being an Emerging Growth Company
We qualify as an emerging growth company, as that term is used in the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable
9
generally to public companies. These provisions include an exemption from the auditor attestation requirement in the assessment of the emerging growth companys internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act) for so long as we qualify as an emerging growth company.
In addition, Section 7(a)(2)(B) of the Securities Act and Section 13(a) of the Exchange Act, as amended by Section 102(b) of the JOBS Act, provide that an emerging growth company can take advantage of the extended transition period for complying with new or revised accounting standards. However, pursuant to Section 107 of the JOBS Act, we are choosing to opt out of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.
We will remain an emerging growth company until the earliest of (a) up to five years measured from the date of the first sale of common equity securities pursuant to an effective registration statement, (b) the last day of the first fiscal year in which our annual gross revenues are $1 billion or more, (c) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three-year period or (d) the date that we become a large accelerated filer as defined in Rule 12b-2 under the Exchange Act, which would occur (i) if the market value of our common stock that is held by non-affiliates exceeds $700 million (measured at the end of each fiscal year) as of the last business day of our most recently completed second fiscal quarter and (ii) we have been an Exchange Act reporting company for at least one year (and filed at least one annual report under the Exchange Act).
Summary Risk Factors
Investing in us involves a high degree of risk and you could lose all or part of your investment. We refer to certain of these risks below:
| We are a relatively new company and have a limited operating history. |
| The capital markets may experience periods of disruption and instability. Such market conditions may materially and adversely affect debt and equity capital markets in the United States, which may have a negative impact on our business and operations. |
| Our operation as a BDC imposes numerous constraints on us and significantly reduces our operating flexibility. In addition, if we fail to maintain our status as a BDC, we might be regulated as a closed-end investment company, which would subject us to additional regulatory restrictions. |
| We will be subject to corporate-level U.S. federal income tax on all of our income if we are unable to maintain our status as a RIC under Subchapter M of the Code, which would have a material adverse effect on our financial performance. |
| We are dependent upon management personnel of our investment adviser for our future success. |
| Our investment adviser and its management have no prior experience managing a BDC. |
| Our ability to grow depends on our ability to raise additional capital. |
| We borrow money, which may magnify the potential for gain or loss and may increase the risk of investing in us. |
| We operate in a highly competitive market for investment opportunities. |
10
| Potential conflicts of interest with other businesses of Goldman Sachs could impact our investment returns. |
| Goldman Sachs has influence, and may continue to exert influence, over our management and affairs and over most votes requiring stockholder approval. |
| Our Board of Directors may change our investment objective, operating policies and strategies without prior notice or stockholder approval. |
| Our investment adviser can resign on 60 days notice. We may not be able to find a suitable replacement within that time, resulting in a disruption in our operations that could adversely affect our financial condition, business and results of operations. |
| Our ability to enter into transactions with our affiliates is restricted. |
| We are exposed to risks associated with changes in interest rates. |
| Our activities may be limited as a result of potentially being deemed to be controlled by a bank holding company. |
| Our investments are very risky and highly speculative. |
| The lack of liquidity in our investments may adversely affect our business. |
| Declines in market prices and liquidity in the corporate debt markets can result in significant net unrealized depreciation of our portfolio, which in turn would reduce our NAV. |
| We may initially invest a portion of the net proceeds of this offering primarily in high-quality short-term investments, which may generate lower rates of return than those expected from the interest generated on our intended investment program. |
| Investing in our common stock involves an above average degree of risk. |
| Non-U.S. stockholders may be subject to withholding of U.S. federal income tax on dividends we pay. |
Corporate Information
Our principal executive offices are located at 200 West Street, New York, New York 10282 and our telephone number is (212) 902-0300. We maintain a website located at www.GoldmanSachsBDC.com. Information on our website is not incorporated into or a part of this prospectus.
11
Common stock offered by us |
shares, excluding shares of common stock issuable pursuant to the over-allotment option granted to the underwriters. |
Common stock to be outstanding after this offering |
shares, excluding shares of common stock issuable pursuant to the over-allotment option granted to the underwriters. |
Use of proceeds |
We expect to use proceeds from the closing of this offering to make investments consistent with our investment objectives, to repay a portion of our outstanding debt and for offering expenses and general corporate purposes. See also Use of Proceeds. |
Regulatory and tax status |
We are a BDC under the Investment Company Act. We have elected to be treated, and intend to qualify annually, as a RIC under Subchapter M of the Code, commencing with our taxable year ended December 31, 2013. As a RIC, we generally will not pay corporate-level U.S. federal income taxes on any net ordinary income or capital gains that we timely distribute to our stockholders as dividends. To maintain our RIC status, we must meet specified source-of-income and asset diversification requirements and timely distribute to our stockholders at least 90% of our investment company taxable income as defined by the Code, which generally includes net ordinary income and net short-term capital gains in excess of net long-term capital losses, for each taxable year. See Distributions and U.S. Federal Income Tax Considerations. |
Distributions |
We intend to continue to pay quarterly distributions to our stockholders out of assets legally available for distribution. Future quarterly distributions, if any, will be determined by our Board of Directors. All future distributions will be subject to lawfully available funds therefor, and no assurance can be given that we will be able to declare such distributions in future periods. |
Our Board of Directors has declared a distribution of $0.45 per share for the quarter ending March 31, 2015 to stockholders of record as of March 31, 2015. Shares of common stock offered pursuant to this prospectus will be entitled to receive this distribution, which is payable on April 30, 2015. We anticipate that this distribution will be paid from income generated primarily by interest income earned on our investment portfolio. |
We intend to timely distribute to our stockholders substantially all of our annual taxable income for each year, except that we may retain certain net capital gains for reinvestment and, depending upon the level of taxable income earned in a year, we may choose to carry forward taxable income for distribution in the following year and pay any applicable U.S. federal excise tax. The distributions we pay to our stockholders in a year may exceed our taxable income for that year |
12
and, accordingly, a portion of such distributions may constitute a return of capital for U.S. federal income tax purposes. The specific tax characteristics of our distributions will be reported to stockholders after the end of the calendar year. See Distributions. |
Dividend Reinvestment Plan |
Concurrent with this offering, we will adopt a dividend reinvestment plan for our stockholders, which is an opt out dividend reinvestment plan. Under this plan, if we declare a cash distribution, our stockholders who have not elected to opt out of our dividend reinvestment plan will have their cash distribution automatically reinvested in additional shares of our common stock, rather than receiving the cash distribution. If a stockholder elects to opt out, that stockholder will receive cash distributions. Stockholders who receive distributions in the form of shares of common stock generally are subject to the same U.S. federal, state and local tax consequences as stockholders who elect to receive their distributions in cash and, for this purpose, stockholders receiving distributions in the form of stock will generally be treated as receiving distributions equal to the fair market value of the stock received through the plan; however, since their cash distributions will be reinvested, those stockholders will not receive cash with which to pay any applicable taxes on reinvested distributions. The dividend reinvestment plan will not apply to any shares of our common stock purchased prior to the Companys IPO. Due to regulatory considerations, Group Inc. will opt out of the dividend reinvestment plan, and Goldman, Sachs & Co. will opt out of the dividend reinvestment plan in respect of any shares of our common stock acquired through the 10b5-1 Plan, for a period of at least 90 days following the consummation of this offering. See Dividend Reinvestment Plan. |
Listing |
Our common stock has been approved for listing on the NYSE under the symbol GSBD. |
Fees and expenses |
We pay our investment adviser a base management fee (the Management Fee) at an annual rate of 1.50% of our average gross assets (excluding cash and cash equivalents, but including assets purchased with borrowed amounts) at the end of each of the two most recently completed calendar quarters. |
We also pay our investment adviser an Incentive Fee. It consists of two parts, one based on income and the other based on capital gains. |
Beginning with the calendar quarter that commenced on January 1, 2015, the Incentive Fee based on income will be determined and paid quarterly in arrears at the end of each calendar quarter by reference to our aggregate net investment income, as adjusted as described below, from the calendar quarter then ending and the eleven preceding calendar quarters (or if shorter, the number of quarters that have occurred since January 1, 2015) (in either case, the Trailing Twelve Quarters). The hurdle amount for the Incentive Fee based on income is determined on a quarterly basis, and is equal to 1.75% multiplied by our NAV at the beginning of each applicable calendar quarter |
13
comprising the relevant Trailing Twelve Quarters. The hurdle amount is calculated after making appropriate adjustments for subscriptions (which shall include all issuances by us of shares of our common stock, including issuances pursuant to our dividend reinvestment plan) and distributions that occurred during the relevant Trailing Twelve Quarters. For the portion of the Incentive Fee based on income, we pay our investment adviser a quarterly Incentive Fee based on the amount by which (A) aggregate net investment income (Ordinary Income) in respect of the relevant Trailing Twelve Quarters exceeds (B) the hurdle amount for such Trailing Twelve Quarters. The amount of the excess of (A) over (B) described in this paragraph for such Trailing Twelve Quarters is referred to as the Excess Income Amount. For the avoidance of doubt, Ordinary Income is net of all fees and expenses, including the Management Fee but excluding any Incentive Fee. |
The Incentive Fee based on income for each quarter is determined as follows: |
| No Incentive Fee based on income is payable to our investment adviser for any calendar quarter for which there is no Excess Income Amount. |
| 100% of the Excess Income Amount, if any, that exceeds the hurdle amount, but is less than or equal to an amount, which we refer to as the Catch-up Amount, determined as the sum of 2.1875% multiplied by our NAV at the beginning of each applicable calendar quarter comprising the relevant Trailing Twelve Quarters is included in the calculation of the Incentive Fee based on income; and |
| 20% of the amount of such Excess Income Amount that exceeds the Catch-up Amount is included in the calculation of the Incentive Fee based on income. |
The amount of the Incentive Fee based on income that will be paid to our investment adviser for a particular quarter will equal the excess of the Incentive Fee so calculated minus the aggregate Incentive Fees based on income that were paid in respect of the first eleven calendar quarters (or the portion thereof) included in the relevant Trailing Twelve Quarters but not in excess of the Incentive Fee Cap (as described below). |
The Incentive Fee based on income that is paid to our investment adviser for a particular quarter is subject to a cap (the Incentive Fee Cap). The Incentive Fee Cap for any quarter is an amount equal to (a) 20% of the Cumulative Net Return (as defined below) during the relevant Trailing Twelve Quarters minus (b) the aggregate Incentive Fees based on income that were paid in respect of the first eleven calendar quarters (or the portion thereof) included in the relevant Trailing Twelve Quarters. |
14
Cumulative Net Return means (x) the Ordinary Income in respect of the relevant Trailing Twelve Quarters minus (y) any Net Capital Loss, if any, in respect of the relevant Trailing Twelve Quarters. If, in any quarter, the Incentive Fee Cap is zero or a negative value, the Company will pay no Incentive Fee based on income to our investment adviser for such quarter. If, in any quarter, the Incentive Fee Cap for such quarter is a positive value but is less than the Incentive Fee based on income that is payable to our investment adviser for such quarter (before giving effect to the Incentive Fee Cap) calculated as described above, the Company will pay an Incentive Fee based on income to our investment adviser equal to the Incentive Fee Cap for such quarter. If, in any quarter, the Incentive Fee Cap for such quarter is equal to or greater than the Incentive Fee based on income that is payable to our investment adviser for such quarter (before giving effect to the Incentive Fee Cap) calculated as described above, the Company will pay an Incentive Fee based on income to our investment adviser equal to the Incentive Fee calculated as described above for such quarter without regard to the Incentive Fee Cap. |
Net Capital Loss in respect of a particular period means the difference, if positive, between (i) aggregate capital losses, whether realized or unrealized, in such period and (ii) aggregate capital gains, whether realized or unrealized, in such period. |
The portion of the Incentive Fee based on capital gains is calculated on an annual basis. For each period beginning on January 1 of each calendar year and ending on December 31 of the calendar year or, in the case of our first and last year, the appropriate portion thereof (each, an Annual Period), we will pay our investment adviser an Incentive Fee equal to (A) 20% of the difference, if positive, of the sum of our aggregate realized capital gains, if any, computed net of our aggregate realized capital losses, if any, and our aggregate unrealized capital depreciation, if any, in each case from April 1, 2013 until the end of such Annual Period minus (B) the cumulative amount of Incentive Fees based on capital gains previously paid to our investment adviser from April 1, 2013. For the avoidance of doubt, unrealized capital gains are excluded from the calculation in clause (A), above. |
See Fees and Expenses and ManagementInvestment Management Agreement. |
Leverage |
From time to time, we may borrow funds to make additional investments. This is known as leverage and could increase or decrease returns to our stockholders. The use of leverage involves significant risks. As a BDC, with certain limited exceptions, we are only allowed to borrow amounts such that our asset coverage ratio, as defined in the Investment Company Act, equals at least 2 to 1 after such borrowing. In connection with certain trading practices and |
15
investments, we will, consistent with applicable SEC staff guidance and interpretations, segregate or earmark liquid assets, in an amount at least equal to our exposure, on a mark-to-market basis, to the transaction (as calculated pursuant to requirements of the SEC), or enter into an offsetting position. The amount of leverage that we employ will depend on our investment advisers and our Board of Directors assessment of market conditions and other factors at the time of any proposed borrowing. Additionally, we will be able to incur additional leverage if we are able to exclude the debt of any small business investment company (SBIC) subsidiary we may form in the future from the leverage requirements otherwise applicable to BDCs. |
Trading at a discount |
Shares of closed-end investment companies that are listed on an exchange, including BDCs, frequently trade at a discount to their NAV. We are not generally able to issue and sell our common stock at a price below our NAV per share unless, among other things, the requisite stockholders approve such a sale. The risk that our shares may trade at a discount to our NAV is separate and distinct from the risk that our NAV per share may decline. We cannot predict whether our shares will trade above, at or below NAV. See Risk Factors. |
Stock Purchase Plans |
Goldman, Sachs & Co. has adopted the 10b5-1 Plan in accordance with Rules 10b5-1 and 10b-18 under the Exchange Act, under which Goldman, Sachs & Co. will buy in the open market up to the lesser of $25.00 million in the aggregate of our common stock or such amount that would not bring its collective ownership (with Group Inc.) of our common stock over 19.9%. Any such purchases under the 10b5-1 Plan will occur during the period beginning after four full calendar weeks after the closing of this offering and ending on the earlier of the date on which all the capital committed to the plan has been exhausted or one year after the closing of this offering, subject to certain conditions. See Related Party Transactions and Certain Relationships. The 10b5-1 Plan will require Goldman, Sachs & Co. to purchase shares of our common stock (i) through the date we announce our earnings for the first quarter of 2015, when the market price per share is below the initial public offering price per share, and (ii) from and after that date, when the market price per share is below our most recently reported NAV per share (including any updates, corrections or adjustments publicly announced by us to any previously announced NAV per share). The purchase of shares by Goldman, Sachs & Co. pursuant to the 10b5-1 Plan is intended to satisfy the conditions of Rules 10b5-1 and 10b-18 under the Exchange Act, and will otherwise be subject to applicable law, including Regulation M, which may prohibit purchases under certain circumstances. Under the 10b5-1 Plan, Goldman, Sachs & Co. will increase the volume of purchases made as the price of our common stock declines below the initial public offering price per share through our first quarter 2015 earnings announcement, and thereafter, anytime the market price per share of our common stock declines below our most recently reported NAV per share, subject to volume restrictions. Purchases of our common stock by Goldman, Sachs & Co. under the 10b5-1 Plan may result in the price of our common stock being higher than the price |
16
that otherwise might exist in the open market. See Risk FactorsPurchases of our common stock by Goldman, Sachs & Co. under the 10b5-1 Plan may result in the price of our common stock being higher than the price that otherwise might exist in the open market. |
Furthermore, the Companys Board of Directors has approved the Company Repurchase Plan, pursuant to which we may purchase, from time to time, up to $35.00 million of our common stock in the open market during open trading periods. The Company Repurchase Plan will not begin until capital committed to the 10b5-1 Plan has been exhausted and will expire one year after the closing of this offering, subject to renewal. The Board of Directors authorized this plan because it determined that the repurchase of shares of the Companys common stock under certain market conditions represents an effective use of the Companys expected liquidity following completion of its IPO. The Company Repurchase Plan does not obligate us to purchase any shares of common stock and may be discontinued at any time. Purchases of our common stock in the open market pursuant to the Company Repurchase Plan will be subject to certain conditions and conducted in accordance with Rule 10b-18 under the Exchange Act and other applicable securities laws and regulations that set certain restrictions on the method, timing, price and volume of stock repurchases. Stockholders subject to lock-up restrictions will not be eligible to have their shares repurchased pursuant to the Company Repurchase Plan for the period that they are subject to lock-up. See UnderwritingNo Sales of Similar Securities and Shares Eligible for Future Sale. |
Investment adviser |
Goldman Sachs Asset Management, L.P., a wholly-owned subsidiary of Group Inc., serves as our investment adviser. See ManagementOur Investment Adviser. |
Administrator |
State Street Bank and Trust Company serves as our administrator. See ManagementOur Administrator. |
Custodian, transfer agent and dividend disbursing agent |
State Street Bank and Trust Company serves as our custodian and Goldman, Sachs & Co. currently serves as our transfer agent and dividend disbursing agent. Goldman Sachs & Co. has retained State Street Bank and Trust Company as sub-transfer agent to assist in certain related functions and upon completion of the IPO, State Street Bank and Trust Company will serve as our transfer agent and dividend disbursing agent. See Custodian and Transfer and Dividend Disbursing Agent. |
Risk factors |
See Risk Factors and the other information in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our common stock. |
Available information |
We have filed with the SEC a registration statement on Form N-2 under the Securities Act of 1933, as amended (the Securities Act), |
17
which contains additional information about us and the shares of our common stock being offered by this prospectus. After completion of this offering, we will be required to file annual, quarterly and current reports, proxy statements and other information meeting the information requirements of the Exchange Act. This information will be available at the SECs public reference room at 100 F Street, N.E., Washington, D.C. 20549 and on the SECs website at http://www.sec.gov. Information on the operation of the SECs public reference room may be obtained by calling the SEC at (202) 551-8090 or (800) SEC-0330. |
We maintain a website at www.GoldmanSachsBDC.com and intend to make all of our information available, free of charge, on or through our website. The information on our website is not incorporated by reference in this prospectus. You may also obtain such information by contacting us, in writing at: , or by telephone at . |
18
The following table is intended to assist you in understanding the fees and expenses that an investor in this offering will bear directly or indirectly. We caution you that some of the percentages indicated in the table below are estimates and may vary. The expenses shown in the table under annual expenses are based on estimated amounts for our current fiscal year and assume that we issue shares of common stock in the offering, based on an offering price equal to the mid-point of the estimated initial public offering price range as set forth on the cover of this prospectus. The following table should not be considered a representation of our future expenses. Actual expenses may be greater or less than shown. Except where the context suggests otherwise, whenever this prospectus contains a reference to fees or expenses paid by us or that we will pay fees or expenses, our stockholders will indirectly bear such fees or expenses as our investors.
(1) | The underwriting discount and commission with respect to shares of common stock sold in this offering, which is a one-time fee paid to the underwriters, is the only sales load paid in connection with this offering. |
(2) | Amount reflects estimated offering expenses of approximately $ . |
(3) | The expenses of the dividend reinvestment plan are included in other expenses in the table above. For additional information, see Dividend Reinvestment Plan. |
(4) | Our Management Fee is 1.50% of our average gross assets at the end of each of the two most recently completed calendar quarters (excluding cash and cash equivalents, but including assets purchased with borrowed amounts). For purposes of this table, we have assumed that we maintain no cash or cash equivalents. See ManagementInvestment Management Agreement. |
(5) | The Incentive Fee payable to our investment adviser is based on our performance and is not paid unless we achieve certain goals. It consists of two parts, one based on income and the other based on capital gains. |
Beginning with the calendar quarter that commenced on January 1, 2015, the Incentive Fee based on income will be determined and paid quarterly in arrears at the end of each calendar quarter by reference to our aggregate net investment income, as adjusted as described below, from the calendar quarter then ending and the eleven preceding calendar quarters (or if shorter, the number of quarters that have occurred since January 1, 2015) (in either case, the Trailing Twelve Quarters). The hurdle amount for the Incentive Fee based on income is determined on a quarterly basis, and is equal to 1.75% multiplied by our NAV at the beginning of each applicable calendar quarter comprising the relevant Trailing Twelve Quarters. The hurdle amount is calculated after making appropriate adjustments for subscriptions (which shall include all issuances by us of shares of our common stock, including issuances pursuant to our dividend reinvestment plan) and distributions that occurred during the relevant Trailing Twelve Quarters. For the portion of the Incentive Fee based on income, we pay our investment adviser a quarterly Incentive Fee based on the amount by which (A) aggregate net investment income (Ordinary Income) in respect of the relevant Trailing Twelve Quarters exceeds (B) the hurdle amount for such Trailing Twelve Quarters. The amount of the excess of (A) over (B) described in this paragraph for such Trailing Twelve Quarters is referred to as the Excess Income Amount. For the avoidance of doubt, Ordinary Income is net of all fees and expenses, including the Management Fee but excluding any Incentive Fee.
19
The Incentive Fee based on income for each quarter is determined as follows:
| No Incentive Fee based on income is payable to our investment adviser for any calendar quarter for which there is no Excess Income Amount. |
| 100% of the Excess Income Amount, if any, that exceeds the hurdle amount, but is less than or equal to an amount, which we refer to as the Catch-up Amount, determined as the sum of 2.1875% multiplied by our NAV at the beginning of each applicable calendar quarter comprising the relevant Trailing Twelve Quarters is included in the calculation of the Incentive Fee based on income; and |
| 20% of the amount of such Excess Income Amount that exceeds the Catch-up Amount is included in the calculation of the Incentive Fee based on income. |
The amount of the Incentive Fee based on income that will be paid to our investment adviser for a particular quarter will equal the excess of the Incentive Fee so calculated minus the aggregate Incentive Fees based on income that were paid in respect of the first eleven calendar quarters (or the portion thereof) included in the relevant Trailing Twelve Quarters but not in excess of the Incentive Fee Cap (as described below).
The Incentive Fee based on income that is paid to our investment adviser for a particular quarter is subject to a cap (the Incentive Fee Cap). The Incentive Fee Cap for any quarter is an amount equal to (a) 20% of the Cumulative Net Return (as defined below) during the relevant Trailing Twelve Quarters minus (b) the aggregate Incentive Fees based on income that were paid in respect of the first eleven calendar quarters (or the portion thereof) included in the relevant Trailing Twelve Quarters.
Cumulative Net Return means (x) the Ordinary Income in respect of the relevant Trailing Twelve Quarters minus (y) any Net Capital Loss, if any, in respect of the relevant Trailing Twelve Quarters. If, in any quarter, the Incentive Fee Cap is zero or a negative value, the Company will pay no Incentive Fee based on income to our investment adviser for such quarter. If, in any quarter, the Incentive Fee Cap for such quarter is a positive value but is less than the Incentive Fee based on income that is payable to our investment adviser for such quarter (before giving effect to the Incentive Fee Cap) calculated as described above, the Company will pay an Incentive Fee based on income to our investment adviser equal to the Incentive Fee Cap for such quarter. If, in any quarter, the Incentive Fee Cap for such quarter is equal to or greater than the Incentive Fee based on income that is payable to our investment adviser for such quarter (before giving effect to the Incentive Fee Cap) calculated as described above, the Company will pay an Incentive Fee based on income to our investment adviser equal to the Incentive Fee calculated as described above for such quarter without regard to the Incentive Fee Cap.
Net Capital Loss in respect of a particular period means the difference, if positive, between (i) aggregate capital losses, whether realized or unrealized, in such period and (ii) aggregate capital gains, whether realized or unrealized, in such period.
The portion of the Incentive Fee based on capital gains is calculated on an annual basis. For each period beginning on January 1 of each calendar year and ending on December 31 of the calendar year or, in the case of our first and last year, the appropriate portion thereof (each, an Annual Period), we will pay our investment adviser an Incentive Fee equal to (A) 20% of the difference, if positive, of the sum of our aggregate realized capital gains, if any, computed net of our aggregate realized capital losses, if any, and our aggregate unrealized capital depreciation, if any, in each case from April 1, 2013 until the end of such Annual Period minus (B) the cumulative amount of Incentive Fees based on capital gains previously paid to our investment adviser from April 1, 2013. For the avoidance of doubt, unrealized capital gains are excluded from the calculation in clause (A), above. We will accrue, but not pay, a portion of the Incentive Fee based on capital gains with respect to net unrealized appreciation. For more detailed information about the Incentive Fee, see ManagementInvestment Management Agreement.
20
See ManagementInvestment Management Agreement.
(6) | From time to time, we may borrow funds to make additional investments to the extent we determine that the economic situation is conducive to doing so. The costs associated with any outstanding indebtedness are indirectly borne by our investors. The table assumes: (a) that we borrow for investment purposes up to an amount equal to % of our average total assets (average borrowing of $ million out of average total assets of $ million) and (b) that the interest expense and fees are $ million, based on estimated amounts for our first fiscal year. We may also issue preferred stock, subject to our compliance with applicable requirements under the Investment Company Act. We do not currently anticipate issuing preferred stock in the next 12 months. |
(7) | Other Expenses include estimated overhead expenses, including payments under the administration agreement with our administrator (the Administration Agreement) based on our allocable portion of overhead and other expenses incurred by our administrator. See ManagementOur Administrator. Other Expenses also include certain estimates based on an assumed offering size of $ million. |
(8) | Our stockholders indirectly bear the expenses of underlying funds or other investment vehicles in which we invest that (1) are investment companies or (2) would be investment companies under section 3(a) of the Investment Company Act but for the exceptions to that definition provided for in sections 3(c)(1) and 3(c)(7) of the Investment Company Act (Acquired Funds). This amount includes the estimated annual fees and expenses of the Senior Credit Fund and a money market fund managed by an affiliate of Group Inc., which are our only Acquired Funds as of December 31, 2014. |
Example
The following example demonstrates the projected dollar amount of total cumulative expenses that would be incurred over various periods with respect to a hypothetical investment in our common stock. In calculating the following expense amounts, we have assumed the estimated costs of borrowing assuming we incur leverage representing % of our total assets, that none of our assets are cash or cash equivalents and that our annual operating expenses remain at the levels set forth in the table above and that stockholders would pay a sales load of % with respect to common stock sold by us in this offering.
1 year |
3 years |
5 years |
10 years |
|||||||||||||
You would pay the following expenses on a $1,000 common stock investment, assuming a 5% annual return (none of which is subject to the Incentive Fee based on capital gains) (1) |
$ | $ | $ | $ | ||||||||||||
You would pay the following expenses on a $1,000 common stock investment, assuming a 5% annual return resulting entirely from net realized capital gains (all of which is subject to the Incentive Fee based on capital gains) (2) |
$ | $ | $ | $ |
(1) | Assumes that we will not realize any capital gains computed net of all realized capital losses and unrealized capital depreciation. |
(2) | Assumes no unrealized capital depreciation and a 5% annual return resulting entirely from net realized capital gains and not otherwise deferrable under the terms of the Investment Management Agreement and therefore subject to the Incentive Fee based on capital gains. Because our investment strategy involves investments that generate primarily current income, we believe that a 5% annual return resulting entirely from net realized capital gains is unlikely. |
While the example assumes, as required by the SEC, a 5% annual return, our performance will vary and may result in a return greater or less than 5%. The Incentive Fee under our Investment Management Agreement, which, assuming a 5% annual return, would either not be payable or would have an insignificant impact on the expense amounts shown above, is not included in the example. The example assumes inclusion of offering expenses of approximately $ and reinvestment of all distributions at NAV. In addition, while the example
21
assumes reinvestment of all dividends and distributions at NAV, under certain circumstances, reinvestment of dividends and other distributions under our dividend reinvestment plan may occur at a price per share that differs from NAV. See Dividend Reinvestment Plan for additional information regarding our dividend reinvestment plan.
This example should not be considered a representation of our future expenses, and actual expenses (including the cost of debt, if any, and other expenses) may be greater or less than those shown.
22
SELECTED FINANCIAL AND OTHER INFORMATION
The selected financial and other information below should be read in conjunction with Managements Discussion and Analysis of Financial Condition and Results of Operations and our financial statements and the related notes thereto. Financial information as of and for the years ended December 31, 2014 and December 31, 2013 and as of and for the period from November 15, 2012 (commencement of operations) through December 31, 2012 has been derived from the audited financial statements of Goldman Sachs BDC, Inc. (formerly, Goldman Sachs Liberty Harbor Capital, LLC), which are included elsewhere in this prospectus. The audited financial statements included in this prospectus were audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm. Quarterly financial information for the year ended December 31, 2014 has been derived from the unaudited interim financial statements of Goldman Sachs BDC, Inc. Our unaudited interim financial statements were prepared on a basis consistent with our audited financial statements and, in our opinion, include all adjustments necessary for the fair statement of the results for the periods presented. Our historical results are not necessarily indicative of future results.
The selected financial data in this section is not intended to replace the financial statements and is qualified in its entirety by the financial statements and related notes included in this prospectus.
For the Year
|
For the Year
|
For the period
2012 |
||||||||||
Statement of operations data (in thousands): |
||||||||||||
Total investment income |
$ | 73,279 | $ | 22,835 | $ | 162 | ||||||
Net expenses |
20,422 | 6,899 | 346 | |||||||||
|
|
|
|
|
|
|||||||
Net investment income (loss) before taxes |
52,857 | 15,936 | (184 | ) | ||||||||
Excise tax expense |
119 | | | |||||||||
|
|
|
|
|
|
|||||||
Net investment income (loss) after taxes |
52,738 | | | |||||||||
Net realized and unrealized gain (loss) on investments |
(15,816 | ) | 3,118 | 1,046 | ||||||||
|
|
|
|
|
|
|||||||
Net increase in net assets resulting from operations before tax |
36,922 | 19,054 | 862 | |||||||||
Income tax expense |
| (1,070 | ) | (351 | ) | |||||||
|
|
|
|
|
|
|||||||
Net increase in net assets resulting from operations after tax |
$ | 36,922 | $ | 17,984 | $ | 511 | ||||||
|
|
|
|
|
|
|||||||
Per share data |
||||||||||||
Net Investment Income (loss) (basic and diluted) |
$ | 1.77 | $ | 0.67 | $ | (0.09 | ) | |||||
Earnings (basic and diluted) |
$ | 1.24 | $ | 0.76 | $ | 0.26 | ||||||
Distributions declared |
$ | 1.69 | $ | 0.50 | $ | |
As of December 31,
|
As of December 31,
|
As of December 31,
|
||||||||||
Balance sheet data (at period end) (in thousands): |
||||||||||||
Total assets |
$ | 967,492 | $ | 630,222 | $ | 51,769 | ||||||
Total investments |
943,515 | 613,935 | 49,965 | |||||||||
Total liabilities |
392,910 | 22,437 | 346 | |||||||||
Total debt |
350,000 | | | |||||||||
Total net assets |
$ | 574,582 | $ | 607,785 | $ | 51,423 |
23
For the
|
For the
2014 |
For the
|
For the
|
|||||||||||||
Statement of operations data (unaudited) (in thousands): |
||||||||||||||||
Investment income |
$ | 13,738 | $ | 16,106 | $ | 19,076 | $ | 24,359 | ||||||||
Net expenses |
3,336 | 3,581 | 6,660 | 6,964 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net investment income (loss) |
10,402 | 12,525 | 12,416 | 17,395 | ||||||||||||
Net realized and unrealized gain (losses) |
(940 | ) | (96 | ) | (1,161 | ) | (13,619 | ) | ||||||||
Income tax expense |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net increase in net assets resulting from operations after tax |
$ | 9,462 | $ | 12,429 | $ | 11,255 | $ | 3,776 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Per share data |
||||||||||||||||
Net Investment Income per share (basic and diluted) |
$ | 0.34 | $ | 0.42 | $ | 0.42 | $ | 0.59 | ||||||||
Earnings per share (basic and diluted) |
$ | 0.31 | $ | 0.42 | $ | 0.38 | $ | 0.13 |
24
Investing in our common stock involves certain risks relating to our structure and investment objective. You should carefully consider these risk factors, together with all of the other information included in this prospectus, before you decide whether to make an investment in our common stock. The risks set forth below are not the only risks we face, and we may face other risks that we have not yet identified, which we do not currently deem material or which are not yet predictable. If any of the following risks occur, our business, financial condition and results of operations could be materially adversely affected. In such case, our NAV and the price per share of our common stock could decline, and you may lose all or part of your investment.
Risks Relating to Our Business and Structure
We are a relatively new company and have a limited operating history.
We commenced operations in November 2012. As a result, we have limited financial information on which you can evaluate an investment in us or our prior performance. The results of any other funds or accounts managed by our investment adviser that have or have had an investment program which is similar to, or different from, our investment program are not indicative of the results that we may achieve. We have and expect to have a different investment portfolio and may employ different investment strategies and techniques from other funds and clients advised by our investment adviser. Accordingly, our results may differ from and are independent of the results obtained by such other funds and accounts. Moreover, past performance is no assurance of future returns.
We are subject to all of the business risks and uncertainties associated with any new business, including the risk that we will not achieve our investment objective and that the value of your investment could decline substantially or become worthless. We anticipate that it could take up to six months to invest substantially all of the capital we expect to raise due to market conditions generally and the time necessary to identify, evaluate, structure, negotiate and close suitable investments in private middle-market companies. In order to comply with the RIC diversification requirements during the period following this offering, we may invest proceeds in temporary investments, such as cash, cash equivalents, U.S. government securities and other high-quality debt investments that mature in one year or less from the time of investment, which we expect will earn yields substantially lower than the interest, dividend or other income that we seek to receive in respect of suitable portfolio investments. Any distributions we pay during the period following this offering may be substantially lower than the distributions we expect to pay when the proceeds from this offering are fully invested in our portfolio. We will pay a management fee to our investment adviser throughout the period following this offering irrespective of our performance.
The capital markets may experience periods of disruption and instability. Such market conditions may materially and adversely affect debt and equity capital markets in the United States, which may have a negative impact on our business and operations.
From time to time, capital markets may experience periods of disruption and instability. For example, from 2008 to 2009, the global capital markets were unstable as evidenced by the lack of liquidity in the debt capital markets, significant write-offs in the financial services sector, the re-pricing of credit risk in the broadly syndicated credit market and the failure of major financial institutions. Despite actions of the U.S. federal government and various foreign governments, these events contributed to worsening general economic conditions that materially and adversely impacted the broader financial and credit markets and reduced the availability of debt and equity capital for the market as a whole and financial services firms in particular. While market conditions have improved from the beginning of the disruption, there have been recent periods of volatility and there can be no assurance that adverse market conditions will not repeat themselves in the future. If these adverse and volatile market conditions continue, we and other companies in the financial services sector may have to access, if available, alternative markets for debt and equity capital in order to grow. Equity capital may be particularly difficult to raise during periods of adverse or volatile market conditions because, subject to
25
some limited exceptions, as a BDC, we are generally not able to issue additional shares of our common stock at a price less than NAV per share without first obtaining approval for such issuance from our stockholders and our directors that are not interested persons as defined in Section 2(a)(19) of the Investment Company Act (Independent Directors).
Moreover, the re-appearance of market conditions similar to those experienced from 2007 through 2009 for any substantial length of time could make it difficult for us to borrow money or to extend the maturity of or refinance any indebtedness we may have under similar terms and any failure to do so could have a material adverse effect on our business. The debt capital that will be available to us in the future, if any, may be at a higher cost and on less favorable terms and conditions than what we currently experience. If we are unable to raise or refinance debt, then investors in our common stock may not benefit from the potential for increased returns on equity resulting from leverage and we may be limited in our ability to make new commitments or to fund existing commitments to our portfolio companies.
Given the extreme volatility and dislocation in the capital markets over the past several years, many BDCs have faced, and may in the future face, a challenging environment in which to raise or access capital. In addition, significant changes in the capital markets, including the extreme volatility and disruption over the past several years, has had, and may in the future have, a negative effect on the valuations of our investments and on the potential for liquidity events involving these investments. While most of our investments are not publicly traded, applicable accounting standards require us to assume as part of our valuation process that our investments are sold in a principal market to market participants (even if we plan on holding an investment through its maturity). As a result, volatility in the capital markets can adversely affect our investment valuations. Further, the illiquidity of our investments may make it difficult for us to sell such investments to access capital if required. As a result, we could realize significantly less than the value at which we have recorded our investments if we were required to sell them for liquidity purposes. In addition, a prolonged period of market illiquidity may cause us to reduce the volume of loans and debt securities we originate and/or fund and adversely affect the value of our portfolio investments, which could have a material and adverse effect on our business, financial condition, results of operations and cash flows. An inability to raise or access capital could have a material adverse impact on our business, financial condition or results of operations.
Our operation as a BDC imposes numerous constraints on us and significantly reduces our operating flexibility. In addition, if we fail to maintain our status as a BDC, we might be regulated as a closed-end investment company, which would subject us to additional regulatory restrictions.
The Investment Company Act imposes numerous constraints on the operations of BDCs. For example, BDCs generally are required to invest at least 70% of their total assets primarily in securities of qualifying U.S. private companies or thinly traded public companies, cash, cash equivalents, U.S. government securities and other high-quality debt investments that mature in one year or less from the time of investment. Furthermore, any failure to comply with the requirements imposed on BDCs by the Investment Company Act could cause the SEC to bring an enforcement action against us and/or expose us to claims of private litigants.
We may be precluded from investing in what GSAM believes are attractive investments if such investments are not qualifying assets for purposes of the Investment Company Act. If we do not invest a sufficient portion of our assets in qualifying assets, we will be prohibited from making any additional investment that is not a qualifying asset and could be forced to forgo attractive investment opportunities. Similarly, these rules could prevent us from making follow-on investments in existing portfolio companies (which could result in the dilution of our position).
In addition, if we fail to maintain our status as a BDC, we might be regulated as a closed-end investment company that is required to register under the Investment Company Act, which would subject us to additional regulatory restrictions and significantly decrease our operating flexibility. In addition, any such failure could cause an event of default under any outstanding indebtedness we might have, which could have a material adverse effect on our business, financial condition or results of operations.
26
We will be subject to corporate-level U.S. federal income tax on all of our income if we are unable to maintain our status as a RIC under Subchapter M of the Code, which would have a material adverse effect on our financial performance.
Although we have elected to be treated, and intend to qualify annually, as a RIC under Subchapter M of the Code, commencing with our taxable year ended December 31, 2013, we cannot assure you that we will be able to maintain RIC status. To obtain and maintain RIC status and be relieved of U.S. federal income taxes on income and gains distributed to our stockholders, we must meet the annual distribution, source-of-income and asset diversification requirements described below.
| The annual distribution requirement for a RIC will be satisfied if we distribute to our stockholders on an annual basis at least 90% of our investment company taxable income for each taxable year. Because we expect to use debt financing, we expect to be subject to an asset coverage ratio requirement under the Investment Company Act, and we expect to be subject to certain financial covenants contained in our credit agreements and other debt financing agreements. This asset coverage ratio requirement and these financial covenants could, under certain circumstances, restrict us from making distributions to our stockholders that are necessary for us to satisfy the distribution requirement. If we are unable to obtain cash from other sources, and thus are unable to make sufficient distributions to our stockholders, we could fail to maintain our status for RIC tax treatment and thus become subject to corporate-level U.S. federal income tax (and any applicable U.S. state and local taxes). |
| The source-of-income requirement will be satisfied if at least 90% of our gross income for each year is derived from dividends, interest, gains from the sale of stock or securities or similar sources. |
| The asset diversification requirement will be satisfied if, at the end of each quarter of our taxable year, at least 50% of the value of our assets consists of cash, cash equivalents, U.S. government securities, securities of other RICs and other acceptable securities, and no more than 25% of the value of our assets is invested in the securities (other than U.S. government securities or securities of other RICs) of one issuer, of two or more issuers that are controlled, as determined under applicable Code rules, by us and that are engaged in the same or similar or related trades or businesses or of certain qualified publicly traded partnerships. Failure to meet these requirements may result in our having to dispose of certain investments quickly in order to prevent the loss of our RIC status. Because most of our investments will be in private companies, and therefore will be relatively illiquid, any such dispositions could be made at disadvantageous prices and could result in substantial losses. |
If we fail to maintain our RIC status for any reason, and we do not qualify for certain relief provisions under the Code, we would be subject to corporate-level U.S. federal income tax (and any applicable U.S. state and local taxes). In this event, the resulting taxes could substantially reduce our net assets, the amount of our income available for distribution and the amount of our distributions to our stockholders, which would have a material adverse effect on our financial performance. For additional discussion regarding the tax implications of a RIC, see U.S. Federal Income Tax Considerations.
We are dependent upon management personnel of our investment adviser for our future success.
We do not have any employees. We depend on the experience, diligence, skill and network of business contacts of the GSAM Liberty Harbor investment team. The GSAM Liberty Harbor investment team, together with other investment professionals that our investment adviser currently retains or may subsequently retain, identifies, evaluates, negotiates, structures, closes, monitors and manages our investments. Our future success will depend to a significant extent on the continued service and coordination of our investment advisers senior investment professionals. The departure of any of our investment advisers key personnel, including members of the GSAM Liberty Harbor investment committee, or of a significant number of the investment professionals of
27
our investment adviser, could have a material adverse effect on our business, financial condition or results of operations. In addition, we cannot assure you that our investment adviser will remain our investment adviser or that we will continue to have access to our investment adviser or its investment professionals.
Our investment adviser, its principals, investment professionals and employees and the members of its investment committee have certain conflicts of interest.
Our investment adviser, its principals, investment professionals and employees and the members of its investment committee serve or may serve as investment advisers, officers, directors or principals of entities or private funds that operate in the same or a related line of business as us and/or of private funds managed by our investment adviser or its affiliates. Accordingly, these individuals may have obligations to investors in those entities or private funds, the fulfillment of which might not be in our best interests or the best interests of our stockholders. In addition, we note that any affiliated investment vehicle currently formed or formed in the future and managed by the investment adviser or its affiliates may have overlapping investment objectives with our own and, accordingly, may invest in asset classes similar to those targeted by us. As a result, our investment adviser and/or its affiliates may face conflicts in allocating investment opportunities between us and such other entities. Although our investment adviser and its affiliates will endeavor to allocate investment opportunities in a fair and equitable manner and consistent with applicable allocation procedures, it is possible that, in the future, we may not be given the opportunity to participate in investments made by other clients or entities managed by our investment adviser or its affiliates. In any such case, if our investment adviser forms other affiliates in the future, we may co-invest on a concurrent basis with such other affiliates, subject to compliance with applicable regulations and regulatory guidance, as well as applicable allocation procedures. In certain circumstances, negotiated co-investments may be made only if we receive an order from the SEC permitting us to do so. There can be no assurance when any such order would be obtained or that one will be obtained at all. See Risk FactorsRisks Relating to Our Business and StructureOur ability to enter into transactions with our affiliates is restricted.
Our investment adviser and its management have no prior experience managing a BDC.
Our investment adviser and the GSAM Liberty Harbor investment team have no prior experience managing a BDC, and the investment philosophy and techniques used by our investment adviser to manage a BDC may differ from the investment philosophy and techniques previously employed by our investment adviser and the GSAM Liberty Harbor investment team in identifying and managing past investments. Accordingly, we can offer no assurance that we will replicate the historical performance of other clients or other entities or companies that the GSAM Liberty Harbor investment team or our investment adviser advised in the past, and we caution you that our investment returns could be substantially lower than the returns achieved by other clients of the investment adviser.
In addition, the Investment Company Act and the Code impose numerous constraints on the operations of BDCs and RICs that do not apply to the other types of investment vehicles. For example, under the Investment Company Act, BDCs are required to invest at least 70% of their total assets primarily in securities of qualifying U.S. private companies or thinly traded public companies, cash, cash equivalents, U.S. government securities and other high-quality debt investments that mature in one year or less from the time of investment. The GSAM Liberty Harbor investment teams and our investment advisers limited experience in managing a portfolio of assets under such constraints may hinder their respective ability to take advantage of attractive investment opportunities and, as a result, achieve our investment objectives.
The downgrade of the U.S. credit rating and the economic crisis in Europe could negatively impact our business, financial condition and results of operations.
In August 2011, Standard & Poors Ratings Services (S&P) lowered its long-term sovereign credit rating for the United States from AAA to AA+. In June 2012, S&P affirmed this AA+ rating, but maintained a negative outlook on the long-term rating for the United States, reflecting the view of S&P that this
28
rating could be lowered as a result of the U.S. sovereign credit risks. In January 2012, S&P lowered its long-term sovereign credit rating for France, Italy, Spain and six other European countries, and recently, Moodys Investors Service lowered its long-term sovereign credit rating for the United Kingdom, which has negatively impacted global markets and economic conditions. In addition, in April 2012, S&P further lowered its long-term sovereign credit rating for Spain, and in January 2015, S&P lowered its long-term and short-term sovereign credit ratings for the Russian Federation. Recent U.S. fiscal cliff and budget deficit concerns, together with signs of deteriorating sovereign debt conditions in Europe, have increased the possibility of additional credit-rating downgrades and economic slowdowns. Moreover, significant uncertainty remains in light of the current political stalemate over the federal debt ceiling. The impact of the August 2011 downgrade or any further downgrade to the U.S. governments sovereign credit rating, or its perceived creditworthiness, and the impact of the current crisis in Europe with respect to the ability of certain European countries to continue to service their sovereign debt obligations is inherently unpredictable and could adversely affect the U.S. and global financial markets and economic conditions. In addition, the economic downturn and the significant government interventions into the financial markets and fiscal stimulus spending over the last several years have contributed to significantly increased U.S. budget deficits. There can be no assurance that future fiscal or monetary measures to aid economic recovery will be effective. In October 2014, the Federal Reserve announced that it was concluding its bond-buying program. It is unknown what effect, if any, the conclusion of this program will have on credit markets and the value of our investments. Additionally, in January 2015, the Federal Reserve reaffirmed its view that the current target range for the federal funds rate was appropriate based on current economic conditions. However, if key economic indicators, such as the unemployment rate or inflation, do not progress at a rate consistent with the Federal Reserves objectives, the target range for the federal funds rate may increase and cause interest rates and borrowing costs to rise.These and any future developments and reactions of the credit markets toward these developments could cause interest rates and borrowing costs to rise, which may negatively impact our ability to obtain debt financing on favorable terms. In addition, any adverse economic conditions resulting from the August 2011 downgrade or any further downgrade of the U.S. governments sovereign credit rating or the economic crisis in Europe could have a material adverse effect on our business, financial condition and results of operations.
Our financial condition and results of operations depend on our ability to manage future growth effectively.
Our ability to achieve our investment objective depends on our investment advisers ability to identify, invest in and monitor companies that meet our investment criteria.
Accomplishing this result on a cost-effective basis is largely a function of the structuring of our investment process and the ability of our investment adviser to provide competent, attentive and efficient services to us. Our executive officers and the members of our investment advisers investment committee have substantial responsibilities in connection with their roles at our investment adviser and with other clients of our investment adviser, as well as responsibilities under the Investment Management Agreement. We may also be called upon to provide significant managerial assistance to certain of our portfolio companies. These demands on their time, which will increase as the number of investments grow, may distract them or slow the rate of investment. In order to grow, our investment adviser may need to hire, train, supervise, manage and retain new employees. However, we cannot assure you that they will be able to do so effectively. Any failure to manage our future growth effectively could have a material adverse effect on our business, financial condition and results of operations.
Our ability to grow depends on our ability to raise additional capital.
We will need to periodically access the capital markets to raise cash to fund new investments. If we do not have adequate capital available for investment, our performance could be adversely affected. In addition, we have elected to be treated, and intend to qualify annually, as a RIC under Subchapter M of the Code beginning with our taxable year ended December 31, 2013. To maintain our status as a RIC, among other requirements, we are required to distribute to our stockholders on a timely basis an amount equal to at least 90% of our investment company taxable income for each taxable year. Consequently, such distributions will not be available to fund
29
new investments. We expect to use debt financing and issue additional securities to fund our growth, if any. Unfavorable economic or capital market conditions may increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us. An inability to successfully access the capital markets could limit our ability to grow our business and fully execute our business strategy and could decrease our earnings, if any.
In addition, with certain limited exceptions, we are only allowed to borrow amounts or issue debt securities or preferred stock, which we refer to collectively as senior securities, such that our asset coverage ratio, as defined under the Investment Company Act, equals at least 2 to 1 immediately after such borrowing (except in connection with certain trading practices and investments), which, in certain circumstances, may restrict our ability to borrow or issue debt securities or preferred stock. The amount of leverage that we will employ will depend on our investment advisers and our Board of Directors assessments of market conditions and other factors at the time of any proposed borrowing or issuance of senior securities. We cannot assure you that we will be able to obtain lines of credit in the future or issue senior securities at all or on terms acceptable to us.
Furthermore, equity capital may be difficult to raise because, subject to some limited exceptions, as a BDC, we are generally not able to issue additional shares of our common stock at a price per share less than NAV without first obtaining approval for such issuance from our stockholders and our Independent Directors.
Regulations governing our operation as a BDC affect our ability to, and the way in which we, raise additional capital.
The Investment Company Act imposes numerous constraints on the operations of BDCs. See Regulation for a discussion of BDC limitations. For example, BDCs are required to invest at least 70% of their total assets in qualifying assets, as defined under the Investment Company Act. Qualifying assets include investments in securities of qualifying U.S. private or thinly traded public companies, cash, cash equivalents, U.S. government securities and other high-quality debt investments that mature in one year or less from the time of investment. Moreover, qualification for RIC tax treatment under Subchapter M of the Code requires satisfaction of source-of-income, asset diversification and other requirements. The failure to comply with these provisions in a timely manner could prevent us from qualifying as a BDC or a RIC or could force us to pay unexpected taxes and penalties, which could be material.
These constraints may hinder our investment advisers ability to take advantage of attractive investment opportunities and to achieve our investment objective.
Regulations governing our operation as a BDC affect our ability to raise additional capital, and the ways in which we can do so. Raising additional capital may expose us to risks, including the typical risks associated with leverage, and may result in dilution to our current stockholders. The Investment Company Act limits our ability to issue senior securities to amounts such that our asset coverage ratio, as defined under the Investment Company Act, equals at least 2 to 1 immediately after such issuance (except in connection with certain trading practices or investments). Consequently, if the value of our assets declines, we may be required to sell a portion of our investments and, depending on the nature of our leverage, repay a portion of our indebtedness at a time when this may be disadvantageous to us and, as a result, our stockholders.
We are generally not able to issue and sell our common stock at a price per share below NAV per share. We may, however, sell our common stock, or warrants, options or rights to acquire our common stock, at a price below the then-current NAV per share of our common stock either (i) with the consent of a majority of our common stockholders or (ii) if, among other things, a majority of our Independent Directors who have no financial interest in the transaction determines that a sale is in the best interests of us and our stockholders, and, other than in connection with our IPO, our stockholders (including our non-affiliated stockholders) approve it. If our common stock trades at a discount to NAV, this restriction could adversely affect our ability to raise capital.
30
We borrow money, which may magnify the potential for gain or loss and may increase the risk of investing in us.
As part of our business strategy, we may borrow from and issue senior debt securities to banks, insurance companies and other lenders or investors. Holders of these senior securities will have fixed-dollar claims on our assets that are superior to the claims of our common stockholders. If the value of our assets decreases, leveraging would cause NAV to decline more sharply than it otherwise would have if we did not employ leverage. Similarly, any decrease in our income would cause net income to decline more sharply than it would have had we not borrowed. Such a decline could negatively affect our ability to make common stock dividend payments. Our ability to service any debt that we incur will depend largely on our financial performance and will be subject to prevailing economic conditions and competitive pressures. Moreover, the management fee will be payable based on our gross assets, including those assets acquired through the use of leverage but excluding cash and cash equivalents. Additionally, we will be able to incur additional leverage if we are able to obtain exemptive relief from the SEC to exclude the debt of any SBIC subsidiary we may form in the future from the leverage requirements otherwise applicable to BDCs. We have not yet applied to the Small Business Administration (the SBA) for approval to form a SBIC and have not yet applied for exemptive relief from the SEC and we can offer no assurances as to whether or when we will be able to form a SBIC subsidiary.
The lenders will have fixed dollar claims on our assets that are superior to the claims of our common stockholders and any obligations to the lenders will be secured by a first priority security interest in our portfolio of investments and cash. In the case of a liquidation event, those lenders would receive proceeds before our stockholders. Furthermore, our Revolving Credit Facility imposes, and any credit agreement or other debt financing agreement into which we may enter may impose, financial and operating covenants that restrict our investment activities (including restrictions on industry concentrations), remedies on default and similar matters. In connection with borrowings, our lenders may also require us to pledge assets.
Lastly, we may be unable to obtain our desired leverage, which would, in turn, affect your return on investment.
The following table illustrates the effect of leverage on returns from an investment in our common stock assuming various annual returns on our portfolio, net of expenses. The calculations in the table below are hypothetical, and actual returns may be higher or lower than those appearing in the table below.
Assumed Return on Our Portfolio
|
||||||||||||||||||||
(10 | )% | (5 | )% | 0 | % | 5 | % | 10 | % | |||||||||||
Corresponding return to common stockholder (1) |
(18.38 | )% | (9.96 | )% | (1.54 | )% | 6.88 | % | 15.30 | % |
(1) | Assumes, as of December 31, 2014, (i) $967.49 million in total assets, (ii) $350.00 million in outstanding indebtedness, (iii) $574.58 million in net assets and (iv) average interest rate, excluding fees (such as fees on undrawn amounts and amortization of financing costs), of 2.53% under our Revolving Credit Facility. |
Based on an outstanding indebtedness of $350.00 million as of December 31, 2014, and the effective annual interest rate, excluding fees (such as fees on undrawn amounts and amortization of financing costs), of 2.53% as of that date under our Revolving Credit Facility, our investment portfolio at fair value would have had to produce an annual return of approximately 1.0% to cover annual interest payments on the outstanding debt.
We operate in a highly competitive market for investment opportunities.
A number of entities compete with us to make the types of investments that we make in middle-market companies. We compete with other BDCs, commercial and investment banks, commercial financing companies, collateralized loan obligations (CLOs), private funds, including hedge funds, and, to the extent they provide an alternative form of financing, private equity funds. Many of our competitors are more experienced, substantially larger and have considerably greater financial, technical and marketing resources than we do. Some competitors
31
may have a lower cost of funds and access to funding sources that are not available to us. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships than us. Furthermore, certain of our competitors are not subject to the regulatory restrictions that the Investment Company Act imposes on us as a BDC and that the Code imposes on us as a RIC. We cannot assure you that the competitive pressures we face will not have a material adverse effect on our business, financial condition and results of operations. Also, as a result of this competition, we may not be able to secure attractive investment opportunities from time to time.
We do not seek to compete primarily based on the interest rates we offer and GSAM believes that some of our competitors may make loans with interest rates that are comparable to or lower than the rates we offer. Rather, we compete with our competitors based on our reputation in the market, our existing investment platform, the seasoned investment professionals of our investment adviser, our experience and focus on middle-market companies, our disciplined investment philosophy, our extensive industry focus and relationships and our flexible transaction structuring. For a more detailed discussion of these competitive advantages, see BusinessCompetitive Advantages.
We may lose investment opportunities if we do not match our competitors pricing, terms and structure. If we match our competitors pricing, terms and structure, we may experience decreased net interest income and increased risk of credit loss. As a result of operating in such a competitive environment, we may make investments that are on less favorable terms than what we may have originally anticipated, which may impact our return on these investments.
Our investment adviser will be paid a management fee even if the value of your investment declines and our investment advisers incentive fees may create incentives for them to make certain kinds of investments.
Even in the event the value of your investment declines, the management fee will still be payable. The management fee is calculated as a percentage of the average value of our gross assets including borrowed funds (excluding cash or cash equivalents) at the end of the prior two completed calendar quarters. Accordingly, the management fee is payable regardless of whether the value of our gross assets and/or your investment has decreased.
In addition, the incentive fee payable by us to our investment adviser may create an incentive for our investment adviser to make investments on our behalf that are risky or more speculative than would be the case in the absence of such a compensation arrangement and also to incur leverage. Our investment adviser receives the incentive fee based, in part, upon capital gains realized on our investments. As a result, our investment adviser may have an incentive to invest more in companies whose securities are likely to yield capital gains, as compared to income producing securities. Such a practice could result in our investing in more speculative securities than would otherwise be the case, which could result in higher investment losses, particularly during cyclical economic downturns.
The incentive fee payable by us to our investment adviser also may create an incentive for our investment adviser to invest on our behalf in instruments that have a deferred interest feature. Under these investments, we accrue the interest over the life of the investment but do not receive the cash income from the investment until the end of the term. Our net investment income used to calculate the income portion of our incentive fee, however, includes accrued interest. Thus, a portion of this incentive fee is based on income that we have not yet received in cash. This risk could be increased because our investment adviser is not obligated to reimburse us for any incentive fees received even if we subsequently incur losses or never receive in cash the accrued income (including accrued income with respect to original issue discount, payment-in-kind (PIK) interest and zero coupon securities).
32
Beneficial owners of our equity securities may be subject to certain regulatory requirements based on their ownership percentages.
A beneficial owner, either directly or indirectly, of more than 25% of our voting securities is presumed to control us under the Investment Company Act. Certain events beyond an investors control may result in an increase in the percentage of such investors beneficial ownership of our shares, including the repurchase by us of shares from other stockholders. Control of us would also arise under the Investment Company Act if a person has the power to exercise a controlling influence over our management or policies, unless that power is solely the result of an official position with us. In the event you are or become a person that controls us, you and certain of your affiliated persons will be subject to, among other things, prohibitions or restrictions on engaging in certain transactions with us and certain of our affiliated persons. A beneficial owner of a large number of our equity securities will also become subject to public reporting obligations.
We will incur significant costs as a result of being a public company.
Public companies incur legal, accounting and other expenses, including costs associated with the periodic reporting requirements applicable to a company whose securities are registered under the Exchange Act, as well as additional corporate governance requirements, including requirements under the Sarbanes-Oxley Act. Accordingly, once our common stock becomes registered under the Exchange Act, we will incur significant additional costs. These requirements may place a strain on our systems and resources. The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal controls over financial reporting, which are discussed below. See RegulationSarbanes-Oxley Act. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal controls, significant resources and management oversight will be required. We will be implementing additional procedures, processes, policies and practices for the purpose of addressing the standards and requirements applicable to public companies. These activities may divert managements attention from other business concerns, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. We expect to incur significant additional annual expenses related to these steps and, among other things, directors and officers liability insurance, director fees, reporting requirements of the SEC, transfer agent fees, additional administrative expenses payable to our administrator to compensate it for hiring additional accounting, legal and administrative personnel, increased auditing and legal fees and similar expenses.
The systems and resources necessary to comply with public company reporting requirements will increase further once we cease to be an emerging growth company under the JOBS Act. As long as we remain an emerging growth company, we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. We will remain an emerging growth company for up to five years following the IPO, although if, before that time, among other things, the market value of our common stock that is held by non-affiliates exceeds $700 million (measured at the end of each fiscal year) as of the last business day of our most recently completed second fiscal quarter and we have been an Exchange Act reporting company for at least one year (and filed at least one annual report under the Exchange Act), we would cease to be an emerging growth company as of the following December 31.
Efforts to comply with Section 404 of the Sarbanes-Oxley Act will involve significant expenditures, and non-compliance with Section 404 of the Sarbanes-Oxley Act may adversely affect us and the market price of our common stock.
We have not previously been required to comply with the requirements of the Sarbanes-Oxley Act, including the internal control evaluation and certification requirements of Section 404 of that statute (Section 404), and we will not be required to comply with certain of those requirements until we have been subject to the reporting requirements of the Exchange Act for a specified period of time. However, under current SEC rules, we will be required to report on our internal control over financial reporting pursuant to Section 404 starting with our
33
fiscal year ended December 31, 2016. Thereafter, we will be required to review on an annual basis our internal control over financial reporting, and on a quarterly and annual basis to evaluate and disclose changes in our internal control over financial reporting. Accordingly, our internal controls over financial reporting do not currently meet all of the standards contemplated by Section 404 that we will eventually be required to meet. We are in the process of addressing our internal controls over financial reporting and are establishing formal procedures, policies, processes and practices related to financial reporting and to the identification of key financial reporting risks, assessment of their potential impact and linkage of those risks to specific areas and activities within our organization.
We have begun the process of documenting our internal control procedures to satisfy the requirements of Section 404, which requires annual management assessments of the effectiveness of our internal controls over financial reporting. Our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over financial reporting until the later of the year following our first annual report required to be filed with the SEC, or the date we are no longer an emerging growth company under the JOBS Act. Because we do not currently have comprehensive documentation of our internal controls and have not yet tested our internal controls in accordance with Section 404, we cannot conclude in accordance with Section 404 that we do not have a material weakness in our internal controls or a combination of significant deficiencies that could result in the conclusion that we have a material weakness in our internal controls. As a public entity, we will be required to complete our initial assessment in a timely manner. If we are not able to implement the requirements of Section 404 in a timely manner or with adequate compliance, our operations, financial reporting or financial results could be adversely affected. Matters impacting our internal controls may cause us to be unable to report our financial information on a timely basis and thereby subject us to adverse regulatory consequences, including sanctions by the SEC or violations of applicable stock exchange listing rules, and result in a breach of the covenants under the agreements governing any of our financing arrangements. There could also be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements. Confidence in the reliability of our financial statements could also suffer if we or our independent registered public accounting firm were to report a material weakness in our internal controls over financial reporting. This could materially adversely affect us and lead to a decline in the market price of our common stock.
Certain investors are limited in their ability to make significant investments in us.
Private funds that are excluded from the definition of investment company either pursuant to Section 3(c)(1) or 3(c)(7) of the Investment Company Act are restricted from acquiring directly or through a controlled entity more than 3% of our total outstanding voting stock (measured at the time of the acquisition). Investment companies registered under the Investment Company Act are also subject to this restriction as well as other limitations under the Investment Company Act that would restrict the amount that they are able to invest in our securities. As a result, certain investors may be precluded from acquiring additional shares, at a time that they might desire to do so.
Potential conflicts of interest with other businesses of Goldman Sachs could impact our investment returns.
There are significant potential conflicts of interest that could negatively impact our investment returns. A number of these potential conflicts of interest with affiliates of our investment adviser and Group Inc. are discussed in more detail under Potential Conflicts of Interest.
Group Inc., including its affiliates and personnel, is a bank holding company and a worldwide, full-service investment banking, broker-dealer, asset management and financial services organization, and a major participant in global financial markets that provides a wide range of financial services to a substantial and diversified client base that includes corporations, financial institutions, governments and high-net-worth individuals. As such, it acts as an investor, investment banker, research provider, investment manager, financer, advisor, market maker, proprietary trader, prime broker, lender, agent and principal. In those and other capacities, Goldman Sachs purchases, sells and holds a broad array of investments, actively trades securities, derivatives,
34
loans, commodities, currencies, credit default swaps, indices, baskets and other financial instruments and products for its own accounts or for the accounts of its customers, and has other direct and indirect interests, in the global fixed income, currency, commodity, equity, bank loan and other markets in which we invest or may invest. Such additional businesses and interests will likely give rise to potential conflicts of interest and may restrict the way we operate our business. For example, we may not be able to conduct transactions relating to investments in portfolio companies because our investment adviser is not permitted to obtain or use material non-public information in effecting purchases and sales in public securities transactions for us. Stockholders should note the matters discussed in Potential Conflicts of Interest and Our ability to enter into transactions with our affiliates is restricted.
Goldman Sachs has influence, and may continue to exert influence, over our management and affairs and over most votes requiring stockholder approval.
Group Inc. has owned a significant portion of our common stock since the inception of our operations. As of December 31, 2014, Group Inc. owned approximately 19.85% of our outstanding common stock and is expected to own % upon completion of this offering. Goldman, Sachs & Co., a wholly owned subsidiary of Group Inc., may also acquire additional shares of our common stock in the open market under the 10b5-1 Plan, but the 10b5-1 Plan will limit its collective ownership with Group Inc. to 19.9% of our outstanding common stock. Therefore, Group Inc. is able to exert, and may be able to continue to exert, influence over our management and policies and have significant voting influence on most votes requiring stockholder approval. This concentration of ownership may also have the effect of delaying, preventing or deterring a change of control of us, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of us and might ultimately affect the market price of our common stock, should a market for our common stock develop. Our investment adviser has the authority to vote securities held by Group Inc., including on matters that may present a conflict of interest between our investment adviser and other stockholders.
Our Board of Directors may change our investment objective, operating policies and strategies without prior notice or stockholder approval.
Our Board of Directors has the authority to modify or waive certain of our operating policies and strategies without prior notice (except as required by the Investment Company Act) and without stockholder approval. However, absent stockholder approval, we may not change the nature of our business so as to cease to be, or withdraw our election as, a BDC. We cannot predict the effect any changes to our current operating policies and strategies would have on our business, operating results and value of our stock. Nevertheless, the effects may adversely affect our business and impact our ability to make distributions.
Changes in laws or regulations governing our operations or the operations of our portfolio companies, changes in the interpretation thereof or newly enacted laws or regulations, or any failure by us or our portfolio companies to comply with these laws or regulations, could require changes to certain of our or our portfolio companies business practices, negatively impact our or our portfolio companies operations, cash flows or financial condition, impose additional costs on us or our portfolio companies or otherwise adversely affect our business or the business of our portfolio companies.
We and our portfolio companies are subject to regulation at the local, state, federal and, in some cases, foreign levels. These laws and regulations, as well as their interpretation, are likely to change from time to time, and new laws and regulations may be enacted. Accordingly, any change in these laws or regulations, changes in their interpretation, or newly enacted laws or regulations, or any failure by us or our portfolio companies to comply with these laws or regulations, could require changes to certain of our or our portfolio companies business practices, negatively impact our or our portfolio companies operations, cash flows or financial condition, impose additional costs on us or our portfolio companies or otherwise adversely affect our business or the business of our portfolio companies. In addition to the legal, tax and regulatory changes that are expected to occur, there may be unanticipated changes. The legal, tax and regulatory environment for BDCs, investment advisers and the instruments that they utilize (including derivative instruments) is continuously evolving. In
35
addition, there is significant uncertainty regarding recently enacted legislation (including the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) and the regulations that have recently been adopted and future regulations that will need to be adopted pursuant to such legislation) and, consequently, the full impact that such legislation will ultimately have on us and the markets in which we trade and invest is not fully known. Such uncertainty and any resulting confusion may itself be detrimental to the efficient functioning of the markets and the success of certain investment strategies.
On July 21, 2010, President Obama signed into law the Dodd-Frank Act, which impacts many aspects of the financial services industry. Some of the provisions of the Dodd-Frank Act have been enacted, while others have extended implementation periods and delayed effective dates and will require extensive rulemaking by regulatory authorities. While the full impact of the Dodd-Frank Act on us and our portfolio companies may not be known for an extended period of time, the Dodd-Frank Act, including current rules and regulations and future rules implementing its provisions and the interpretation of those rules, along with other legislative and regulatory proposals directed at the financial services industry or affecting taxation that are proposed or pending in the U.S. Congress, may negatively impact the operations, cash flows or financial condition of us and our portfolio companies, impose additional costs on us and our portfolio companies, intensify the regulatory supervision of us and our portfolio companies or otherwise adversely affect our business or the business of our portfolio companies.
Over the last several years, there also has been an increase in regulatory attention to the extension of credit outside of the traditional banking sector, raising the possibility that some portion of the non-bank financial sector will be subject to new regulation. While it cannot be known at this time whether any regulation will be implemented or what form it will take, increased regulation of non-bank credit extension could negatively impact our operations, cash flows or financial condition, impose additional costs on us, intensify the regulatory supervision of us or otherwise adversely affect our business.
Our investment adviser can resign on 60 days notice. We may not be able to find a suitable replacement within that time, resulting in a disruption in our operations that could adversely affect our financial condition, business and results of operations.
Our investment adviser has the right, under the Investment Management Agreement, to resign at any time upon 60 days written notice, regardless of whether we have found a replacement. If our investment adviser resigns, we may not be able to find a new external investment adviser or hire internal management with similar expertise and ability to provide the same or equivalent services on acceptable terms within 60 days, or at all. If we are unable to do so quickly, our operations are likely to experience a disruption, our financial condition, business and results of operations as well as our ability to pay distributions are likely to be adversely affected, and the market price of our common stock may decline.
Our investment advisers responsibilities and its liability to us are limited under the Investment Management Agreement, which may lead our investment adviser to act in a riskier manner on our behalf than it would when acting for its own account.
Our investment adviser has not assumed any responsibility to us other than to render the services described in the Investment Management Agreement, and it will not be responsible for any action of our Board of Directors in declining to follow our investment advisers advice or recommendations. Pursuant to the Investment Management Agreement, our investment adviser and Group Inc. and their respective directors, members, stockholders, partners, officers, employees or controlling persons will not be liable to us for their acts under the Investment Management Agreement, absent willful misfeasance, bad faith or gross negligence in the performance of their duties, or by reason of their reckless disregard of their obligations and duties under the Investment Management Agreement. These protections may lead our investment adviser to act in a riskier manner when acting on our behalf than it would when acting for its own account. See Risk FactorsRisks
36
Relating to Our Portfolio Company InvestmentsOur investment adviser will be paid a management fee even if the value of your investment declines and our investment advisers incentive fees may create incentives for them to make certain kinds of investments.
Our ability to enter into transactions with our affiliates is restricted.
As a BDC, we are prohibited under the Investment Company Act from knowingly participating in certain transactions with our affiliates without, among other things, the prior approval of a majority of our Independent Directors who have no financial interest in the transaction, or in some cases, the prior approval of the SEC. For example, any person that owns, directly or indirectly, 5% or more of our outstanding voting securities is deemed our affiliate for purposes of the Investment Company Act and, if this is the only reason such person is our affiliate, we are generally prohibited from buying any asset from or selling any asset (other than our capital stock) to such affiliate, absent the prior approval of such directors. The Investment Company Act also prohibits joint transactions with an affiliate, which could include joint investments in the same portfolio company, without approval of our Independent Directors or in some cases the prior approval of the SEC. Moreover, except in certain limited circumstances, we are prohibited from buying any asset from or selling any asset to a holder of more than 25% of our voting securities, absent prior approval of the SEC. The analysis of whether a particular transaction constitutes a joint transaction requires a review of the relevant facts and circumstances then existing.
We have applied for an exemptive order from the SEC that would permit us to, among other things, co-invest with certain other affiliated funds, including certain funds managed by the GSAM Liberty Harbor investment team. Any such order, if issued, will be subject to certain terms and conditions and there can be no assurance that such order will be granted by the SEC. Accordingly, we cannot assure you that we will be permitted to co-invest with other accounts or other entities managed by the GSAM Liberty Harbor investment team, other than in the limited circumstances currently permitted by applicable SEC staff guidance and interpretations or in the absence of a joint transaction.
We may experience fluctuations in our quarterly results.
We could experience fluctuations in our quarterly operating results due to a number of factors, including interest rates payable on debt investments we make, default rates on such investments, the level of our expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in certain markets and general economic conditions. As a result of these factors, results for any period should not be relied upon as being indicative of performance in future periods.
We are exposed to risks associated with changes in interest rates.
Our debt investments may be based on floating rates, such as London Interbank Offer Rate (LIBOR), EURIBOR, the Federal Funds Rate or the Prime Rate. General interest rate fluctuations may have a substantial negative impact on our investments, the value of our common stock and our rate of return on invested capital. Currently, all of our floating rate investments are linked to LIBOR and it is unclear how increased regulatory oversight and changes in the method for determining LIBOR may affect the value of the financial obligations to be held or issued us that are linked to LIBOR, or how such changes could affect our results of operations or financial condition. In addition, any further changes or reforms to the determination or supervision of LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR, which could have an adverse impact on the market for or value of any LIBOR-linked securities, loans, and other financial obligations or extensions of credit held by or due to us or on our overall financial condition or results of operations.
A reduction in the interest rates on new investments relative to interest rates on current investments could also have an adverse impact on our net interest income. An increase in interest rates could decrease the value of any investments we hold which earn fixed interest rates, including subordinated loans, senior and junior secured and unsecured debt securities and loans and high yield bonds, and also could increase our interest
37
expense, thereby decreasing our net income. Also, an increase in interest rates available to investors could make investment in our common stock less attractive if we are not able to increase our dividend rate, which could reduce the value of our common stock.
Because we have borrowed money, and may issue preferred stock to finance investments, our net investment income depends, in part, upon the difference between the rate at which we borrow funds or pay distributions on preferred stock and the rate that our investments yield. As a result, we can offer no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income. In periods of rising interest rates, our cost of funds would increase except to the extent we have issued fixed rate debt or preferred stock, which could reduce our net investment income.
You should also be aware that a change in the general level of interest rates can be expected to lead to a change in the interest rate we receive on many of our debt investments. Accordingly, a change in the interest rate could make it easier for us to meet or exceed the performance threshold and may result in a substantial increase in the amount of incentive fees payable to our investment adviser with respect to the portion of the Incentive Fee based on income.
Certain provisions of our certificate of incorporation and bylaws and the Delaware General Corporation Law (DGCL), as well as other aspects of our structure, including the substantial ownership interest of Group Inc., could deter takeover attempts and have an adverse impact on the price of our common stock.
Our certificate of incorporation and bylaws, as well as the DGCL, contain provisions that may have the effect of discouraging a third party from making an acquisition proposal for us. Among other things, our certificate of incorporation and bylaws:
| provide that our Board of Directors is classified, which may delay the ability of our stockholders to change the membership of a majority of our Board of Directors; |
| do not provide for cumulative voting; |
| provide that vacancies on our Board of Directors, including newly created directorships, may be filled only by a majority vote of directors then in office; |
| provide that once our Board of Directors is classified, our directors may be removed only for cause, and only by a supermajority vote of the stockholders entitled to elect such directors; |
| provide that stockholders may only take action at an annual or special meeting of stockholders, and may not act by written consent; |
| restrict stockholders ability to call special meetings; |
| require a supermajority vote of stockholders to effect certain amendments to our certificate of incorporation and bylaws; and |
| require stockholders to provide advance notice of new business proposals and director nominations under specific procedures for any meeting occurring after our IPO. |
We have provisions comparable to those of Section 203 of the DGCL (other than with respect to Group Inc. and its affiliates and certain of its or their direct or indirect transferees and any group as to which such persons are a party). These provisions generally prohibit us from engaging in mergers, business combinations and certain other types of transactions with interested stockholders (generally defined as persons or entities that beneficially own 15% or more of our voting stock), other than the exempt parties as described above, for a period
38
of three years following the date the person became an interested stockholder unless, prior to such stockholder becoming an interested stockholder, our Board of Directors has approved the business combination that would otherwise be restricted or the transaction that resulted in the interested stockholder becoming an interested stockholder or the subsequent transaction with the interested stockholder has been approved by our Board of Directors and 66 2/3 % of our outstanding voting stock (other than voting stock owned by the interested stockholder). Such provisions may discourage third parties from trying to acquire control of us and increase the difficulty of consummating such an offer.
These anti-takeover provisions may inhibit a change of control in circumstances that could give the holders of our common stock the opportunity to realize a premium over the market price for the common stock. In addition, certain aspects of our structure, including the substantial ownership interest of Group Inc., may have the effect of discouraging a third party from making an acquisition proposal for us.
Our activities may be limited as a result of potentially being deemed to be controlled by a bank holding company.
In September 2008, Goldman Sachs elected to become a bank holding company (a BHC) under the Bank Holding Company Act of 1956, as amended (the BHCA), and thereby became subject to supervision and regulation by the Federal Reserve. In addition, in August 2009, Goldman Sachs became a financial holding company (a FHC) under the BHCA, which is a status available to BHCs that meet certain criteria. FHCs may engage in a broader range of activities than BHCs that are not FHCs. However, the activities of FHCs and their affiliates remain subject to certain restrictions imposed by the BHCA and related regulations. Because Goldman Sachs may be deemed to control us within the meaning of the BHCA, these restrictions could apply to us as well. Accordingly, the BHCA and other applicable banking laws, rules, regulations and guidelines, and their interpretation and administration by the appropriate regulatory agencies, including the Federal Reserve, may restrict our investments, transactions and operations and may restrict the transactions and relationships between our investment adviser, Goldman Sachs and their affiliates, on the one hand, and us on the other hand. For example, the BHCA regulations applicable to Goldman Sachs and us may, among other things, restrict our ability to make certain investments or the size of certain investments, impose a maximum holding period on some or all of our investments and restrict our and our investment advisers ability to participate in the management and operations of the companies in which we invest. In addition, certain BHCA regulations may require aggregation of the positions owned, held or controlled by related entities. Thus, in certain circumstances, positions held by Goldman Sachs and its affiliates (including our investment adviser) for client and proprietary accounts may need to be aggregated with positions held by us. In this case, where BHCA regulations impose a cap on the amount of a position that may be held, Goldman Sachs may utilize available capacity to make investments for its proprietary accounts or for the accounts of other clients, which may require us to limit and/or liquidate certain investments. See Potential Conflicts of Interest below.
These restrictions may materially adversely affect us by, among other things, affecting our investment advisers ability to pursue certain strategies within our investment program or trade in certain securities. In addition, Goldman Sachs may cease in the future to qualify as an FHC, which may subject us to additional restrictions. Moreover, there can be no assurance that the bank regulatory requirements applicable to Goldman Sachs and us, or the interpretation thereof, will not change, or that any such change will not have a material adverse effect on us.
Goldman Sachs may in the future, in its sole discretion and without notice to investors, engage in activities impacting us and/or our investment adviser in order to comply with the BHCA or other legal requirements applicable to, or reduce or eliminate the impact or applicability of any bank regulatory or other restrictions on, Goldman Sachs, us or other funds and accounts managed by our investment adviser and its affiliates. Goldman Sachs may seek to accomplish this result by causing GSAM to resign as our investment adviser, voting for changes to our Board of Directors, causing Goldman Sachs personnel to resign from our Board of Directors, reducing the amount of Goldman Sachs investment in us (if any), revoking our right to use
39
the Goldman Sachs name or any combination of the foregoing, or by such other means as it determines in its sole discretion. Any replacement investment adviser appointed by us may be unaffiliated with Goldman Sachs.
Recent Commodity Futures Trading Commission rulemaking may have a negative impact on us and our investment adviser.
On August 13, 2012, the Commodity Futures Trading Commission (the CFTC) and the SEC issued final rules establishing that certain swap transactions will be subject to CFTC regulation. Engaging in such swap transactions may cause us to fall within the definition of commodity pool under the Commodity Exchange Act and related CFTC regulations. Our investment adviser has claimed no-action relief from CFTC regulation as a commodity pool operator pursuant to a CFTC staff no-action letter with respect to our operations, which means that we will be limited in our ability to use futures contracts or options on futures contracts or engage in swap transactions.
We are dependent on information systems, and systems failures could significantly disrupt our business, which may, in turn, negatively affect our liquidity, financial condition or results of operations.
Our business is dependent on our and third parties communications and information systems. Any failure or interruption of those systems, including as a result of the termination of an agreement with any third-party service providers, could cause delays or other problems in our activities. Our financial, accounting, data processing, backup or other operating systems and facilities may fail to operate properly or become disabled or damaged as a result of a number of factors including events that are wholly or partially beyond our control and adversely affect our business. There could be:
| sudden electrical or telecommunications outages; |
| natural disasters such as earthquakes, tornadoes and hurricanes; |
| disease pandemics; |
| events arising from local or larger scale political or social matters, including terrorist acts; and |
| cyber-attacks. |
These events, in turn, could have a material adverse effect on our operating results and negatively affect the market price of our common stock and our ability to pay distributions to our stockholders.
Cybersecurity risks and cyber incidents may adversely affect our business by causing a disruption to our operations, a compromise or corruption of our confidential information and/or damage to our business relationships, all of which could negatively impact our business, financial condition and operating results.
A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity or availability of our information resources. These incidents may be an intentional attack or an unintentional event and could involve gaining unauthorized access to our information systems for purposes of misappropriating assets, stealing confidential information, corrupting data or causing operational disruption. The result of these incidents may include disrupted operations, misstated or unreliable financial data, liability for stolen assets or information, increased cybersecurity protection and insurance costs, litigation and damage to our business relationships. As our reliance on technology has increased, so have the risks posed to our information systems, both internal and those provided by Goldman Sachs and third-party service providers. Goldman Sachs has implemented processes, procedures and internal controls to help mitigate cybersecurity risks and cyber intrusions, but these measures, as well as our increased awareness of the nature and extent of a risk of a cyber incident, do not guarantee that a cyber incident will not occur and/or that our financial results, operations or confidential information will not be negatively impacted by such an incident.
40
Risks Related to Our Portfolio Company Investments
Our investments are very risky and highly speculative.
We invest primarily through direct originations of secured debt, including first lien, first lien/last-out unitranche and second lien debt, unsecured debt, including mezzanine debt and, to a lesser extent, investments in equities. The instruments in which we invest typically are not rated by any rating agency, but GSAM believes that if such instruments were rated, they would be below investment grade (rated lower than Baa3 by Moodys Investors Service and lower than BBB- by Fitch Ratings or S&P), which is an indication of having predominantly speculative characteristics with respect to the issuers capacity to pay interest and repay principal. Investments that are rated below investment grade are sometimes referred to as high yield bonds, junk bonds or leveraged loans. Therefore, our investments may result in an above average amount of risk and volatility or loss of principal. We also may invest in other assets, including U.S. government securities and structured securities. These investments entail additional risks that could adversely affect our investment returns.
Secured Debt . When we make a secured debt investment, we generally take a security interest in the available assets of the portfolio company, including the equity interests of any subsidiaries, which we expect to help mitigate the risk that we will not be repaid. However, there is a risk that the collateral securing our debt investment may decrease in value over time, may be difficult to sell in a timely manner, may be difficult to appraise and may fluctuate in value based upon the success of the business and market conditions, including as a result of the inability of the portfolio company to raise additional capital. In some circumstances, our lien could be subordinated to claims of other creditors, such as trade creditors. In addition, deterioration in a portfolio companys financial condition and prospects, including its inability to raise additional capital, may be accompanied by deterioration in the value of the collateral for the debt investment. Consequently, the fact that our debt is secured does not guarantee that we will receive principal and interest payments according to the debt investments terms, or at all, or that we will be able to collect on the loan, in full or at all, should we be forced to enforce our remedies.
Unsecured Debt, including Mezzanine Debt . Our unsecured debt investments, including mezzanine debt investments, generally will be subordinated to senior debt that will rank senior to our investment in the event of an insolvency. This may result in an above average amount of risk and loss of principal.
Equity Investments . When we invest in secured debt or unsecured debt, including mezzanine debt, we may acquire equity securities from the company in which we make the investment. In addition, we may invest in the equity securities of portfolio companies independent of any debt investment. Our goal is ultimately to dispose of such equity interests and realize gains upon our disposition of such interests. However, the equity interests we hold may not appreciate in value and, in fact, may decline in value. Accordingly, we may not be able to realize gains from our equity interests, and any gains that we do realize on the disposition of any equity interests may not be sufficient to offset any other losses we experience.
Investing in middle-market companies involves a number of significant risks.
Investing in middle-market companies involves a number of significant risks, including:
| such companies may have limited financial resources and may be unable to meet their obligations under their debt securities that we hold, which may be accompanied by a deterioration in the value of any collateral and a reduction in the likelihood of us realizing any guarantees we may have obtained in connection with our investment; |
| such companies typically have shorter operating histories, narrower product lines and smaller market shares than larger businesses, which tend to render them more vulnerable to competitors actions and market conditions, as well as general economic downturns; |
| such companies are more likely to depend on the management talents and efforts of a small group of persons; therefore, the death, disability, resignation or termination of one or more of these persons could have a material adverse impact on our portfolio company and, in turn, on us; |
41
| such companies generally have less predictable operating results, may from time to time be parties to litigation, may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence and may require substantial additional capital to support their operations, finance expansion or maintain their competitive position; |
| there is generally little public information about these companies, they and their financial information are not subject to the Exchange Act and other regulations that govern public companies and we may be unable to uncover all material information about these companies, which may prevent us from making a fully informed investment decision and cause us to lose money on our investments; |
| our executive officers, directors and investment adviser may, in the ordinary course of business, be named as defendants in litigation arising from our investments in the portfolio companies; and |
| such companies may have difficulty accessing the capital markets to meet future capital needs, which may limit their ability to grow or to repay their outstanding indebtedness upon maturity. |
Our portfolio securities may not have a readily available market price and, in such a case, we will value these securities at fair value as determined in good faith under procedures adopted by our Board of Directors, which valuation is inherently subjective and may not reflect what we may actually realize for the sale of the investment.
The majority of our investments are expected to be in debt instruments that do not have readily ascertainable market prices. The fair value of assets that are not publicly traded or whose market prices are not readily available will be determined in good faith under procedures adopted by our Board of Directors. Our Board of Directors is expected to utilize the services of independent third-party valuation firms in determining the fair value of any securities. Investment professionals from our investment adviser will prepare portfolio company valuations using sources and/or proprietary models depending on the availability of information on our assets and the type of asset being valued, all in accordance with our valuation policy. The participation of our investment adviser in our valuation process could result in a conflict of interest, since the management fee is based in part on our gross assets and also because our investment adviser is receiving a performance-based incentive fee.
Because fair valuations, and particularly fair valuations of private securities and private companies, are inherently uncertain, may fluctuate over short periods of time and are often based to a large extent on estimates, comparisons and qualitative evaluations of private information, it could make it more difficult for investors to value accurately our investments and could lead to undervaluation or overvaluation of our common stock. In addition, the valuation of these types of securities may result in substantial write-downs and earnings volatility.
Our NAV as of a particular date may be materially greater than or less than the value that would be realized if our assets were to be liquidated as of such date. For example, if we were required to sell a certain asset or all or a substantial portion of its assets on a particular date, the actual price that we would realize upon the disposition of such asset or assets could be materially less than the value of such asset or assets as reflected in our NAV. Volatile market conditions could also cause reduced liquidity in the market for certain assets, which could result in liquidation values that are materially less than the values of such assets as reflected in our NAV.
The lack of liquidity in our investments may adversely affect our business.
Various restrictions render our investments relatively illiquid, which may adversely affect our business. As we generally make investments in private companies, substantially all of these investments are subject to legal and other restrictions on resale or are otherwise less liquid than publicly traded securities. Additionally, as an affiliate of Goldman Sachs, our investment adviser is not permitted to obtain or use material non-public information in effecting purchases and sales in public securities transactions for us, which could create an
42
additional limitation on the liquidity of our investments. The illiquidity of our investments may make it difficult for us to sell such investments if the need arises. Therefore, if we are required to or desire to liquidate all or a portion of our portfolio quickly, we could realize significantly less than the value at which we have recorded our investments.
Our portfolio may be focused in a limited number of portfolio companies, which will subject us to a risk of significant loss if any of these companies default on their obligations under any of their debt instruments or if there is a downturn in a particular industry.
We are classified as a non-diversified investment company within the meaning of the Investment Company Act, which means that we are not limited by the Investment Company Act with respect to the proportion of our assets that we may invest in securities of a single issuer, excluding limitations on investments in other investment companies. To the extent that we assume large positions in the securities of a small number of issuers or industries, our NAV may fluctuate to a greater extent than that of a diversified investment company as a result of changes in the financial condition or the markets assessment of the issuer. We may also be more susceptible to any single economic or regulatory occurrence than a diversified investment company. In addition, the aggregate returns we realize may be significantly adversely affected if a small number of investments perform poorly or if we need to write down the value of any one investment. Additionally, a downturn in any particular industry in which we are invested could significantly affect our aggregate returns.
We may not be in a position to exercise control over our portfolio companies or to prevent decisions by management of our portfolio companies that could decrease the value of our investments.
We do not generally intend to take controlling equity positions in our portfolio companies. To the extent that we do not hold a controlling equity interest in a portfolio company, we are subject to the risk that such portfolio company may make business decisions with which we disagree, and the stockholders and management of such portfolio company may take risks or otherwise act in ways that are adverse to our interests. Due to the lack of liquidity for the debt and equity investments that we typically hold in our portfolio companies, we may not be able to dispose of our investments in the event we disagree with the actions of a portfolio company, and may therefore suffer a decrease in the value of our investments.
In addition, we may not be in a position to control any portfolio company by investing in its debt securities. As a result, we are subject to the risk that a portfolio company in which we invest may make business decisions with which we disagree and the management of such company, as representatives of the holders of their common equity, may take risks or otherwise act in ways that do not serve our interests as debt investors.
We may form one or more CLOs, which may subject us to certain structured financing risks.
To finance investments, we may securitize certain of our investments, including through the formation of one or more CLOs, while retaining all or most of the exposure to the performance of these investments. This would involve contributing a pool of assets to a special purpose entity, and selling debt interests in such entity on a non-recourse or limited-recourse basis to purchasers. Any interest in any such CLO held by us may be considered a non-qualifying asset for purposes of Section 55 of the Investment Company Act.
If we create a CLO, we will depend on distributions from the CLOs assets out of its earnings and cash flows to enable us to make distributions to our stockholders. The ability of a CLO to make distributions will be subject to various limitations, including the terms and covenants of the debt it issues. For example, tests (based on interest coverage or other financial ratios or other criteria) may restrict our ability, as holder of a CLOs equity interests, to receive cash flow from these investments. There is no assurance any such performance tests will be satisfied. Also, a CLO may take actions that delay distributions in order to preserve ratings and to keep the cost of present and future financings lower or the CLO may be obligated to retain cash or other assets to satisfy over- collateralization requirements commonly provided for holders of the CLOs debt. As a result, there may be a lag,
43
which could be significant, between the repayment or other realization on a loan or other assets in, and the distribution of cash out of, a CLO, or cash flow may be completely restricted for the life of the CLO. If we do not receive cash flow from any such CLO that is necessary to satisfy the annual distribution requirement for maintaining our RIC status, and we are unable to obtain cash from other sources necessary to satisfy this requirement, we could fail to maintain our status as a RIC, which would have a material adverse effect on our financial performance.
In addition, a decline in the credit quality of loans in a CLO due to poor operating results of the relevant borrower, declines in the value of loan collateral or increases in defaults, among other things, may force a CLO to sell certain assets at a loss, reducing their earnings and, in turn, cash potentially available for distribution to us for distribution to our stockholders.
To the extent that any losses are incurred by the CLO in respect of any collateral, such losses will be borne first by us as owner of equity interests. Finally, any equity interests that we retain in a CLO will not be secured by the assets of the CLO and we will rank behind all creditors of the CLO.
When we are a debt or minority equity investor in a portfolio company, we are often not in a position to exert influence on the entity, and other equity holders and management of the company may make decisions that could decrease the value of our portfolio holdings.
When we make debt or minority equity investments, we are subject to the risk that a portfolio company may make business decisions with which we disagree and the other equity holders and management of such company may take risks or otherwise act in ways that do not serve our interests. As a result, a portfolio company may make decisions that could decrease the value of our investment.
Our failure to make follow-on investments in our portfolio companies could impair the value of our portfolio.
Following an initial investment in a portfolio company, we may make additional investments in that portfolio company as follow-on investments, in order to:
| increase or maintain in whole or in part our equity ownership percentage; |
| exercise warrants, options or convertible securities that were acquired in the original or subsequent financing; or |
| attempt to preserve or enhance the value of our investment. |
We may elect not to make follow-on investments or otherwise lack sufficient funds to make those investments.
We will have the discretion to make any follow-on investments, subject to the availability of capital resources. The failure to make follow-on investments may, in some circumstances, jeopardize the continued viability of a portfolio company and our initial investment, or may result in a missed opportunity for us to increase our participation in a successful operation. Even if we have sufficient capital to make a desired follow-on investment, we may elect not to make a follow-on investment because we may not want to increase our concentration of risk, because we prefer other opportunities or because we are inhibited by compliance with BDC requirements, compliance with covenants contained in our Revolving Credit Facility or compliance with the requirements for maintenance of our RIC status.
Our portfolio companies may prepay loans, which may reduce stated yields in the future if the capital returned cannot be invested in transactions with equal or greater expected yields.
Certain of the loans we make are prepayable at any time, with some prepayable at no premium to par. We cannot predict when such loans may be prepaid. Whether a loan is prepaid will depend both on the continued
44
positive performance of the portfolio company and the existence of favorable financing market conditions that permit such company to replace existing financing with less expensive capital. As market conditions change frequently, it is unknown when, and if, this may be possible for each portfolio company. In the case of some of these loans, having the loan prepaid early may reduce the achievable yield for us in the future below the current yield disclosed for our portfolio if the capital returned cannot be invested in transactions with equal or greater expected yields.
Investments in equity securities, many of which are illiquid with no readily available market, involve a substantial degree of risk.
We may purchase common and other equity securities. Although common stock has historically generated higher average total returns than fixed income securities over the long term, common stock also has experienced significantly more volatility in those returns. The equity securities we acquire may fail to appreciate and may decline in value or become worthless, and our ability to recover our investment will depend on our portfolio companys success. Investments in equity securities involve a number of significant risks, including:
| any equity investment we make in a portfolio company could be subject to further dilution as a result of the issuance of additional equity interests and to serious risks as a junior security that will be subordinate to all indebtedness (including trade creditors) or senior securities in the event that the issuer is unable to meet its obligations or becomes subject to a bankruptcy process; |
| to the extent that the portfolio company requires additional capital and is unable to obtain it, we may not recover our investment; and |
| in some cases, equity securities in which we invest will not pay current dividends, and our ability to realize a return on our investment, as well as to recover our investment, will be dependent on the success of the portfolio company. |
Even if the portfolio company is successful, our ability to realize the value of our investment may be dependent on the occurrence of a liquidity event, such as a public offering or the sale of the portfolio company. It is likely to take a significant amount of time before a liquidity event occurs or we can otherwise sell our investment. In addition, the equity securities we receive or invest in may be subject to restrictions on resale during periods in which it could be advantageous to sell them.
There are special risks associated with investing in preferred securities, including:
| preferred securities may include provisions that permit the issuer, at its discretion, to defer distributions for a stated period without any adverse consequences to the issuer. If we own a preferred security that is deferring its distributions, we may be required to report income for tax purposes before we receive such distributions; |
| preferred securities are subordinated to debt in terms of priority to income and liquidation payments, and therefore will be subject to greater credit risk than debt; |
| preferred securities may be substantially less liquid than many other securities, such as common stock or U.S. government securities; and |
| generally, preferred security holders have no voting rights with respect to the issuing company, subject to limited exceptions. |
Additionally, when we invest in first lien senior secured loans (including unitranche loans), second lien senior secured loans or mezzanine debt, we may acquire warrants or other equity securities as well. Our goal is ultimately to dispose of such equity interests and realize gains upon our disposition of such interests. However, the equity interests we receive may not appreciate in value and, in fact, may decline in value. Accordingly, we
45
may not be able to realize gains from our equity interests and any gains that we do realize on the disposition of any equity interests may not be sufficient to offset any other losses we experience.
We may invest, to the extent permitted by law, in the equity securities of investment funds that are operating pursuant to certain exceptions to the Investment Company Act and, to the extent we so invest, will bear our ratable share of any such companys expenses, including management and performance fees. We will also remain obligated to pay the management fee and incentive fee to our investment adviser with respect to the assets invested in the securities and instruments of such companies. With respect to each of these investments, each of our common stockholders will bear his or her share of the management fee and incentive fee due to our investment adviser as well as indirectly bearing the management and performance fees and other expenses of any such investment funds or advisers.
By originating loans to companies that are experiencing significant financial or business difficulties, we may be exposed to distressed lending risks.
As part of our lending activities, we may originate loans to companies that are experiencing significant financial or business difficulties, including companies involved in bankruptcy or other reorganization and liquidation proceedings. Although the terms of such financing may result in significant financial returns to us, they involve a substantial degree of risk. The level of analytical sophistication, both financial and legal, necessary for successful financing to companies experiencing significant business and financial difficulties is unusually high. There is no assurance that we will correctly evaluate the value of the assets collateralizing our loans or the prospects for a successful reorganization or similar action. In any reorganization or liquidation proceeding relating to a company that we fund, we may lose all or part of the amounts advanced to the borrower or may be required to accept collateral with a value less than the amount of the loan advanced by us to the borrower.
We may be exposed to special risks associated with bankruptcy cases.
Many of the events within a bankruptcy case are adversarial and often beyond the control of the creditors. While creditors generally are afforded an opportunity to object to significant actions, there can be no assurance that a bankruptcy court would not approve actions that may be contrary to our interests. Furthermore, there are instances where creditors can lose their ranking and priority if they are considered to have taken over management of a borrower.
The reorganization of a company can involve substantial legal, professional and administrative costs to a lender and the borrower; it is subject to unpredictable and lengthy delays; and during the process a companys competitive position may erode, key management may depart and a company may not be able to invest its capital adequately. In some cases, the debtor company may not be able to reorganize and may be required to liquidate assets. The debt of companies in financial reorganization will, in most cases, not pay current interest, may not accrue interest during reorganization and may be adversely affected by an erosion of the issuers fundamental value.
In addition, lenders can be subject to lender liability claims for actions taken by them where they become too involved in the borrowers business or exercise control over the borrower. For example, we could become subject to a lenders liability claim, if, among other things, the borrower requests significant managerial assistance from us and we provide such assistance as contemplated by the Investment Company Act.
We will have broad discretion over the use of proceeds of the funds we raise from investors and will use proceeds in part to satisfy operating expenses.
We will have significant flexibility in applying the proceeds of the funds we raise from investors in this offering and may use the net proceeds in ways with which stockholders may not agree, or for purposes other than those contemplated at the time of this offering. There can be no assurance that we will be able to locate a sufficient number of suitable investment opportunities to allow us to successfully deploy capital that we raise
46
from investors in a timeframe that will permit investors to earn above-market returns. To the extent we are unable to invest substantially all of the capital we raise within our contemplated timeframe, our investment income, and in turn our results of operations, will likely be materially adversely affected. See Risks Relating to Our Business and StructureWe are a relatively new company and have a limited operating history. We will also pay operating expenses, and may pay other expenses such as due diligence expenses of potential new investments, from net proceeds raised from investors. Our ability to achieve our investment objective may be limited to the extent that net proceeds of the funds we raise from investors, pending full investment by us in portfolio companies, are used to pay operating expenses.
Declines in market prices and liquidity in the corporate debt markets can result in significant net unrealized depreciation of our portfolio, which in turn would reduce our NAV.
As a BDC, we are required to carry our investments at market value or, if no market value is ascertainable, at fair value as determined in good faith under procedures adopted by our Board of Directors. We may take into account the following types of factors, if relevant, in determining the fair value of our investments: the enterprise value of a portfolio company (the entire value of the portfolio company to a market participant, including the sum of the values of debt and equity securities used to capitalize the enterprise at a point in time), the nature and realizable value of any collateral, the portfolio companys ability to make payments and its earnings and discounted cash flow, the markets in which the portfolio company does business, a comparison of the portfolio companys securities to similar publicly traded securities and other relevant factors. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, we use the pricing indicated by the external event to corroborate our valuation. While most of our investments are not publicly traded, applicable accounting standards require us to assume as part of our valuation process that our investments are sold in a principal market to market participants (even if we plan on holding an investment through its maturity). As a result, volatility in the capital markets can also adversely affect our investment valuations. Decreases in the market values or fair values of our investments are recorded as unrealized depreciation. The effect of all of these factors on our portfolio can reduce our NAV by increasing net unrealized depreciation in our portfolio. Depending on market conditions, we could incur substantial realized losses and may suffer unrealized losses, which could have a material adverse impact on our business, financial condition and results of operations.
Economic recessions or downturns could impair our portfolio companies and harm our operating results.
Our portfolio companies may be susceptible to economic downturns or recessions and may be unable to repay our loans during these periods. Therefore, during these periods our non-performing assets may increase and the value of our portfolio may decrease if we are required to write down the values of our investments. Adverse economic conditions may also decrease the value of collateral securing some of our loans and the value of our equity investments. Economic slowdowns or recessions could lead to financial losses in our portfolio and a decrease in revenues, net income and assets. Unfavorable economic conditions also could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us. These events could prevent us from increasing investments and harm our operating results.
A portfolio companys failure to satisfy financial or operating covenants imposed by us or other lenders could lead to defaults and, potentially, acceleration of the time when the loans are due and foreclosure on the portfolio companys assets representing collateral for its obligations. This could trigger cross defaults under other agreements and jeopardize our portfolio companys ability to meet its obligations under the debt that we hold and the value of any equity securities we own. We may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms with a defaulting portfolio company.
Our portfolio companies may incur debt or issue equity securities that rank equally with, or senior to, our investments in such companies.
Our portfolio companies may have, or may be permitted to incur, other debt, or issue other equity securities, that rank equally with, or senior to, our investments. By their terms, such instruments may provide that the holders are entitled to receive payment of dividends, interest or principal on or before the dates on which we
47
are entitled to receive payments in respect of our investments. These debt instruments would usually prohibit the portfolio companies from paying interest on or repaying our investments in the event and during the continuance of a default under such debt. Also, in the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a portfolio company, holders of securities ranking senior to our investment in that portfolio company typically are entitled to receive payment in full before we receive any distribution in respect of our investment. After repaying such holders, the portfolio company may not have any remaining assets to use for repaying its obligation to us. In the case of securities ranking equally with our investments, we would have to share on an equal basis any distributions with other security holders in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy of the relevant portfolio company.
Additionally, certain loans that we make to portfolio companies may be secured on a second priority basis by the same collateral securing senior secured debt, which will be secured on a first priority basis. The first priority liens on the collateral will secure the portfolio companys obligations under any outstanding senior debt and may secure certain other future debt that may be permitted to be incurred by the portfolio company under the agreements governing the loans. The holders of obligations secured by the first priority liens on the collateral will generally control the liquidation of and be entitled to receive proceeds from any realization of the collateral to repay their obligations in full before us. In addition, the value of the collateral in the event of liquidation will depend on market and economic conditions, the availability of buyers and other factors. There can be no assurance that the proceeds, if any, from the sale or sales of all of the collateral would be sufficient to satisfy the loan obligations secured by the second priority liens after payment in full of all obligations secured by the first priority liens. If such proceeds are not sufficient to repay amounts outstanding under the loan obligations secured by the second priority liens, then we, to the extent not repaid from the proceeds of the sale of the collateral, will only have an unsecured claim against the portfolio companys remaining assets, if any.
The rights we may have with respect to the collateral securing any junior priority loans we make to our portfolio companies may also be limited pursuant to the terms of one or more intercreditor agreements that we enter into with the holders of senior debt. Under such an intercreditor agreement, at any time that senior obligations are outstanding, we may forfeit certain rights with respect to the collateral to the holders of the senior obligations. These rights may include the right to commence enforcement proceedings against the collateral, the right to control the conduct of such enforcement proceedings, the right to approve amendments to collateral documents, the right to release liens on the collateral and the right to waive past defaults under collateral documents. We may not have the ability to control or direct such actions, even if our rights as junior lenders are adversely affected.
We may also make unsecured loans to portfolio companies, meaning that such loans will not benefit from any interest in collateral of such companies. Liens on such portfolio companies collateral, if any, will secure the portfolio companys obligations under its outstanding secured debt and may secure certain future debt that is permitted to be incurred by the portfolio company under its secured loan agreements. The holders of obligations secured by such liens will generally control the liquidation of, and be entitled to receive proceeds from, any realization of such collateral to repay their obligations in full before us. In addition, the value of such collateral in the event of liquidation will depend on market and economic conditions, the availability of buyers and other factors. There can be no assurance that the proceeds, if any, from sales of such collateral would be sufficient to satisfy our unsecured loan obligations after payment in full of all secured loan obligations. If such proceeds were not sufficient to repay the outstanding secured loan obligations, then our unsecured claims would rank equally with the unpaid portion of such secured creditors claims against the portfolio companys remaining assets, if any.
Our portfolio companies may be highly leveraged.
Some of our portfolio companies may be highly leveraged, which may have adverse consequences to these companies and to us as an investor. These companies may be subject to restrictive financial and operating covenants and the leverage may impair these companies ability to finance their future operations and capital
48
needs. As a result, these companies flexibility to respond to changing business and economic conditions and to take advantage of business opportunities may be limited. Further, a leveraged companys income and net assets will tend to increase or decrease at a greater rate than if borrowed money were not used.
Our investments in non-U.S. companies may involve significant risks in addition to the risks inherent in U.S. investments.
Our investment strategy contemplates potential investments in securities of non-U.S. companies to the extent permissible under the Investment Company Act. Investing in non-U.S. companies may expose us to additional risks not typically associated with investing in U.S. companies. These risks include changes in exchange control regulations, political and social instability, expropriation, imposition of non-U.S. taxes (potentially at confiscatory levels), less liquid markets, less available information than is generally the case in the United States, higher transaction costs, less government supervision of exchanges, brokers and issuers, less developed bankruptcy laws, difficulty in enforcing contractual obligations, lack of uniform accounting and auditing standards and greater price volatility.
Our investments that are denominated in a non-U.S. currency will be subject to the risk that the value of a particular currency will change in relation to the U.S. dollar. Among the factors that may affect currency values are trade balances, the level of short-term interest rates, differences in relative values of similar assets in different currencies, long-term opportunities for investment and capital appreciation and political developments. We may employ hedging techniques to minimize these risks, but we cannot assure you that such strategies will be effective or without risk to us.
We may expose ourselves to risks if we engage in hedging transactions.
Subject to application of the Investment Company Act and applicable CFTC regulations, we may enter into hedging transactions, which may expose us to risks associated with such transactions. Such hedging may utilize instruments such as forward contracts, currency options and interest rate swaps, caps, collars and floors to seek to hedge against fluctuations in the relative values of our portfolio positions from changes in currency exchange rates and market interest rates. Use of these hedging instruments may include counter-party credit risk.
Hedging against a decline in the values of our portfolio positions does not eliminate the possibility of fluctuations in the values of such positions or prevent losses if the values of such positions decline. However, such hedging can establish other positions designed to gain from those same developments, thereby offsetting the decline in the value of such portfolio positions. Such hedging transactions may also limit the opportunity for gain if the values of the underlying portfolio positions should increase. Moreover, it may not be possible to hedge against an exchange rate or interest rate fluctuation that is so generally anticipated that we are not able to enter into a hedging transaction at an acceptable price.
The success of any hedging transactions we may enter into will depend on our ability to correctly predict movements in currencies and interest rates. Therefore, while we may enter into such transactions to seek to reduce currency exchange rate and interest rate risks, unanticipated changes in currency exchange rates or interest rates may result in poorer overall investment performance than if we had not engaged in any such hedging transactions. In addition, the degree of correlation between price movements of the instruments used in a hedging strategy and price movements in the portfolio positions being hedged may vary. Moreover, for a variety of reasons, we may not seek to (or be able to) establish a perfect correlation between such hedging instruments and the portfolio holdings being hedged. Any such imperfect correlation may prevent us from achieving the intended hedge and expose us to risk of loss. In addition, it may not be possible to hedge fully or perfectly against currency fluctuations affecting the value of securities denominated in non-U.S. currencies because the value of those securities is likely to fluctuate as a result of factors not related to currency fluctuations. See also Risk FactorsRisk Relating to Our BusinessWe are exposed to risks associated with changes in interest rates.
49
We may initially invest a portion of the net proceeds of this offering primarily in high-quality short-term investments, which may generate lower rates of return than those expected from the interest generated on our intended investment program.
We may initially invest a portion of the net proceeds of this offering primarily in cash, cash equivalents, U.S. government securities and other high-quality short-term investments. These securities may earn yields substantially lower than the income that we anticipate receiving once we are fully invested in accordance with our investment objective. As a result, we may not be able to achieve our investment objective and any distributions we make during this period may be substantially lower than the distributions that we expect to pay when our portfolio is fully invested. If we do not realize yields in excess of our expenses, we may incur operating losses.
Risks Relating to this Offering and Our Common Stock
Investing in our common stock involves an above average degree of risk.
The investments we make in accordance with our investment objective may result in a higher amount of risk than alternative investment options and volatility or loss of principal. Our investments in portfolio companies may be highly speculative and aggressive, and therefore an investment in our common stock may not be suitable for someone with lower risk tolerance.
The market price of our common stock may fluctuate significantly.
The market price and liquidity of the market for shares of our common stock that will prevail in the market after this offering may be higher or lower than the price you pay and may be significantly affected by numerous factors, some of which are beyond our control and may not be directly related to our operating performance. These factors include:
| significant volatility in the market price and trading volume of securities of BDCs or other companies in our sector, which are not necessarily related to the operating performance of these companies; |
| price and volume fluctuations in the overall stock market from time to time; |
| the inclusion or exclusion of our stock from certain indices; |
| changes in regulatory policies or tax guidelines, particularly with respect to RICs or BDCs; |
| any loss of RIC or BDC status; |
| changes in earnings or perceived changes or variations in operating results; |
| changes or perceived changes in the value of our portfolio of investments; |
| changes in accounting guidelines governing valuation of our investments; |
| any shortfall in revenue or net income or any increase in losses from levels expected by investors or securities analysts; |
| the inability of our investment adviser to employ additional experienced investment professionals or the departure of any of our investment advisers key personnel; |
| short-selling pressure with respect to shares of our common stock or BDCs generally; |
50
| future sales of our securities convertible into or exchangeable or exercisable for our common stock or the conversion of such securities; |
| uncertainty surrounding the strength of the U.S. economic recovery; |
| concerns regarding European sovereign debt; |
| operating performance of companies comparable to us; |
| general economic trends and other external factors; and |
| loss of a major funding source. |
In the past, following periods of volatility in the market price of a companys securities, securities class action litigation has often been brought against that company. If our stock price fluctuates significantly, we may be the target of securities litigation in the future. Securities litigation could result in substantial costs and divert managements attention and resources from our business.
Prior to this offering, there has been no public market for our common stock, and we cannot assure you that the market price of our shares will not decline following the offering.
We cannot assure you that a trading market will develop for our common stock after this offering or, if one develops, that such trading market can be sustained. In addition, we cannot predict the prices at which our common stock will trade. The initial public offering price for our common stock will be determined through our negotiations with the underwriters and may not bear any relationship to the market price at which it may trade after our IPO. Shares of companies offered in an initial public offering often trade at a discount to the initial offering price due to underwriting discounts and related offering expenses. Also, shares of closed-end investment companies, including BDCs, frequently trade at a discount from NAV and our common stock may also be discounted in the market. This characteristic of closed-end investment companies is separate and distinct from the risk that our NAV per share may decline. We cannot predict whether our common stock will trade at, above or below NAV. The risk of loss associated with this characteristic of closed-end management investment companies may be greater for investors expecting to sell shares of common stock purchased in the offering soon after the offering. In addition, if our common stock trades below its NAV, we will generally not be able to sell additional shares of our common stock to the public at its market price without, among other things, the requisite stockholders approve such a sale.
Investors in this offering may experience immediate dilution upon the closing of the offering.
If you purchase shares of our common stock in this offering, you may experience immediate dilution if the price that you pay is greater than the pro forma NAV per share of the common stock you acquire. Investors in this offering could pay a price per share of common stock that exceeds the tangible book value per share after the closing of the offering. Assuming an initial public offering price of $ per share (the mid-point of the estimated initial public offering price range as set forth on the cover of this prospectus), purchasers in this offering will experience immediate dilution of approximately $ per share. See Dilution.
Purchases of our common stock by Goldman, Sachs & Co . under the 10b5-1 Plan may result in the price of our common stock being higher than the price that otherwise might exist in the open market.
Goldman, Sachs & Co. has adopted the 10b5-1 Plan in accordance with Rules 10b5-1 and 10b-18 under the Exchange Act, under which Goldman, Sachs & Co. will buy in the open market up to the lesser of $25.00 million in the aggregate of our common stock or such amount that would not bring its collective ownership (with Group Inc.) over 19.9% of our outstanding common stock. Any such purchases under the 10b5-1 Plan will occur during the period beginning after four full calendar weeks after the closing of this offering and ending on the
51
earlier of the date on which all the capital committed to the plan has been exhausted or one year after the closing of this offering, subject to certain conditions. See Related Party Transactions and Certain Relationships for additional details regarding the 10b5-1 Plan. Whether purchases will be made under the 10b5-1 Plan and how much will be purchased at any time is uncertain, dependent on prevailing market prices and trading volumes, all of which we cannot predict. These activities may have the effect of maintaining the market price of our common stock or retarding a decline in the market price of the common stock, and, as a result, the price of our common stock may be higher than the price that otherwise might exist in the open market.
Sales of substantial amounts of our common stock in the public market may have an adverse effect on the market price of our common stock.
Upon completion of this offering, we will have shares of common stock outstanding (or shares of common stock if the underwriters over-allotment option is fully exercised). Following this offering and the expiration of applicable lock-up periods, sales of substantial amounts of our common stock, or the availability of such shares for sale, could adversely affect the prevailing market prices for our common stock. If this occurs and continues, it could impair our ability to raise additional capital through the sale of equity securities should we desire to do so. Additionally, as an owner of approximately 19.85% of our common stock as of December 31, 2014, Group Inc. is a significant stockholder that may decide to sell a substantial amount of its common stock, subject to its lock-up agreement with the underwriters not to sell its shares for 365 days following the date of this prospectus and applicable securities laws, and such a sale would exacerbate the effects described above.
Our stockholders will experience dilution in their ownership percentage if they opt out of our dividend reinvestment plan.
Concurrent with this offering, we will adopt a dividend reinvestment plan, pursuant to which we will reinvest all cash distributions declared by the Board of Directors on behalf of investors who do not elect to receive their distributions in cash. As a result, if the Board of Directors authorizes, and we declare, a cash distribution, then our stockholders who have not opted out of our dividend reinvestment plan will have their cash distributions automatically reinvested in additional common stock, rather than receiving the cash distribution. See Distributions and Dividend Reinvestment Plan for a description of our dividend policy and obligations.
If on the payment date for any distribution, the most recently computed NAV per share is equal to or less than the closing market price plus estimated per share fees (which include any applicable brokerage commissions the plan agent is required to pay), the plan agent will invest the distribution amount in newly issued shares on behalf of the participants. The number of newly issued shares to be credited to a participants account will be determined by dividing the dollar amount of the distribution by the most recently computed NAV per share provided that, if the NAV is less than or equal to 95% of the then current market price per share, the dollar amount of the distribution will be divided by 95% of the market price on the payment date. Accordingly, participants in the dividend reinvestment plan may receive a greater number shares of our common stock than the number of shares associated with the market price of our common stock, resulting in dilution for other stockholders. Stockholders that opt out of our dividend reinvestment plan will experience dilution in their ownership percentage of our common stock over time. The dividend reinvestment plan will not apply to any shares of our common stock purchased prior to the Companys IPO. Due to regulatory considerations, Group Inc. will opt out of the dividend reinvestment plan, and Goldman, Sachs & Co. will opt out of the dividend reinvestment plan in respect of any shares of our common stock acquired through the 10b5-1 Plan, for a period of at least 90 days following the consummation of this offering. See Dividend Reinvestment Plan.
Our stockholders that do not opt out of our dividend reinvestment plan should generally expect to have current tax liabilities without receiving cash to pay such liabilities.
Under our dividend reinvestment plan, if we declare a cash distribution, our stockholders who have not elected to opt out will have their cash distributions automatically reinvested in additional shares of our common stock, rather than receiving the cash distributions. Stockholders who receive distributions in the form of
52
shares of common stock generally are subject to the same U.S. federal, state and local tax consequences as stockholders who elect to receive their distributions in cash and, for this purpose, stockholders receiving distributions in the form of stock will generally be treated as receiving distributions equal to the fair market value of the stock received through the plan; however, since their distributions will be reinvested, those stockholders will not receive cash with which to pay any applicable taxes on such reinvested distributions. As a result, stockholders that have not opted out of our dividend reinvestment plan may have to use funds from other sources to pay any tax liabilities imposed upon them based on the value of the common stock received.
We may in the future determine to issue preferred stock, which could adversely affect the market value of our common stock.
The issuance of shares of preferred stock with dividend or conversion rights, liquidation preferences or other economic terms favorable to the holders of preferred stock could adversely affect the market price for our common stock by making an investment in the common stock less attractive. In addition, the dividends on any preferred stock we issue must be cumulative. Payment of dividends and repayment of the liquidation preference of preferred stock must take preference over any distributions or other payments to our common stockholders, and holders of preferred stock are not subject to any of our expenses or losses and are not entitled to participate in any income or appreciation in excess of their stated preference (other than convertible preferred stock that converts into common stock). In addition, under the Investment Company Act, participating preferred stock and preferred stock constitutes a senior security for purposes of the 2 to 1 asset coverage test.
We may not be able to pay you distributions on our common stock, our distributions to you may not grow over time and a portion of our distributions to you may be a return of capital for U.S. federal income tax purposes.
We intend to pay quarterly distributions to our stockholders out of assets legally available for distribution. We cannot assure you that we will achieve investment results that will allow us to make a specified level of cash distributions or year-to-year increases in cash distributions. If we are unable to satisfy the asset coverage test applicable to us as a BDC, or if we violate certain covenants under our Revolving Credit Facility and other debt financing agreements, our ability to pay distributions to our stockholders could be limited. All distributions will be paid at the discretion of our Board of Directors and will depend on our earnings, financial condition, maintenance of our RIC status, compliance with applicable BDC regulations, compliance with covenants under our Revolving Credit Facility and other debt financing agreements and such other factors as our Board of Directors may deem relevant from time to time. The distributions we pay to our stockholders in a year may exceed our taxable income for that year and, accordingly, a portion of such distributions may constitute a return of capital for U.S. federal income tax purposes.
Stockholders who periodically receive the payment of a distribution from a RIC consisting of a return of capital for U.S. federal income tax purposes may be under the impression that they are receiving a distribution of RICs net ordinary income or capital gains when they are not. Accordingly, stockholders should read carefully any written disclosure accompanying a distribution from us and the information about the specific tax characteristics of our distributions provided to stockholders after the end of each calendar year, and should not assume that the source of any distribution is our net ordinary income or capital gains.
We may have difficulty paying our required distributions if we recognize taxable income before or without receiving cash representing such income.
For U.S. federal income tax purposes, we will include in our taxable income certain amounts that we have not yet received in cash, such as original issue discount or accruals on a contingent payment debt instrument, which may occur if we receive warrants in connection with the origination of a loan, or in other circumstances, or contracted PIK interest, which generally represents contractual interest added to the loan balance and due at the end of the loan term. Such original issue discount and PIK interest will be included in our taxable income before we receive any corresponding cash payments. We also may be required to include in our taxable income certain other amounts that we will not receive in cash.
53
Because in certain cases we may recognize taxable income before or without receiving cash representing such income, we may have difficulty making distributions to our stockholders that will be sufficient to enable us to meet the annual distribution requirement necessary for us to maintain our status as a RIC. Accordingly, we may need to sell some of our assets at times and/or at prices that we would not consider advantageous, we may need to raise additional equity or debt capital or we may need to forego new investment opportunities or otherwise take actions that are disadvantageous to our business (or be unable to take actions that are advantageous to our business) to enable us to make distributions to our stockholders that will be sufficient to enable us to meet the annual distribution requirement. If we are unable to obtain cash from other sources to meet the annual distribution requirement, we may fail to qualify for the U.S. federal income tax benefits allowable to RICs and, thus, become subject to a corporate-level U.S. federal income tax (and any applicable U.S. state and local taxes). For additional discussion regarding the tax implications of a RIC, see U.S. Federal Income Tax Considerations.
Our stockholders may receive shares of our common stock as dividends, which could result in adverse tax consequences to them.
In order to satisfy the annual distribution requirement applicable to RICs, we will have the ability to declare a large portion of a dividend in shares of our common stock instead of in cash. As long as a portion of such dividend is paid in cash and certain requirements are met, the entire distribution will be treated as a dividend for U.S. federal income tax purposes. As a result, a stockholder generally would be taxed on 100% of the fair market value of the dividend on the date the dividend is received by the stockholder in the same manner as a cash dividend, even though most of the dividend was paid in shares of our common stock. We currently do not intend to pay dividends in shares of our common stock.
If we are not treated as a publicly offered regulated investment company, as defined in the Code, U.S. stockholders that are individuals, trusts or estates will be taxed as though they received a distribution of some of our expenses.
We expect to be treated as a publicly offered regulated investment company as a result of either (i) shares of our common stock being held by at least 500 persons at all times during a taxable year or (ii) shares of our common stock being treated as regularly traded on an established securities market. However, we cannot assure you that we will be treated as a publicly offered regulated investment company for all years. If we are not treated as a publicly offered regulated investment company for any calendar year, each U.S. stockholder that is an individual, trust or estate will be treated as having received a dividend from us in the amount of such U.S. stockholders allocable share of the management and incentive fees paid to our investment adviser and certain of our other expenses for the calendar year, and these fees and expenses will be treated as miscellaneous itemized deductions of such U.S. stockholder. Miscellaneous itemized deductions generally are deductible by a U.S. stockholder that is an individual, trust or estate only to the extent that the aggregate of such U.S. stockholders miscellaneous itemized deductions exceeds 2% of such U.S. stockholders adjusted gross income for U.S. federal income tax purposes, are not deductible for purposes of the alternative minimum tax and are subject to the overall limitation on itemized deductions under the Code. See U.S. Federal Income Tax ConsiderationsTaxation of U.S. Stockholders.
Non-U.S. stockholders may be subject to withholding of U.S. federal income tax on dividends we pay.
Distributions of our investment company taxable income to a non-U.S. stockholder that are not effectively connected with the non-U.S. stockholders conduct of a trade or business within the United States will be subject to withholding of U.S. federal income tax at a 30% rate (or lower rate provided by an applicable income tax treaty) to the extent of our current or accumulated earnings and profits.
For our taxable years beginning before January 1, 2015, certain properly designated dividends were generally exempt from withholding of U.S. federal income tax where they were paid in respect of our (i) qualified net interest income (generally, our U.S.-source interest income, other than certain contingent
54
interest and interest from obligations of a corporation or partnership in which we or the non-U.S. stockholder are at least a 10% shareholder, reduced by expenses that are allocable to such income) or (ii) qualified short-term capital gains (generally, the excess of our net short-term capital gain over our long-term capital loss for such taxable year), and certain other requirements were satisfied.
THIS PROVISION EXPIRED ON DECEMBER 31, 2014 AND, AS A RESULT, THIS EXEMPTION FROM WITHHOLDING OF U.S. FEDERAL INCOME TAX DOES NOT APPLY FOR ANY TAXABLE YEAR BEGINNING ON OR AFTER JANUARY 1, 2015. NO ASSURANCE CAN BE GIVEN THAT THIS PROVISION WILL BE REINSTATED AND, IF THIS PROVISION IS REINSTATED, THE FORM OR EFFECTIVE DATE OF ANY SUCH REINSTATEMENT.
In addition, even if this provision is reinstated, no assurance can be given as to whether any of our distributions will be eligible for this exemption from withholding of U.S. federal income tax or, if eligible, will be designated as such by us. In particular, under the provision that was in effect through December 31, 2014, the exemption did not apply to our distributions paid in respect of our non-U.S. source interest income or our dividend income (or any other type of income other than our non-contingent U.S.-source interest income received from unrelated obligors and our qualified short-term capital gains). In the case of our common stock held through an intermediary, the intermediary may have withheld U.S. federal income tax even if we designated the payment as qualified net interest income or qualified short-term capital gain. See U.S. Federal Income Tax ConsiderationsTaxation of Non-U.S. Stockholders.
55
POTENTIAL CONFLICTS OF INTEREST
General Categories of Conflicts Associated with the Company
Goldman Sachs (which, for purposes of this Potential Conflicts of Interest section, shall mean, collectively, Group Inc., the investment adviser and their affiliates, directors, partners, trustees, managers, members, officers and employees) is a worldwide, full-service investment banking, broker-dealer, asset management and financial services organization and a major participant in global financial markets. As such, Goldman Sachs provides a wide range of financial services to a substantial and diversified client base. In those and other capacities, Goldman Sachs advises clients in all markets and transactions and purchases, sells, holds and recommends a broad array of investments for its own accounts and for the accounts of clients and of its personnel, through client accounts and the relationships and products it sponsors, manages and advises (such Goldman Sachs or other client accounts (including the Company), relationships and products collectively, the Accounts). Goldman Sachs has direct and indirect interests in the global fixed income, currency, commodity, equities, bank loan and other markets, and the securities and issuers, in which the Company may directly and indirectly invest. As a result, Goldman Sachs activities and dealings, including on behalf of the Company, may affect the Company in ways that may disadvantage or restrict the Company and/or benefit Goldman Sachs or other Accounts.
The following are descriptions of certain conflicts and potential conflicts that may be associated with the financial or other interests that the investment adviser and Goldman Sachs may have in transactions effected by, with and on behalf of the Company. They are not, and are not intended to be, a complete enumeration or explanation of all of the potential conflicts of interest that may arise. Additional information about potential conflicts of interest regarding the investment adviser and Goldman Sachs is set forth in the investment advisers Form ADV, which prospective stockholders should review prior to purchasing the Companys common stock. A copy of Part 1 and Part 2 of the investment advisers Form ADV is available on the SECs website ( www.adviserinfo.sec.gov ). A copy of Part 2 of the investment advisers Form ADV will be provided to stockholders or prospective stockholders upon request.
Other Activities of Goldman Sachs, the Sale of the Companys Stock and the Allocation of Investment Opportunities
Sales Incentives and Related Conflicts Arising from Goldman Sachs Financial and Other Relationships with Intermediaries
Goldman Sachs and its personnel, including employees of the investment adviser, may have relationships (both involving and not involving the Company, and including without limitation placement, brokerage, advisory and board relationships) with distributors, consultants and others who recommend, or engage in transactions with or for, the Company. Such distributors, consultants and other parties may receive compensation from Goldman Sachs or the Company in connection with such relationships. As a result of these relationships, distributors, consultants and other parties may have conflicts that create incentives for them to promote the Company.
To the extent permitted by applicable law, the Company and Goldman Sachs may make payments to authorized dealers and other financial intermediaries and to salespersons (collectively, Intermediaries) from time to time to promote the Company. These payments may be made out of Goldman Sachs assets, or amounts payable to Goldman Sachs. These payments may create an incentive for a particular Intermediary to highlight, feature or recommend the Company.
Allocation of Investment Opportunities Among the Company and Other Accounts
The investment adviser may manage or advise multiple Accounts (including Accounts in which Goldman Sachs and its personnel have an interest) that have investment objectives that are similar to the Companys investment objectives and may seek to make investments or sell investments in the same securities or
56
other instruments, sectors or strategies as the Company. This may create potential conflicts, particularly in circumstances where the availability of such investment opportunities is limited (e.g., in local and emerging markets, high yield securities, fixed income securities, regulated industries, small capitalization and initial public offerings/new issues), where the liquidity of such investment opportunities is limited or where co-investments by the Company and other Accounts is not permitted under applicable law.
The Companys investment objectives and investment strategies are similar to those of other funds managed by the GSAM Liberty Harbor investment team, and an investment appropriate for the Company could also be appropriate for those investment funds. As a result, the GSAM Liberty Harbor investment team may face conflicts in allocating investment opportunities among the Company and such other funds.
Subject to applicable law, Goldman Sachs or Accounts may invest alongside the Company. In certain circumstances, negotiated co-investments by the Company and other funds managed by the GSAM Liberty Harbor investment team may be made only if the Company receives an order from the SEC permitting the Company to do so. There can be no assurance when any such order would be obtained or that one will be obtained at all. In the absence of an SEC order, when the investment adviser identifies certain investments, it will be forced to choose which funds should make the investment. Although the investment adviser will endeavor to allocate investment opportunities in a fair and equitable manner, it is possible that the Company will not be given the opportunity to participate in investments made by other funds managed by the investment adviser.
The Company is prohibited under the Investment Company Act from participating in certain transactions with its affiliates without the prior approval of the Independent Directors and, in some cases, of the SEC. Any person that owns, directly or indirectly, five percent or more of the Companys outstanding voting securities will be an affiliate of the Company for purposes of the Investment Company Act, and the Company is generally prohibited from buying or selling any assets from or to, or entering into certain joint transactions (which could include investments in the same portfolio company) with such affiliates, absent the prior approval of the Independent Directors. The investment adviser and its affiliates, including persons that control, or are under common control with, the Company or the investment adviser, are also considered to be affiliates of the Company under the Investment Company Act, and the Company is generally prohibited from buying or selling any assets from or to, or entering into joint transactions with, such affiliates without prior approval of the Independent Directors and, in some cases, exemptive relief from the SEC.
The Company may, however, invest alongside other clients of the investment adviser and its affiliates in certain circumstances where doing so is consistent with applicable law and SEC staff guidance and interpretations. For example, the Company may invest alongside affiliated funds consistent with guidance promulgated by the staff of the SEC permitting the Company and such other funds to purchase interests in privately placed securities so long as certain conditions are met, including that the investment adviser, acting on behalf of the Company and on behalf of its other clients, negotiates no term other than price. The Company may also invest alongside the investment advisers other clients as otherwise permissible under SEC staff guidance and interpretations, applicable regulations and the allocation policy of the investment adviser.
To address these potential conflicts, the investment adviser has developed allocation policies and procedures that provide that personnel of the investment adviser making portfolio decisions for Accounts will make purchase and sale decisions and allocate investment opportunities among Accounts consistent with its fiduciary obligations. To the extent permitted by applicable law, these policies and procedures may result in the pro rata allocation of limited opportunities across eligible Accounts managed by a particular portfolio management team, but in many other cases the allocations reflect numerous other factors as described below. Accounts managed by different portfolio management teams are generally viewed separately for allocation purposes. There will be cases where certain Accounts receive an allocation of an investment opportunity when the Company does not and vice versa. In some cases, due to information barriers that are in place (as discussed more fully below), other Accounts may compete with the Company for specific investment opportunities without being aware that they are competing against each other. Goldman Sachs has a conflicts system in place above these information barriers to identify potential conflicts early in the process and determine if an allocation
57
decision needs to be made. If the conflicts system detects a potential conflict, the legal and compliance departments of Goldman Sachs assess investment opportunities to determine whether a particular investment opportunity is required to be allocated to a particular Account (including the Company) or is prohibited from being allocated to a particular Account. Subject to a determination by the legal and compliance departments (if applicable), portfolio management teams are then charged with ensuring that investment opportunities are allocated to the appropriate Account.
Personnel of the investment adviser involved in decision-making for Accounts may make allocation related decisions for the Company and other Accounts by reference to one or more factors, including without limitation: the Accounts portfolio and its investment horizons, objectives, guidelines and restrictions (including legal and regulatory restrictions); strategic fit and other portfolio management considerations, including different desired levels of investment for different strategies; the expected future capacity of the applicable Accounts; limits on the investment advisers brokerage discretion; cash and liquidity considerations; and the availability of other appropriate investment opportunities. Suitability considerations, reputational matters and other considerations may also be considered. The application of these considerations may cause differences in the performance of different Accounts that have similar strategies. In addition, in some cases the investment adviser may make investment recommendations to Accounts where the Accounts make the investment independently of the investment adviser, which may result in a reduction in the availability of the investment opportunity for other Accounts (including the Company) irrespective of the investment advisers policies regarding allocation of investments. Additional information about the investment advisers allocation policies is set forth in Item 6 (Performance-based Fees and Side-by-Side ManagementSide-by-Side Management of Advisory Accounts; Allocation of Opportunities) of the investment advisers Form ADV.
The investment adviser may, from time to time, develop and implement new trading strategies or seek to participate in new investment opportunities and trading strategies. These opportunities and strategies may not be employed in all Accounts or pro rata among Accounts where they are employed, even if the opportunity or strategy is consistent with the objectives of such Accounts.
During periods of unusual market conditions, the investment adviser may deviate from its normal trade allocation practices. For example, this may occur with respect to the management of unlevered and/or long-only Accounts that are typically managed on a side-by-side basis with levered and/or long-short Accounts.
The Company may or may not receive, but in any event will have no rights with respect to, opportunities sourced by Goldman Sachs businesses and affiliates. Such opportunities or any portion thereof may be offered to other Accounts, Goldman Sachs, all or certain investors in the Company, or such other persons or entities as determined by Goldman Sachs in its sole discretion. The Company will have no rights and will not receive any compensation related to such opportunities.
Goldman Sachs Financial and Other Interests May Incentivize Goldman Sachs to Promote the Sale of Company Stock
Goldman Sachs and its personnel have interests in promoting sales of the Companys stock, and the compensation from such sales may be greater than the compensation relating to sales of interests in other Accounts. Therefore, Goldman Sachs and its personnel may have a financial interest in promoting the Companys stock over interests in other Accounts.
The investment adviser receives performance-based compensation in respect of its investment management activities on the Companys behalf, which rewards the investment adviser for positive performance of the Companys investment portfolio. As a result, the investment adviser may make investments for the Company that present a greater potential for return but also a greater risk of loss or that are more speculative than would be the case in the absence of performance-based compensation. In addition, the investment adviser may simultaneously manage Accounts for which the investment adviser receives greater fees or other compensation than it receives in respect of the Company. Therefore, the investment adviser may have an incentive to favor such
58
Accounts. To address these types of conflicts, the investment adviser has adopted policies and procedures under which it will allocate investment opportunities in a manner that it believes is consistent with its obligations as an investment adviser. However, the amount, timing, structuring or terms of an investment by the Company may differ from, and performance may be lower than, the investments and performance of other Accounts.
Management of the Company by the Investment Adviser
Potential Restrictions and Issues Relating to Information Held by Goldman Sachs
Goldman Sachs has established certain information barriers and other policies to address the sharing of information between different businesses within Goldman Sachs. As a result of information barriers, the investment adviser generally will not have access, or will have limited access, to information and personnel in other areas of Goldman Sachs, and generally will not be able to manage the Company with the benefit of information held by such other areas. Such other areas, including without limitation, Goldman Sachs prime brokerage and administration businesses, will have broad access to detailed information that is not available to the investment adviser, including information in respect of markets and investments, which, if known to the investment adviser, might cause the investment adviser to seek to dispose of, retain or increase interests in investments held by the Company or acquire certain positions on the Companys behalf, or take other actions. Goldman Sachs will be under no obligation or fiduciary or other duty to make any such information available to the investment adviser or personnel of the investment adviser involved in decision-making for. In addition, Goldman Sachs will not have any obligation to make available any information regarding its trading activities, strategies or views, or the activities, strategies or views used for other Accounts, for the benefit of the Company.
Valuation of the Companys Investments
The investment adviser, while not the Companys primary valuation agent, performs certain valuation services related to securities and assets. The investment adviser, pursuant to delegated authority, calculates the value of the Companys securities and assets according to the Companys valuation policies, adopted by the Board of Directors, and may value an identical asset differently than another division or unit within Goldman Sachs or another Account values the asset, including because such other division or unit or Account has information regarding valuation techniques and models or other information that it does not share with the investment adviser or the Company. This is particularly the case in respect of difficult-to-value assets. The investment adviser may face a conflict with respect to such valuations as they affect the investment advisers compensation.
Goldman Sachs and the Investment Advisers Activities on Behalf of Other Accounts
The investment advisers decisions and actions on the Companys behalf may differ from those on behalf of other Accounts. Advice given to, or investment or voting decisions made for, one or more Accounts may compete with, affect, differ from, conflict with, or involve timing different from, advice given to or investment decisions made for the Company.
The extent of Goldman Sachs activities in the global financial markets may have potential adverse effects on the Company. Goldman Sachs, the clients it advises, and its personnel have interests in and advise Accounts which have investment objectives or portfolios similar to or opposed to those of the Company, and/or which engage in and compete for transactions in the same types of securities and other instruments as the Company. Transactions by such Accounts may involve the same or related securities or other instruments as those in which the Company invests, and may negatively affect the Company or the prices or terms at which the Companys transactions may be effected. For example, Accounts may engage in a strategy while the Company is undertaking the same or a differing strategy, any of which could directly or indirectly disadvantage the Company. The Company and Goldman Sachs may also vote differently on or take or refrain from taking different actions with respect to the same security, which may be disadvantageous to the Company. Accounts may also invest in or extend credit to different classes of securities or different parts of the capital structure of the same issuer and
59
classes of securities that are subordinate or senior to, securities in which the Company invests. As a result, Goldman Sachs and the Accounts may pursue or enforce rights or activities, or refrain from pursuing or enforcing rights or activities, with respect to a particular issuer in which the Company has invested. The Company could sustain losses during periods in which Goldman Sachs and other Accounts achieve profits. The negative effects described above may be more pronounced in connection with transactions in, or the Companys use of, small capitalization, emerging market, distressed or less liquid strategies.
Goldman Sachs and its personnel may make investment decisions or recommendations, provide differing investment views or have views with respect to research or valuations that are inconsistent with, or adverse to, the Companys interests and activities. Similarly, the investment advisers portfolio management teams may have differing investment views in respect of an issuer or a security, and the actions the Companys portfolio management team takes in respect of the Companys investments may be inconsistent with, or adversely affected by, the interests and activities of the Accounts advised by other portfolio management teams of the investment adviser. Research analyses or viewpoints may be available to clients or potential clients at different times. Goldman Sachs will not have any obligation to make available to the Company any research or analysis prior to its public dissemination. The investment adviser is responsible for making investment decisions on the Companys behalf and such investment decisions can differ from investment decisions or recommendations by Goldman Sachs on behalf of other Accounts. Goldman Sachs may, on behalf of other Accounts and in accordance with its management of such Accounts, implement an investment decision or strategy ahead of, or contemporaneously with, or behind similar investment decisions or strategies made for the Company. The relative timing for the implementation of investment decisions or strategies among Accounts and the Company may disadvantage the Company. Certain factors, for example, market impact, liquidity constraints, or other circumstances, could result in the Company receiving less favorable trading results or incurring increased costs associated with implementing such investment decisions or strategies, or being otherwise disadvantaged.
Subject to applicable law, the investment adviser may cause the Company to invest in securities, loans or other obligations of companies affiliated with Goldman Sachs or in which Goldman Sachs or Accounts have an equity, debt or other interest, or to engage in investment transactions that may result in other Accounts being relieved of obligations or otherwise divesting of investments, which may enhance the profitability of Goldman Sachs or other Accounts investments in and activities with respect to such companies.
When the investment adviser wishes to place an order for different types of Accounts (including the Company) for which aggregation is not practicable, the investment adviser may use a trade sequencing and rotation policy to determine which type of Account is to be traded first. Under this policy, each portfolio management team may determine the length of its trade rotation period and the sequencing schedule for different categories of clients within this period provided that the trading periods and these sequencing schedules are designed to be fair and equitable over time. The portfolio management teams currently base their trading periods and rotation schedules on the relative amounts of assets managed for different client categories (e.g., unconstrained client accounts, wrap program accounts, etc.) and, as a result, the Company may trade behind other Accounts. Within a given trading period, the sequencing schedule establishes when and how frequently a given client category will trade first in the order of rotation. The investment adviser may deviate from the predetermined sequencing schedule under certain circumstances, and the investment advisers trade sequencing and rotation policy may be amended, modified or supplemented at any time without prior notice to clients.
Investments in Goldman Sachs Funds
To the extent permitted by applicable law, the Company may invest in money market and other funds sponsored, managed or advised by Goldman Sachs. In connection with any such investments, the Company, to the extent permitted by the Investment Company Act, will indirectly pay all advisory, administrative or Rule 12b-1 fees applicable to the investment, and fees to the investment adviser in its capacity as manager will not be reduced thereby (i.e., there could be double fees involved in making any such investment because Goldman
60
Sachs could receive fees with respect to both the Companys management and such money market fund). In such circumstances, as well as in all other circumstances in which Goldman Sachs receives any fees or other compensation in any form relating to the provision of services, no accounting or repayment to the Company will be required.
Goldman Sachs May In-Source or Outsource
Subject to applicable law, Goldman Sachs, including the investment adviser, may from time to time and without notice to investors in-source or outsource certain processes or functions in connection with a variety of services that it provides to the Company in its administrative or other capacities. Such in-sourcing or outsourcing may give rise to additional conflicts of interest.
Goldman Sachs May Act in a Capacity Other Than Investment Adviser to the Company
Cross Transactions
When permitted by applicable law and the investment advisers and the Companys policies, the investment adviser, acting on the Companys behalf, may enter into transactions in securities and other instruments with or through Goldman Sachs, and may cause the Company to engage in transactions in which the investment adviser, advises both sides of a transaction (cross transactions) and acts as broker for, and receives a commission from, the Company on one side of a transaction and a brokerage account on the other side of the transaction (agency cross transactions). There may be potential conflicts of interest or regulatory restrictions relating to these transactions which could limit the investment advisers ability to engage in these transactions for the Company. Goldman Sachs may have a potentially conflicting division of loyalties and responsibilities to the parties in such transactions, and has developed policies and procedures in relation to such transactions and conflicts. Any cross or agency cross transactions will be effected in accordance with fiduciary requirements and applicable law (which may include disclosure and consent).
Goldman Sachs May Act in Multiple Commercial Capacities
To the extent permitted by applicable law, Goldman Sachs may act as broker, dealer, agent, lender or advisor or in other commercial capacities for the Company or issuers of securities held by the Company. Goldman Sachs may be entitled to compensation in connection with the provision of such services, and the Company will not be entitled to any such compensation. Goldman Sachs will have an interest in obtaining fees and other compensation in connection with such services that are favorable to Goldman Sachs, and may take commercial steps in its own interests in connection with providing such services that negatively affect the Company. For example, Goldman Sachs may require repayment of all or part of a loan at any time and from time to time or declare a default under an agreement with the Company or a portfolio company of the Company, liquidate the Companys assets or redeem positions more rapidly (and at significantly lower prices) than might otherwise be desirable. In addition, due to its access to and knowledge of funds, markets and securities based on its other businesses, Goldman Sachs may make decisions based on information or take (or refrain from taking) actions with respect to interests in investments of the kind held directly or indirectly by the Company in a manner that may be adverse to the Company. Goldman Sachs may also derive benefits from providing services to the Company, which may enhance Goldman Sachs relationships with various parties, facilitate additional business development and enable Goldman Sachs to obtain additional business and generate additional revenue.
Subject to applicable law, Goldman Sachs or Accounts may invest in the Company and such investments may constitute substantial percentages of the Companys outstanding equity securities.
To the extent permitted by applicable law, Goldman Sachs may create, write, sell, issue, invest in or act as placement agent or distributor of derivative instruments related to the Company, or with respect to the
61
Companys underlying securities or assets, or which may be otherwise based on or seek to replicate or hedge the Companys performance. Such derivative transactions, and any associated hedging activity, may differ from and be adverse to the interests of the Company.
Goldman Sachs may make loans or enter into asset-based or other credit facilities or similar transactions that are secured by a clients assets or interests, including the Companys stock, interests in an Account or assets in which the Company or an Account has an interest. In connection with its rights as lender, Goldman Sachs may take actions that adversely affect the Account and which may in turn adversely affect the Company (e.g., if the Company holds the same type of security that is providing the credit support to the borrower Account, such holding may be disadvantaged when the borrower Account liquidates assets in response to an action taken by Goldman Sachs).
Code of Ethics and Personal Trading
Each of the Company and GSAM, as the Companys investment adviser, has adopted a Code of Ethics (the Code of Ethics) in compliance with Section 17(j) of the Investment Company Act designed to provide that personnel of the investment adviser, and certain additional Goldman Sachs personnel who support the investment adviser, comply with applicable federal securities laws and place the interests of clients first in conducting personal securities transactions. The Code of Ethics imposes certain restrictions on securities transactions in the personal accounts of covered persons to help avoid conflicts of interest. Subject to the limitations of the Code of Ethics, covered persons may buy and sell securities or other investments for their personal accounts, including investments in the Company, and may also take positions that are the same as, different from, or made at different times than, positions taken by the Company. Additionally, Goldman Sachs personnel, including personnel of the investment adviser, are subject to firm-wide policies and procedures regarding confidential and proprietary information, information barriers, private investments, outside business activities and personal trading.
Proxy Voting by the Investment Adviser
The investment adviser has adopted policies and procedures designed to prevent conflicts of interest from influencing proxy voting decisions that it makes on behalf of advisory clients, including the Company, and to help ensure that such decisions are made in accordance with its fiduciary obligations to its clients. Notwithstanding such proxy voting policies and procedures, proxy voting decisions made by the investment adviser with respect to securities held by the Company may benefit the interests of Goldman Sachs and Accounts other than the Company.
Potential Limitations and Restrictions on Investment Opportunities and Activities of the Investment Adviser and the Company
The investment adviser may restrict its investment decisions and activities on the Companys behalf in various circumstances, including as a result of applicable regulatory requirements, information held by Goldman Sachs, Goldman Sachs internal policies and/or potential reputational risk or disadvantage to Accounts, including the Company, and Goldman Sachs. As a result, the investment adviser might not engage in transactions for the Company in consideration of Goldman Sachs activities outside services provided to the Company (e.g., the investment adviser may refrain from making investments for the Company that would cause Goldman Sachs to exceed position limits or cause Goldman Sachs to have additional disclosure obligations and may limit purchases or sales of securities in respect of which Goldman Sachs is engaged in an underwriting or other distribution). In addition, the investment adviser is not permitted to obtain or use material non-public information in effecting purchases and sales in public securities transactions for the Company. The investment adviser may also limit the activities and transactions engaged in by the Company, and may limit its exercise of rights on the Companys behalf or in respect of the Company, for reputational or other reasons, including where Goldman Sachs is providing (or may provide) advice or services to an entity involved in such activity or transaction, where Goldman Sachs or an Account is or may be engaged in the same or a related transaction to that being considered
62
on the Companys behalf, where Goldman Sachs or an Account has an interest in an entity involved in such activity or transaction, or where such activity or transaction or the exercise of such rights on the Companys behalf or in respect of the Company could affect Goldman Sachs, the investment adviser or their activities.
Brokerage Transactions
The investment adviser may select broker-dealers (including affiliates of the investment adviser) that furnish the investment adviser, the Company, their affiliates and other Goldman Sachs personnel with proprietary or third-party brokerage and research services (collectively, brokerage and research services) that provide, in the investment advisers view, appropriate assistance to the investment adviser in the investment decision-making process. As a result, the investment adviser may pay for such brokerage and research services with soft or commission dollars.
Brokerage and research services may be used to service the Company and any or all other Accounts, including in connection with Accounts other than those that pay commissions to the broker-dealer relating to the brokerage and research service arrangements. As a result, the brokerage and research services (including soft dollar benefits) may disproportionately benefit other Accounts relative to the Company based on the amount of commissions paid by the Company in comparison to such other Accounts. The investment adviser does not attempt to allocate soft dollar benefits proportionately among clients or to track the benefits of brokerage and research services to the commissions associated with a particular Account or group of Accounts.
Since the Company will generally acquire and dispose of investments in privately negotiated transactions, it will infrequently use brokers in the normal course of its business. Subject to policies established by the Companys Board of Directors, the investment adviser will be primarily responsible for the execution of the publicly traded securities portion of its portfolio transactions and the allocation of brokerage commissions. The investment adviser does not expect to execute transactions through any particular broker or dealer, but will seek to obtain the best net results for the Company, taking into account such factors as price (including the applicable brokerage commission or dealer spread), size of order, difficulty of execution, and operational facilities of the firm and the firms risk and skill in positioning blocks of securities. While the investment adviser generally will seek reasonably competitive trade execution costs, the Company will not necessarily pay the lowest spread or commission available. Subject to applicable legal requirements, the investment adviser may select a broker based partly upon brokerage or research services provided to the investment adviser and the Company and any other Accounts. In return for such services, the Company may pay a higher commission than other brokers would charge if the investment adviser determines in good faith that such commission is reasonable in relation to the services provided.
Aggregation of Trades by the Investment Adviser
The investment adviser follows policies and procedures pursuant to which, subject to applicable law, it may combine or aggregate purchase or sale orders for the same security for multiple clients (sometimes called bunching) (including Accounts that are proprietary to Goldman Sachs), so that the orders can be executed at the same time. The investment adviser aggregates orders, when subject to applicable law, the investment adviser considers doing so appropriate and in the interests of its clients generally. In addition, under certain circumstances and subject to applicable law, trades for the Company may be aggregated with Accounts that contain Goldman Sachs assets.
When a bunched order is completely filled, the investment adviser generally will allocate the securities purchased or proceeds of sale pro rata among the participating Accounts, based on the purchase or sale order. If an order is filled at several different prices, through multiple trades (whether at a particular broker-dealer or among multiple broker-dealers), generally all participating Accounts will receive the average price and pay the average commission, however, this may not always be the case (due to, e.g., odd lots, rounding, market practice or constraints applicable to particular Accounts).
63
The investment adviser does not bunch or aggregate orders for different Accounts, or net buy and sell orders for the same Account, if portfolio management decisions relating to the orders are made separately, or if bunching, aggregating or netting is not appropriate or practicable from the investment advisers operational or other perspective. The investment adviser may be able to negotiate a better price and lower commission rate on aggregated trades than on trades that are not aggregated, and incur lower transaction costs on netted trades than trades that are not netted. Where transactions for an Account are not aggregated with other orders, or not netted against orders for the Company, the Company may not benefit from a better price and lower commission rate or lower transaction cost.
64
This prospectus contains forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by the use of forward-looking terminology such as may, will, should, expect, anticipate, project, estimate, intend, continue or believe or the negatives thereof or other variations thereon or comparable terminology. You should read statements that contain these words carefully because they discuss our plans, strategies, prospects and expectations concerning our business, operating results, financial condition and other similar matters. We believe that it is important to communicate our future expectations to our investors. Our forward-looking statements include information in this prospectus regarding general domestic and global economic conditions, our future financing plans, our ability to operate as a BDC and the expected performance of, and the yield on, our portfolio companies. In particular, there are forward-looking statements under SummaryThe Company, Business and Managements Discussion and Analysis of Financial Condition and Results of Operations. There may be events in the future, however, that we are not able to predict accurately or control. The factors listed under Risk Factors, as well as any cautionary language in this prospectus, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Before you invest in our common stock, you should be aware that the occurrence of the events described in these risk factors and elsewhere in this prospectus could have a material adverse effect on our business, results of operation and financial position. Any forward-looking statement made by us in this prospectus speaks only as of the date on which we make it. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Under Sections 27A(b)(2)(B) of the Securities Act and Section 21E(b)(2)(B) of the Exchange Act, the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 do not apply to statements made in connection with any offering of securities pursuant to this prospectus or in the periodic reports we file under the Exchange Act.
The following factors are among those that may cause actual results to differ materially from our forward-looking statements:
| our future operating results; |
| changes in political, economic or industry conditions, the interest rate environment or conditions affecting the financial and capital markets; |
| uncertainty surrounding the strength of the U.S. economic recovery; |
| our business prospects and the prospects of our prospective portfolio companies; |
| the impact of investments that we expect to make; |
| the impact of increased competition; |
| our contractual arrangements and relationships with third parties; |
| the dependence of our future success on the general economy and its impact on the industries in which we invest; |
| the ability of our prospective portfolio companies to achieve their objectives; |
| the relative and absolute performance of our investment adviser; |
| our expected financings and investments; |
65
| the use of borrowed money to finance a portion of our investments; |
| our ability to make distributions; |
| the adequacy of our cash resources and working capital; |
| the timing of cash flows, if any, from the operations of our prospective portfolio companies; |
| the impact of future acquisitions and divestitures; |
| the effect of changes to tax legislation and our tax position; |
| our ability to maintain our status as a BDC and a RIC; |
| actual and potential conflicts of interest with GSAM and its affiliates; |
| general price and volume fluctuations in the stock market; |
| the ability of GSAM to attract and retain highly talented professionals; and |
| the impact on our business of Dodd-Frank and the rules and regulations issued thereunder. |
66
We estimate that the net proceeds we will receive from the sale of shares of our common stock in this offering will be approximately $ million, based on an offering price of $ per share (the mid-point of the estimated initial public offering price range as set forth on the cover of this prospectus), after deducting the underwriting discounts and commissions paid to the underwriters and estimated offering expenses of approximately $ payable by us. Such estimate is subject to change and no assurances can be given that actual expenses will not exceed such amount. We expect to use proceeds from the closing of this offering to make investments consistent with our investment objectives, to repay a portion of our outstanding debt, including under our Revolving Credit Facility and for certain offering expenses and general corporate purposes. As of December 31, 2014, we had $350.00 million outstanding under our Revolving Credit Facility and the average interest rate, excluding fees (such as fees on undrawn amounts and amortization of financing costs), was 2.53%. Our Revolving Credit Facility matures on October 3, 2019, and borrowings under the Revolving Credit Facility, including amounts drawn in respect of letters of credit, bear interest (at our election) at either: (i) LIBOR plus 2.25% with no LIBOR floor or (ii) 1.25% plus an alternate base rate based on the highest of the Prime Rate, Federal Funds Rate plus 0.5% or overnight LIBOR plus 1.00%. See Managements Discussion and Analysis of Financial Condition and Results of OperationsRecent Developments and Financial Condition, Liquidity and Capital ResourcesRevolving Credit Facility.
We anticipate that substantially all of the net proceeds of this offering will be invested within six months of the closing of this offering, in accordance with our investment objectives and strategies, depending on the availability of appropriate investment opportunities and market conditions. The time period during which we anticipate investing such proceeds can be affected by a number of factors. We cannot assure you we will achieve our targeted investment pace.
During the period when the proceeds of this offering are not fully invested, we expect that our investment earnings, and hence the return to stockholders, will be lower than after we are fully invested. See RegulationTemporary Investments for additional information about temporary investments we may make while waiting to make longer-term investments in pursuit of our investment objectives.
67
We intend to continue to pay quarterly distributions to our stockholders out of assets legally available for distribution. Future quarterly distributions, if any, will be determined by our Board of Directors. All future distributions will be subject to lawfully available funds therefor, and no assurance can be given that we will be able to declare such distributions in future periods.
We have elected to be treated, and intend to qualify annually, as a RIC under Subchapter M of the Code, commencing with our taxable year ended December 31, 2013. To obtain and maintain RIC status, we must, among other things, timely distribute to our stockholders at least 90% of our investment company taxable income for each taxable year. We intend to timely distribute to our stockholders substantially all of our annual taxable income for each year, except that we may retain certain net capital gains (i.e., realized net long-term capital gains in excess of realized net short-term capital losses) for reinvestment and, depending upon the level of taxable income earned in a year, we may choose to carry forward taxable income for distribution in the following year and pay any applicable U.S. federal excise tax. We generally will be required to pay such U.S. federal excise tax if our distributions during a calendar year do not exceed the sum of (1) 98.0% of our net ordinary income (taking into account certain deferrals and elections) for the calendar year, (2) 98.2% of our capital gains in excess of capital losses for the one-year period ending on October 31 of the calendar year and (3) any net ordinary income and capital gains in excess of capital losses for preceding years that were not distributed during such years. If we retain net capital gains, we may treat such amounts as deemed distributions to our stockholders. In that case, you will be treated as if you had received an actual distribution of the capital gains we retained and then you reinvested the net after-tax proceeds in our common stock. In general, you also will be eligible to claim a tax credit (or, in certain circumstances, obtain a tax refund) equal to your allocable share of the tax we paid on the capital gains deemed distributed to you. Stockholders should read carefully any written disclosure accompanying a distribution from us and should not assume that the source of any distribution is our net ordinary income or capital gains. The distributions we pay to our stockholders in a year may exceed our net ordinary income and capital gains for that year and, accordingly, a portion of such distributions may constitute a return of capital for U.S. federal income tax purposes. The specific tax characteristics of our distributions will be reported to stockholders after the end of the calendar year. Please refer to U.S. Federal Income Tax Considerations for further information regarding the tax treatment of our distributions and the tax consequences of our retention of net capital gains. See also Risk FactorsRisks Relating to this Offering and Our Common StockWe may not be able to pay you distributions on our common stock, our distributions to you may not grow over time and a portion of our distributions to you may be a return of capital for U.S. federal income tax purposes.
Unless you elect to receive your distributions in cash, we intend to make such distributions in additional shares of our common stock under our dividend reinvestment plan. Distributions paid in the form of additional shares of our common stock will generally be subject to U.S. federal, state and local taxes in the same manner as cash distributions and, for this purpose, investors receiving distributions in the form of stock will generally be treated as receiving distributions equal to the fair market value of the stock received through the plan; however, investors participating in our dividend reinvestment plan will not receive any corresponding cash with which to pay any such applicable taxes. If you hold shares of our common stock through a broker or financial intermediary, you may elect to receive distributions in cash by notifying your broker or financial intermediary of your election to receive distributions in cash in lieu of shares of our common stock. Any distributions reinvested through the issuance of shares through our dividend reinvestment plan will increase our assets on which the Management Fee and the Incentive Fee are determined and paid to the investment adviser. See Dividend Reinvestment Plan.
Distributions Declared
Our Board of Directors has declared a distribution of $0.45 per share for the quarter ending March 31, 2015 to stockholders of record as of March 31, 2015. Shares of common stock offered pursuant to this prospectus will be entitled to receive this distribution, which is payable on April 30, 2015. We anticipate that this distribution will be paid from income generated primarily by interest income earned on our investment portfolio.
68
The following table summarizes the distributions declared for the fiscal years ended December 31, 2013, 2014 and 2015. There were no distributions declared during the period ended December 31, 2012.
Period |
Payment Date |
Amount |
||||
Second Quarter 2013 |
July 22, 2013 | $ | 0.08 | |||
Third Quarter 2013 |
October 21, 2013 | $ | 0.19 | |||
Fourth Quarter 2013 |
January 30, 2014 | $ | 0.23 | |||
|
|
|||||
Total Declared for 2013 |
$ | 0.50 | ||||
|
|
|||||
First Quarter 2014 |
April 30, 2014 | $ | 0.33 | |||
Second Quarter 2014 |
July 31, 2014 | $ | 0.41 | |||
Third Quarter 2014 |
October 31, 2014 | $ | 0.42 | |||
Fourth Quarter 2014 |
January 30, 2015 | $ | 0.53 | |||
|
|
|||||
Total Declared for 2014 |
$ | 1.69 | ||||
|
|
|||||
First Quarter 2015 |
April 30, 2015 | $ | 0.45 | |||
|
|
|||||
Total Declared for 2015 |
$ | 0.45 | ||||
|
|
69
The following table sets forth our capitalization as of December 31, 2014 and on an adjusted basis to give effect to this offering at an assumed public offering price of $ per share (the mid-point of the estimated initial public offering price range as set forth on the cover of this prospectus) after deducting the underwriting discounts and commissions and estimated offering expenses of approximately $ million payable by us.
You should read this table together with Use of Proceeds and the financial statements and the related notes thereto included elsewhere in this prospectus.
As of December 31, 2014 |
||||||
Actual (in thousands) |
As
|
|||||
Assets |
||||||
Cash |
$ | 8,609 | ||||
Investments, at fair value |
913,947 | |||||
Investments in affiliated money market fund |
29,568 | |||||
Other assets |
15,368 | |||||
Total assets |
967,492 | |||||
Liabilities: |
||||||
Debt |
350,000 | |||||
Other liabilities |
42,910 | |||||
Total liabilities |
392,910 | |||||
Net assets: |
||||||
Common Stock, par value $0.001 per share (200,000,000 shares authorized, 29,381,127 shares issued and outstanding) |
29 | |||||
Paid-in capital in excess of par |
587,882 | |||||
Accumulated net realized gain (loss) |
(2,212 | ) | ||||
Accumulated undistributed net investment income |
4,058 | |||||
Net unrealized appreciation (depreciation) on investments |
(13,754 | ) | ||||
Allocated income tax expense |
(1,421 | ) | ||||
Total net assets |
574,582 | |||||
Total liabilities and net assets |
967,492 | |||||
Net asset value per share |
19.56 |
70
The dilution to investors in this offering is represented by the difference between the offering price per share of our common stock and the pro forma NAV per share of our common stock after this offering. NAV per share is determined by dividing our NAV, which is our total tangible assets less total liabilities, by the number of outstanding shares of common stock.
As of December 31, 2014, we had 29,381,127 shares of common stock outstanding and as of December 31, 2014, our NAV was $574.58 million, or approximately $ 19.56 per share. After giving effect to the sale of the shares of common stock to be sold in this offering (at the mid-point of the estimated initial public offering price range as set forth on the cover of this prospectus), and the deduction of discounts and estimated offering expenses, our as-adjusted net NAV as of December 31, 2014 would be approximately $ million, or $ per share, representing an immediate dilution of $ per share, or %, to shares sold in this offering. The following illustration assumes no exercise of the underwriters over-allotment option. If the underwriters over-allotment is exercised in full, there would be an immediate dilution to the NAV of $ per share, or %, to the shares sold in this offering.
The following table illustrates the dilution to the shares on a per share basis:
Assumed initial public offering price per share (the mid-point of the estimated initial public offering price range as set forth on the cover of this prospectus) |
$ | |||
December 31, 2014 NAV per share |
$ | |||
Increase attributable to this offering |
$ | |||
As-adjusted NAV per share immediately after this offering |
$ | |||
Dilution per share to stockholders participating in this offering (without exercise of the over-allotment option) |
$ |
The following table sets forth information with respect to the shares prior to and following this offering (without exercise of the underwriters over-allotment option):
Shares
|
Total
|
Average
|
||||||||||||||||
Number |
% |
Amount |
% |
|||||||||||||||
Shares outstanding |
% | $ | % | $ | ||||||||||||||
Shares to be sold in this offering |
% | $ | % | $ | ||||||||||||||
Total |
100.0 | % | $ | 100.0 | % | $ |
The as-adjusted NAV upon completion of this offering is calculated as follows:
Numerator: |
||||
NAV |
$ | |||
Assumed proceeds from this offering (after deduction of sales load and offering expenses payable by us) |
$ | |||
NAV upon completion of this offering |
$ | |||
Denominator: |
||||
Shares outstanding |
||||
Shares included in this offering |
71
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and other parts of this prospectus contain forward-looking information that involves risks and uncertainties. The discussion and analysis contained in this section refers to our financial condition, results of operations and cash flows. Please see Risk Factors and Forward-Looking Statements for a discussion of the uncertainties, risks and assumptions associated with this discussion and analysis. Our actual results could differ materially from those anticipated by such forward-looking information due to factors discussed under Risk Factors and Forward-Looking Statements appearing elsewhere in this prospectus.
OVERVIEW
We are a specialty finance company focused on lending to middle-market companies. Since we were formed in 2012, we have originated more than $1.27 billion in aggregate principal amount of debt and equity investments prior to any subsequent exits and repayments. We seek to generate current income and, to a lesser extent, capital appreciation through direct originations of secured debt, including first lien, first lien/last-out unitranche and second lien debt, unsecured debt, including mezzanine debt, and, to a lesser extent, investments in equities.
We invest primarily in U.S. middle-market companies, which we believe have been underserved in recent years by traditional providers of capital such as banks and the public debt markets. However, we may from time to time invest in larger or smaller companies. In this prospectus, we generally use the term middle-market to refer to companies with EBITDA of between $5 million and $75 million annually. However, we may from time to time invest in larger or smaller companies.
Our origination strategy focuses on leading the negotiation and structuring of the loans or securities in which we invest and holding the investments in our portfolio to maturity. In many cases, we are the sole investor in the loan or security in our portfolio. Where there are multiple investors, we generally seek to control or obtain significant influence over the rights of investors in the loan or security. Our investments typically have maturities between three and ten years and generally range in size between $10 million and $75 million, although we may make larger or smaller investments on occasion. In addition, part of our strategy involves an investment in the Senior Credit Fund with Cal Regents.
KEY COMPONENTS OF OPERATIONS
Investments
Our level of investment activity can and does vary substantially from period to period depending on many factors, including the amount of debt and equity capital available to middle-market companies, the level of merger and acquisition activity for such companies, the general economic environment, the amount of capital we have available to us and the competitive environment for the type of investments we make.
As a BDC, we must not acquire any assets other than qualifying assets specified in the Investment Company Act unless, at the time the acquisition is made, at least 70% of our total assets are qualifying assets (with certain limited exceptions). Qualifying assets include investments in eligible portfolio companies. Pursuant to rules adopted by the SEC, eligible portfolio companies include certain companies that do not have any securities listed on a national securities exchange and public companies whose securities are listed on a national securities exchange but whose market capitalization is less than $250 million. See Regulation.
Revenues
We generate revenue in the form of interest income on debt investments and, to a lesser extent, capital gains and distributions, if any, on investment securities that we may acquire in portfolio companies. In some
72
cases, some of our investments may provide for deferred interest payments or PIK interest. The principal amount of the debt investments and any accrued but unpaid interest generally becomes due at the maturity date.
In addition, we may generate revenue in the form of commitment, origination, structuring or diligence fees, fees for providing managerial assistance and consulting fees. Loan origination fees, original issue discount and market discount or premium are capitalized, and we accrete or amortize such amounts into income. We record contractual prepayment premiums on loans and debt securities as income.
Dividend income on preferred equity investments, if any, is recorded on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity investments, if any, is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies.
Expenses
Our primary operating expenses include the payment of the Management Fee and the Incentive Fee to our investment adviser, legal and professional fees, interest and credit facility expenses and other operating and overhead related expenses. Our management and incentive fees compensate our investment adviser for its work in identifying, evaluating, negotiating, closing and monitoring our investments. The Company bears all other costs and expenses of our operations and transactions in accordance with our Investment Management Agreement and our Administration Agreement (See ManagementInvestment Management Agreement and ManagementOur Administrator), including those relating to:
| our operational and organizational expenses; |
| fees and expenses, including travel expenses, incurred by our investment adviser or payable to third parties related to our investments, including, among others, professional fees (including, without limitation, the fees and expenses of consultants and experts) and fees and expenses from evaluating, monitoring, researching and performing due diligence on investments and prospective investments; |
| interest payable on debt, if any, incurred to finance our investments; |
| fees and expenses incurred by us in connection with membership in investment company organizations; |
| brokers commissions; |
| fees and expenses associated with calculating our NAV (including the costs and expenses of any independent valuation firm); |
| legal, auditing or accounting expenses; |
| taxes or governmental fees; |
| the fees and expenses of our administrator, transfer agent or sub-transfer agent; |
| the cost of preparing stock certificates or any other expenses, including clerical expenses of issue, redemption or repurchase of our shares; |
| the expenses of and fees for registering or qualifying our shares for sale and of maintaining our registration and registering us as a broker or a dealer; |
73
| the fees and expenses of our directors who are not affiliated with our investment adviser; |
| the cost of preparing and distributing reports, proxy statements and notices to our stockholders, the SEC and other regulatory authorities; |
| costs of holding stockholder meetings; |
| listing fees; |
| the fees or disbursements of custodians of our assets, including expenses incurred in the performance of any obligations enumerated by our certificate of incorporation or bylaws insofar as they govern agreements with any such custodian; |
| insurance premiums; and |
| costs incurred in connection with any claim, litigation, arbitration, mediation, government investigation or dispute in connection with our business and the amount of any judgment or settlement paid in connection therewith, or the enforcement of our rights against any person and indemnification or contribution expenses payable by us to any person and other extraordinary expenses not incurred in the ordinary course of our business. |
During periods of asset growth, we expect our general and administrative expenses to be relatively stable or decline as a percentage of total assets and increase during periods of asset declines. Incentive Fees and costs relating to future offerings of securities would be incremental.
We also incur interest and credit facility expenses in connection with our Revolving Credit Facility, which is comprised of interest expenses, amortization of financing costs, and commitment fees on the unused portion of the Revolving Credit Facility.
Leverage
Our Revolving Credit Facility allows us to borrow money and lever our investment portfolio, subject to the limitations of the Investment Company Act, with the objective of increasing our yield. This is known as leverage and could increase or decrease returns to our stockholders. The use of leverage involves significant risks. As a BDC, with certain limited exceptions, we will only be permitted to borrow amounts such that our asset coverage ratio, as defined in the Investment Company Act, equals at least 2 to 1 after such borrowing. Certain trading practices and investments, such as reverse repurchase agreements, may be considered borrowings or involve leverage and thus subject to Investment Company Act restrictions. In accordance with applicable SEC staff guidance and interpretations, when we engage in such transactions, instead of maintaining asset coverage ratio of at least 2 to 1, we will segregate or earmark liquid assets, or enter into an offsetting position, in an amount at least equal to our exposure, on a mark-to-market basis, to such transactions (as calculated pursuant to requirements of the SEC). Short-term credits necessary for the settlement of securities transactions and arrangements with respect to securities lending will not be considered borrowings for these purposes. Practices and investments that may involve leverage but are not considered borrowings are not subject to the Investment Company Acts asset coverage requirement and we will not otherwise segregate or earmark liquid assets or enter into offsetting positions for such transactions. The amount of leverage that we employ will depend on our investment advisers and our Board of Directors assessment of market conditions and other factors at the time of any proposed borrowing.
74
PORTFOLIO AND INVESTMENT ACTIVITY
As of December 31, 2014 and December 31, 2013, our portfolio (excluding our investment in a money market fund managed by an affiliate of Group Inc. of $29.57 million and $120.52 million, respectively), consisted of the following:
As of |
||||||||||||||||||||||||
December 31, 2014 |
December 31, 2013 |
|||||||||||||||||||||||
Amortized
|
Fair Value |
Percentage
|
Amortized
|
Fair Value |
Percentage
|
|||||||||||||||||||
($ in millions) | ($ in millions) | |||||||||||||||||||||||
First Lien |
$ | 244.59 | $ | 235.20 | 25.7 | % | $ | 174.46 | $ | 177.63 | 36.0 | % | ||||||||||||
First Lien, Last-Out Unitranche |
276.32 | 275.57 | 30.2 | 32.24 | 32.24 | 6.5 | ||||||||||||||||||
Second Lien |
352.14 | 351.56 | 38.4 | 256.32 | 255.89 | 51.9 | ||||||||||||||||||
Unsecured |
| | | 9.53 | 7.10 | 1.4 | ||||||||||||||||||
Preferred Stock |
25.20 | 26.36 | 2.9 | 20.00 | 20.56 | 4.2 | ||||||||||||||||||
Common Stock |
4.45 | 0.63 | 0.1 | | | | ||||||||||||||||||
Investment Funds and Vehicles |
25.00 | 24.63 | 2.7 | | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total Investments |
$ | 927.70 | $ | 913.95 | 100.0 | % | $ | 492.55 | $ | 493.42 | 100.0 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Our investment adviser monitors our portfolio companies on an ongoing basis. It monitors the financial trends of each portfolio company to determine if they are meeting their respective business plans and to assess the appropriate course of action for each company. Our investment adviser has several methods of evaluating and monitoring the performance and fair value of our investments, which may include the following:
| assessment of success in adhering to the portfolio companys business plan and compliance with covenants; |
| periodic or regular contact with portfolio company management and, if appropriate, the financial or strategic sponsor, to discuss financial position, requirements and accomplishments; |
| comparisons to our other portfolio companies in the industry, if any; |
| attendance at and participation in board meetings or presentations by portfolio companies; and |
| review of monthly and quarterly financial statements and financial projections of portfolio companies. |
As part of the monitoring process, our investment adviser also employs an investment rating system to categorize our investments. In addition to various risk management and monitoring tools, our investment adviser grades the credit risk of all investments on a scale of 1 to 4 no less frequently than quarterly. This system is intended primarily to reflect the underlying risk of a portfolio investment relative to our initial cost basis in respect of such portfolio investment (i.e., at the time of origination or acquisition), although it may also take into account under certain circumstances the performance of the portfolio companys business, the collateral coverage of the investment and other relevant factors. The grading system is as follows:
| investments with a grade of 1 involve the least amount of risk to our initial cost basis. The trends and risk factors for this investment since origination or acquisition are generally favorable, which may include the performance of the portfolio company or a potential exit; |
75
| investments graded 2 involve a level of risk to our initial cost basis that is similar to the risk to our initial cost basis at the time of origination or acquisition. This portfolio company is generally performing as expected and the risk factors to our ability to ultimately recoup the cost of our investment are neutral to favorable. All investments or acquired investments in new portfolio companies are initially assessed a grade of 2; |
| investments graded 3 indicate that the risk to our ability to recoup the initial cost basis of such investment has increased materially since origination or acquisition, including as a result of factors such as declining performance and non-compliance with debt covenants; however, payments are generally not more than 120 days past due; and |
| an investment grade of 4 indicates that the risk to our ability to recoup the initial cost basis of such investment has substantially increased since origination or acquisition, and the portfolio company likely has materially declining performance. For debt investments with an investment grade of 4, most or all of the debt covenants are out of compliance and payments are substantially delinquent. For investments graded 4, it is anticipated that we will not recoup our initial cost basis and may realize a substantial loss of our initial cost basis upon exit. |
Our investment adviser grades the investments in our portfolio at least each quarter and it is possible that the grade of a portfolio investment may be reduced or increased over time. For investments graded 3 or 4, our investment adviser enhances its level of scrutiny over the monitoring of such portfolio company. The following table shows the distribution of our investments, excluding our investment in a money market fund managed by an affiliate of Group Inc., on the 1 to 4 grading scale as of December 31, 2014 and December 31, 2013.
As of |
||||||||||||||||
December 31, 2014 |
December 31, 2013 |
|||||||||||||||
Investment Performance Rating |
Fair Value |
Percentage
|
Fair Value |
Percentage
|
||||||||||||
($ in
millions) |
($ in
millions) |
|||||||||||||||
Grade 1 |
$ | 11.44 | 1.2 | % | $ | | | % | ||||||||
Grade 2 |
843.44 | 92.3 | 488.97 | 99.1 | ||||||||||||
Grade 3 |
59.07 | 6.5 | | | ||||||||||||
Grade 4 |
| | 4.45 | 0.9 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Investments |
$ | 913.95 | 100.0 | % | $ | 493.42 | 100.0 | % | ||||||||
|
|
|
|
|
|
|
|
The following table shows the amortized cost of our performing and non-accrual investments as of December 31, 2014 and December 31, 2013.
As of |
||||||||||||||||
December 31, 2014 |
December 31, 2013 |
|||||||||||||||
Amortized
|
Percentage
|
Amortized
|
Percentage
|
|||||||||||||
(in millions) | (in millions) | |||||||||||||||
Performing |
$ | 927.70 | 100.0 | % | $ | 485.64 | 98.6 | % | ||||||||
Non-accrual |
| | 6.91 | 1.4 | % | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Investments |
$ | 927.70 | 100.0 | % | $ | 492.55 | 100.0 | % | ||||||||
|
|
|
|
|
|
|
|
76
Loans or debt securities are placed on non-accrual status when there is reasonable doubt that principal or interest will be collected. Accrued interest generally is reversed when a loan or debt security is placed on non-accrual status. Interest payments received on non-accrual loans or debt securities may be recognized as income or applied to principal depending upon managements judgment. Non-accrual loans and debt securities are restored to accrual status when past due principal and interest is paid and, in managements judgment, are likely to remain current. We may make exceptions to this treatment if the loan has sufficient collateral value and is in the process of collection.
As of December 31, 2014 and December 31, 2013, the weighted average yield on our portfolio (excluding our investment in a money market fund managed by an affiliate of Group Inc.), at cost and fair value (both of which includes interest income and amortization of fees and discounts) were as follows:
As of |
||||||||||||||||
December 31, 2014 |
December 31, 2013 |
|||||||||||||||
Amortized
|
Fair
|
Amortized
|
Fair
|
|||||||||||||
Weighted Average Yield |
||||||||||||||||
First Lien |
11.2 | % | 12.3 | % | 10.3 | % | 9.9 | % | ||||||||
First Lien, Last-OutUnitranche |
10.9 | % | 11.0 | % | 10.8 | % | 10.8 | % | ||||||||
Second Lien |
11.2 | % | 11.2 | % | 11.2 | % | 11.2 | % | ||||||||
Unsecured |
| % | | % | 2.2 | % | 2.9 | % | ||||||||
Preferred Stock |
9.7 | % | 9.3 | % | 12.0 | % | 11.4 | % | ||||||||
Common Stock |
0.0 | % | 0.0 | % | | % | | % | ||||||||
Investment Funds and Vehicles |
5.0 | % | 5.0 | % | | % | | % | ||||||||
Total Portfolio |
10.9 | % | 11.2 | % | 10.7 | % | 10.6 | % |
77
The following table shows the investment activity for the years ended December 31, 2014 and 2013 and the period ended December 31, 2012 by investment type:
Year Ended
|
Year Ended
|
For the
period
2012 |
||||||||||
($ in millions) | ||||||||||||
Amount of investments committed at cost: |
||||||||||||
First Lien |
$ | 284.17 | $ | 198.24 | $ | 19.10 | ||||||
First Lien, Last-Out Unitranche |
254.07 | 32.24 | | |||||||||
Second Lien |
155.63 | 235.73 | 23.93 | |||||||||
Unsecured |
| 5.19 | 6.93 | |||||||||
Preferred Stock |
4.79 | 20.00 | | |||||||||
Common Stock |
| | | |||||||||
Investment Funds and Vehicles |
25.00 | | | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 723.66 | $ | 491.40 | $ | 49.96 | ||||||
|
|
|
|
|
|
|||||||
Proceeds from investments sold or repaid: |
||||||||||||
First Lien |
$ | 192.97 | $ | 29.69 | | |||||||
First Lien, Last-Out Unitranche |
1.66 | | | |||||||||
Second Lien |
66.47 | 4.05 | | |||||||||
Unsecured |
2.63 | 2.84 | | |||||||||
Preferred Stock |
| | | |||||||||
Common Stock |
| | | |||||||||
Investment Funds and Vehicles |
| | | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 268.73 | $ | 36.58 | $ | | ||||||
|
|
|
|
|
|
|||||||
Net increase (decrease) in portfolio |
$ | 459.93 | $ | 454.82 | $ | 49.96 | ||||||
|
|
|
|
|
|
|||||||
Number of new investment commitments in new portfolio companies (1) |
22 | 22 | 6 | |||||||||
Total new investment commitment amount in new portfolio companies (1) |
$ | 625.61 | 457.36 | 49.96 | ||||||||
Average new investment commitment amount in new portfolio companies (1) |
$ | 28.44 | 20.79 | 8.33 | ||||||||
Weighted average remaining term for new investment commitments in new portfolio companies (in years) (1)(2) |
4.8 | 5.5 | 6.3 | |||||||||
Number of new investment commitments in existing portfolio companies (1) |
10 | 4 | | |||||||||
Total new investment commitment amount in existing portfolio companies (1) |
$ | 98.05 | 34.04 | | ||||||||
Percentage of new debt investment commitments in new portfolio companies at floating interest rates (1) |
88.9 | % | 78.3 | % | 28.6 | % | ||||||
Percentage of new debt investment commitments in new portfolio companies at fixed interest rates (1)(3) |
11.1 | % | 21.7 | % | 71.4 | % | ||||||
Weighted average stated interest rate of new investment commitments in new portfolio companies (1) |
9.2 | % | 10.4 | % | 10.8 | % | ||||||
Weighted average spread over LIBOR of new floating rate investment commitments in new portfolio companies (1) |
8.0 | % | 9.2 | % | 9.1 | % | ||||||
Weighted average stated interest rate on investments sold or paid down |
8.7 | % | 9.5 | % | | % |
78
(1) | May include positions originated during the relevant period but not held as of the end of the relevant period. |
(2) | Calculated as of the end of the relevant period based on the maturity date of the individual investments. |
(3) | May include preferred stock investments. |
RESULTS OF OPERATIONS
Operating results for the years ended December 31, 2014 and 2013 and the period ended December 31, 2012 were as follows:
Year Ended
|
Year Ended
|
For the
period
2012 |
||||||||||
($ in millions) | ||||||||||||
Total investment income |
$ | 73.28 | $ | 22.84 | $ | 0.16 | ||||||
Net expenses |
(20.42 | ) | (6.90 | ) | (0.35 | ) | ||||||
|
|
|
|
|
|
|||||||
Net investment income (loss) before taxes |
52.86 | 15.94 | (0.19 | ) | ||||||||
Excise tax expense |
(0.12 | ) | | | ||||||||
|
|
|
|
|
|
|||||||
Net investment income (loss) after taxes |
52.74 | 15.94 | (0.19 | ) | ||||||||
Net realized gain (loss) on investments |
(1.19 | ) | 3.29 | | ||||||||
Net unrealized appreciation (depreciation) on investments |
(14.63 | ) | (0.18 | ) | 1.05 | |||||||
|
|
|
|
|
|
|||||||
Net increase in net assets resulting from operations before taxes |
36.92 | 19.05 | 0.86 | |||||||||
Income tax expense |
| (1.07 | ) | (0.35 | ) | |||||||
|
|
|
|
|
|
|||||||
Net increase in net assets resulting from operations after taxes |
$ | 36.92 | $ | 17.98 | $ | 0.51 | ||||||
|
|
|
|
|
|
Net increase in net assets resulting from operations after tax can vary from period to period as a result of various factors, including acquisitions, the level of new investment commitments, the recognition of realized gains and losses and changes in unrealized appreciation and depreciation on the investment portfolio. As a result, comparisons may not be meaningful.
Investment Income
Year Ended
|
Year Ended
|
For the period
|
||||||||||
($ in millions) | ||||||||||||
Interest |
$ | 69.46 | $ | 22.82 | $ | 0.16 | ||||||
Dividend Income |
3.19 | 0.02 | | |||||||||
Other Income |
0.63 | | | |||||||||
|
|
|
|
|
|
|||||||
Total investment income |
$ | 73.28 | $ | 22.84 | $ | 0.16 | ||||||
|
|
|
|
|
|
The increase in our investment income for the year ended December 31, 2014, as compared to the year ended December 31, 2013, was primarily attributable to the fact that our investment portfolio increased from $492.55 million to $927.70 million on a cost basis.
79
The increase in our investment income for the year ended December 31, 2013 as compared to the period ended December 31, 2012, was primarily attributable to the fact that our investment portfolio increased from $48.92 million to $492.55 million on a cost basis. In addition, when comparing the two periods, we note that we received investment income for the prior period for a shorter period of time as compared to our investment income for the year ended December 31, 2013, which reflects a full-year of investment income from our investment portfolio.
Expenses
Year Ended
|
Year Ended
|
For the
period
2012 |
||||||||||
($ in millions) | ||||||||||||
Interest and credit facility expenses |
$ | 4.68 | $ | 0.66 | $ | | ||||||
Management fees |
10.07 | 3.59 | 0.07 | |||||||||
Incentive fees |
1.50 | 0.34 | 0.21 | |||||||||
Professional fees |
2.01 | 1.05 | 0.04 | |||||||||
Administration and custodian fees |
0.84 | 0.47 | 0.02 | |||||||||
Directors fees |
0.40 | 0.44 | | |||||||||
Transfer agent fees |
0.01 | 0.01 | | |||||||||
Organization expenses |
| 0.58 | | |||||||||
Other expenses |
0.91 | 0.33 | 0.01 | |||||||||
|
|
|
|
|
|
|||||||
Total Expenses |
20.42 | 7.47 | 0.35 | |||||||||
Expense reimbursement from Investment Adviser |
| (0.57 | ) | | ||||||||
|
|
|
|
|
|
|||||||
Net Expenses |
$ | 20.42 | $ | 6.90 | $ | 0.35 | ||||||
|
|
|
|
|
|
Total net expenses were higher for the year ended December 31, 2014, as compared to the year ended December 31, 2013 primarily due to an increase in Management Fees and interest and credit facility expenses. The increase in Management Fees was the result of a substantial increase in gross assets, excluding cash and investments in a money market fund managed by an affiliate of Group Inc., for the year ended December 31, 2014 as compared to the year ended December 31, 2013. The increase in the interest and credit facility expenses was the result of our entry into the Revolving Credit Facility in September 2013, and the increase in the average borrowings and unused facility charges for the year ended December 31, 2014 as compared to the year ended December 31, 2013.
Total net expenses were higher for the year ended December 31, 2013, as compared to the period ended December 31, 2012, as expenses for the period ended December 31, 2012 related to a shorter period of operations. The increase in management fees was also the result of a substantial increase in gross assets, excluding cash and investments in a money market fund managed by an affiliate of Group, Inc., for the year ended December 31, 2013 as compared to the period ended December 31, 2012. We did not incur any credit facility expenses during the period ended December 31, 2012 because the Revolving Credit Facility was entered into during 2013.
80
Net Realized Gains (Losses)
The realized gains and losses on portfolio companies during the years ended December 31, 2014 and 2013 and the period ended December 31, 2012 consisted of the following:
Year Ended
|
Year Ended
|
For the period
|
||||||||||
($ in millions) | ||||||||||||
Community Choice Financial Inc |
$ | | $ | 0.09 | $ | | ||||||
Crowne Group, LLC |
0.08 | | | |||||||||
Fairpoint Communications, Inc |
0.72 | 0.19 | | |||||||||
Goodrich Petroleum Corp |
0.01 | 0.09 | | |||||||||
Highwinds Capital, Inc |
0.25 | | | |||||||||
Liquidnet Holdings, Inc |
(0.14 | ) | | | ||||||||
Lone Pine Res CDA, Ltd |
(2.48 | ) | | | ||||||||
Molycorp, Inc |
0.29 | 0.21 | | |||||||||
Other, net |
0.08 | 0.02 | | |||||||||
|
|
|
|
|
|
|||||||
Net realized gain (loss) |
$ | (1.19 | ) | $ | 0.60 | $ | | |||||
|
|
|
|
|
|
* | Realized gains and losses for the year ended December 31, 2013 consisted primarily of gains realized from investments held at the time of the Conversion. See BusinessFormation Transactions for additional information. These gains were recorded for financial reporting and tax purposes as a result of the Conversion and did not result from the sale of any investments. In addition, gains were realized from the sale of investments during the year ended December 31, 2013. |
Aggregate Cash Flow Realized Gross Internal Rate of Return
Since we began investing on November 15, 2012 through December 31, 2014, our fully exited investments have resulted in an aggregate cash flow realized gross internal rate of return to us of approximately 14.6% (based on cash invested of approximately $163 million and total proceeds from these exited investments of approximately $183 million). Investments are considered to be fully realized when the original investment has been fully exited. Investments that were transferred to the Senior Credit Fund are not considered fully exited.
Internal rate of return, or IRR, is a measure of our discounted cash flows (inflows and outflows). Specifically, IRR is the discount rate at which the net present value of all cash flows is equal to zero. That is, IRR is the discount rate at which the present value of total capital invested in our investments is equal to the present value of all realized returns from the investments. Our IRR calculations are unaudited.
Capital invested, with respect to an investment, represents the aggregate cost of the investment, net of any upfront fees paid at closing.
Realized returns, with respect to an investment, represents the total cash received with respect to an investment, including all amortization payments, interest, dividends, prepayment fees, administrative fees, agent fees, amendment fees, accrued interest, and other fees and proceeds.
Gross IRR, with respect to an investment, is calculated based on the dates that we invested capital and dates we received distributions, regardless of when we made distributions to our stockholders. Initial investments are assumed to occur at time zero, and all cash flows are deemed to occur on the fifteenth day of each month in which they occur.
81
Gross IRR reflects historical results relating to our past performance and is not necessarily indicative of our future results. In addition, gross IRR does not reflect the effect of management fees, expenses, incentive fees or taxes borne, or to be borne, by us or our stockholders, and would be lower if it did.
Aggregate cash flow realized gross IRR on our exited investments reflects only invested and realized cash amounts as described above, and does not reflect any unrealized gains or losses in our portfolio.
Net Change in Unrealized Appreciation (Depreciation) on Investments
Any changes in fair value are recorded in change in unrealized appreciation (depreciation) on investments. For further details on the valuation process, refer to Critical Accounting PoliciesValuation of Portfolio Investments. Net unrealized appreciation (depreciation) on our portfolio companies for the years ended December 31, 2014 and 2013 and the period ended December 31, 2012 were as follows:
Year Ended
|
Year Ended
|
For the period
of operations)
2012 |
||||||||||
($ in millions) | ||||||||||||
Change in unrealized appreciation |
$ | 5.03 | $ | 5.04 | $ | 1.05 | ||||||
Change in unrealized depreciation |
(19.66 | ) | (5.22 | ) | | |||||||
|
|
|
|
|
|
|||||||
Net change in unrealized appreciation (depreciation) on investments |
$ | (14.63 | ) | $ | (0.18 | ) | $ | 1.05 | ||||
|
|
|
|
|
|
82
The change in unrealized appreciation (depreciation) on portfolio companies for the years ended December 31, 2014 and 2013 and the period ended December 31, 2012 consisted of the following:
Year Ended
|
Year Ended
|
For the period
|
||||||||||
($ in millions) | ||||||||||||
Portfolio Company: |
||||||||||||
Affordable Care, Inc |
$ | (0.31 | ) | $ | (0.39 | ) | $ | 0.19 | ||||
Artesyn Embedded Technologies, Inc |
(2.10 | ) | 1.10 | | ||||||||
Bolttech Mannings, Inc |
(0.50 | ) | | | ||||||||
CLP ST Inc |
(0.06 | ) | | | ||||||||
ConvergeOne Holdings Corporation |
0.04 | (0.04 | ) | | ||||||||
Crowley Holdings Preferred LLC |
(0.56 | ) | 0.56 | | ||||||||
Dispensing Dynamics International |
(0.82 | ) | 0.72 | | ||||||||
Extraction Oil & Gas Holdings, LLC |
0.50 | | | |||||||||
Fairpoint Communications, Inc |
(1.01 | ) | 1.01 | | ||||||||
Global Tel*Link Corporation |
0.95 | (1.15 | ) | | ||||||||
Goodrich Petroleum Corp |
| (0.19 | ) | 0.23 | ||||||||
Highwinds Capital, Inc |
0.81 | (0.05 | ) | | ||||||||
Hunter Defense Technology, Inc |
0.63 | | | |||||||||
Hutchinson Technology, Inc |
0.49 | 0.29 | | |||||||||
Infinity Sales Group |
(2.36 | ) | (0.02 | ) | | |||||||
IPC Systems, Inc |
0.65 | | | |||||||||
Iracore International Holdings, Inc |
(6.02 | ) | 0.50 | | ||||||||
Learfield Communications, Inc |
(0.06 | ) | 0.06 | | ||||||||
Liquidnet Holdings, Inc |
0.10 | (0.23 | ) | | ||||||||
Lone Pine Resources CDA, Ltd |
(0.20 | ) | (2.46 | ) | | |||||||
Molycorp, Inc |
(0.14 | ) | (0.33 | ) | 0.47 | |||||||
NTS Communications, Inc |
(0.05 | ) | | | ||||||||
Orchard Brands Corporation |
0.86 | (0.01 | ) | | ||||||||
P2 Upstream Acquisition Co |
(0.71 | ) | 0.25 | | ||||||||
Reddy Ice Corporation |
(2.59 | ) | (0.16 | ) | | |||||||
Securus Technologies Holdings, Inc |
(0.13 | ) | 0.03 | | ||||||||
Senior Credit Fund, LLC |
(0.37 | ) | | | ||||||||
The Service Companies, Inc |
(0.22 | ) | | | ||||||||
TriNet Group, Inc |
(0.52 | ) | 0.52 | | ||||||||
United Roads Services, Inc |
(0.07 | ) | | | ||||||||
Washington Inventory Service |
(0.72 | ) | (0.18 | ) | 0.16 | |||||||
Other, net |
(0.14 | ) | (0.01 | ) | | |||||||
|
|
|
|
|
|
|||||||
Total |
$ | (14.63 | ) | $ | (0.18 | ) | $ | 1.05 | ||||
|
|
|
|
|
|
SENIOR CREDIT FUND, LLC
Overview
The Senior Credit Fund, an unconsolidated Delaware limited liability company, was formed on May 7, 2014 and commenced operations on October 1, 2014. Effective July 18, 2014, the Company agreed to co-invest with Cal Regents through the Senior Credit Fund. The Senior Credit Funds principal purpose is to make
83
investments, either directly or indirectly through its wholly owned subsidiary Senior Credit Fund SPV I, LLC (SPV I), primarily in senior secured loans to middle-market companies. The Company and Cal Regents each have 50% economic ownership of the Senior Credit Fund and each has subscribed to fund $100.00 million. Except under certain circumstances, contributions to the Senior Credit Fund cannot be redeemed. The Senior Credit Fund is managed by a six member board of managers, on which the Company and Cal Regents have equal representation. Investment decisions generally must be unanimously approved by a quorum of the board of managers. Establishing a quorum for the Senior Credit Funds board of managers requires at least four members to be present at a meeting, including at least two of our representatives and two of Cal Regents representatives. If there are five members present at a meeting, all three representatives of Cal Regents must be present to constitute a quorum.
The Senior Credit Fund has entered into a revolving credit facility (the Subscription Facility) with Versailles Assets LLC and Natixis, New York Branch (Natixis) as the facility agent. The Subscription Facility provides for borrowings in an aggregate amount up to $50.00 million on a committed basis.
SPV I has entered into a revolving credit and term loan facility (collectively, the Warehouse Facility) with Bleacher Finance 1 Limited, and Natixis, as the facility agent. The Warehouse Facility provides for borrowings in an aggregate amount up to $200.00 million on a committed basis. The Warehouse Facility includes an uncommitted accordion feature that allows SPV I, under certain circumstances, to increase the size of the Warehouse Facility up to $400.00 million.
In October 2014, the Senior Credit Fund purchased seven investments at fair value from the Company for an aggregate amount of approximately $97.64 million.
Selected Financial Data
As of December 31, 2014, the Company and Cal Regents each had contributed $25.00 million to the Senior Credit Fund. The Senior Credit Funds portfolio as of December 31, 2014 was comprised of eight first lien senior secured loans to U.S. middle-market companies, none of which was on non-accrual status, at an aggregate fair value of $111.17 million.
Below is a summary of the Senior Credit Funds portfolio, followed by a listing of the individual loans in the Senior Credit Funds portfolio as of December 31, 2014:
As of
|
||||
Total first lien (1) |
$ | 113.17 | ||
Weighted average current interest rate on first lien debt (2) |
6.8 | % | ||
Number of borrowers in the Senior Credit Fund |
8 | |||
Largest loan to a single borrower (1) |
$ | 23.70 |
(1) | At principal amount |
(2) | Computed as the (a) annual stated interest rate on accruing first lien debt divided by (b) total first lien debt at par amount. |
84
Portfolio Company |
Industry |
Interest |
Maturity |
Par
|
Cost |
Fair
|
||||||||||||
1 st Lien/Senior Secured Debt |
||||||||||||||||||
Compass Automotive Group, LLC (+)(1) |
Auto Components | L + 6.75% (0.75% Floor) | 03/28/2019 | 9.67 | $ | 9.57 | $ | 9.62 | ||||||||||
ConvergeOne Holdings Corporation (++)(1) |
Communications Equipment | L + 5.00% (1.00% Floor) | 06/17/2020 | 9.95 | 9.90 | 9.90 | ||||||||||||
Crowne Group, LLC (++)(1) |
Auto Components | L + 5.00% (1.00% Floor) | 09/30/2020 | 14.96 | 14.82 | 14.66 | ||||||||||||
Liquidnet Holdings, Inc (++)(1)(2) |
Capital Markets | L + 6.75% (1.00% Floor) | 05/22/2019 | 23.70 | 23.24 | 22.51 | ||||||||||||
Motor Coach Industries Inc. (+) |
Automobiles | L + 7.50% (0.50% Floor) | 09/26/2019 | 15.00 | 14.78 | 14.78 | ||||||||||||
OH Acquisition, LLC (+++)(1) |
Diversified Financial Services |
L + 6.25% (1.00% Floor) | 08/29/2019 | 9.98 | 9.93 | 9.92 | ||||||||||||
PGX Holdings, Inc. (+++)(1) |
Professional Services | L + 5.25% (1.00% Floor) | 09/29/2020 | 14.91 | 14.80 | 14.89 | ||||||||||||
SkinnyPop Popcorn LLC (++)(1) |
Food Products | L + 4.50% (1.00% Floor) | 07/17/2019 | 15.00 | 14.86 | 14.89 | ||||||||||||
|
|
|
|
|||||||||||||||
Total 1 st Lien/Senior Secured Debt |
$ | 111.90 | $ | 111.17 |
(+) | The interest rate on these loans is subject to a base rate plus 1 month LIBOR, which at December 31, 2014 was 0.17%. As the interest rate is subject to a minimum LIBOR floor which was greater than the 1 month LIBOR rate at December 31, 2014, the prevailing rate in effect at December 31, 2014 was the base rate plus the LIBOR floor. |
(++) | The interest rate on these loans is subject to a base rate plus 3 month LIBOR, which at December 31, 2014 was 0.26%. As the interest rate is subject to a minimum LIBOR floor which was greater than the 3 month LIBOR rate at December 31, 2014, the prevailing rate in effect at December 31, 2014 was the base rate plus the LIBOR floor. |
(+++) | The interest rate on these loans is subject to a base rate plus 6 month LIBOR, which at December 31, 2014 was 0.36%. As the interest rate is subject to a minimum LIBOR floor which was greater than the 6 month LIBOR rate at December 31, 2014, the prevailing rate in effect at December 31, 2014 was the base rate plus the LIBOR floor. |
(1) | Investment was purchased from the Company. |
(2) | The Company also holds a portion of the first lien senior secured debt in this portfolio company. |
Below is certain summarized balance sheet information for the Senior Credit Fund as of December 31, 2014:
85
Below is certain summarized statement of operations information for the Senior Credit Fund for the period ended December 31, 2014:
For the period
|
||||
($ in millions) | ||||
Selected statement of operations information |
||||
Total investment income |
$ | 1.70 | ||
Total expenses |
(1.10 | ) | ||
Net change in unrealized appreciation (depreciation) on investments |
(0.73 | ) | ||
|
|
|||
Net increase (decrease) in members equity |
$ | (0.13 | ) | |
|
|
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The primary use of existing funds and any funds raised in the future, including from this offering, is expected to be for our investments in portfolio companies, cash distributions to our stockholders or for other general corporate purposes, including paying for operating expenses or debt service to the extent we borrow or issue senior securities. See Distributions.
As of December 31, 2014, we had cash of approximately $8.61 million. Cash used in operating activities for the year ended December 31, 2014 was approximately $279.52 million, while cash provided by financing activities was approximately $280.72 million. As of December 31, 2013, we had cash of approximately $7.41 million. Cash used in operating activities for the year ended December 31, 2013 was approximately $539.49 million, while cash provided by financing activities was approximately $545.36 million. We expect to raise equity capital by selling shares of our common stock in public and private placement offerings in the future.
To the extent we determine that additional capital would allow us to take advantage of additional investment opportunities, if the market for debt financing presents attractively priced debt financing opportunities, or if our Board of Directors otherwise determines that leveraging our portfolio would be in our best interest and the best interests of our stockholders, we may enter into one or more additional credit facilities, including revolving credit facilities, or issue senior securities. We would expect any such credit facilities may be secured by certain of our assets and may contain advance rates based upon pledged collateral. The pricing and other terms of any such facilities would depend upon market conditions when we enter into any such facilities as well as the performance of our business, among other factors. On September 19, 2013, we entered into the Revolving Credit Facility as discussed below. In accordance with applicable SEC staff guidance and interpretations, as a BDC, with certain limited exceptions, we are only permitted to borrow amounts such that our asset coverage ratio, as defined in the Investment Company Act, is at least 2 to 1 after such borrowing. As of December 31, 2014, our asset coverage ratio was 2.64 to 1.
In addition, we may raise capital by securitizing certain of our investments, including through the formation of one or more CLOs or warehouse facilities, while retaining all or most of the exposure to the performance of these investments. This would involve contributing a pool of assets to a special purpose entity, and selling debt interests in such entity on a non-recourse or limited-recourse basis to purchasers. We may also pursue other forms of debt financing, including potentially from the SBA through a future SBIC subsidiary.
We will generate cash primarily from the net proceeds of this offering and any future offerings of securities, future borrowings and cash flows from operations.
86
From time to time, prior to completion of our IPO, our Board of Directors was authorized to offer to repurchase shares of our common stock in an amount of up to 5% of our outstanding shares of common stock (with the exact amount to be set by our Board of Directors) at the end of each calendar quarter beginning with the calendar quarter ended December 31, 2013. For the year ended December 31, 2014, all investors tendered 1,008,987 shares for which they received approximately $20.15 million. For this period, to maintain its ownership percentage, Group Inc. tendered 200,254 shares of common stock for which it received approximately $4.00 million. All other investors tendered 808,733 shares of common stock for which they received approximately $16.15 million. For the year ended December 31, 2013, all investors tendered 249,710 shares for which they received approximately $4.99 million. For such year, to maintain its ownership percentage, Group Inc. tendered 49,560 shares of common stock for which it received approximately $0.99 million and all other investors tendered 200,150 shares of common stock for which they received approximately $4.00 million.
Equity Issuances
There were no sales of our common stock during the year ended December 31, 2014. During the year ended December 31, 2013, we entered into subscription agreements with certain of our existing investors, providing for the private placement of our common stock. For the year ended December 31, 2013, we closed offerings of 25,260,470 shares of our common stock in private placements totaling $505.43 million, of which Group Inc. acquired 701,760 common shares totaling $14.08 million. In addition to the shares acquired in the 2013 private placements, as part of the Conversion, Group Inc. received 5,379,354 shares of our common stock in exchange for limited liability company interests totaling $107.59 million as of April 1, 2013.
Contractual Obligations
We have entered into two contracts under which we have future commitments: the Investment Management Agreement, pursuant to which GSAM has agreed to serve as our investment adviser and the Administration Agreement, pursuant to which State Street Bank and Trust Company has agreed to furnish us with the administrative services necessary to conduct our day-to-day operations. See ManagementOur Investment Adviser and ManagementOur Administrator. Payments under the Investment Management Agreement are equal to (1) a percentage of the value of our average gross assets and (2) a two-part incentive fee. Under the Administration Agreement, we pay our administrator such fees as may be agreed between us and our administrator that we determine are commercially reasonable in our sole discretion. Either party may terminate the Investment Management Agreement without penalty on 60 days written notice to the other. Either party may terminate the Administration Agreement without penalty upon at least 30 days written notice to the other party.
Additionally, the following table shows our contractual obligations as of December 31, 2014:
Payments Due by Period (Millions) |
||||||||||||||||||||
Total |
Less Than
|
13 Years |
35 Years |
More Than
|
||||||||||||||||
Revolving Credit Facility |
$ | 350.00 | $ | | $ | | $ | 350.00 | $ | |
Revolving Credit Facility
On September 19, 2013, we entered into the Revolving Credit Facility with various lenders. SunTrust Bank, one of the lenders, also serves as the administrative agent under the Revolving Credit Facility. Effective October 3, 2014, the Company entered into an amendment to the Revolving Credit Facility to, among other things, increase the aggregate borrowing amount of $340.00 million to $485.00 million on a committed basis, increase the size of the uncommitted accordion amount from $160.00 million to $415.00 million, extend the maturity date from September 19, 2017 to October 3, 2019 and reduce the interest rate on borrowings. See Recent Developments.
87
The Revolving Credit Facility may be guaranteed by certain domestic subsidiaries of the Company that are formed or acquired by the Company in the future (collectively, the Guarantors). The Senior Credit Fund is not a Guarantor of the Revolving Credit Facility. Proceeds from borrowings may be used for general corporate purposes, including the funding of portfolio investments.
We may borrow amounts in U.S. dollars or certain other permitted currencies. Borrowings under the Revolving Credit Facility, including amounts drawn in respect of letters of credit, bear interest (at our election) at either: (i) LIBOR plus 2.25% with no LIBOR floor or (ii) 1.25% plus an alternate base rate based on the highest of the Prime Rate, Federal Funds Rate plus 0.5% or overnight LIBOR plus 1.0%. We may make this election at the time of drawdown, and loans may be converted from one rate to another at any time, subject to certain conditions. We also pay a fee of 0.375% per annum on committed but undrawn amounts under the Revolving Credit Facility and a fee per annum equal to the then-applicable LIBOR margin on the face amount of outstanding undrawn letters of credit, payable quarterly in arrears. As of December 31, 2014, there was $350.00 million of outstanding borrowings under the Revolving Credit Facility, and we could borrow all remaining capacity and continue to be in compliance with the covenants governing the Revolving Credit Facility.
Our obligations to the lenders under the Revolving Credit Facility are secured by a first priority security interest in substantially the entire portfolio of investments and cash held by us and, if any, each Guarantor. The Revolving Credit Facility contains certain customary covenants, including: (i) maintaining a minimum shareholders equity of $400.00 million, subject to increase from certain equity sales, (ii) maintaining an asset coverage ratio of at least 2 to 1, (iii) maintaining a minimum liquidity test of at least 10% of the covered debt amount during any period when the adjusted covered debt balance is greater than 90% of the adjusted borrowing base, as such quoted terms are defined therein and (iv) restrictions on industry concentrations in our investment portfolio. As of December 31, 2014, we were in compliance with these covenants.
The Revolving Credit Facility also includes customary representations and warranties, conditions precedent to funding of draws and events of default.
HEDGING
To the extent that any of our loans is denominated in a currency other than U.S. dollars, we may enter into currency hedging contracts to reduce our exposure to fluctuations in currency exchange rates. We may also enter into interest rate hedging agreements. Such hedging activities, which will be subject to compliance with applicable legal requirements, may include the use of futures, options, swaps and forward contracts. Costs incurred in entering into such contracts or in settling them, if any, will be borne by us. Our investment adviser has claimed no-action relief from CFTC regulation as a commodity pool operator pursuant to a CFTC staff no-action letter with respect to our operations, which means that we will be limited in our ability to use futures contracts or options on futures contracts or engage in swap transactions. As of December 31, 2014, no hedging activities were used.
88
OFF-BALANCE SHEET ARRANGEMENTS
We may become a party to financial instruments with off-balance sheet risk in the normal course of our business to fund investments and to meet the financial needs of our portfolio companies. These instruments may include commitments to extend credit and involve, to varying degrees, elements of liquidity and credit risk in excess of the amount recognized in the balance sheet. As of December 31, 2014 and December 31, 2013, our off-balance sheet arrangements consisted of the following:
As of |
||||||||
December 31, 2014 |
December 31, 2013 |
|||||||
($ in millions) | ||||||||
Unfunded Commitments |
||||||||
First Lien |
$ | 18.54 | $ | 15.00 | ||||
First Lien, Last-Out Unitranche |
13.00 | | ||||||
Second Lien |
9.80 | | ||||||
|
|
|
|
|||||
Total |
$ | 41.34 | $ | 15.00 | ||||
|
|
|
|
There were no off-balance sheet arrangements as of December 31, 2012.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are subject to financial market risks, including changes in interest rates and the valuations of our investment portfolio.
Interest rate sensitivity refers to the change in our earnings that may result from changes in the level of interest rates. Because we expect to fund a portion of our investments with borrowings, our net investment income is expected to be affected by the difference between the rate at which we invest and the rate at which we borrow. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income. See Risk FactorsRisks Relating to Our Business and StructureWe are exposed to risks associated with changes in interest rates.
As of December 31, 2014, on a fair value basis, approximately 15.5% of our debt investments were in debt bearing a fixed interest rate (including a preferred stock investment) and approximately 84.5% of our debt investments were invested in debt bearing a floating interest rate with an interest rate floor. As of December 31, 2013, on a fair value basis, approximately 19.5% of our portfolio investments were in debt bearing a fixed interest rate (including a preferred stock investment) and approximately 80.5% were invested in debt bearing variable rates with an interest rate floor.
We regularly measure our exposure to interest rate risk. We assess interest rate risk and manage our interest rate exposure on an ongoing basis by comparing our interest rate sensitive assets to our interest rate sensitive liabilities.
We may hedge against interest rate fluctuations by using standard hedging instruments such as futures, options and forward contracts subject to the requirements of the Investment Company Act. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in benefits of lower interest rates with respect to our portfolio of investments with fixed interest rates. During the periods covered by this prospectus, we did not engage in interest rate hedging activities.
89
Based on our December 31, 2014 balance sheet, the following table shows the annual impact on net income of base rate changes in interest rates (considering interest rate floors for variable rate instruments) assuming no changes in our investment and borrowing structure:
As of December 31, 2014 Basis Point Change |
Interest
|
Interest
|
Net
|
|||||||||
($ in millions) | ||||||||||||
Up 300 basis points |
$ | 17.09 | $ | (10.85 | ) | $ | 6.24 | |||||
Up 200 basis points |
9.67 | (7.23 | ) | 2.44 | ||||||||
Up 100 basis points |
2.34 | (3.62 | ) | (1.28 | ) | |||||||
Down 100 basis points |
0.09 | 1.00 | 1.09 | |||||||||
Down 200 basis points |
0.09 | 1.00 | 1.09 | |||||||||
Down 300 basis points |
0.09 | 1.00 | 1.09 |
Based on our December 31, 2013 balance sheet, the following table shows the annual impact on net income of base rate changes in interest rates (considering interest rate floors for variable rate instruments) assuming no changes in our investment and borrowing structure:
As of December 31, 2013 Basis Point Change |
Interest
|
Interest
|
Net
|
|||||||||
($ in millions) | ||||||||||||
Up 300 basis points |
$ | 7.28 | | $ | 7.28 | |||||||
Up 200 basis points |
3.80 | | 3.80 | |||||||||
Up 100 basis points |
0.44 | | 0.44 | |||||||||
Down 100 basis points |
| | | |||||||||
Down 200 basis points |
| | | |||||||||
Down 300 basis points |
| | |
Inflation
Inflation has not had a significant effect on our results of operations in any of the reporting periods presented in our financial statements. However, our portfolio companies may, from time to time, experience the impact of inflation on their operating results.
RECENT DEVELOPMENTS
Revolving Credit Facility
In January 2015, the Company exercised a portion of the accordion feature and increased the size of the Revolving Credit Facility to $535.00 million. The remaining available balance under the accordion feature is $365.00 million.
Investment Management Agreement
Our Board of Directors determined at an in person meeting held in November 2014 to approve our Investment Management Agreement, and at a special meeting of stockholders held in January 2015, our stockholders approved the Investment Management Agreement, which became effective as of January 1, 2015. The amendment revised how the Incentive Fee is calculated. See ManagementInvestment Management Agreement.
90
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. The preparation of these 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 materially. In addition to the discussion below, our critical accounting policies are further described in the notes to the financial statements.
Valuation of Portfolio Investments
As a BDC, we conduct the valuation of our assets, pursuant to which our NAV shall be determined, at all times consistent with GAAP and the Investment Company Act. Our Board of Directors, with the assistance of our Audit Committee, determines the fair value of our assets on at least a quarterly basis, in accordance with the terms of FASB Accounting Standards Codification Topic 820, Fair Value Measurement and Disclosures (ASC 820). Our valuation procedures are set forth in more detail below.
ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is a market-based measurement, not an entity-specific measurement. For some assets and liabilities, observable market transactions or market information might be available. For other assets and liabilities, observable market transactions and market information might not be available. However, the objective of a fair value measurement in both cases is the sameto estimate the price when an orderly transaction to sell the asset or transfer the liability would take place between market participants at the measurement date under current market conditions (that is, an exit price at the measurement date from the perspective of a market participant that holds the asset or owes the liability).
ASC 820 establishes a hierarchal disclosure framework which ranks the observability of inputs used in measuring financial instruments at fair value. The observability of inputs is impacted by a number of factors, including the type of financial instruments and their specific characteristics. Financial instruments with readily available quoted prices, or for which fair value can be measured from quoted prices in active markets, generally will have a higher degree of market price observability and a lesser degree of judgment applied in determining fair value. The levels used for classifying investments are not necessarily an indication of the risk associated with investing in these securities.
The three-level hierarchy for fair value measurement is defined as follows:
Level 1 inputs to the valuation methodology are quoted prices available in active markets for identical instruments as of the reporting date. The type of financial instruments included in Level 1 include unrestricted securities, including equities and derivatives, listed in active markets.
Level 2 inputs to the valuation methodology are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date. The type of financial instruments in this category includes less liquid and restricted securities listed in active markets, securities traded in other than active markets, government and agency securities, and certain over-the-counter derivatives where the fair value is based on observable inputs.
Level 3 inputs to the valuation methodology are unobservable and significant to overall fair value measurement. The inputs into the determination of fair value require significant management judgment or estimation. Financial instruments that are included in this category include investments in privately held entities and certain over-the-counter derivatives where the fair value is based on unobservable inputs.
91
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 financial instrument is based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and considers factors specific to the financial instrument.
Currently, the majority of our investments fall within Level 3 of the fair value hierarchy. We do not expect that there will be readily available market values for most of the investments which are in our portfolio, and we will value such investments at fair value as determined in good faith by or under the direction of our Board of Directors using a documented valuation policy, described below, and a consistently applied valuation process. The factors that may be taken into account in pricing our investments at fair value include, as relevant, the nature and realizable value of any collateral, the portfolio companys ability to make payments and its earnings and discounted cash flow, and the markets in which the portfolio company does business, comparison to publicly traded securities and other relevant factors. Available current market data will be considered such as applicable market yields and multiples of publicly traded securities, comparison of financial ratios of peer companies, and changes in the interest rate environment and the credit markets that may affect the price at which similar investments would trade in their principal market, and other relevant factors. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, we consider the pricing indicated by the external event to corroborate or revise our valuation. Under current auditing standards, the notes to our financial statements refer to the uncertainty with respect to the possible effect of such valuations, and any change in such valuations, on our financial statements.
With respect to investments for which market quotations are not readily available, or for which market quotations are deemed not reflective of the fair value, the valuation procedures adopted by our Board of Directors contemplates a multi-step valuation process each quarter, as described below:
(1) | Our quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals of our investment adviser responsible for the portfolio investment; |
(2) | Our Board of Directors also engages independent valuation firms to provide independent valuations of the investments for which market quotations are not readily available or are readily available but deemed not reflective of the fair value of an investment. The independent valuation firms independently value such investments using quantitative and qualitative information provided by the investment professionals of our investment adviser as well as any market quotations obtained from independent pricing services, brokers, dealers or market dealers. The independent valuation firms also provide analyses to support their valuation methodology and calculations. The independent valuation firms provide an opinion on a final range of values on such investments to the Board of Directors or the Audit Committee. The independent valuation firms define fair value in accordance with ASC 820 and utilize valuation techniques including the market approach, income approach, or both approaches. At least a portion of our portfolio will be reviewed on a quarterly basis and all investments in the portfolio for which market quotations are not readily available, or are readily available, but deemed not reflective of the fair value of an investment, will be reviewed at least annually by independent valuation firms; |
(3) | The independent valuation firms preliminary valuations are reviewed by our investment adviser and the Valuation Oversight Group (VOG), a team that is part of the Controllers Department within the Finance Division of Goldman Sachs. The independent valuation firms ranges are compared to our investment advisers valuations to ensure our investment advisers valuations are reasonable. VOG presents the valuations to the Private Investment Sub-Committee of the GSAM Valuation Committee, which is comprised of representatives from GSAM who are independent of the investment making decision process; |
92
(4) | The GSAM Valuation Committee ratifies fair valuations and makes recommendations to the Audit Committee of the Board of Directors; |
(5) | The Audit Committee of our Board of Directors reviews valuation information provided by the GSAM Valuation Committee, our investment adviser and the independent valuation firms. The Audit Committee then assesses and supplements, as it deems appropriate, such valuation recommendations; and |
(6) | Our Board of Directors discusses the valuations and determines the fair value of each of our investments in good faith, based on the input of our investment adviser, the independent valuation firms and the Audit Committee. |
Investment Transactions and Related Investment Income
We record our investment transactions on a trade date basis. Realized gains and losses are based on the specific identification method. Dividend income on common equity investments are recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies. Interest income and dividend income are presented net of withholding tax, if any. Interest income and expense include accretion of discounts and amortization of premiums recorded over the life of the underlying instrument using the effective interest method.
We carry our investments in securities at fair value. Fair value generally is based on quoted market prices, broker or dealer quotations, or alternative price sources. In the absence of quoted market prices, broker or dealer quotations, or alternative price sources, investments in securities are measured at fair value as determined by our investment adviser and/or by one or more independent third parties.
Due to the inherent uncertainties of valuation, certain estimated fair values may differ significantly from the values that would have been realized had a ready market for these investments existed, and these differences could be material. For additional information, see Note 2 (Significant Accounting Policies) to our audited financial statements as of and for years ended December 31, 2014 and December 31, 2013, as well as of and for the period ended December 31, 2012.
Distribution Policy
We intend to pay quarterly distributions to our stockholders out of assets legally available for distribution. Future quarterly distributions, if any, will be determined by our Board of Directors. All distributions will be subject to lawfully available funds therefor, and no assurance can be given that we will be able to declare distributions in future periods.
We intend to timely distribute to our stockholders substantially all of our annual taxable income for each year, except that we may retain certain net capital gains for reinvestment and, depending upon the level of taxable income earned in a year, we may choose to carry forward taxable income for distribution in the following year and pay any applicable U.S. federal excise tax. Stockholders should read carefully any written disclosure accompanying a distribution from us and should not assume that the source of any distribution is our net ordinary income or capital gains. The distributions we pay to our stockholders in a year may exceed our net ordinary income and capital gains for that year and, accordingly, a portion of such distributions may constitute a return of capital for U.S. federal income tax purposes. The specific tax characteristics of our distributions will be reported to stockholders after the end of the calendar year. See Distributions.
Concurrent with this offering, we will adopt an opt out dividend reinvestment plan for our common stockholders. As a result, if we declare a cash distribution, each stockholder that has not opted out of our dividend reinvestment plan will have its distribution automatically reinvested in additional shares of our common
93
stock rather than receiving the cash distribution. Stockholders who receive distributions in the form of shares of common stock will generally be subject to the same U.S. federal, state and local tax consequences as if they received cash distributions and, for this purpose, stockholders receiving distributions in the form of stock will generally be treated as receiving distributions equal to the fair market value of the stock received through the plan; however, since their cash distributions will be reinvested, those stockholders will not receive cash with which to pay any applicable taxes. Due to regulatory considerations, Group Inc. will opt out of the dividend reinvestment plan, and Goldman, Sachs & Co. will opt out of the dividend reinvestment plan in respect of any shares of our common stock acquired through the 10b5-1 Plan, for a period of at least 90 days following the consummation of this offering.
Non-Accrual Status
Loans or debt securities are placed on non-accrual status when there is reasonable doubt that principal or interest will be collected. Accrued interest generally is reversed when a loan or debt security is placed on non-accrual status. Interest payments received on non-accrual loans or debt securities may be recognized as income or applied to principal depending upon managements judgment. Non-accrual loans and debt securities are restored to accrual status when past due principal and interest is paid and, in managements judgment, are likely to remain current. We may make exceptions to this treatment if the loan has sufficient collateral value and is in the process of collection.
Federal Income Taxes
We have elected to be treated, and intend to qualify annually, as a RIC under Subchapter M of the Code, commencing with our taxable year ended December 31, 2013. As a RIC, we generally will not pay corporate-level U.S. federal income taxes on any net ordinary income or capital gains that we timely distribute to our stockholders as dividends. To maintain our RIC status, we must meet specified source-of-income and asset diversification requirements and timely distribute to our stockholders at least 90% of our investment company taxable income for each year. Depending upon the level of taxable income earned in a year, we may choose to carry forward taxable income for distribution in the following year and pay any applicable U.S. federal excise tax. We generally will be required to pay such U.S. federal excise tax if our distributions during a calendar year do not exceed the sum of (1) 98% of our net ordinary income (taking into account certain deferrals and elections) for the calendar year, (2) 98.2% of our capital gains in excess of capital losses for the one-year period ending on October 31 of the calendar year and (3) any net ordinary income and capital gains in excess of capital losses for preceding years that were not distributed during such years.
Because federal income tax regulations differ from GAAP, distributions in accordance with tax regulations may differ from net investment income and realized gains recognized for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain or loss are recognized at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.
94
Information about our senior securities is shown in the following table as of December 31, 2014 and December 31, 2013. The report of our independent registered public accounting firm, PricewaterhouseCoopers LLP, on the senior securities table as of December 31, 2014 is attached as an exhibit to the registration statement of which this prospectus is a part. There were no senior securities outstanding as of December 31, 2012.
Class and Period Ended |
Total Amount
($ in Millions) |
Asset
|
Involuntary
|
Average
|
||||||||||||
Revolving Credit Facility |
||||||||||||||||
December 31, 2014 |
$ | 350.00 | $ | 2,641.66 | | N/A | ||||||||||
December 31, 2013 (Unaudited) |
$ | 0.00 | N/A | | N/A |
(1) | Total amount of each class of senior securities outstanding at the end of the period presented. |
(2) | Asset coverage per unit is the ratio of the carrying value of our total assets, less all liabilities and indebtedness not represented by senior securities, to the aggregate amount of senior securities representing indebtedness. Asset coverage per unit is expressed in terms of dollar amounts per $1,000 of indebtedness. |
(3) | The amount to which such class of senior security would be entitled upon the voluntary liquidation of the issuer in preference to any security junior to it. The in this column indicates that the SEC expressly does not require this information to be disclosed for certain types of senior securities. |
(4) | Not applicable because senior securities are not registered for public trading. |
95
The Company
We are a specialty finance company focused on lending to middle-market companies. Since we were formed in 2012, we have originated more than $1.27 billion in aggregate principal amount of debt and equity investments prior to any subsequent exits or repayments. We seek to generate current income and, to a lesser extent, capital appreciation through direct originations of secured debt, including first lien, first lien/last-out unitranche and second lien debt, unsecured debt, including mezzanine debt and, to a lesser extent, investments in equities.
We invest primarily in U.S. middle-market companies, which we believe have been underserved in recent years by traditional providers of capital such as banks and the public debt markets. In describing our business we generally use the term middle-market to refer to companies with EBITDA of between $5 million and $75 million annually. However, we may from time to time invest in larger or smaller companies. We generate revenues primarily through receipt of interest income from the investments we hold. In addition, we generate income from various loan origination and other fees, dividends on direct equity investments and capital gains on the sales of investments. The companies in which we invest use our capital for a variety of reasons, including to support organic growth, fund acquisitions, make capital investments and for refinancings and recapitalizations.
Investment Strategy
Our origination strategy focuses on leading the negotiation and structuring of the loans or securities in which we invest and holding the investments in our portfolio to maturity. In many cases we are the sole investor in the loan or security in our portfolio. Where there are multiple investors, we generally seek to control or obtain significant influence over the rights of investors in the loan or security. Our investments typically have maturities between three and ten years and generally range in size between $10 million and $75 million, although we may make larger or smaller investments on occasion. In addition, part of our strategy involves an investment in the Senior Credit Fund with Cal Regents, as further discussed below.
Investment Portfolio
As of December 31, 2014, our portfolio (which term does not include our investment in a money market fund managed by an affiliate of Group Inc.) on a fair value basis, was comprised of approximately 94.3% secured debt investments (55.9% in first lien debt (including 30.2% in first lien/last-out unitranche loans) and 38.4% in second lien debt), 2.9% in preferred stock, 0.1% in common stock and 2.7% in investment funds & vehicles.
As of December 31, 2014, our portfolio was invested across 23 different industries. The largest industries in our portfolio, based on fair value as of December 31, 2014, were diversified telecommunication services, electronic equipment, instruments & components and real estate management and development, which represented, as a percentage of our portfolio at fair value, 11.1%, 8.7% and 8.2%, respectively.
As of December 31, 2014, we had 45 investments in 34 portfolio companies with an aggregate fair value of $913.95 million. As of December 31, 2014, 99.3% of our portfolio investments at fair value were in U.S. domiciled companies. As of December 31, 2014, on a fair value basis, approximately 84.5% of our debt investments were invested in debt bearing a floating interest rate with an interest rate floor and approximately 15.5% of our debt investments were in debt bearing a fixed interest rate (including preferred stock investments).
As of December 31, 2014, the weighted average gross yield of our total portfolio (excluding our investment in a money market fund managed by an affiliate of Group Inc.) at cost and fair value was 10.9% and 11.2%, respectively. At December 31, 2014, no investments in our portfolio were on non-accrual status. As of December 31, 2014, the weighted average net debt to EBITDA and the weighted average interest coverage ratio of our portfolio companies was 4.1 times and 2.9 times, respectively. The weighted average net debt to EBITDA of our portfolio companies represents our portfolio companies last dollar of invested debt capital (net of cash) as a multiple of EBITDA. The weighted average interest coverage ratio (EBITDA to total interest expense) of our portfolio companies reflects our portfolio companies EBITDA as a multiple of interest expense. Portfolio company credit statistics are derived from the most recently available financial statements of such portfolio company.
96
As of December 31, 2014, we and Cal Regents each had contributed $25.00 million to the Senior Credit Fund. As of December 31, 2014, the Senior Credit Fund was invested across seven industries. The largest industries in the Senior Credit Funds portfolio, based on fair value as of December 31, 2014, were auto components, capital markets, professional services and food products, which represented, as a percentage of the Senior Credit Funds portfolio at fair value, 21.8%, 20.3%, 13.4% and 13.4%, respectively.
As of December 31, 2014, the Senior Credit Fund had eight investments in eight portfolio companies with an aggregate fair value of $111.17 million. As of December 31, 2014, 100% of the Senior Credit Funds portfolio investments were in U.S domiciled companies and were invested in debt bearing a floating interest rate with an interest rate floor.
As of December 31, 2013, we had 26 investments in 25 portfolio companies with an aggregate fair value of $493.42 million. As of December 31, 2013, over 99.1% of our portfolio investments at fair value were in U.S. domiciled companies. As of December 31, 2013, on a fair value basis, approximately 80.5% of our portfolio investments were in debt bearing a floating rate with an interest rate floor and approximately 19.5% of our portfolio investments were in debt bearing a fixed interest rate (including preferred stock investments).
The following chart depicts our portfolio structure, at fair value, as of December 31, 2014:
The following chart depicts our portfolio structure, at fair value, as of December 31, 2013:
97
Formation Transactions
We were formed as Goldman Sachs Liberty Harbor Capital, LLC on September 26, 2012 and commenced operations on November 15, 2012, using seed capital contributions we received from Group Inc. On March 29, 2013, we elected to be treated as a BDC under the Investment Company Act. On April 1, 2013, we converted from a Delaware limited liability company to a Delaware corporation named Goldman Sachs BDC, Inc. For the year ended December 31, 2013, we closed offerings of 25,260,470 shares of our common stock in private placements totaling approximately $505.43 million, of which Group Inc. acquired 701,760 shares of our common stock totaling approximately $14.08 million. In addition to the shares acquired in the 2013 private placements, as part of the Conversion, Group Inc. received 5,379,354 shares of our common stock in exchange for its limited liability company interests totaling approximately $107.59 million on April 1, 2013. As a result of the Conversion, the aforementioned private placements and subsequent share repurchases, as of December 31, 2014, Group Inc. owned approximately 19.85% of our common stock. We have elected to be treated, and intend to qualify annually, as a RIC under the Code, commencing with our taxable year ended December 31, 2013.
Our Investment Adviser
GSAM, a Delaware limited partnership, serves as our investment adviser and has been registered as an investment adviser with the SEC since 1990. Subject to the supervision of our Board of Directors, a majority of which is made up of independent directors (including an independent Chairman), GSAM manages our day-to-day operations and provides us with investment advisory and management services and certain administrative services. GSAM is part of Group Inc., a public company that is a bank holding company, financial holding company and a world-wide, full-service financial services organization. Group Inc. is the general partner and owner of GSAM. GSAM has been providing financial solutions for investors since 1988 and had approximately $1.02 trillion of assets under supervision as of December 31, 2014.
The GSAM Private Credit Group is responsible for identifying investment opportunities, conducting research and due diligence on prospective investments, structuring our investments and monitoring and servicing our investments. As of February 2015, the GSAM Private Credit Group was comprised of 16 investment professionals, all of whom are predominantly dedicated to the Company. These professionals are supported by an additional 17 investment professionals who are primarily focused on investment strategies in syndicated, liquid credit. These individuals may have additional responsibilities other than those relating to us, but generally allocate a significant portion of their time in support of our business and our investment objective as a whole. In addition, GSAM believes that it has best in class support personnel, including expertise in risk management, legal, accounting, tax, information technology and compliance, among others. We expect to benefit from the support provided by these personnel in our operations.
The GSAM Private Credit Group takes a bottom-up, fundamental research approach to investing and focuses primarily on corporate credit investment opportunities in North America. The senior members of the GSAM Private Credit Group have been working together since 2006 and have an average of over 15 years of experience in leveraged finance and private transactions. The voting members of our investment committee collectively have over 50 years of experience in middle-market investing and activities related to middle-market investing.
The GSAM Private Credit Group has an investment committee comprised of five voting members, including our Chief Executive Officer, Brendan McGovern, two senior investment professionals, Salvatore Lentini and Scott Turco, our Head of Research, David Yu, and our Chief Operating Officer, Jon Yoder, as well as three non-voting members with operational and legal expertise. See ManagementBiographical Information for a description of the experience of each of the individual voting members of our investment committee. The investment committee is responsible for approving all of our investments. The investment committee also monitors investments in our portfolio and approves all asset dispositions. The investment committee engages in each stage of the investment process in order to prioritize and direct the underwriting of each potential investment opportunity. The extensive and varied experience of the investment professionals serving on our
98
investment committee includes expertise in privately originated and publicly traded leveraged credit, stressed and distressed debt, bankruptcy, mergers and acquisitions and private equity. This diverse skill set provides a range of perspectives in the evaluation of each investment opportunity.
Allocation of Opportunities
The GSAM Private Credit Group is currently the only business unit of GSAM that is primarily engaged in pursuing middle-market direct lending opportunities. By middle-market direct lending opportunities we mean opportunities to underwrite and fund loans to operating businesses generating between $5 million and $75 million of EBITDA annually. Middle-market direct lending opportunities do not include opportunities to purchase loans from other underwriters or in secondary market transactions, or lending opportunities backed by real property or a personal guarantee collateralized by personal cash, securities or other personal assets. In some cases, due to information barriers that are in place, other Goldman Sachs funds or accounts may compete with the Company for specific investment opportunities without being aware that they are competing against each other.
In addition to the GSAM Private Credit Groups significant resources, including dedicated employees committed to sourcing middle-market direct lending opportunities, the Investment Management Division of Goldman Sachs currently has in place a practice designed to refer all middle-market direct lending opportunities sourced by Goldman Sachs Private Wealth Management business to the GSAM Private Credit Group. From time to time, other business units of GSAM and other divisions of Goldman Sachs, including the Investment Banking Division, the Securities Division and the Merchant Banking Division, may refer middle-market direct lending opportunities to the GSAM Private Credit Group; however, there are currently no procedures or practices in place designed to do so and in most cases the GSAM Private Credit Group will not get referrals of middle-market direct lending opportunities from these other business units or divisions. Whether sourced by the GSAM Private Credit Group or referred to the GSAM Private Credit Group by another business unit or division of Goldman Sachs, determinations regarding the allocation of middle-market direct lending opportunities to the Company will be made on a case-by-case basis in accordance with GSAMs allocation policies and procedures. For a further explanation of the allocation of opportunities and other conflicts and the risks related thereto, please see Potential Conflicts of Interest.
Competitive Advantages
The Goldman Sachs Platform: Goldman Sachs is a leading global financial institution that provides a wide range of financial services to a substantial and diversified client base, including companies and high net worth individuals, among others. The firm is headquartered in New York, and maintains offices across the United States and in all major financial centers around the world. Group Inc.s asset management subsidiary, GSAM, is one of the worlds leading investment managers with over 700 investment professionals and approximately $1.02 trillion of assets under supervision as of December 31, 2014. GSAMs investment teams, including the GSAM Private Credit Group, capitalize on the relationships, market insights, risk management expertise, technology and infrastructure of Goldman Sachs. We believe the Goldman Sachs platform delivers a meaningful competitive advantage to us in the following ways:
| Origination of Investment Opportunities: Goldman Sachs has a preeminent network of relationships and the ability to provide valued intellectual, as well as financial, capital to middle-market borrowers which we believe significantly enhances our origination capability. We believe that many borrowers prefer to do business with Goldman Sachs and its advised funds because of its ability to offer further services to middle-market companies as they grow in their life cycle, including financial advice, acquisition opportunities and capital markets expertise. The GSAM Private Credit Group is also able to leverage the Goldman Sachs platform to provide middle-market companies with access to Goldman Sachs broad client network, which can be utilized to find new customers and partners as the GSAM Private Credit Group seeks to grow and execute its strategic plans. |
99
| Evaluation of Investment Opportunities: The GSAM Private Credit Group is comprised of seasoned professionals with significant private credit investing experience. The team draws on a diverse array of skill sets, spanning fundamental credit and portfolio management, as well as legal and transactional structuring expertise. The GSAM Private Credit Group is trained in, and utilizes, proprietary investment practices and procedures developed over many decades by Goldman Sachs, including those related to performing due diligence on prospective portfolio investments and reviewing the backgrounds of potential partners. Further, Goldman Sachs is an active participant in a wide array of industries, both in service to clients operating in many different industries and acting as a principal or customer in such industries. Accordingly, Goldman Sachs houses a tremendous amount of industry knowledge and experience. The GSAM Private Credit Group is able to draw upon these industry insights and expertise as it evaluates investment opportunities. |
| Risk Monitoring of Investments: The GSAM Private Credit Group team has significant processes and procedures in place, including proprietary information technology systems, to monitor and evaluate the performance of its investments at the asset level. In addition, we benefit from Goldman Sachs extensive risk management capabilities, which have been developed and honed over many investment cycles. Our portfolio is regularly reviewed and stressed under various scenarios by senior risk management personnel within Goldman Sachs. These scenarios are drawn from the expertise developed by Goldman Sachs for its own balance sheet. This risk monitoring is designed to minimize the risk of capital loss and maintain an investment portfolio that is expected to perform in a broad range of economic conditions. |
| Financing of Portfolio: As one of the worlds largest asset management firms, GSAM is a significant counterparty to many providers of capital. In addition, GSAM has a world-class asset management infrastructure, including significant resources in operations, legal, compliance and other support functions. This scale, combined with the institutional infrastructure to support it, gives capital providers an incentive to do business with GSAM and confidence that their capital will be well guarded. Accordingly, we believe that we have been able to obtain favorable terms from financing providers, including attractive interest rates, advance rates, durations and covenants. We believe that we will continue to benefit from GSAMs scale and infrastructure through attractive financing terms as we seek additional sources of capital in the future. |
Existing Portfolio of Performing, Predominantly Senior, Floating Rate Loans: As an operating BDC for over a year, we have built up a sizable existing portfolio. As of December 31, 2014, we had 45 investments in 34 portfolio companies with an aggregate fair value of $913.95 million. As of December 31, 2014, 99.3% of our portfolio investments at fair value were in U.S. domiciled companies. As of December 31, 2014, on a fair value basis, approximately 84.5% of our debt investments were invested in debt bearing a floating interest rate with an interest rate floor and approximately 15.5% of our debt investments were in debt bearing a fixed interest rate (including preferred stock investments). We believe that this portfolio will generate attractive risk adjusted levels of income that will help support a dividend payment to our stockholders.
Strategic Joint Venture : Additionally, on July 18, 2014, we agreed to co-invest with Cal Regents through the Senior Credit Fund, an unconsolidated Delaware limited liability company. The purpose of the Senior Credit Fund is to take advantage of attractive long-term financing and invest primarily in more conservative first lien loans to middle-market companies, often bearing comparatively lower interest rates. The Senior Credit Fund is expected to utilize a debt-to-equity ratio of approximately 2 to 1 and is currently targeting a mid-teens return on our investment, although this target may change over time depending on market conditions. The Senior Credit Fund is managed by a six-member board of managers, on which we and Cal Regents each have equal representation. Investment decisions generally must be unanimously approved by a quorum of the board of managers. Establishing a quorum for the Senior Credit Funds board of managers requires at least four members to be present at a meeting, including at least two of our representatives and two of Cal Regents representatives. If there are five members present at a meeting, all three representatives of Cal Regents must be present to
100
constitute a quorum. We and Cal Regents each have 50% economic ownership of the Senior Credit Fund and each have subscribed to fund $100.00 million. As of December 31, 2014, we and Cal Regents each had contributed $25.00 million to the Senior Credit Fund. Our objective is to increase the weighted average yield on our portfolio as the capital we contributed to the Senior Credit Fund is deployed. As of December 31, 2014, the Senior Credit Fund was invested across seven industries. The largest industries in the Senior Credit Funds portfolio, based on fair value as of December 31, 2014, were auto components, capital markets, professional services and food products, which represented, as a percentage of the Senior Credit Funds portfolio at fair value, 21.8%, 20.3%, 13.4% and 13.4%, respectively. As of December 31, 2014, the Senior Credit Fund had eight investments in eight portfolio companies with an aggregate fair value of $111.17 million. As of December 31, 2014, 100% of the Senior Credit Funds portfolio investments were in U.S domiciled companies and were invested in debt bearing a floating interest rate with an interest rate floor. See Managements Discussion and Analysis of Financial Condition and Results of OperationsSenior Credit Fund, LLC.
Broad Existing Shareholder Base: We currently have over 700 stockholders and no individual stockholder owns greater than 3% of our common stock other than Group Inc., which owned approximately 19.85% of our common stock as of December 31, 2014. We believe that the breadth of our shareholder base and our proven ability to attract investors will continue to support our future growth plans. These investors committed to our business with limited opportunity for liquidity, and have agreed to a lock-up period following completion of this offering. Goldman, Sachs & Co. has adopted the 10b5-1 Plan in accordance with Rules 10b5-1 and 10b-18 under the Exchange Act, under which Goldman, Sachs & Co. will buy in the open market up to the lesser of $25.00 million in the aggregate of our common stock or such amount that would not bring Goldman, Sachs & Co.s collective ownership (with Group Inc.) over 19.9% of our outstanding common stock. Any such purchases under the 10b5-1 Plan will occur during the period beginning after four full calendar weeks after the closing of this offering and ending on the earlier of the date on which all the capital committed to the plan has been exhausted or one year after the closing of this offering, subject to certain conditions. See Related Party Transactions and Certain Relationships.
Market Opportunity
The GSAM Private Credit Group believes that existing market conditions and regulatory changes have combined to create an attractive investment environment for us. Specifically:
| Recent changes in the regulatory capital charges imposed on the banking sector for unrated, illiquid assets have caused banks to reduce their lending activities to middle-market companies . Stakeholders in banks, including their shareholders, lenders and regulators, continue to exert pressure to contain the amount of illiquid, unrated assets held on bank balance sheets. Examples of this include moves to codify the BASEL III accords in the United States, which would increase the regulatory capital charge for lower rated and unrated assets in most instances, and continued investor focus on the amount of illiquid assets whose fair value cannot be determined by using observable measures, or Level 3 assets, held on bank balance sheets. As a result, the GSAM Private Credit Group believes that many banks have been forced to reduce their lending to middle-market companies, creating an opportunity for alternative lenders such as us to fill the void. |
| Changes in business strategy by banks have further reduced the supply of capital to middle-market companies . The trend of consolidation of regional banks into money center banks has reduced the focus of these businesses on middle-market lending. Money center banks traditionally focus on lending and providing other services to large corporate clients to whom they can deploy larger amounts of capital more efficiently. The GSAM Private Credit Group believes that this has resulted in fewer bank lenders to U.S. middle-market companies and reduced the availability of debt capital to the companies we target. |
101
| The capital markets have been unable to fill the void in middle-market finance left by banks. While underwritten bond and syndicated loan markets have been robust in recent years, middle-market companies are rarely able to access these markets as participants are generally highly focused on the liquidity characteristics of the bond or loan being issued. For example, mutual funds and ETFs are significant buyers of underwritten bonds. However, mutual funds and ETFs generally require the ability to liquidate their investments quickly in order to fund investor redemptions. Accordingly, the existence of an active secondary market for bonds is an important consideration in the initial investment decision. Because there is typically no active secondary market for the debt of U.S. middle-market companies, mutual funds and ETFs generally do not provide capital to U.S. middle-market companies. The GSAM Private Credit Group believes that this is likely to be a persistent problem for the capital markets and creates an advantage for investors like us who have a more stable capital base and can therefore invest in illiquid assets. |
| It is difficult for new lending platforms to enter the middle market and fill the capital void because it is very fragmented . While the middle market is a very large component of the U.S. economy, it is a highly fragmented space with thousands of companies operating in many different geographies and industries. Typically, companies that need capital find lenders and investors based on pre-existing relationships, referrals and word of mouth. Developing the many relationships required and wide-spread recognition as a source of capital to the middle market is a time consuming, highly resource-intensive endeavor. As a result, the GSAM Private Credit Group believes that it is difficult for new lending platforms to successfully enter the middle market, thereby providing insulation from rapid shifts in the supply of capital to the middle market that might otherwise disrupt pricing of capital. |
Investments
We seek to create a portfolio that includes primarily direct originations of secured debt, including first lien, first lien/last-out unitranche and second lien debt, unsecured debt (including mezzanine debt) and, to a lesser extent, investments in equities in middle-market companies by generally investing on an individual portfolio company basis. We expect to make investments through both primary originations and open-market secondary purchases. We currently do not expect to limit our focus to any specific industry. Our investments are typically expected to have maturities between three and ten years and generally range in size between $10 million and $75 million, although we may make larger or smaller investments on occasion. If we are successful in achieving our investment objective, we believe that we will be able to provide our stockholders with consistent dividend distributions and attractive risk adjusted total returns.
As of December 31, 2014, our portfolio on a fair value basis was comprised of approximately 94.3% secured debt investments (55.9% in first lien debt (including 30.2% in first lien/last-out unitranche loans) and 38.4% in second lien debt), 2.9% in preferred stock, 0.1% in common stock and 2.7% in investment funds & vehicles. We expect that our portfolio will continue to include secured debt, including first lien, first lien/last-out unitranche and second lien debt, unsecured debt (including mezzanine debt) and, to a lesser extent, equities. In addition to investments in U.S. middle-market companies, we may invest a portion of our capital in opportunistic investments, such as in large U.S. companies, foreign companies, stressed or distressed debt, structured products or private equity. Such investments are intended to enhance our risk adjusted returns to stockholders, and the proportion of these types of investments will change over time given our views on, among other things, the economic and credit environment in which we are operating, although these types of investments generally will constitute less than 30% of our total assets.
In the future, we may also securitize a portion of our investments in any or all of our assets. We expect that our primary use of funds will be to make investments in portfolio companies, distribute cash to holders of our common stock and pay our operating expenses, including debt service to the extent we borrow or issue senior securities to fund our investments.
102
We and our investment adviser have applied for an exemptive order from the SEC that would permit us and certain of our controlled affiliates to co-invest with other funds managed by the GSAM Liberty Harbor investment team in a manner consistent with our investment objectives, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors. Any such order, if issued, will be subject to certain terms and conditions and there can be no assurance that such order will be granted by the SEC. Additionally, if our investment adviser forms other funds in the future, we may co-invest on a concurrent basis with such other affiliates, subject to compliance with applicable regulations and regulatory guidance, as well as applicable allocation procedures. In certain circumstances, negotiated co-investments may be made only if we receive an order from the SEC permitting us to do so.
For a list of the investments in our portfolio, see Portfolio Companies.
Investment Criteria
We are committed to a value-oriented philosophy implemented by our investment adviser, which manages our portfolio and seeks to minimize the risk of capital loss without foregoing the potential for capital appreciation. We have identified several criteria, discussed below, that GSAM believes are important in identifying and investing in prospective portfolio companies.
These criteria provide general guidelines for our investment decisions. However, we caution that not all of these criteria will be met by each prospective portfolio company in which we choose to invest. Generally, we seek to use our experience and access to market information to identify investment candidates and to structure investments quickly and effectively.
| Value orientation and positive cash flow |
Our investment philosophy places a premium on fundamental analysis and has a distinct value orientation. We focus on companies in which we can invest at relatively low multiples of operating cash flow and that are profitable at the time of investment on an operating cash flow basis. Typically, we do not expect to invest in start-up companies or companies having speculative business plans.
| Experienced management and established financial sponsor relationships |
We generally require that our portfolio companies have an experienced management team. We also require the portfolio companies to have proper incentives in place to induce management to succeed and to act in concert with our interests as investors. In addition, we focus our investments in companies backed by strong financial sponsors that have a history of creating value and with whom members of our investment adviser have an established relationship.
| Strong and defensible competitive market position |
We seek to invest in target companies that have developed leading market positions within their respective markets and are well-positioned to capitalize on growth opportunities. We also seek companies that demonstrate significant competitive advantages versus their competitors, which should help to protect their market position and profitability while enabling us to protect our principal and avoid capital losses.
| Viable exit strategy |
We seek to invest in companies that GSAM believes will provide a steady stream of cash flow to repay our loans and reinvest in their respective businesses. We expect that such internally generated cash flow, leading to the payment of interest on, and the repayment of the principal of, our investments in portfolio companies to be a key means by which we exit from our investments over time. In addition, we also seek to invest in companies
103
whose business models and expected future cash flows offer attractive exit possibilities. These companies include candidates for strategic acquisition by other industry participants and companies that may repay our investments through an initial public offering of common stock or other capital markets transactions.
| Due diligence |
Our investment adviser takes a bottom-up, fundamental research approach to our potential investments. It believes it is critical to conduct extensive due diligence on investment targets and in evaluating new investments. Our investment adviser conducts a rigorous due diligence process that is applied to prospective portfolio companies and draws from its experience, industry expertise and network of contacts. In conducting due diligence, our investment adviser uses information provided by companies, financial sponsors and publicly available information as well as information from relationships with former and current management teams, consultants, competitors and investment bankers.
Our due diligence typically includes:
| review of historical and prospective financial information; |
| review of the capital structure; |
| analysis of the business and industry in which the company operates; |
| on-site visits; |
| interviews with management, employees, customers and vendors of the potential portfolio company; |
| review of loan documents; |
| background checks; and |
| research relating to the portfolio companys management, industry, markets, products and services and competitors. |
Upon the completion of due diligence and a decision to proceed with an investment in a company, the team leading the investment presents the investment opportunity to our investment committee. This committee determines whether to pursue the potential investment. All new investments are required to be reviewed by the investment committee. The members of the investment committee are employees of our investment adviser and they do not receive separate compensation from us or our investment adviser for serving on the investment committee.
Additional due diligence with respect to any investment may be conducted on our behalf (and at our expense) by attorneys and independent auditors prior to the closing of the investment, as well as other outside advisers, as appropriate.
Investment Committee
The GSAM Liberty Harbor investment committee currently consists of five voting membersBrendan McGovern, Salvatore Lentini, Jon Yoder, David Yu and Scott Turco as well as three non-voting members with operational or legal expertise. Our investment committee is responsible for approving all of our investments. Our investment committee also monitors investments in our portfolio and approves all asset dispositions. We expect to benefit from the extensive and varied relevant experience of the investment professionals serving on our investment committee, which includes expertise in primary and secondary leveraged credit, private mezzanine finance, stressed and distressed debt, bankruptcy, mergers and acquisitions and private equity.
104
The purpose of our investment committee is to evaluate and approve, as deemed appropriate, all investments by our investment adviser. Our investment committee process is intended to bring the diverse experience and perspectives of our investment committees members to the analysis and consideration of every investment. Our investment committee also serves to provide investment consistency and adherence to our investment advisers investment philosophies and policies. Our investment committee also determines appropriate investment sizing and suggests ongoing monitoring requirements.
In addition to reviewing investments, our investment committee meetings serve as a forum to discuss credit views and outlooks. Potential transactions and investment opportunities are also reviewed on a regular basis. Members of our investment advisers investment team are encouraged to share information and views on credits with our investment committee early in their analysis. This process improves the quality of the analysis and assists the deal team members to work more efficiently.
Investment Structure
Once we determine that a prospective portfolio company is suitable for investment, we work with the management of that company and its other capital providers, including senior, junior and equity capital providers, to structure an investment. We negotiate among these parties and use creative and flexible approaches to structure our investment relative to the other capital in the portfolio companys capital structure.
We expect our secured debt to have terms of three to ten years. We generally obtain security interests in the assets of our portfolio companies that will serve as collateral in support of the repayment of this debt. This collateral may take the form of first or second priority liens on the assets of a portfolio company.
We use the term mezzanine to refer to debt that ranks senior only to a borrowers equity securities and ranks junior in right of payment to all of such borrowers other indebtedness. Mezzanine debt typically has interest-only payments in the early years, payable in cash or in-kind, with amortization of principal deferred to the later years of the mezzanine debt. In some cases, we may enter into mezzanine debt that, by its terms, converts into equity (or is issued along with warrants for equity) or additional debt securities or defers payments of interest for the first few years after our investment. Typically, our mezzanine debt investments have maturities of three to ten years.
We also invest in unitranche loans, which are loans that combine features of first-lien, second-lien and mezzanine debt, generally in a first-lien position.
In the case of our secured debt and unsecured debt, including mezzanine debt investments, we seek to tailor the terms of the investments to the facts and circumstances of the transactions and the prospective portfolio companies, negotiating a structure that protects our rights and manages our risk while creating incentives for the portfolio companies to achieve their business plan and improve their profitability. For example, in addition to seeking a senior position in the capital structure of our portfolio companies, we seek to limit the downside potential of our investments by:
| requiring a total return on our investments (including both interest and potential equity appreciation) that compensates us for credit risk; |
| incorporating put rights and call protection into the investment structure; and |
| negotiating covenants in connection with our investments that afford our portfolio companies as much flexibility in managing their businesses as possible, consistent with preservation of our capital. Such restrictions may include affirmative and negative covenants, default penalties, lien protection, change of control provisions and board rights, including either observation or participation rights. |
105
Our investments may include equity features, such as direct investments in the equity or convertible securities of portfolio companies or warrants or options to buy a minority interest in a portfolio company. Any warrants we may receive with our debt securities generally require only a nominal cost to exercise, so as a portfolio company appreciates in value, we may achieve additional investment return from these equity investments. We may structure the warrants to provide provisions protecting our rights as a minority-interest holder, as well as puts, or rights to sell such securities back to the company, upon the occurrence of specified events. In many cases, we may also obtain registration rights in connection with these equity investments, which may include demand and piggyback registration rights.
We expect to hold most of our investments to maturity or repayment, but may sell certain investments earlier if a liquidity event takes place, such as the sale or refinancing of a portfolio company. We also may turn over our investments to better position the portfolio as market conditions change.
Ongoing relationships with portfolio companies
Monitoring
Our investment adviser monitors our portfolio companies on an ongoing basis. It monitors the financial trends of each portfolio company to determine if they are meeting their respective business plans and to assess the appropriate course of action for each company. Our investment adviser has several methods of evaluating and monitoring the performance and fair value of our investments, which may include the following:
| assessment of success in adhering to the portfolio companys business plan and compliance with covenants; |
| periodic or regular contact with portfolio company management and, if appropriate, the financial or strategic sponsor, to discuss financial position, requirements and accomplishments; |
| comparisons to our other portfolio companies in the industry, if any; |
| attendance at and participation in board meetings or presentations by portfolio companies; and |
| review of monthly and quarterly financial statements and financial projections of portfolio companies. |
Our investment adviser also employs an investment rating system to categorize our investments. In addition to various risk management and monitoring tools, our investment adviser grades the credit risk of all investments on a scale of 1 to 4 no less frequently than quarterly. This system is intended primarily to reflect the underlying risk of a portfolio investment relative to our initial cost basis in respect of such portfolio investment (i.e., at the time of origination or acquisition), although it may also take into account under certain circumstances the performance of the portfolio companys business, the collateral coverage of the investment and other relevant factors. Under this system, investments with a grade of 1 involve the least amount of risk to our initial cost basis. The trends and risk factors for this investment since origination or acquisition are generally favorable, which may include the performance of the portfolio company or a potential exit. Investments graded 2 involve a level of risk to our initial cost basis that is similar to the risk to our initial cost basis at the time of origination or acquisition. This portfolio company is generally performing as expected and the risk factors to our ability to ultimately recoup the cost of our investment are neutral to favorable. All investments or acquired investments in new portfolio companies are initially assessed a grade of 2. Investments graded 3 indicate that the risk to our ability to recoup the initial cost basis of such investment has increased materially since origination or acquisition, including as a result of factors such as declining performance and non-compliance with debt covenants; however, payments are generally not more than 120 days past due. An investment grade of 4 indicates that the risk to our ability to recoup the initial cost basis of such investment has substantially increased since origination or
106
acquisition, and the portfolio company likely has materially declining performance. For debt investments with an investment grade of 4, most or all of the debt covenants are out of compliance and payments are substantially delinquent. For investments graded 4, it is anticipated that we will not recoup our initial cost basis and may realize a substantial loss of our initial cost basis upon exit. For investments graded 3 or 4, our investment adviser enhances its level of scrutiny over the monitoring of such portfolio company. Our investment adviser grades the investments in our portfolio at least each quarter and it is possible that the grade of a portfolio investment may be reduced or increased over time.
The following table shows the distribution of our investments (excluding our investment in a money market fund managed by an affiliate of Group Inc.) on the 1 to 4 grading scale as of December 31, 2014 and December 31, 2013.
As of |
||||||||||||||||
December 31, 2014 |
December 31, 2013 |
|||||||||||||||
Investment Performance Rating |
Fair Value |
Percentage
|
Fair Value |
Percentage
|
||||||||||||
($ in
millions) |
($ in
millions) |
|||||||||||||||
Grade 1 |
$ | 11.44 | 1.2 | % | $ | | | % | ||||||||
Grade 2 |
843.44 | 92.3 | 488.97 | 99.1 | ||||||||||||
Grade 3 |
59.07 | 6.5 | | | ||||||||||||
Grade 4 |
| | 4.45 | 0.9 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Investments |
$ | 913.95 | 100.0 | % | $ | 493.42 | 100.0 | % | ||||||||
|
|
|
|
|
|
|
|
As of December 31, 2014 and December 31, 2013, the weighted average grade of the investments in our portfolio at fair value was 2.05 and 2.02 respectively. As of December 31, 2014, no investments were considered to be on non-accrual status.
Managerial Assistance
As a BDC, we must offer, and must provide upon request, significant managerial assistance to certain of our eligible portfolio companies within the meaning of Section 55 of the Investment Company Act. This assistance could involve, among other things, monitoring the operations of our portfolio companies, participating in board and management meetings, consulting with and advising officers of portfolio companies and providing other organizational and financial guidance. Our investment adviser or an affiliate thereof may provide such managerial assistance on our behalf to portfolio companies that request such assistance. We may receive fees for these services. See Regulation.
Competition
Our primary competitors provide financing to middle-market companies and include other BDCs, commercial and investment banks, commercial financing companies, collateralized loan obligations, private funds, including hedge funds, and, to the extent they provide an alternative form of financing, private equity funds. Some of our existing and potential competitors are substantially larger and have considerably greater financial, technical and marketing resources than we do. For example, some competitors may have a lower cost of funds and access to funding sources that are not available to us.
In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships than us. Furthermore, many of our competitors are not subject to the regulatory restrictions that the Investment Company Act imposes on us as a BDC. We also expect to use the industry information of GSAMs investment professionals to which we have access to assess investment risks and determine appropriate pricing for our
107
investments in portfolio companies. In addition, we believe that the relationships of the senior managers of our investment adviser enable us to learn about, and compete effectively for, financing opportunities with attractive middle-market companies in the industries in which we seek to invest.
Staffing
We do not currently have any employees. Our day-to-day operations are managed by our investment adviser. Our investment adviser has hired and expects to continue to hire professionals with skills applicable to our business plan, including experience in middle-market investing, leveraged finance and capital markets.
Properties
We do not own any real estate or other properties materially important to our operations. Our principal executive offices are located at 200 West Street, New York, New York 10282. We believe that our office facilities are suitable and adequate for our business as it is contemplated to be conducted.
Legal Proceedings
We and our investment adviser are not currently subject to any material legal proceedings, although we may, from time to time, be involved in litigation arising out of operations in the normal course of business or otherwise.
Our Administrator
Pursuant to our Administration Agreement, our administrator is responsible for providing various accounting and administrative services to us. Our administrator is entitled to fees as described in Management. To the extent that our administrator outsources any of its functions, the administrator will pay any compensation associated with such functions. See ManagementOur Administrator.
108
The following table sets forth certain information as of December 31, 2014, for each portfolio company in which we had an investment. Other than these investments, our only formal relationships with our portfolio companies are the significant managerial assistance that we may provide upon request and the board observation or participation rights we may receive in connection with our investment. As defined by the Investment Company Act, we do not control any of the portfolio companies; however, we are considered an affiliate of one of our portfolio companies. In general, under the Investment Company Act, we would be presumed to control a portfolio company if we owned more than 25% of its voting securities and would be an affiliate of a portfolio company if we owned more than 5% of its outstanding voting securities.
Name and Address of Portfolio Company |
Industry |
Interest |
Maturity |
Par Amount |
Cost |
Fair Value |
% of Class* |
|||||||||||||
Corporate Debt (1) |
||||||||||||||||||||
1st Lien/Senior Secured Debt |
||||||||||||||||||||
Artesyn Embedded Technologies, Inc . (2) 5810 Van Allen Way Carlsbad, CA 92008 |
Electronic Equipment,
Instruments & Components |
9.75% | 10/15/2020 | $ | 20,000 | $ | 20,000 | $ | 19,000 | |||||||||||
Bolttech Mannings, Inc . (3)(4) 501 Mosside Boulevard North Versailles, PA 15137 |
Commercial Services &
Supplies |
L + 7.75% (1.00% Floor) | 12/21/2018 | 10,640 | (106 | ) | (213 | ) | ||||||||||||
CLP ST Inc. (++) 60 East 42nd Street, Suite 1400 New York, NY 10165 |
Electronic Equipment,
Instruments & Components |
L + 9.50% (1.00% Floor) | 10/09/2019 | 49,525 | 48,583 | 48,534 | ||||||||||||||
CLP ST Inc. (3)(4) 60 East 42nd Street, Suite 1400 New York, NY 10165 |
Electronic Equipment,
Instruments & Components |
L + 9.50% (1.00% Floor) | 10/09/2019 | 5,000 | (88 | ) | (100 | ) | ||||||||||||
Dispensing Dynamics International (2) 1020 Bixby Drive Industry, CA 91745 |
Building Products | 12.50% | 01/01/2018 | 24,000 | 25,055 | 24,960 | ||||||||||||||
Heligear Acquisition Co. (2) d/b/a Northstar Aerospace, Inc. 6006 W. 73rd Street Bedford Park, IL 60638 |
Aerospace & Defense | 10.25% | 10/15/2019 | 17,500 | 17,175 | 17,150 | ||||||||||||||
Infinity Sales Group (+) 5201 Congress Avenue Suite 150 Boca Raton, FL 33487 |
Media | L + 10.50% (1.00% Floor) | 11/21/2018 | 37,500 | 36,880 | 34,500 | ||||||||||||||
Iracore International Holdings, Inc . (2) 3516 13th Avenue Hibbing, MN 55746 |
Energy Equipment &
Services |
9.50% | 06/01/2018 | 24,250 | 19,832 | 14,308 | ||||||||||||||
Legacy Buyer Corp. (++) |
||||||||||||||||||||
Casus Healthcare, LLC |
||||||||||||||||||||
9205 Legacy Drive |
Health Care Providers & | |||||||||||||||||||
Frisco, TX 75033 |
Services | L + 8.00% (1.00% Floor) | 10/24/2019 | 31,000 | 30,402 | 30,380 | ||||||||||||||
Legacy Buyer Corp. (3)(4) |
||||||||||||||||||||
Casus Healthcare, LLC |
||||||||||||||||||||
9205 Legacy Drive |
Health Care Providers & | |||||||||||||||||||
Frisco, TX 75033 |
Services | L + 8.00% (1.00% Floor) | 10/24/2019 | 2,500 | (48 | ) | (50 | ) | ||||||||||||
Liquidnet Holdings, Inc. (++ ) 498 Seventh Avenue, 15th Floor New York, NY 10018 |
Capital Markets | L + 6.75% (1.00% Floor) | 05/22/2019 | 3,604 | 3,555 | 3,424 | ||||||||||||||
NTS Communications, Inc. (++) 1220 Broadway Lubbock, TX 79401 |
Diversified
Telecommunication Services |
L + 9.00% (1.25% Floor) | 06/06/2019 | 39,700 | 38,946 | 38,906 | ||||||||||||||
NTS Communications, Inc. (++)(3) 1220 Broadway Lubbock, TX 79401 |
Diversified
Telecommunication Services |
L + 9.00% (1.25% Floor) | 06/06/2019 | 5,000 | 4,409 | 4,400 | ||||||||||||||
|
|
|
|
|
||||||||||||||||
Total 1st Lien/Senior Secured Debt |
244,595 | 235,199 | ||||||||||||||||||
1st Lien/Last-Out Unitranche (5) |
||||||||||||||||||||
Associations, Inc. (++) |
||||||||||||||||||||
5401 N. Central Expy., Suite 300 |
Real Estate Management & | |||||||||||||||||||
Dallas, TX 75204 |
Development | L + 7.00% (1.00% Floor) | 12/23/2019 | 76,500 | 74,977 | 74,970 | ||||||||||||||
Associations, Inc. (3)(4) |
||||||||||||||||||||
5401 N. Central Expy., Suite 300 |
Real Estate Management & | |||||||||||||||||||
Dallas, TX 75204 |
Development | L + 7.00% (1.00% Floor) | 12/22/2018 | 13,002 | (259 | ) | (260 | ) | ||||||||||||
Avenue Stores, LLC ( ++ ) 365 West Passaic Street, Suite 230 Rochelle Park, NJ 07662 |
Specialty Retail | L + 8.00% (1.00% Floor) | 09/19/2019 | 30,000 | 29,284 | 29,250 |
109
Name and Address of Portfolio Company |
Industry |
Interest |
Maturity |
Par Amount |
Cost |
Fair Value |
% of Class* |
|||||||||||||||||
Bolttech Mannings, Inc . (+) 501 Mosside Boulevard North Versailles, PA 15137 |
Commercial Services &
Supplies |
L + 7.75% (1.00% Floor) | 12/21/2018 | 33,000 | 32,368 | 32,010 | ||||||||||||||||||
Bolttech Mannings, Inc . (+) |
||||||||||||||||||||||||
501 Mosside Boulevard |
Commercial Services & | |||||||||||||||||||||||
North Versailles, PA 15137 |
Supplies | L + 7.75% (1.00% Floor) | 12/21/2018 | 3,346 | 3,284 | 3,245 | ||||||||||||||||||
Mervin Manufacturing, Inc. (++) |
||||||||||||||||||||||||
701 N. 34th St., Suite #100 |
Leisure Equipment & | |||||||||||||||||||||||
Seattle, WA 98103 |
Products | L + 7.50% (1.00% Floor) | 10/10/2019 | 20,000 | 19,617 | 19,600 | ||||||||||||||||||
Pro-Pet, LLC (+) |
||||||||||||||||||||||||
1601 McKinley Road |
||||||||||||||||||||||||
St. Marys, OH 45885 |
Household Products | L + 7.25% (0.75% Floor) | 11/21/2019 | 28,600 | 28,117 | 28,107 | ||||||||||||||||||
The Service Companies Inc . (++) 14750 NW 77th Court Suite 1100 Miami Lakes, FL 33016 |
Professional Services | L + 10.25% (1.00% Floor) | 03/26/2019 | 45,340 | 44,540 | 44,320 | ||||||||||||||||||
United Road Services, Inc. (+) 10701 Middlebelt Road Romulus, MI 48174 |
Air Freight & Logistics | L + 7.50% (1.00% Floor) | 12/14/2017 | 45,000 | 44,390 | 44,325 | ||||||||||||||||||
|
|
|
|
|
||||||||||||||||||||
Total 1st Lien/Last-Out Unitranche |
276,318 | 275,567 | ||||||||||||||||||||||
2nd Lien/Senior Secured Debt |
||||||||||||||||||||||||
Affordable Care, Inc. (+) 4990 Highway 70 West Kinston, NC 28504 |
Health Care Providers &
Services |
L + 9.25% (1.25% Floor) | 12/26/2019 | 23,220 | 23,376 | 22,872 | ||||||||||||||||||
Extraction Oil & Gas Holdings, LLC 1888 Sherman Street, Suite 200 Denver, CO 80203 |
Oil, Gas & Consumable
Fuels |
11.00% | 05/29/2019 | 15,000 | 14,796 | 15,300 | ||||||||||||||||||
Extraction Oil & Gas Holdings, LLC 1888 Sherman Street, Suite 200 Denver, CO 80203 |
Oil, Gas & Consumable
Fuels |
10.00% | 05/29/2019 | 8,412 | 8,292 | 8,286 | ||||||||||||||||||
Global Tel * Link Corporation (++) 12021 Sunset Hills Road, Suite 100 Reston, VA 20190 |
Diversified
Telecommunication Services |
L + 7.75% (1.25% Floor) | 11/23/2020 | 28,000 | 27,526 | 27,323 | ||||||||||||||||||
Highwinds Capital, Inc. (+) 807 W. Morse Boulevard, Suite 101 Winter Park, FL 32789 |
Internet Software &
Services |
L + 12.25% (1.25% Floor) | 01/29/2019 | 59,050 | 58,287 | 59,050 | ||||||||||||||||||
Hunter Defense Technologies, Inc. (++) 30500 Aurora Road, Suite 100 Solon, OH 44139 |
Aerospace & Defense | L + 10.00% (1.00% Floor) | 02/05/2020 | 28,000 | 26,674 | 27,300 | ||||||||||||||||||
Hutchinson Technology, Inc. 40 West Highland Park Drive N.E. Hutchinson, MN 55350 |
Electronic Equipment,
Instruments & Components |
10.88% | 01/15/2017 | 12,200 | 11,839 | 12,627 | ||||||||||||||||||
iFly Holdings LLC (++) 6034 West Courtyard Drive, Suite 135 Austin, TX 78730 |
Leisure Equipment &
Products |
L + 9.00% (1.00% Floor) | 04/08/2020 | 10,000 | 9,818 | 9,825 | ||||||||||||||||||
iFly Holdings LLC (3) 6034 West Courtyard Drive, Suite 135 Austin, TX 78730 |
Leisure Equipment &
Products |
L + 9.00% (1.00% Floor) | 04/08/2020 | 10,000 | | 25 | ||||||||||||||||||
IPC Systems, Inc. (+) Harborside Financial Center, Plaza 10 1500 Plaza 10, 15th Floor Jersey City, NJ 07311 |
Diversified
Telecommunication Services |
L + 8.50% (1.00% Floor) | 05/08/2021 | 11,000 | 10,795 | 11,440 | ||||||||||||||||||
MPI Products LLC (++) 2129 Austin Street Rochester Hills, MI 48309 |
Auto Components | L + 9.00% (1.00% Floor) | 01/30/2020 | 35,000 | 34,506 | 34,475 | ||||||||||||||||||
Oasis Outsourcing Holdings, Inc. (6) 2054 Vista Parkway, Suite 300 |
Commercial Services & | |||||||||||||||||||||||
West Palm Beach, FL 33411 |
Supplies | L + 8.75% (1.00% Floor) | 12/26/2022 | 20,000 | 19,700 | 19,700 | ||||||||||||||||||
Orchard Brands Corporation (+) 201 King of Prussia Road, Suite 200 Radnor, PA 19087 |
Internet & Catalog Retail | L + 10.00% (1.50% Floor) | 06/20/2019 | 40,000 | 39,141 | 40,000 | ||||||||||||||||||
P2 Upstream Acquisition Co. (+++) 1670 Broadway, Suite 2800 Denver, CO 80202 |
Software | L + 8.00% (1.00% Floor) | 04/30/2021 | 10,000 | 9,911 | 9,450 | ||||||||||||||||||
Reddy Ice Corporation (++) 8750 N. Central Expressway, Suite 1800 Dallas, TX 75231 |
Food Products | L + 9.50% (1.25% Floor) | 11/01/2019 | 13,500 | 13,007 | 10,260 | ||||||||||||||||||
Securus Technologies Holdings, Inc. (++) 14651 Dallas Parkway, Suite 600 Dallas, TX 75254 |
Diversified
Telecommunication Services |
L + 7.75% (1.25% Floor) | 04/30/2021 | 20,000 | 19,805 | 19,700 |
110
Name and Address of Portfolio Company |
Industry |
Interest |
Maturity |
Par Amount |
Cost |
Fair Value |
% of Class* |
|||||||||||||||
Washington Inventory Service (++) 9265 Sky Park Court, Suite 100 San Diego, CA 92123 |
Professional Services | L + 9.00% (1.25% Floor) | 06/20/2019 | 24,450 | 24,666 | 23,931 | ||||||||||||||||
|
|
|
|
|
||||||||||||||||||
Total 2nd Lien/Senior Secured Debt |
352,139 | 351,564 | ||||||||||||||||||||
|
|
|
|
|
||||||||||||||||||
Total Corporate Debt |
873,052 | 862,330 | ||||||||||||||||||||
|
|
|
|
|
Name and Address of Portfolio Company |
Industry |
Interest |
Shares |
Cost |
Fair Value |
% of
|
||||||||||||||||||
Preferred Stock (1) |
||||||||||||||||||||||||
Crowley Holdings Preferred LLC (2) 9487 Regency Square Boulevard Jacksonville, FL 32225 |
Marine | 12.00% (includes 2% PIK) | 20,412 | $ | 20,412 | $ | 20,412 | 10.0 | % | |||||||||||||||
Lone Pine Resources CDA, Ltd. (7)(9)(11) Suite 1100, 640-5 Avenue SW Calgary, Alberta, Canada T2P 3G4 |
Oil, Gas & Consumable Fuels | 10.00% | 3,745,909 | 4,791 | 5,946 | 5.0 | % | |||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||
Total Preferred Stock |
25,203 | 26,358 | ||||||||||||||||||||||
Common Stock (1) |
||||||||||||||||||||||||
Lone Pine Resources CDA, Ltd. (7)(8)(10)(11) Suite 1100, 640-5 Avenue SW Calgary Alberta, Canada T2P 3G4 |
Oil, Gas & Consumable Fuels | 972,919 | 4,446 | 632 | 3.9 | % | ||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||
Total Common Stock |
4,446 | 632 | ||||||||||||||||||||||
Name and Address of Portfolio Company |
|
|
LLC Interest |
Cost |
Fair Value |
% of
|
||||||||||||||||||
Investment Funds & Vehicles (1) |
||||||||||||||||||||||||
Senior Credit Fund, LLC (7)(12) |
||||||||||||||||||||||||
200 West Street |
||||||||||||||||||||||||
New York, NY 10282 |
$ | 25,000 | $ | 25,000 | $ | 24,627 | ||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Total Investment Funds & Vehicles |
25,000 | 24,627 | ||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Total Investments at Fair Value |
$ | 927,701 | $ | 913,947 |
* | Percent of class held only applies to voting securities. |
(+) | The interest rate on these loans is subject to a base rate plus 1 month LIBOR, which as of December 31, 2014 was 0.17%. As the interest rate is subject to a minimum LIBOR floor which was greater than the 1 month LIBOR rate at December 31, 2014, the prevailing rate in effect at December 31, 2014 was the base rate plus the LIBOR floor. |
(++) | The interest rate on these loans is subject to a base rate plus 3 month LIBOR, which as of December 31, 2014 was 0.26%. As the interest rate is subject to a minimum LIBOR floor which was greater than the 3 month LIBOR rate at December 31, 2014, the prevailing rate in effect at December 31, 2014 was the base rate plus the LIBOR floor. |
(+++) | The interest rate on these loans is subject to a base rate plus 6 month LIBOR, which as of December 31, 2014 was 0.36%. As the interest rate is subject to a minimum LIBOR floor which was greater than the 6 month LIBOR rate at December 31, 2014, the prevailing rate in effect at December 31, 2014 was the base rate plus the LIBOR floor. |
(1) | Assets are pledged as collateral for the Revolving Credit Facility. |
(2) | Security exempt from registration pursuant to Rule 144A under the Securities Act. These securities may be sold in certain transactions (normally to qualified institutional buyers) and remain exempt from registration. As of December 31, 2014, the aggregate fair value of these securities was $95,830 or 16.68% of the Companys net assets. |
(3) | Position or portion thereof is an unfunded loan commitment, and no interest is being earned on the unfunded portion. |
(4) | The negative cost is the result of the capitalized discount being greater than the principal amount outstanding on the loan. The negative fair value is the result of the capitalized discount on the loan. |
(5) | In addition to the interest earned based on the stated rate of this loan, the Company may be entitled to receive additional interest as a result of its arrangement with other lenders in a syndication. |
(6) | Position or portion thereof unsettled as of December 31, 2014. |
(7) | The investment is not a qualifying asset under Section 55(a) of the Investment Company Act. The Company may not acquire any non-qualifying asset unless, at the time of acquisition is made, qualifying assets represent at least 70% of the Companys total assets. |
(8) | Non-income producing security. |
(9) | In addition, the Company holds 3,745,909 shares of voting securities in an affiliated entity with zero cost and zero value. |
(10) | In addition, the Company holds 972,919 shares of voting securities in an affiliated entity with zero cost and zero value. |
(11) | As defined in the Investment Company Act, the investment is deemed to be an affiliated person of the Company because the Company owns, either directly or indirectly, 5% or more of the portfolio companys outstanding voting securities. |
(12) |
As defined in the Investment Company Act, the investment is deemed to be a controlled affiliated person of the Company because the Company owns, either directly or indirectly, 25% or more of the portfolio companys outstanding voting securities or has the power to exercise control over management or policies of such portfolio company. |
111
L | LIBOR |
PIK | Payment-In-Kind |
Set forth below is a brief description of each portfolio company in which we have made an investment that represents greater than 5% of our total assets as of December 31, 2014:
Associations, Inc. (Real Estate Management and Development)
Associations, Inc. is a community association management services provider. Services include financial statement preparation, property maintenance, payment processing, receivable and payroll processing and other administrative duties. Associations, Inc. serves community associations of all types, from single family homes in master-planned communities to condominiums and townhouses. Associations, Inc. is headquartered in Dallas, TX.
CLP ST Inc. (Electronic Equipment, Instruments & Component)
CLP ST Inc. is a provider of custom-designed manufacturing and supply chain solutions to original equipment manufacturers. Solutions consist of electronic manufacturing services, sub-assembly, box-build and electro-mechanical components. CLP ST Inc. serves customers in a variety of end markets including the medical, automotive and digital video industries. CLP ST Inc. is headquartered in LaGrange, OH.
Highwinds Capital, Inc. (Internet Software & Services)
Highwinds Capital, Inc is a global content delivery network operator as well as a provider of internet security services. Highwinds Capital, Inc.s content delivery network utilizes a network of servers strategically located across the global to help content providers efficiently and expeditiously distribute their content to end users. The internet security services segment is a multi-brand platform of virtual private network service providers to retail customers. Highwinds Capital, Inc. is headquartered in Winter Park, FL.
112
Our business and affairs are managed under the direction of our Board of Directors. Our Board of Directors consists of four members, three of whom are Independent Directors. The Board of Directors elects our officers, who serve at the discretion of our Board of Directors. The responsibilities of the Board of Directors include quarterly valuation of our assets, corporate governance activities, oversight of our financing arrangements and oversight of our investment activities.
The Board of Directors role in management of the Company is one of oversight. Oversight of the Companys investment activities extends to oversight of the risk management processes employed by our investment adviser as part of its day-to-day management of our investment activities. The Board of Directors reviews risk management processes at both regular and special board meetings throughout the year, consulting with appropriate representatives of our investment advisers as necessary and periodically requesting the production of risk management reports or presentations. The goal of the Board of Directors risk oversight function is to ensure that the risks associated with our investment activities are accurately identified, thoroughly investigated and responsibly addressed. Investors should note, however, that the Board of Directors oversight function cannot eliminate all risks or ensure that particular events do not adversely affect the value of the Companys investments.
Our Board of Directors has established an Audit Committee, Governance and Nominating Committee, Compensation Committee, Compliance Committee and Contract Review Committee. The scope of each committees responsibilities is discussed in greater detail below.
Ashok N. Bakhru, an Independent Director, serves as Chairman of our Board of Directors. Our Board of Directors believes that it is in the best interests of our investors for Mr. Bakhru to lead the Board of Directors because of his familiarity with our portfolio companies, his broad experience with the day-to-day management and operation of other investment funds and his significant background in the financial services industry, as described below. Mr. Bakhru will generally act as a liaison between our management, officers and attorneys between meetings of the Board of Directors. The Board of Directors believes that its leadership structure is appropriate because the structure allocates areas of responsibility among the individual directors and the committees in a manner that enhances effective oversight. The Board of Directors also believes that its small size creates an efficient corporate governance structure that provides opportunity for direct communication and interaction between management and the Board of Directors.
Board of Directors and Executive Officers
Our Board of Directors is divided into three classes. Each class of directors holds office for a three-year term. However, the initial members of the three classes will have initial terms of one, two and three years, respectively. At each annual meeting of our stockholders, the successors to the class of directors whose terms expire at such meeting will be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election.
Each director holds office for the term to which he or she is elected or appointed and until his or her successor is duly elected and qualifies, or until his or her earlier death, resignation, retirement, disqualification or removal.
113
Directors
The following information regarding our Board of Directors is as of February 20, 2015:
Name |
Age |
Position |
Class |
|||
Interested Directors |
||||||
Katherine (Kaysie) Uniacke |
54 | Director | Class II (term expires in 2017) | |||
Independent Directors |
||||||
Ashok N. Bakhru |
72 | Chairman of the Board of Directors | Class I (term expires in 2016) | |||
John P. Coblentz, Jr. |
73 | Director | Class III (term expires in 2018) | |||
Richard P. Strubel |
75 | Director | Class II (term expires in 2017) |
The address for each director is c/o Goldman Sachs Asset Management, L.P., 200 West Street, New York, New York 10282.
Executive Officers Who Are Not Directors
The following information regarding our executive officers who are not directors is as of February 20, 2015:
Name |
Age |
Position |
||
Brendan McGovern |
43 | Chief Executive Officer and President | ||
Jon Yoder |
41 | Chief Operating Officer | ||
Jonathan Lamm |
40 | Chief Financial Officer and Treasurer | ||
Alison Conn |
44 | Chief Compliance Officer | ||
Salvatore Lentini |
42 | Executive Vice President | ||
David Yu |
33 | Executive Vice President and Head of Research | ||
Scott Turco |
37 | Executive Vice President |
The address for each executive officer is c/o Goldman Sachs Asset Management, L.P., 200 West Street, New York, New York 10282.
Biographical Information
Directors
Our Board of Directors is divided into two groupsinterested directors and the Independent Directors. Interested directors are interested persons as defined in Section 2(a)(19) of the Investment Company Act.
Interested Directors
Kaysie Uniacke . Ms. Uniacke was elected as one of our directors effective January 1, 2014. Ms. Uniacke serves on the boards of the Goldman Sachs Luxembourg and Dublin family of funds and is an advisory director to Group Inc. Previously, she was global chief operating officer of GSAMs portfolio management business until 2012 and served on the Investment Management Division Client and Business Standards Committee. Prior to this, she was president of Goldman Sachs Trust, the GS mutual fund family, and was head of the Fiduciary Management business within Global Manager Strategies, responsible for business development and client service globally. Earlier in her career, Ms. Uniacke managed GSAMs U.S. and Canadian Distribution groups. In that capacity, she was responsible for overseeing all North American institutional and third-party sales channels, marketing and client service functions, for which client assets exceeded $200 billion. Before that, Ms. Uniacke was head of GSAMs Global Cash Services business, where she was responsible for overseeing the management of assets exceeding $100 billion. Ms. Uniacke joined Goldman Sachs in 1983 and was named managing director in 1997 and partner in 2002. Ms. Uniacke serves on the Board of Trustees for Gettysburg College. Based on the foregoing, Ms. Uniacke is experienced with financial and investment matters.
114
Independent Directors
Ashok N. Bakhru . Mr. Bakhru was elected as one of our directors and as the Chairman of our Board of Directors in March 2013. Mr. Bakhru is retired. Mr. Bakhru has served, and continues to serve, as a trustee of certain other registered investment companies sponsored by GSAM since 1991 (including Goldman Sachs Trust (GST), Goldman Sachs Trust II (GSTII), Goldman Sachs Variable Insurance Trust, Goldman Sachs MLP Income Opportunities Fund (GSMLP), Goldman Sachs MLP and Energy Renaissance Fund (GSMLPII) and Goldman Sachs ETF Trust (collectively, the Goldman Sachs Fund Complex)) and as Chairman of the Board of Trustees of the Goldman Sachs Fund Complex since 1996. From 2008 to June 2013, Mr. Bakhru served as a Director of Apollo Investment Corporation, a BDC. Previously, Mr. Bakhru served as President of ABN Associates, a management and financial consulting firm, and was the Chief Financial Officer, Chief Administrative Officer and Director of Coty Inc., a multinational cosmetics, fragrance and personal care company. In addition, Mr. Bakhru formerly held several senior management positions at Scott Paper Company, a major manufacturer of paper products, including Senior Vice President and Chief Financial Officer. Mr. Bakhru also serves on the Governing Council of the Independent Directors Council and the Board of Governors of the Investment Company Institute. He also serves on the Advisory Board of BoardIQ, an investment publication. In addition, Mr. Bakhru has served as Director of Equity-Linked Investments II and Private Equity Investors III and IV, which are private equity partnerships based in New York City. Mr. Bakhru was also a Director of Arkwright Mutual Insurance Company. Based on the foregoing, Mr. Bakhru is experienced with financial and investment matters.
John P. Coblentz , Jr. Mr. Coblentz was elected as one of our directors in March 2013. Mr. Coblentz has been designated as the Board of Directors audit committee financial expert due to his extensive accounting and finance experience. Mr. Coblentz is retired. Mr. Coblentz has served, and continues to serve, as a trustee of the Goldman Sachs Fund Complex since 2003. Mr. Coblentz was a partner with Deloitte & Touche LLP for 28 years. While at Deloitte & Touche LLP, Mr. Coblentz was lead partner responsible for all auditing and accounting services to a variety of large, global companies, a significant portion of which operated in the financial services industry. Mr. Coblentz was also the national managing partner for the firms risk management function, a member of the firms Management Committee and the first managing partner of the firms Financial Advisory Services practice, which brought together the firms mergers and acquisition services, forensic and dispute services, corporate finance, asset valuation and reorganization businesses under one management structure. He served as a member of the firms Board of Directors. Mr. Coblentz is a certified public accountant. Based on the foregoing, Mr. Coblentz is experienced with accounting, financial and investment matters.
Richard P. Strubel . Mr. Strubel was elected as one of our directors in March 2013. Mr. Strubel is retired. Mr. Strubel has served, and continues to serve, as a trustee of the Goldman Sachs Fund Complex since 1987. Mr. Strubel also serves as Chairman of the Northern Funds, a family of retail and institutional mutual funds managed by The Northern Trust Company. He also previously served on the board of Gildan Activewear Inc., which is listed on the NYSE. Mr. Strubel was Vice-Chairman of the Board of Cardean Learning Group (formerly known as Unext), and previously served as Unexts President and Chief Operating Officer. Mr. Strubel was Managing Director of Tandem Partners, Inc., a privately held management services firm, and served as President and Chief Executive Officer of Microdot, Inc. Previously, Mr. Strubel served as President of Northwest Industries, then a NYSE-listed company, a conglomerate with various operating entities located around the country. Before joining Northwest, Mr. Strubel was an associate and later managing principal of Fry Consultants, a management consulting firm based in Chicago. Mr. Strubel is also a Trustee Emeritus of the University of Chicago and is an adjunct professor at the University of Chicago Booth School of Business. Based on the foregoing, Mr. Strubel is experienced with financial and investment matters.
Executive Officers Who Are Not Directors
Brendan McGovern . Mr. McGovern was appointed as our chief executive officer and president in March 2013. Mr. McGovern heads GSAMs Private Credit Group and also serves as co-head and senior portfolio manager of the GSAM Liberty Harbor portfolio management team. He is also the Chair and a voting member of
115
the Private Credit Groups Investment Committee, which is responsible for evaluating and approving all of the Companys investments. Mr. McGovern joined the firm in 2006. Prior to joining the firm, Mr. McGovern served as a managing director in the Global Investment Group at Amaranth Advisors, where he co-headed the funds private placement efforts for both debt and equity linked products in the United States. He is also on the Board of Directors for the Oxalosis and Hyperoxaluria Foundation.
Jon Yoder . Mr. Yoder was appointed as our chief operating officer in March 2013. Mr. Yoder is a member of GSAMs Private Credit Group with a focus on sourcing, structuring and executing privately negotiated debt financings. He is also a voting member of the Private Credit Groups Investment Committee, which is responsible for evaluating and approving all of the Companys investments. Mr. Yoder joined the firm in 2005. Prior to joining the firm, he was a member of the mergers and acquisitions and private equity groups at Paul, Weiss, Rifkind, Wharton & Garrison, LLP.
Jonathan Lamm . Mr. Lamm was appointed as our chief financial officer and treasurer in March 2013. Mr. Lamm is also chief operating officer of the GSAM Liberty Harbor portfolio management team, responsible for the operations of the business, including business financials, infrastructure support, and IT project management, as well as the continuous improvement of the control environment. Mr. Lamm is secretary and a non-voting member of the Private Credit Groups Investment Committee, which is responsible for evaluating and approving all of the Companys investments. He joined the firm in 2002. Prior to joining the firm, Mr. Lamm worked in the securities audit practice at Deloitte and Touche LLP.
Alison Conn. Ms. Conn was appointed our chief compliance officer in 2014. Ms. Conn has served as a vice president in GSAMs compliance department since July 2014 and currently serves as the chief compliance officer of certain other registered investment companies managed by GSAM, including GSTII, GSMLP and GSMLPII. Ms. Conn was previously in the enforcement division of the SEC. Between July 2012 and September 2012, she served as acting associate regional director of the New York regional office of the SEC and between September 2008 and July 2012, she was an assistant regional director in that office.
Salvatore Lentini . Mr. Lentini was appointed as an executive vice president of the Company in March 2013. Mr. Lentini is co-head and senior portfolio manager of the GSAM Liberty Harbor portfolio management team and also serves as its head of liquid credit and trading. Mr. Lentini is also a voting member of Private Credit Groups Investment Committee, which is responsible for evaluating and approving all of the Companys investments. Mr. Lentini joined the firm in 2006. Prior to joining the firm, Mr. Lentini was a managing director in the Global Investments Group at Amaranth Advisors, where he was responsible for trading all credit products within the United States. Before joining Amaranth, he was responsible for trading high yield and crossover debt at the Royal Bank of Scotland (RBS). Earlier, Mr. Lentini traded high yield fixed income for PaineWebber.
Scott Turco . Mr. Turco was appointed as an executive vice president of the Company in February 2015. Mr. Turco is a member of the GSAM Private Credit Group with a focus on sourcing, structuring and executing privately negotiated debt financings. He is also a voting member of the Private Credit Groups Investment Committee, which is responsible for evaluating and approving all of the Companys investments. Prior to joining the GSAM Private Credit Group, Mr. Turco was a Director at THL Credit, Inc., where he focused on sourcing and underwriting investments across the capital structure of middle-market public and private companies. Before THL Credit, Mr. Turco was an associate at Gabelli & Company, Inc., where he was responsible for originating, researching and advising hedge fund, mutual fund and private equity clients on equity and preferred equity investments in public and private companies.
David Yu . Mr. Yu was appointed as an executive vice president of the Company in March 2013. Mr. Yu is a member of the GSAM Private Credit Group with a focus on sourcing, structuring and executing privately negotiated debt financings and serves as its Head of Research. Mr. Yu is a voting member of the Private Credit Groups Investment Committee, which is responsible for evaluating and approving all of the Companys investments. Mr. Yu joined the firm in 2006. Prior to joining the firm, Mr. Yu was an associate in the
116
Global Investments Group at Amaranth Advisors, where he similarly worked with public and private issuers to structure and execute debt and equity financings. Prior to joining Amaranth, he worked in the Leveraged Finance and Sponsor Coverage Group at CIBC World Markets.
Committees of the Board of Directors
Audit Committee
The members of the Audit Committee are Mr. Bakhru, Mr. Coblentz and Mr. Strubel, each of whom meets the current independence and experience requirements of Rule 10A-3 of the Exchange Act and none of whom is an interested person of the Company as defined in Section 2(a)(19) of the Investment Company Act. Mr. Bakhru serves as Chairman of the Audit Committee. Our Board of Directors has determined that Mr. Coblentz is an audit committee financial expert as defined under Item 407 of Regulation S-K of the Exchange Act. The Audit Committee is responsible for overseeing matters relating to the appointment and activities of our auditors, audit plans and procedures, various accounting and financial reporting issues and changes in accounting policies, and reviewing the results and scope of the audit and other services provided by our independent public accountants. The Audit Committee is also responsible for aiding our Board of Directors in fair value pricing debt and equity securities that are not publicly traded or for which current market values are not readily available.
The Audit Committee had five formal meetings in 2014.
Governance and Nominating Committee
The Governance and Nominating Committee members are Mr. Bakhru, Mr. Coblentz and Mr. Strubel, none of whom is an interested person as defined in Section 2(a)(19) of the Investment Company Act. Mr. Bakhru serves as the Chairman of the Governance and Nominating Committee. The Governance and Nominating Committee is responsible for identifying, researching and nominating directors for election by our stockholders, selecting nominees to fill vacancies on our Board of Directors or a committee of the Board of Directors, developing and recommending to the Board of Directors a set of corporate governance principles and overseeing the evaluation of the Board of Directors and our management. The Governance and Nominating Committee considers nominees properly recommended by our stockholders. Our bylaws provide that for any nomination to be properly brought by a stockholder for a meeting, such stockholder will have to comply with advance notice requirements and provide us with certain information. Generally, to be timely, a stockholders notice must be received at our principal executive offices not less than 90 days nor more than 120 days prior to the first anniversary date of the immediately preceding annual meeting of stockholders. Our bylaws further provide that nominations of persons for election to the Board of Directors at a special meeting may be made only by or at the direction of the Board of Directors, and provided that the Board of Directors has determined that directors will be elected at the meeting, by a stockholder who is entitled to vote at the meeting and who has complied with the advance notice provisions of the bylaws. See Description of Capital StockAdvance Notice Provisions for Stockholder Nominations and Stockholder Proposals.
The Governance and Nominating Committee had two formal meetings in 2014.
Compensation Committee
The members of our Compensation Committee are Mr. Bakhru, Mr. Coblentz and Mr. Strubel, none of whom is an interested person as defined in Section 2(a)(19) of the Investment Company Act. The Compensation Committee is responsible for determining, or recommending to the Board of Directors for determination, the compensation, if any, of our chief executive officer and all other executive officers. The Compensation Committee also assists the Board of Directors with matters related to compensation generally.
The Compensation Committee did not have any formal meetings in 2014 because it was formed in late 2014.
117
Compliance Committee
The Compliance Committee members are Mr. Bakhru, Mr. Coblentz and Mr. Strubel, none of whom is an interested person as defined in Section 2(a)(19) of the Investment Company Act. Mr. Bakhru serves as Chairman of the Compliance Committee. The Compliance Committee is responsible for overseeing our compliance processes, and insofar as they relate to services provided to us by our investment adviser, underwriters (if any), administrator and transfer agent, except that compliance processes relating to the accounting and financial reporting processes, and certain related matters, are overseen by the Audit Committee. In addition, the Compliance Committee provides assistance to the full Board of Directors with respect to compliance matters.
The Compliance Committee had two formal meetings in 2014.
Contract Review Committee
The Contract Review Committee members are Mr. Bakhru, Mr. Coblentz and Mr. Strubel, none of whom is an interested person as defined in Section 2(a)(19) of the Investment Company Act. Mr. Bakhru serves as Chairman of the Contract Review Committee. The Contract Review Committee is responsible for overseeing the processes of the Board of Directors for reviewing and monitoring performance under our investment management, underwriting (if any), transfer agency and certain other agreements with our investment adviser and its affiliates. The Contract Review Committee also provides appropriate assistance to the Board of Directors in connection with the Board of Directors approval, oversight and review of our other service providers, including our custodian/accounting agent, sub-transfer agents, placement agent, professional (legal and accounting) firms and printing firms.
The Contract Review Committee had two formal meetings in 2014.
Compensation of Directors
For the fiscal year ended December 31, 2014, each Independent Director was compensated with a $100,000 annual fee for his or her services as a director. The Independent Directors also received $2,500 plus reasonable out-of-pocket expenses for each Board of Directors meeting attended ($1,250 if attending telephonically) and $1,000 plus reasonable out-of-pocket expenses for each Committee meeting attended ($500 if attending telephonically). In addition, the Chairman of the Board of Directors received an annual fee of $40,000 and the director designated as the audit committee financial expert received an annual fee of $10,000 for their additional services in these capacities. We may also pay the incidental costs of a director to attend training or other types of conferences relating to the BDC industry. No compensation was paid to directors who are interested persons. In addition, we purchased directors and officers liability insurance on behalf of our directors and officers.
Compensation Table
Amounts Paid During the 12-Month Period Ended December 31, 2014 to Board Members |
Ashok N.
|
John P.
|
Richard P. Strubel |
Kaysie
|
||||||||||||
Total Compensation from the Company (for the 12-month period ended December 31, 2014) (4) |
$ | 160,750 | $ | 130,750 | $ | 119,500 | $ | 0 | ||||||||
Pension or Retirement Benefits Accrued as Part of the Companys Expenses (for the 12-month period ended December 31, 2014) |
$ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||
Total Compensation From Fund Complex (for the
|
$ | 712,750 | $ | 558,000 | $ | 489,000 | $ | 0 |
(1) | Includes compensation as Chairman of the Board of Directors. |
118
(2) | Includes compensation as audit committee financial expert, as defined in Item 407(d)(5)(ii) of Regulation S-K. |
(3) | Kaysie Uniacke is an Interested Director and, as such, receives no compensation from the Company or the Fund Complex. |
(4) | Compensation of directors is expected to stay the same in 2015 with the exception of the annual base fee, which is expected to increase to $110,000. |
Compensation of Chief Executive Officer and Other Executive Officers
None of our officers will receive direct compensation from us.
Our Investment Adviser
GSAM serves as our investment adviser. Our investment adviser has been registered as an investment adviser with the SEC since 1990 and is a subsidiary of Group Inc., a bank holding company.
Subject to the supervision of our Board of Directors, our investment adviser provides day-to-day advice regarding our portfolio transactions and is responsible for our business affairs and other administrative matters.
Portfolio Managers
The individual listed below is our portfolio manager and a voting member of our investment advisers investment committee. In addition, four other voting members and three non-voting members serve on the investment committee. The investment committee is responsible for approving all of our investments. The investment committee also monitors investments in our portfolio and approves all asset dispositions. We expect to benefit from the extensive and varied relevant experience of the investment professionals serving on the investment committee, which includes expertise in primary and secondary leveraged credit, private mezzanine finance, stressed and distressed debt, bankruptcy, mergers and acquisitions and private equity. As of December 31, 2014, our portfolio manager, who is primarily responsible for our day-to-day management, manages one registered investment company with a total of approximately $0.2 billion in assets under management, six pooled investment vehicles with a total of approximately $2.7 billion in assets under management and two other accounts with a total of approximately $0.5 billion in assets under management. See Risk FactorsRisks Relating to Our Business and StructureOur investment adviser, its principals, investment professionals and employees and the members of its investment committee have certain conflicts of interest and Potential Conflicts of Interest. Our portfolio manager does not receive any direct compensation from us for serving in such capacity and the members of the investment committee will receive no separate compensation from us or our investment adviser for serving on the investment committee.
The table below shows the dollar range of shares of common stock to be beneficially owned by our portfolio manager prior to our IPO.
Name |
Aggregate Dollar Range of
|
|
Brendan McGovern |
(1) | Dollar ranges are as follows: none, $1-$10,000, $10,001-$50,000, $50,001-$100,000, $100,001-$500,000, $500,001-$1,000,000 or over $1,000,000. |
Investment Management Agreement
Our initial investment management agreement with our investment adviser was entered into as of November 15, 2012 and subsequently amended and restated as of April 1, 2013 (as amended and restated as of April 1, 2013, the Initial Investment Management Agreement). Our Board of Directors determined at an in person meeting held in November 2014 to approve certain changes to the Initial Investment Management
119
Agreement and to submit the Investment Management Agreement, which included such changes, for stockholder approval as required by the provisions of the Investment Company Act. At a special meeting of stockholders held in January 2015, our stockholders approved the Investment Management Agreement. The Investment Management Agreement became effective as of January 1, 2015.
Management Services
Pursuant to the terms of our Investment Management Agreement, GSAM, subject to the overall supervision of our Board of Directors, manages our day-to-day investment-related operations and provides investment management services to us.
Subject to compliance with applicable law and published SEC guidance, nothing contained in the Investment Management Agreement will in any way preclude, restrict or limit the activities of our investment adviser or any of its respective subsidiaries or affiliated parties. See Potential Conflicts of Interest.
Management Fee and Incentive Fee
We pay our investment adviser for its services to us the Management Fee and the Incentive Fee as set forth in the Investment Management Agreement. We will make any payments due under the Investment Management Agreement to our investment adviser (or to its designees as it may otherwise direct).
Management Fee
The Management Fee is calculated at an annual rate of 1.50% (0.375% per quarter) of the average value of our gross assets (excluding cash or cash equivalents but including assets purchased with borrowed amounts) at the end of each of the two most recently completed calendar quarters (and, in the case of our first quarter, our gross assets as of such quarter-end). The Management Fee is payable quarterly in arrears. The Management Fee for any partial quarter will be appropriately prorated.
Incentive Fee
The Incentive Fee consists of two components that are determined independent of each other, with the result that one component may be payable even if the other is not. The calculation of our incentive fee pursuant to our Investment Management Agreement has been modified from the method used to calculate the Incentive Fee payable for the periods included in the audited financial statements included in this prospectus.
A portion of the Incentive Fee is based on our income and a portion is based on our capital gains, each as described below. Our investment adviser is entitled to receive the Incentive Fee based on income from us if our Ordinary Income (as defined below) exceeds a quarterly hurdle rate of 1.75%. For this purpose, the hurdle is computed by reference to our NAV and does not take into account changes in the market price of our common stock.
Beginning with the calendar quarter that commenced on January 1, 2015, the Incentive Fee based on income will be determined and paid quarterly in arrears at the end of each calendar quarter by reference to our aggregate net investment income, as adjusted as described below, from the calendar quarter then ending and the eleven preceding calendar quarters (or if shorter, the number of quarters that have occurred since January 1, 2015). We refer to such period as the Trailing Twelve Quarters. The Incentive Fee based on capital gains will be determined and paid annually in arrears at the end of each calendar year by reference to an Annual Period, which means the period beginning on January 1 of each calendar year and ending on December 31 of the calendar year or, in the case of our first and last year, the appropriate portion thereof.
120
The hurdle amount for the Incentive Fee based on income is determined on a quarterly basis, and is equal to 1.75% multiplied by our NAV at the beginning of each applicable calendar quarter comprising the relevant Trailing Twelve Quarters. The hurdle amount is calculated after making appropriate adjustments for subscriptions (which shall include all issuances by us of shares of our common stock, including issuances pursuant to our dividend reinvestment plan)and distributions that occurred during the relevant Trailing Twelve Quarters. The Incentive Fee for any partial period will be appropriately prorated.
Quarterly Incentive Fee Based on Income . For the portion of the Incentive Fee based on income, we pay our investment adviser a quarterly Incentive Fee based on the amount by which (A) aggregate net investment income (Ordinary Income) in respect of the relevant Trailing Twelve Quarters exceeds (B) the hurdle amount for such Trailing Twelve Quarters. The amount of the excess of (A) over (B) described in this paragraph for such Trailing Twelve Quarters is referred to as the Excess Income Amount. For the avoidance of doubt, Ordinary Income is net of all fees and expenses, including the Management Fee but excluding any Incentive Fee.
The Incentive Fee based on income for each quarter is determined as follows:
| No Incentive Fee based on income is payable to our investment adviser for any calendar quarter for which there is no Excess Income Amount. |
| 100% of the Excess Income Amount, if any, that exceeds the hurdle amount, but is less than or equal to an amount, which we refer to as the Catch-up Amount, determined as the sum of 2.1875% multiplied by our NAV at the beginning of each applicable calendar quarter comprising the relevant Trailing Twelve Quarters is included in the calculation of the Incentive Fee based on income; and |
| 20% of the amount of such Excess Income Amount that exceeds the Catch-up Amount is included in the calculation of the Incentive Fee based on income. |
The amount of the Incentive Fee based on income that will be paid to our investment adviser for a particular quarter will equal the excess of the Incentive Fee so calculated minus the aggregate Incentive Fees based on income that were paid in respect of the first eleven calendar quarters (or the portion thereof) included in the relevant Trailing Twelve Quarters but not in excess of the Incentive Fee Cap (as described below).
The Incentive Fee based on income that is paid to our investment adviser for a particular quarter is subject to a cap (the Incentive Fee Cap). The Incentive Fee Cap for any quarter is an amount equal to (a) 20% of the Cumulative Net Return (as defined below) during the relevant Trailing Twelve Quarters minus (b) the aggregate Incentive Fees based on income that were paid in respect of the first eleven calendar quarters (or the portion thereof) included in the relevant Trailing Twelve Quarters.
Cumulative Net Return means (x) the Ordinary Income in respect of the relevant Trailing Twelve Quarters minus (y) any Net Capital Loss, if any, in respect of the relevant Trailing Twelve Quarters. If, in any quarter, the Incentive Fee Cap is zero or a negative value, the Company will pay no Incentive Fee based on income to our investment adviser for such quarter. If, in any quarter, the Incentive Fee Cap for such quarter is a positive value but is less than the Incentive Fee based on income that is payable to our investment adviser for such quarter (before giving effect to the Incentive Fee Cap) calculated as described above, the Company will pay an Incentive Fee based on income to our investment adviser equal to the Incentive Fee Cap for such quarter. If, in any quarter, the Incentive Fee Cap for such quarter is equal to or greater than the Incentive Fee based on income that is payable to our investment adviser for such quarter (before giving effect to the Incentive Fee Cap) calculated as described above, the Company will pay an Incentive Fee based on income to our investment adviser equal to the Incentive Fee calculated as described above for such quarter without regard to the Incentive Fee Cap.
Net Capital Loss in respect of a particular period means the difference, if positive, between (i) aggregate capital losses, whether realized or unrealized, in such period and (ii) aggregate capital gains, whether realized or unrealized, in such period.
121
The following is a graphical representation of the calculation of the Incentive Fee based on income:
Incentive Fee based on Income
Percentage of Ordinary Income comprising the Incentive Fee based on Income
(expressed as an annualized rate (1) of return on the value of
net assets as of the beginning of each of the quarters included in the Trailing Twelve Quarters)
(1) | The Incentive Fee is determined on a quarterly basis but has been annualized for purposes of the above diagram. The diagram also does not reflect the Incentive Fee Cap. |
Annual Incentive Fee Based on Capital Gains . The portion of the Incentive Fee based on capital gains is calculated on an annual basis. For each Annual Period, we will pay our investment adviser an Incentive Fee equal to (A) 20% of the difference, if positive, of the sum of our aggregate realized capital gains, if any, computed net of our aggregate realized capital losses, if any, and our aggregate unrealized capital depreciation, in each case from April 1, 2013 until the end of such Annual Period minus (B) the cumulative amount of Incentive Fees based on capital gains previously paid to our investment adviser from April 1, 2013. For the avoidance of doubt, unrealized capital gains are excluded from the calculation in clause (A), above.
We will accrue, but not pay, a portion of the Incentive Fee based on capital gains with respect to net unrealized appreciation. Under GAAP, we are required to accrue an Incentive Fee based on capital gains that includes net realized capital gains and losses and net unrealized capital appreciation and depreciation on investments held at the end of each period. In calculating the accrual for the Incentive Fee based on capital gains, we consider the cumulative aggregate unrealized capital appreciation in the calculation, since an Incentive Fee based on capital gains would be payable if such unrealized capital appreciation were realized, even though such unrealized capital appreciation is not permitted to be considered in calculating the fee actually payable under the Investment Management Agreement. This accrual is calculated using the aggregate cumulative realized capital gains and losses and aggregate cumulative unrealized capital appreciation or depreciation. If such amount is positive at the end of a period, then we record a capital gains incentive fee equal to 20% of such amount, minus the aggregate amount of actual Incentive Fees based on capital gains paid in all prior periods. If such amount is negative, then there is no accrual for such period. There can be no assurance that such unrealized capital appreciation will be realized in the future.
Example of Calculation of the Incentive Fee based on Income
Assumptions (1)
| Quarter 1 |
| Net Asset Value at the start of Quarter 1 = $100.0 million |
| Quarter 1 Ordinary Income = $6.0 million |
| Quarter 1 Net Capital Gain = $1.0 million |
| Quarter 1 Hurdle Amount = $1.75 million |
(1) | For illustrative purposes, Net Asset Value is assumed to be $100.0 million as of the beginning of all four quarters and does not give effect to gains or losses in the preceding quarters. |
122
| Quarter 2 |
| Net Asset Value at the start of Quarter 2 = $100.0 million |
| Quarter 2 Ordinary Income = $1.5 million |
| Quarter 2 Net Capital Gain = $1.0 million |
| Quarter 2 Hurdle Amount = $1.75 million |
| Quarter 3 |
| Net Asset Value at the start of Quarter 3 = $100.0 million |
| Quarter 3 Ordinary Income = $2.0 million |
| Quarter 3 Net Capital Loss = ($6.0) million |
| Quarter 3 Hurdle Amount = $1.75 million |
| Quarter 4 |
| Net Asset Value at the start of Quarter 4 = $100.0 million |
| Quarter 4 Ordinary Income = $3.5 million |
| Quarter 4 Net Capital Gain = $3.0 million |
| Quarter 4 Hurdle Amount = $1.75 million |
Determination of Incentive Fee based on income
In Quarter 1, the Ordinary Income of $6.0 million exceeds the Hurdle Amount of $1.75 million. There are no Net Capital Losses. As a result, an Incentive Fee based on income of $1.2 million (20% of $6.0 million) is payable to our investment adviser for Quarter 1.
In Quarter 2, the Quarter 2 Ordinary Income of $1.5 million does not exceed the Quarter 2 Hurdle Amount of $1.75 million, but the aggregate Ordinary Income for the Trailing Twelve Quarters of $7.5 million exceeds the aggregate Hurdle Amount for the Trailing Twelve Quarters of $3.5 million. There are no Net Capital Losses. As a result, an Incentive Fee based on income of $300,000 ($1.5 million (20% of $7.5 million) minus $1.2 million paid in Quarter 1) is payable to our investment adviser for Quarter 2.
In Quarter 3, the aggregate Ordinary Income of the Trailing Twelve Quarters of $9.5 million exceeds the aggregate Hurdle Amount for the Trailing Twelve Quarters of $5.25 million. However, there is an aggregate Net Capital Loss of ($4.0) million for the Trailing Twelve Quarters. As a result, the Incentive Fee Cap would apply. The Incentive Fee Cap equals $(400,000), calculated as follows:
(20% x ($9.5 million minus $4.0 million)) minus $1.5 million paid in Quarters 1 and 2. Because the Incentive Fee Cap is a negative value, there is no Incentive Fee based on income payable to our investment adviser for Quarter 3.
123
In Quarter 4, the aggregate Ordinary Income of the Trailing Twelve Quarters of $13.0 million exceeds the aggregate Hurdle Amount for the Trailing Twelve Quarters of $7.0 million and the preliminary calculation would show that an Incentive Fee based on income of $1.1 million ($2.6 million (20% x 13.0 million) minus $1.5 million paid during the Trailing Twelve Quarters) would apply. However, there is an aggregate Net Capital Loss of ($1.0) million for the Trailing Twelve Quarters. As a result, the Incentive Fee Cap would apply. The Incentive Fee Cap equals $900,000 calculated as follows:
(20% x ($13.0 million minus $1.0 million)) minus $1.5 million. Because the Incentive Fee Cap is positive but less than the Incentive Fee based on income of $1.1 million calculated prior to applying the Incentive Fee Cap, an Incentive Fee based on income of $900,000 is payable to our investment adviser for Quarter 4.
Examples of Calculation of Incentive Fee based on Capital Gains
Assumptions
| Year 1: $20 million investment made in Company A (Investment A), $30 million investment made in Company B (Investment B) and $25 million investment made in Company C (Investment C) |
| Year 2: Investment A sold for $30 million, fair value of Investment B determined to be $25 million and fair value of Investment C determined to be $27 million |
| Year 3: fair value of Investment B determined to be $29 million and Investment C sold for $30 million |
| Year 4: fair value of Investment B determined to be $40 million |
Determination of Incentive Fee based on capital gains
The Incentive Fee based on capital gains, if any, would be:
| Year 1: None |
| Year 2: $1.0 million |
The portion of the Incentive Fee based on capital gains equals the lesser of (A) 20% of the difference, if positive, of the sum of our aggregate realized capital gains, if any, computed net of our aggregate realized capital losses, if any, and our aggregate unrealized capital depreciation, if any, in each case from April 1, 2013 until the end of the applicable Annual Period minus (B) the cumulative amount of Incentive Fees based on capital gains previously paid to our investment adviser from April 1, 2013.
Therefore, using the assumptions above, the Incentive Fee based on capital gains equals the lesser of (A) 20% x ($10.0 million$5.0 million) minus (B) $0.
Therefore, the Incentive Fee based on capital gains equals $1.0 million.
| Year 3: $1.8 million, which is calculated as follows: |
The Incentive Fee based on capital gains equals the lesser of (A) 20% x ($15.0 million$1.0 million) minus (B) $1.0 million.
Therefore, the Incentive Fee based on capital gains equals $1.8 million.
124
| Year 4: $200,000, which is calculated as follows: |
The Incentive Fee based on capital gains equals the lesser of (x) (A) 20% x ($15.0 million$0 million) minus (B) $2.8 million.
Therefore, the Incentive Fee based on capital gains equals $200,000.
Expenses
Our investment adviser pays all costs incurred by it in connection with the performance of its duties under the Investment Management Agreement. Our investment adviser pays the compensation and expenses of all its personnel and makes available, without expense to us, the services of such of its partners, officers and employees as may duly be elected as our officers or directors, subject to their individual consent to serve and to any limitations imposed by law. Our investment adviser is not required to pay any of our expenses other than those specifically allocated to it, including as set forth below. In particular, but without limiting the generality of the foregoing, our investment adviser is not required to pay: (i) our operational and organizational expenses; (ii) fees and expenses, including travel expenses, incurred by our investment adviser or payable to third parties related to our investments, including, among others, professional fees (including, without limitation, the fees and expenses of consultants and experts) and fees and expenses from evaluating, monitoring, researching and performing due diligence on investments and prospective investments; (iii) interest payable on debt, if any, incurred to finance our investments; (iv) fees and expenses incurred by us in connection with membership in investment company organizations; (v) brokers commissions; (vi) fees and expenses associated with calculating our NAV (including the costs and expenses of any independent valuation firm); (vii) legal, auditing or accounting expenses; (viii) taxes or governmental fees; (ix) the fees and expenses of our administrator, transfer agent or sub-transfer agent; (x) the cost of preparing stock certificates or any other expenses, including clerical expenses of issue, redemption or repurchase of our shares; (xi) the expenses of and fees for registering or qualifying our shares for sale and of maintaining our registration and registering us as a broker or a dealer; (xii) the fees and expenses of our directors who are not affiliated with our investment adviser; (xiii) the cost of preparing and distributing reports, proxy statements and notices to our stockholders, the SEC and other regulatory authorities; (xiv) costs of holding stockholder meetings; (xv) listing fees; (xvi) the fees or disbursements of custodians of our assets, including expenses incurred in the performance of any obligations enumerated by our certificate of incorporation or bylaws insofar as they govern agreements with any such custodian; (xvii) insurance premiums; or (xviii) costs incurred in connection with any claim, litigation, arbitration, mediation, government investigation or dispute in connection with our business and the amount of any judgment or settlement paid in connection therewith, or the enforcement of our rights against any person and indemnification or contribution expenses payable by us to any person and other extraordinary expenses not incurred in the ordinary course of our business. Our investment adviser is not required to pay expenses of activities which are primarily intended to result in sales of our shares, including, all costs and expenses associated with the preparation and distribution of an offering memorandum, a subscription agreement, if applicable, a registration statement, a prospectus or a stockholder application form.
Our investment adviser may impose a voluntary cap on the amount of expenses that will be borne by us on a monthly or annual basis. Any such expense cap may be increased, decreased, waived or eliminated at any time at our investment advisers sole discretion.
To the extent that expenses to be borne by us pursuant to the Investment Management Agreement are paid by our investment adviser, we shall reimburse our investment adviser for such expenses, provided, however, that our investment adviser may elect, from time to time and in its sole discretion, to bear certain of our expenses set forth above, including organizational and other expenses.
125
Our Board of Directors determined at an in person meeting held in November 2014 to approve the Investment Management Agreement. In its consideration of the Investment Management Agreement, the Board of Directors focused on information it had received relating to, among other things:
| the nature, quality and extent of the advisory and other services to be provided to us by the investment adviser; |
| comparative data with respect to advisory fees or similar expenses paid by other BDCs with similar investment objectives; |
| our projected operating expenses and expense ratio, and a comparison of expenses borne by BDCs with similar investment objectives; |
| information about the services to be performed and the personnel performing such services under the Investment Management Agreement; |
| our investment performance and the performance of the investment adviser; |
| the extent to which economies of scale would be realized as we grow, and whether the fees payable under the Investment Management Agreement reflect these economies of scale for the benefit of our stockholders; |
| any existing and potential sources of indirect income to the investment adviser from its relationships with us and the profitability of those income sources; and |
| such other matters as the Board of Directors determined was relevant to their consideration of the Investment Management Agreement. |
Based on the information reviewed and the considerations detailed above, the Board of Directors, including all of the directors who are not interested persons (as defined in the Investment Company Act), concluded that the investment advisory fee rates and terms are fair and reasonable in relation to the services provided and approved the Investment Management Agreement, as being in the best interests of our stockholders.
For the period ended December 31, 2012, we did not pay our investment adviser any fees under the Investment Management Agreement. For the year ended December 31, 2013, we paid our investment adviser a total of $1.55 million in fees (excluding fees that are accrued but not paid) pursuant to the Investment Management Agreement, which consisted of $1.00 million in Management Fees and $0.55 million in Incentive Fees. For the year ended December 31, 2014, we paid our investment adviser a total of $10.90 million in fees (excluding fees that are accrued but not paid) pursuant to the Investment Management Agreement, which consisted of $9.40 million in Management Fees and $1.50 million in Incentive Fees.
Duration and Termination
The Investment Management Agreement will remain in full force and effect for successive annual periods, but only so long as such continuance is specifically approved at least annually by (a) the vote of a majority of our Independent Directors and in accordance with the requirements of the Investment Company Act and (b) by a vote of a majority of our Board of Directors or of a majority of our outstanding voting securities. The Investment Management Agreement may, on 60 days written notice to the other party, be terminated in its entirety at any time without the payment of any penalty, by our Board of Directors, by vote of a majority of our outstanding voting stock or by our investment adviser. The Investment Management Agreement shall automatically terminate in the event of its assignment.
126
Limitation of Liability of Our Investment Adviser and the Company
The Investment Management Agreement provides that our investment adviser shall not be liable for any error of judgment or mistake of law or for any loss suffered by us in connection with the matters to which the Investment Management Agreement relates, except a loss resulting from our investment advisers willful misfeasance, bad faith or gross negligence in the performance of its duties or from reckless disregard by our investment adviser of its obligations and duties under the Investment Management Agreement. Any person, even though also employed by our investment adviser, who may be or become an employee of and paid by us shall be deemed, when acting within the scope of such employment, to be acting in such employment solely for us and not as our investment advisers employee or agent.
Organization of our Investment Adviser
Our investment adviser is registered as an investment adviser under the Investment Advisers Act of 1940. The principal executive offices of our investment adviser are located at 200 West Street, New York, New York 10282.
Our Administrator
Pursuant to the Administration Agreement between us and State Street Bank and Trust Company, our administrator, our administrator is responsible for providing various accounting and administrative services to us.
The Administration Agreement provides that the administrator is not liable to us for any damages or other losses arising out of the performance of its services thereunder except under certain circumstances, and contains provisions for the indemnification of the administrator by us against liabilities to other parties arising in connection with the performance of its services to us.
We pay the administrator fees for its services as we determine are commercially reasonable in our sole discretion. We also reimburse the administrator for all reasonable expenses. To the extent that our administrator outsources any of its functions, the administrator pays any compensation associated with such functions.
We are not obligated to retain our administrator. The Administration Agreement may be terminated by either party without penalty upon 30 days written notice to the other party.
The terms of any administration agreement that we may enter with any subsequent administrator may differ materially from the terms of the Administration Agreement with State Street Bank and Trust Company in effect prior to such retention, including, without limitation, providing for a fee structure that results in us, directly or indirectly, bearing higher fees for similar services and other terms that are potentially less advantageous to us. Our stockholders will not be entitled to receive prior notice of the engagement of an alternate administrator or of the terms of any agreement that is entered into with such administrator.
127
RELATED PARTY TRANSACTIONS AND CERTAIN RELATIONSHIPS
We are party to various agreements with affiliates of Group Inc., which owns a significant amount of our common stock. Our investment adviser and other affiliates of Group Inc. also perform services for other clients, which creates various conflicts of interest. See Potential Conflicts of Interest and Risk FactorsRisks Relating to Our Business and StructurePotential conflicts of interest with other businesses of Goldman Sachs could impact our investment returns.
Formation Transactions
For a description of our Formation Transactions, see BusinessFormation Transactions.
Co-Investment Opportunities
We have in the past co-invested and expect in the future to co-invest on a concurrent basis with other affiliates, unless doing so is impermissible under existing regulatory guidance, applicable regulations and our allocation procedures. Certain types of negotiated co-investments may be made only if we receive an order from the SEC permitting us to do so. We and our investment adviser have submitted an exemptive application to the SEC to permit greater flexibility to negotiate the terms of co-investments if our Board of Directors determines that it would be advantageous for us to co-invest with other affiliated funds managed by our investment adviser or its affiliates in a manner consistent with our investment objectives, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors. However, there can be no assurance that we will obtain any such order. See Regulation.
Material Non-Public Information
Our senior management and other investment professionals from our investment adviser may serve as directors of, or in a similar capacity with, companies in which we invest or in which we are considering making an investment. Through these and other relationships with a company, these individuals may obtain material, non-public information that might restrict our ability to buy or sell securities of such company under the policies of the company or applicable law.
Investment Management Agreement
We are party to an Investment Management Agreement, pursuant to which we pay our investment adviser a fee for investment management services consisting of a base management fee and an incentive fee. This fee structure may create an incentive for our investment adviser to invest in certain types of securities. Additionally, we rely on investment professionals from our investment adviser to assist our Board of Directors with the valuation of our portfolio investments.
The management fee and incentive fee paid to our investment adviser are based on the value of our investments and there may be a conflict of interest when personnel of our investment adviser are involved in the valuation process for our portfolio investments. See also ManagementInvestment Management Agreement.
License Agreement
We are party to a license agreement with an affiliate of Goldman Sachs pursuant to which we have been granted a non-exclusive, royalty-free license to use the Goldman Sachs name. Under this agreement, we shall not have a right to use the Goldman Sachs name if GSAM or another affiliate of Goldman Sachs is not our investment adviser or if our continued use of such license results in a violation of applicable law, results in a regulatory burden or has adverse regulatory consequences. Other than with respect to this limited license, we have no legal right to the Goldman Sachs name.
128
Transfer Agency Agreement
We have entered into a transfer agency agreement with Goldman, Sachs & Co. (the Transfer Agency Agreement), pursuant to which Goldman, Sachs & Co., as transfer agent: (i) records the issuance, transfer and repurchase of shares of our common stock and preferred stock; (ii) provides purchase and repurchase confirmations, as well as certain other statements; (iii) provides dividend crediting and certain disbursing agent services; (iv) maintains stockholder accounts; and (v) renders certain other miscellaneous services. Under the terms of the Transfer Agency Agreement, we indemnify and hold harmless the transfer agent, its affiliates and any agent under certain circumstances and to the extent permitted by the Investment Company Act. As our transfer agent and dividend disbursing agent, Goldman, Sachs & Co. has retained State Street Bank and Trust Company as sub-transfer agent to assist in certain related functions. Upon completion of the IPO, State Street Bank and Trust Company will serve as our transfer agent and dividend disbursing agent.
10b5-1 Plan
Goldman, Sachs & Co. has adopted the 10b5-1 plan in accordance with Rules 10b5-1 and 10b-18 under the Exchange Act, under which Goldman, Sachs & Co. will buy in the open market up to the lesser of $25.00 million in the aggregate of our common stock or such amount that would not bring its collective ownership (with Group Inc.) of our common stock over 19.9%. Any such purchases under the 10b5-1 Plan will occur during the period beginning after four full calendar weeks after the closing of this offering and ending on the earlier of the date on which all the capital committed to the plan has been exhausted or one year after the closing of this offering, subject to certain conditions. See Related Party Transactions and Certain Relationships. The 10b5-1 Plan will require Goldman, Sachs & Co. to purchase shares of our common stock (i) through the date we announce our earnings for the first quarter of 2015, when the market price per share is below the initial public offering price per share, and (ii) from and after that date, when the market price per share is below our most recently reported NAV per share (including any updates, corrections or adjustments publicly announced by us to any previously announced NAV per share). The purchase of shares by Goldman, Sachs & Co. pursuant to the 10b5-1 Plan is intended to satisfy the conditions of Rules 10b5-1 and 10b-18 under the Exchange Act, and will otherwise be subject to applicable law, including Regulation M, which may prohibit purchases under certain circumstances. Under the 10b5-1 Plan, Goldman, Sachs & Co. will increase the volume of purchases made as the price of our common stock declines below the initial public offering price per share through our first quarter 2015 earnings announcement, and thereafter, anytime the market price per share of our common stock declines below our most recently reported NAV per share, subject to volume restrictions. Whether purchases will be made under the 10b5-1 Plan and how much will be purchased at any time is uncertain, dependent on prevailing market prices and trading volumes, all of which we cannot predict. These activities may have the effect of maintaining the market price of the common stock or retarding a decline in the market price of the common stock, and, as a result, the price of our common stock may be higher than the price that otherwise might exist in the open market. See Risk FactorsPurchases of our common stock by Goldman, Sachs & Co. under the 10b5-1 Plan may result in the price of our common stock being higher than the price that otherwise might exist in the open market.
129
CONTROL PERSONS AND PRINCIPAL STOCKHOLDERS
Immediately prior to the completion of this offering there will be shares of common stock issued and outstanding and stockholders of record. The following table sets out, as of , certain ownership information with respect to our common stock for those persons who directly or indirectly own, control or hold with the power to vote 5% or more of our outstanding common stock, all of our directors and all officers and directors as a group.
Percentage of Common Stock Outstanding |
||||||||||||||||||
Immediately Prior to This Offering |
Immediately after This Offering |
|||||||||||||||||
Name and Address |
Type of Ownership (3) |
Shares Owned |
Percentage |
Shares Owned (4) |
Percentage |
|||||||||||||
The Goldman Sachs Group, Inc. (1) |
Record and beneficial | % | % | |||||||||||||||
Kaysie Uniacke |
Record and beneficial | * | ||||||||||||||||
Ashok N. Bakhru |
Record and beneficial | * | ||||||||||||||||
Richard P. Strubel |
Record and beneficial | * | ||||||||||||||||
John P. Coblentz, Jr. |
Record and beneficial | * | ||||||||||||||||
All officers and directors as a group (11 persons) (2) |
Record and beneficial | | * | | |
* | Less than 1%. |
(1) | The address of The Goldman Sachs Group, Inc., a Delaware corporation, is 200 West Street, New York, New York 10282. |
(2) | The address for each of our directors and officers is c/o Goldman Sachs Asset Management, L.P., 200 West Street, New York, New York 10282. |
(3) | Beneficial ownership has been determined in accordance with Rule 13d-3 of the Exchange Act. |
(4) | Assumes issuance of shares of our common stock in this offering, and does not reflect shares of common stock reserved for issuance upon exercise of underwriters over-allotment option to purchase up to an additional shares. |
The following table sets out the dollar range of our equity securities beneficially owned by each of our directors following the completion of the offering at an assumed initial public offering price of $ per share (which represents the mid-point of the estimated initial public offering price range as set forth on the cover of this prospectus). Beneficial ownership is determined in accordance with Rule 16a-1(a)(2) under the Exchange Act. We are not part of a family of investment companies, as that term is defined in the Investment Company Act.
Name of Director |
Dollar Range of
|
|
Interested Directors |
||
Kaysie Uniacke |
||
Independent Directors |
||
Ashok N. Bakhru |
||
John P. Coblentz, Jr. |
||
Richard P. Strubel |
(1) | Dollar ranges are as follows: none, $1 $10,000, $10,001 $50,000, $50,001 $100,000, or over $100,000. |
130
DETERMINATION OF NET ASSET VALUE
In accordance with the procedures adopted by our Board of Directors, the NAV per share of our outstanding shares of common stock is determined by dividing the value of total assets minus liabilities by the total number of shares outstanding.
As a BDC, we generally invest in illiquid securities including debt and equity investments of middle-market companies. Under procedures adopted by our Board of Directors market quotations are generally used to assess the value of our investments for which market quotations are readily available. We obtain these market values from independent pricing services or at the bid prices obtained from at least two brokers/dealers if available, otherwise by a principal market maker or a primary market dealer. If the Board of Directors or its delegate has a bona fide reason to believe any such market quotation does not reflect the fair value of an investment, it may independently value such investments by using the valuation procedure that it uses with respect to assets for which market quotations are not readily available.
Currently, the majority of our investments fall within Level 3 of the fair value hierarchy. We do not expect that there will be readily available market values for most of the investments which are in our portfolio, and we will value such investments at fair value as determined in good faith by or under the direction of our Board of Directors using a documented valuation policy, described below, and a consistently applied valuation process. The factors that may be taken into account in pricing our investments at fair value include, as relevant, the nature and realizable value of any collateral, the portfolio companys ability to make payments and its earnings and discounted cash flow, the markets in which the portfolio company does business, comparison to publicly traded securities and other relevant factors. Available current market data will be considered, such as applicable market yields and multiples of publicly traded securities, comparison of financial ratios of peer companies and changes in the interest rate environment and the credit markets that may affect the price at which similar investments would trade in their principal market, and other relevant factors. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, we consider the pricing indicated by the external event to corroborate or revise our valuation. Under current auditing standards, the notes to our financial statements refer to the uncertainty with respect to the possible effect of such valuations, and any change in such valuations, on our financial statements. For more information, see Risk FactorsRisks Related to Our Portfolio Company InvestmentsOur portfolio securities may not have a readily available market price and, in such a case, we will value these securities at fair value as determined in good faith under procedures adopted by our Board of Directors, which valuation is inherently subjective and may not reflect what we may actually realize for the sale of the investment.
With respect to investments for which market quotations are not readily available, or for which market quotations are deemed not reflective of the fair value, the valuation procedures adopted by our Board of Directors contemplates a multi-step valuation process each quarter, as described below:
(1) | Our quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals of our investment adviser responsible for the portfolio investment; |
(2) |
Our Board of Directors also engages independent valuation firms to provide independent valuations of the investments for which market quotations are not readily available or are readily available but deemed not reflective of the fair value of an investment. The independent valuation firms independently value such investments using quantitative and qualitative information provided by the investment professionals of our investment adviser as well as any market quotations obtained from independent pricing services, brokers, dealers or market dealers. The independent valuation firms also provide analyses to support their valuation methodology and calculations. The independent valuation firms provide an opinion on a final range of values on such investments to the Board of Directors or the Audit Committee. The independent valuation firms define fair value |
131
in accordance with ASC 820 and utilize valuation techniques including the market approach, the income approach or both. At least a portion of our portfolio will be reviewed on a quarterly basis and all investments in the portfolio for which market quotations are not readily available, or are readily available but deemed not reflective of the fair value of an investment, will be reviewed at least annually by independent valuation firms; |
(3) | The independent valuation firms preliminary valuations are reviewed by our investment adviser and the Valuation Oversight Group (VOG), a team that is part of the Controllers Department within the Finance Division of Goldman Sachs. The independent valuation firms valuation ranges are compared to our investment advisers valuations to ensure our investment advisers valuations are reasonable. VOG presents the valuations to the Private Investment Sub-Committee of the GSAM Valuation Committee, which is comprised of representatives from GSAM who are independent of the investment making decision process; |
(4) | The GSAM Valuation Committee ratifies fair valuations and makes recommendations to the Audit Committee of the Board of Directors; |
(5) | The Audit Committee of our Board of Directors reviews valuation information provided by the GSAM Valuation Committee, our investment adviser and the independent valuation firms. The Audit Committee then assesses and supplements, as it deems appropriate, such valuation recommendations; and |
(6) | Our Board of Directors discusses the valuations and determines the fair value of each of our investments in good faith, based on the input of our investment adviser, the independent valuation firms and the Audit Committee. |
Fair value, as defined under ASC 820, is the price that we would receive upon selling an investment or pay to transfer a liability in an orderly transaction to a market participant in the principal or most advantageous market for the investment or liability. ASC 820 emphasizes that valuation techniques maximize the use of observable market inputs and minimize the use of unobservable inputs. Inputs refer broadly to the assumptions that market participants would use in pricing an asset or liability, including assumptions about risk. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing an asset or liability based on market data obtained from sources independent of our investment adviser. Unobservable inputs reflect the assumptions market participants would use in pricing an asset or liability based on the best information available to us at the reporting period date.
132
The following description of our capital stock is based on relevant portions of the DGCL and on our certificate of incorporation and bylaws. This summary is not necessarily complete, and we refer you to the DGCL and our certificate of incorporation and bylaws for a more detailed description of the provisions summarized below.
Capital Stock
Our authorized stock consists of 200,000,000 shares of common stock, par value $0.001 per share, and 1,000,000 shares of preferred stock, par value $0.001 per share. There are no outstanding options or warrants to purchase our stock. Under Delaware law, our stockholders will generally not be personally liable for our debts or obligations. Unless our Board of Directors determines otherwise, we will issue all shares of our capital stock in uncertificated form.
(1) Title of Class |
(2) Amount
|
(3) Amount Held
|
(4) Amount
|
|||||||||
Common Stock |
200,000,000 | | ||||||||||
Preferred Stock |
1,000,000 | | |
Common Stock
All shares of our common stock have equal rights as to earnings, assets, dividends and other distributions and voting and, when they are issued, will be duly authorized, validly issued, fully paid and nonassessable. Distributions may be made or paid to the holders of our common stock if, as and when declared by our Board of Directors out of funds legally available therefor, subject to the rights of holders of shares of any series of our preferred stock then outstanding. Shares of our common stock have no exchange, conversion or redemption rights. Shares of our common stock are subject to the transfer restrictions set forth in our certificate of incorporation, as described more fully below, as well as any restrictions on transfer arising under federal and state securities laws or by contract. Following the time at which the transfer restrictions contained in our certificate of incorporation terminate, shares of our common stock will be freely transferable, except when their transfer is restricted by federal and state securities laws or by contract. In the event of our liquidation, dissolution or winding up, each share of our common stock would be entitled to share ratably in all of our assets that are legally available for distribution after we pay all debts and other liabilities and subject to any preferential rights of holders of shares of any series of our preferred stock then outstanding. Each share of our common stock is entitled to one vote on all matters submitted to a vote of stockholders generally, including the election of directors elected by a vote of stockholders generally. Except as provided with respect to any other class or series of stock, including our preferred stock, as more fully described below, the holders of our common stock possess exclusive voting power. There is no cumulative voting in the election of our Board of Directors, which means that holders of a majority of the outstanding shares of our capital stock entitled to vote in the election of such directors are entitled to elect that number of nominees equal to the number of directors to be elected by such holders, and holders of less than a majority of such shares will be unable to elect one or more specific directors for any available directorship. In addition, holders of our common stock may participate in our dividend reinvestment plan.
Our certificate of incorporation provides that shares of our common stock issued prior to our IPO may not be transferred without our prior written consent until a date to be established by us, which may be up to 180 days after the consummation of our IPO.
Preferred Stock
Our certificate of incorporation authorizes our Board of Directors to create and issue one or more series of preferred stock to the extent permitted by the Investment Company Act. Prior to the issuance of shares of each
133
series of preferred stock, our Board of Directors will be required by Delaware law and by our certificate of incorporation to establish the voting powers (full or limited, or no voting powers), and the designations, preferences and relative, participating, optional or other special rights, and the qualifications, limitations and restrictions thereof, of each series of our preferred stock. Thus, to the extent permitted by the Investment Company Act, the Board of Directors could authorize the issuance of shares of a series of our preferred stock with terms and conditions which could have the effect of delaying, deferring or preventing a transaction or a change in control that might involve a premium price for holders of our common stock or otherwise be in their best interest.
Any issuance of preferred stock must comply with the requirements of the Investment Company Act. The Investment Company Act requires, among other things, that (1) immediately after issuance and before any dividend or other distribution is made with respect to our common stock and before any purchase of common stock is made, such preferred stock together with all other senior securities must not exceed an amount equal to 50% of our total assets after deducting the amount of such dividend, distribution or purchase price, as the case may be, and (2) the holder of shares of preferred stock, if any are issued, must be entitled as a class voting separately to elect two directors at all times and to elect a majority of the directors if dividends on such preferred stock are in arrears by two full years or more. Certain matters under the Investment Company Act require the affirmative vote of the holders of at least a majority of the outstanding shares of preferred stock (as determined in accordance with the Investment Company Act), including our outstanding perpetual preferred stock, voting together as a separate class. For example, the vote of such holders of preferred stock would be required to approve a proposal involving a plan of reorganization adversely affecting such securities.
Provisions of the DGCL and Our Certificate of Incorporation and Bylaws
Limitation on Liability of Directors; Indemnification and Advancement of Expenses
The indemnification of our officers and directors is governed by Section 145 of the DGCL and our certificate of incorporation and bylaws. Section 145(a) of the DGCL empowers the Company to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that the person is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit or proceeding if (1) such person acted in good faith, (2) in a manner such person reasonably believed to be in or not opposed to the best interests of the Company and (3) with respect to any criminal action or proceeding, such person had no reasonable cause to believe the persons conduct was unlawful.
Section 145(b) of the DGCL empowers the Company to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Company to procure a judgment in its favor by reason of the fact that the person is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner the person reasonably believed to be in, or not opposed to, the best interests of the Company, and except that no indemnification may be made in respect of any claim, issue or matter as to which such person has been adjudged to be liable to the Company unless and only to the extent that the Delaware Court of Chancery or the court in which such action or suit was brought determines upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court deems proper.
134
Section 145(c) of the DGCL provides that to the extent that a present or former director or officer of the Company has been successful, on the merits or otherwise, in defense of any action, suit or proceeding referred to in subsections (a) and (b) of Section 145, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys fees) actually and reasonably incurred by such person in connection with such action, suit or proceeding.
Section 145(d) of the DGCL provides that in all cases in which indemnification is permitted under subsections (a) and (b) of Section 145 (unless ordered by a court), it will be made by the Company only if it is consistent with the Investment Company Act and as authorized in the specific case upon a determination that indemnification of the present or former director, officer, employee or agent is proper in the circumstances because the person to be indemnified has met the applicable standard of conduct set forth in those subsections. Such determination must be made, with respect to a person who is a director or officer at the time of such determination, (1) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (2) by a committee of such directors designated by majority vote of such directors, even though less than a quorum, or (3) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion or (4) by the stockholders.
Section 145(e) authorizes the Company to pay expenses (including attorneys fees) incurred by an officer or director of the Company in defending any civil, criminal, administrative or investigative action, suit or proceeding in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the person to whom the advancement will be made to repay the advanced amounts if it is ultimately determined that he or she was not entitled to be indemnified by the Company as authorized by Section 145. Section 145(e) also provides that such expenses (including attorneys fees) incurred by former directors and officers or other employees and agents of the Company, or persons serving at the request of the Company as directors, officers, employees or agents of another corporation, partnership, joint venture, trust or other enterprise may be so paid upon such terms and conditions, if any, as the Company deems appropriate.
Section 145(f) provides that indemnification and advancement of expenses provided by, or granted pursuant to, the other subsections of such Section are not to be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors, or otherwise.
Section 145(g) authorizes the Company to purchase and maintain insurance on behalf of its current and former directors, officers, employees and agents (and on behalf of any person who is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise) against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such persons status as such, regardless of whether the Company would have the power to indemnify such persons against such liability under Section 145.
Section 102(b)(7) of the DGCL allows the Company to provide in its certificate of incorporation a provision that limits or eliminates the personal liability of a director of the Company to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that such provision may not limit or eliminate the liability of a director (1) for any breach of the directors duty of loyalty to the Company or its stockholders, (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) under Section 174 of the DGCL, relating to unlawful payment of dividends or unlawful stock purchases or redemption of stock or (4) for any transaction from which the director derived an improper personal benefit. Our certificate of incorporation will provide that our directors will not be liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director to the fullest extent permitted by the current DGCL or as the DGCL may hereafter be amended.
Our certificate of incorporation requires us to indemnify to the full extent permitted by Section 145 of the DGCL all persons whom we may indemnify under that section. Our certificate of incorporation also provides that expenses incurred by our officers or directors in defending any action, suit or proceeding for which they may
135
be entitled to indemnification under our certificate of incorporation shall be paid in advance of the final disposition of the action, suit or proceeding. However, any indemnification or payment or reimbursement of expenses made pursuant to such provisions of our certificate of incorporation will be subject to the applicable requirements of the Investment Company Act. In addition, our bylaws provide that, except for certain proceedings initiated by our directors or officers, we must indemnify, and advance expenses to, our current and former directors and officers to the fullest extent permitted by the DGCL, but provide that any indemnification or reimbursement of expenses thereunder is subject to the applicable requirements of the Investment Company Act.
Delaware Anti-Takeover Law
The DGCL contains, and our certificate of incorporation and bylaws also contain, provisions that could make it more difficult for a potential acquirer to acquire us by means of a tender offer, proxy contest or otherwise. These provisions are expected to discourage certain coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of us to negotiate first with our Board of Directors. These measures may delay, defer or prevent a transaction or a change in control that might otherwise be in the best interests of our stockholders. We believe, however, that the benefits of these provisions outweigh the potential disadvantages of discouraging any such acquisition proposals because the negotiation of such proposals may improve their terms.
We have elected in our certificate of incorporation not to be subject to Section 203 of the DGCL, an antitakeover law. However, our certificate of incorporation contains provisions that, at any point in time in which our common stock is registered under Section 12(b) or Section 12(g) of the Exchange Act, have the same effect as Section 203, except that it exempts Group Inc. and its affiliates, and certain of its or their respective direct or indirect transferees and any group as to which such persons are a party, from the effect of those provisions. In general, these provisions will prohibit us from engaging in any business combination with any interested stockholder for a period of three years following the date that the stockholder became an interested stockholder, unless:
| prior to such time, the Board of Directors approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; |
| upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the Company outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding (but not the outstanding voting stock owned by the interested stockholder) those shares owned by persons who are directors and also officers of the Company; or |
| at or subsequent the such time the business combination is approved by the Board of Directors and authorized at a meeting of stockholders, and not by written consent, by at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder. |
These provisions define business combination to include the following:
| any merger or consolidation involving the Company or any direct or indirect majority-owned subsidiary of the Company with the interested stockholder; |
| any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions), except proportionately as a stockholder of such corporation, to or with the interested stockholder, of 10% or more of either the aggregate market value of all the assets of the Company or the aggregate market value of all the outstanding stock of the Company; |
| subject to certain exceptions, any transaction that results in the issuance or transfer by the Company or by any direct or indirect majority-owned subsidiary of the Company of any stock of the Company or of such subsidiary to the interested stockholder; |
136
| any transaction involving the Company or any direct or indirect majority-owned subsidiary of the Company that has the effect, directly or indirectly, of increasing the proportionate share of the stock of any class or series (or securities convertible into the stock of any class or series) of the Company or of any such subsidiary owned by the interested stockholder, except as to immaterial changes due to fractional share adjustments or as a result of any purchase or redemption of any shares of stock not caused, directly or indirectly, by the interested stockholder; or |
| the receipt by the interested stockholder of the benefit, directly or indirectly (except proportionately as a stockholder of the Company), of any loans, advances, guarantees, pledges or other financial benefits provided by or through the Company or any direct or indirect majority-owned subsidiary. |
In general, these provisions define an interested stockholder as any entity or person that is the beneficial owner of 15% or more of our outstanding voting stock or is an affiliate or associate of us and was the beneficial owner of 15% or more of our outstanding voting stock at any time within the three-year period immediately prior to the relevant date, and the affiliates or associates of any such entity or person, but Group Inc. and its affiliates and certain of its or their respective direct or indirect transferees and any group as to which such persons are a party are excluded from the definition of interested stockholder.
These provisions could prohibit or delay mergers or other takeover or change in control attempts and, accordingly, may discourage attempts to acquire us.
Election of Directors
Our bylaws provide that, unless otherwise provided in our certificate of incorporation (including with respect to the special rights of holders of one or more series of our preferred stock to elect directors), our directors are elected by the affirmative vote of the holders of a majority of the votes cast by stockholders entitled to vote thereon present in person or by proxy at a meeting of stockholders called for the purpose of electing directors. Under our certificate of incorporation, our Board of Directors has the power to amend our bylaws, including the provisions specifying the vote required to elect directors. Under Section 216 of the DGCL, however, a bylaw amendment adopted by stockholders which specifies the votes that shall be necessary for the election of directors shall not be further amended or repealed by the Board of Directors.
Classified Board of Directors
Under our certificate of incorporation, subject to the special right of the holders of one or more series of preferred stock to elect additional preferred directors, concurrently with our IPO our directors will be divided into three classes of directors, with the classes to be as nearly equal in number as possible, serving staggered three-year terms, with the term of office of directors in only one of the three classes expiring each year. As a result, approximately one-third of such directors will then be elected each year. A classified board may render a change in control of us or removal of our incumbent management more difficult. We believe, however, that, the longer time required to elect a majority of a classified Board of Directors will help to ensure the continuity and stability of our management and policies.
Number of Directors; Removal; Vacancies
Our certificate of incorporation provides that, subject to any rights of holders of one or more series of preferred stock to elect additional preferred directors, the total number of directors will be fixed from time to time exclusively pursuant to a resolution adopted by the Board of Directors. Under the DGCL, unless the certificate of incorporation provides otherwise (which our certificate of incorporation does not), directors on a classified board may be removed only for cause. Prior to the time at which our directors are classified, any of our directors may be removed, with or without cause, by the holders of a majority in voting power of the outstanding shares of our capital stock entitled to elect such directors. Our certificate of incorporation provides that, once our
137
directors are divided into classes serving staggered three-year terms, such directors may only be removed for cause, and only upon the affirmative vote of holders of at least two-thirds of the outstanding shares entitled to vote generally in the election of directors. Under our certificate of incorporation, subject to the applicable requirements of the Investment Company Act and the rights of the holders of one or more series of preferred stock, any vacancy on the Board of Directors resulting from the death, resignation, retirement, removal or disqualification of a director or other cause, or any vacancy resulting from an increase in the number of directors, may be filled only by vote of a majority of the directors then in office, even though less than a quorum, or by a sole remaining director; provided that when the holders of any class or series of our stock are entitled under the certificate of incorporation to elect directors, vacancies in directorships elected by such class, classes or series may be filled by a majority of the remaining directors so elected. Any such limitations on the ability of our stockholders to remove directors and fill vacancies could make it more difficult for a third party to acquire, or discourage a third party from seeking to acquire, control of us.
Action by Stockholders
Our certificate of incorporation provides that our stockholders will only be able to take action at an annual or special meeting of stockholders and may not take action by written consent of stockholders in lieu of a meeting. This may have the effect of delaying consideration of a stockholder proposal until the next annual meeting.
Advance Notice Provisions for Stockholder Nominations and Stockholder Proposals
Our bylaws provide that with respect to an annual meeting of stockholders, nominations of persons for election to the Board of Directors and the proposal of other business to be considered by stockholders may be made only (1) by or at the direction of the Board of Directors (or a duly authorized committee thereof), (2) pursuant to our notice of meeting or (3) by a stockholder who is entitled to vote at the meeting and who has complied with the advance notice procedures of the bylaws. For any nomination or business proposal to be properly brought by a stockholder for a meeting, such stockholder will have to comply with advance notice requirements and provide us with certain information. Generally, to be timely, a stockholders notice must be received at our principal executive offices not less than 90 days nor more than 120 days prior to the first anniversary date of the immediately preceding annual meeting of stockholders. Our bylaws specify requirements as to the form and content of any such stockholders notice. Our bylaws also allow the presiding officer at a meeting of the stockholders to adopt rules and regulations for the conduct of meetings which may have the effect of precluding the conduct of certain business at a meeting if the rules and regulations are not followed. Our bylaws further provide that nominations of persons for election to the Board of Directors at a special meeting may be made only by or at the direction of the Board of Directors, and provided that the Board of Directors has determined that directors will be elected at the meeting, by a stockholder who is entitled to vote at the meeting and who has complied with the advance notice provisions of the bylaws.
The purpose of requiring stockholders to give us advance notice of nominations and other business is to afford our Board of Directors a meaningful opportunity to consider the qualifications of the proposed nominees and the advisability of any other proposed business and, to the extent deemed necessary or desirable by our Board of Directors, to inform stockholders and make recommendations about such qualifications or business, as well as to provide a more orderly procedure for conducting meetings of stockholders. Although our bylaws do not give our Board of Directors any power to disapprove stockholder nominations for the election of directors or proposals recommending certain action that are made in compliance with applicable advance notice procedures, they may have the effect of precluding a contest for the election of directors or the consideration of stockholder proposals if proper procedures are not followed and of discouraging or deterring a third party from conducting a solicitation of proxies to elect its own slate of directors or to approve its own proposal without regard to whether consideration of such nominees or proposals might be harmful or beneficial to us and our stockholders.
138
Stockholder Meetings
Our certificate of incorporation and bylaws provide that any action required or permitted to be taken by stockholders at an annual meeting or special meeting of stockholders may only be taken if it is properly brought before such meeting. Stockholders at an annual meeting may only consider proposals or nominations specified in the notice of meeting or brought before the meeting by or at the direction of the Board of Directors, or by a stockholder of record on the record date for the meeting who is entitled to vote at the meeting and who has delivered timely written notice in proper form to the secretary of the stockholders intention to bring such business before the meeting. These provisions could have the effect of delaying until the next stockholder meeting stockholder actions that are favored by the holders of a majority of our outstanding voting securities.
Calling of Special Meetings of Stockholders
Our certificate of incorporation and bylaws provide that special meetings of stockholders may be called by our Board of Directors, the chairman of the Board of Directors and our chief executive officer, and not by any other person.
Amendments to the Certificate of Incorporation and Bylaws
Section 242 of the DGCL generally provides any amendment to the certificate of incorporation must be approved and declared advisable by the Board of Directors and adopted by the affirmative vote of holders of a majority of the outstanding shares of capital stock entitled to vote thereon, and by a majority of the outstanding stock of each class entitled to vote thereon as a class. Section 109 of the DGCL provides that, after a corporation has received payment for its capital stock, the power to adopt, amend or repeal the bylaws shall be in the stockholders entitled to vote, but any corporation may, in its certificate of incorporation, confer the power to adopt, amend or repeal bylaws upon the directors. Our certificate of incorporation provides our Board of Directors with such power. The DGCL provides that the certificate of incorporation may contain provisions requiring for any corporate action the vote of a larger portion of the stock or of any class or series thereof than is required by the DGCL. Our certificate of incorporation provides that the following provisions, among others, may be amended by our stockholders only by a vote of at least two-thirds of the outstanding shares of our capital stock entitled to vote thereon:
| the provisions regarding the classification of our Board of Directors; |
| the provisions specifying the percentage of votes required to remove directors for cause; |
| the provisions limiting stockholder action by written consent; |
| the provisions regarding the calling of special meetings; |
| the provisions regarding the number of directors and filling vacancies on our Board of Directors and newly created directorships; |
| the provision requiring a supermajority vote to amend our bylaws; |
| the limitation of directors personal liability to us or our stockholders for breach of fiduciary duty as a director; |
| the provisions regarding indemnification and advancement of expenses under our certificate of incorporation; |
| the provision regarding restrictions on business combinations with interested stockholders; and |
| the amendment provision requiring that the above provisions be amended only with a two-thirds supermajority vote. |
139
Our bylaws generally are able to be amended by approval of (i) a majority of the total number of authorized directors or (ii) the affirmative vote of the holders of at least two-thirds of the outstanding shares of our capital stock entitled to vote thereon.
Conflict with Investment Company Act
Our bylaws provide that, if and to the extent that any provision of the DGCL or any provision of our certificate of incorporation or bylaws conflicts with any provision of the Investment Company Act, the applicable provision of the Investment Company Act will control.
140
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, shares of our common stock will be outstanding, assuming no exercise of the underwriters over-allotment option. The shares of common stock (assuming no exercise of the underwriters over-allotment option) sold in the offering will be freely tradable without restriction or limitation under the Securities Act. Any shares purchased in this offering by our affiliates, as defined in the Securities Act, will be subject to the public information, manner of sale and volume limitations of Rule 144 under the Securities Act. The remaining shares of our common stock that were issued prior to the completion of this offering will be restricted securities under the meaning of Rule 144 promulgated under the Securities Act and may not be sold in the absence of registration under the Securities Act unless an exemption from registration is available, including exemptions contained in Rule 144.
In general, under Rule 144 as currently in effect, if six months have elapsed since the date of acquisition of restricted securities from us or any of our affiliates and we are subject to the Exchange Act periodic reporting requirements for at least three months prior to the sale, the holder of such restricted securities can sell such securities. However, the number of securities sold by a holder that is an affiliate within any three-month period cannot exceed the greater of:
| 1% of the total number of securities then outstanding; or |
| the average weekly trading volume of our securities during the four calendar weeks preceding the date on which notice of the sale is filed with the SEC. |
Sales under Rule 144 by our affiliates also are subject to certain manner of sale limitations, notice requirements and the availability of current public information about us. No assurance can be given as to (a) the likelihood that an active market for our common stock will develop, (b) the liquidity of any such market, (c) the ability of our stockholders to sell our securities or (d) the prices that stockholders may obtain for any of our securities. No prediction can be made as to the effect, if any, that future sales of securities, or the availability of securities for future sales, will have on the market price prevailing from time to time. Sales of substantial amounts of our securities, or the perception that such sales could occur, may affect adversely prevailing market prices of our common stock. Immediately upon the expiration of both lock-up periods described below, an aggregate of shares of common stock subject to the lock-up will be eligible for sale in the public market in accordance with Rule 144.
Stockholders that purchased our shares of common stock prior to our IPO are not permitted to transfer their shares without our prior written consent (which we have agreed with the underwriters not to grant without their consent) for 180 days after the consummation of this offering. Additionally, Group Inc. and our directors and executive officers have agreed with the underwriters that, for a period of 365 days following the date of this prospectus, they will not transfer their shares of common stock acquired prior to the IPO without the prior written consent of the underwriters, subject to certain exceptions. See UnderwritingNo Sales of Similar Securities.
141
Concurrent with this offering, we will adopt a dividend reinvestment plan, pursuant to which we will reinvest all cash distributions declared by our Board of Directors on behalf of investors who do not elect to receive their cash distributions in cash as provided below. As a result, if our Board of Directors authorizes, and we declare, a cash distribution, then our stockholders who have not elected to opt out of our dividend reinvestment plan will have their cash distributions automatically reinvested in additional shares of our common stock as described below. We intend to continue to pay quarterly distributions to our stockholders out of assets legally available for distribution. Future quarterly distributions, if any, will be determined by our Board of Directors. All future distributions will be subject to lawfully available funds therefor, and no assurance can be given that we will be able to declare such distributions in future periods. See Distributions.
Each registered stockholder may elect to have distributions distributed in cash rather than participate in the plan. For any registered stockholder that does not so elect, distributions on such stockholders shares will be reinvested by State Street Bank and Trust Company, as the plan agent, in additional shares. The number of shares to be issued to the stockholder will be determined based on the total dollar amount of the cash distribution payable, net of applicable withholding taxes. The plan agent will maintain all participants accounts in the plan and furnish written confirmation of all transactions in the accounts. Shares in the account of each participant will be held by the plan agent on behalf of the participant in book entry form in the plan agents name or the plan agents nominee. Those stockholders whose shares are held through a broker or other nominee may receive cash distributions in cash by notifying their broker or nominee of their election.
The shares will be acquired by the plan agent for the participants accounts either through (i) newly issued shares or (ii) by purchase of outstanding shares on the open market. If, on the payment date for any distribution, the most recently computed NAV per share is equal to or less than the closing market price plus estimated per share fees (which include any applicable brokerage commissions the plan agent is required to pay) (such condition often referred to as a premium), the plan agent will invest the distribution amount in newly issued shares on behalf of the participants. The number of newly issued shares to be credited to a participants account will be determined by dividing the dollar amount of the distribution by the most recently computed NAV per share provided that, if the NAV is less than or equal to 95% of the then current market price per share, the dollar amount of the distribution will be divided by 95% of the closing market price per share on the payment date. If, on the payment date for any distribution, the NAV per share is greater than the closing market price per share plus per share fees (such condition referred to as a market discount), the plan agent will invest the dividend amount in shares acquired on behalf of the participants by purchasing outstanding shares on the open market. In the event of a market discount on the payment date for any distribution, the plan agent or its broker will have until the last business day before the next date on which the shares trade on an ex-dividend basis or 30 days after the payment date for such distribution, whichever is sooner, to invest the distribution amount in shares acquired in open-market purchases. Open-market purchases may be made on any securities exchange where shares are traded, in the over-the-counter market or in negotiated transactions, and may be on such terms as to price, delivery and otherwise as the plan agent will determine. Shares purchased in open market transactions by the Plan Administrator will be allocated to a participant based on the average purchase price, excluding any brokerage charges or other charges, of all shares purchased in the open market with respect to any such distribution. If, before the plan agent has completed its open-market purchases, the market price per share exceeds the NAV per share, the average per share purchase price paid by the plan agent may exceed the NAV of the shares, resulting in the acquisition of fewer shares than if the dividend had been paid in newly issued shares on the distribution payment date. Because of the foregoing difficulty with respect to open-market purchases, the plan provides that if the plan agent is unable to invest the full dividend amount in open-market purchases during the purchase period or if the market discount shifts to a market premium during the purchase period, the plan agent may cease making open-market purchases and may invest the uninvested portion of the distribution amount in newly issued shares at the most recently computed NAV per share provided that, if the NAV is less than or equal to 95% of the then current market price per share; the dollar amount of the distribution will be divided by
142
95% of the market price on the payment date. The number of shares of the Companys common stock to be outstanding after giving effect to payment of the distribution cannot be established until the value per share at which additional shares will be issued has been determined and elections of the Companys stockholders have been tabulated.
If a participant elects by written notice to the plan agent to have the plan agent sell all or a part of his or her shares and remit the proceeds to the participant, the plan agent will process all sale instructions received no later than five business days after the date on which the order is received. Such sale will be made through the plan agents broker on the relevant market and the sale price will not be determined until such time as the broker completes the sale. In each case, the price to each participant will be the weighted average sale price obtained by the plan agents broker net of fees for each aggregate order placed by the plan agent and executed by the broker.
The plan agents fees for the handling of the reinvestment of distributions will be paid by us. However, each participant will pay a per share fee (currently $ ) incurred in connection with open market purchases. If a participant elects by written notice to the plan agent to have the plan agent sell all or a part of his or her shares and remit the proceeds to the participant, the plan agent is authorized to deduct a per share brokerage commission of $ from such proceeds. All per share fees include any applicable brokerage commissions the plan agent is required to pay.
Participation in the plan is completely voluntary and may be terminated or resumed at any time without penalty. Participants may terminate their accounts under the plan by notifying the plan agent in writing prior to the dividend record date. Such termination will be effective immediately if received by the plan administrator prior to any distribution record date; otherwise such termination or resumption will be effective with respect to any subsequently declared dividend or other distribution.
A stockholder who does not opt out of the dividend reinvestment plan will generally be subject to the same U.S. federal, state and local tax consequences as a stockholder who elects to receive its distributions in cash and, for this purpose, a stockholder receiving a distribution in the form of stock will generally be treated as receiving a distribution equal to the fair market value of the stock received through the plan; however, because a stockholder that participates in the dividend reinvestment plan will not actually receive any cash, such a stockholder will not have such cash available to pay any applicable taxes on the deemed distribution. A stockholder that participates in the dividend reinvestment plan and thus is treated as having invested in additional shares of our stock will have a basis in such additional shares of stock equal to the total dollar amount treated as a distribution for U.S. federal income tax purposes. The stockholders holding period for such stock will commence on the day following the day on which the shares are credited to the stockholders account.
We reserve the right to amend or terminate the plan upon notice in writing to each participant at least 30 days prior to any record date for the payment of any dividend or distribution by us. There is no direct service charge to participants with regard to purchases in the plan; however, we reserve the right to amend the plan to include a service charge payable by the participants. Notice will be sent to participants of any amendments as soon as practicable after such action by us.
All correspondence concerning the plan should be directed to the plan agent by mail at State Street Corporation, Attention: Transfer Agent, 100 Huntington Ave Copley Place Tower 2, Floor 3., Mail Code: CPH0255, Boston, MA 02116. Participants who hold their shares through a broker or other nominee should direct correspondence or questions concerning the dividend reinvestment plan to their broker or nominee.
The dividend reinvestment plan will not apply to any shares of our common stock purchased prior to the Companys IPO. Due to regulatory considerations, Group Inc. will opt out of the dividend reinvestment plan, and Goldman, Sachs & Co. will opt out of the dividend reinvestment plan in respect of any shares of our common stock acquired through the 10b5-1 Plan, for a period of at least 90 days following the consummation of this offering.
143
We have elected to be treated as a BDC under the Investment Company Act. As with other companies regulated by the Investment Company Act, a BDC must adhere to certain substantive regulatory requirements. The Investment Company Act contains prohibitions and restrictions relating to transactions between BDCs and their affiliates (including any investment advisers or sub-advisers), principal underwriters and affiliates of those affiliates or underwriters and requires that a majority of the directors be persons other than interested persons, as that term is defined in the Investment Company Act. In addition, the Investment Company Act provides that we may not change the nature of our business so as to cease to be, or to withdraw our election as a BDC unless approved by a majority of our outstanding voting securities. A majority of the outstanding voting securities of a company is defined under the Investment Company Act as the lesser of: (i) 67% or more of the voting securities present at such meeting, if the holders of more than 50% of the outstanding voting securities of such company are present or represented by proxy, or (ii) of more than 50% of the outstanding voting securities of such company.
Any issuance of preferred stock must comply with the requirements of the Investment Company Act. Additionally, the Investment Company Act requires, among other things, that (1) immediately after issuance and before any dividend or other distribution is made with respect to our common stock and before any purchase of common stock is made, such preferred stock together with all other senior securities must not exceed an amount equal to 50% of our total assets after deducting the amount of such dividend, distribution or purchase price, as the case may be, and (2) the holder of shares of preferred stock, if any are issued, must be entitled as a class to elect two directors at all times and to elect a majority of the directors if dividends on such preferred stock are in arrears by two full years or more. Certain other matters under the Investment Company Act require a separate class vote of the holders of any issued and outstanding preferred stock. For example, holders of preferred stock would be entitled to vote separately as a class from the holders of common stock on a proposal involving a plan of reorganization adversely affecting such securities.
We may invest up to 100% of our assets in securities acquired directly from issuers in privately negotiated transactions. With respect to such securities, we may, for the purpose of public resale, be deemed a principal underwriter as that term is defined under the Securities Act. We may purchase or otherwise receive warrants, which offer an opportunity (not a requirement) to purchase common stock of a portfolio company in connection with an acquisition financing or other investments. Similarly, we may acquire rights that obligate an issuer of acquired securities or their affiliates to repurchase the securities at certain times, under certain circumstances. We do not intend to acquire securities issued by any investment company whereby our investment would exceed the limits imposed by the Investment Company Act. Under these limits, we generally cannot (1) acquire more than 3% of the total outstanding voting stock of any investment company, (2) invest more than 5% of the value of our total assets in the securities of one investment company or (3) invest more than 10% of the value of our total assets in the securities of investment companies in general. These limitations do not apply where we (i) make investments through a subsidiary or (ii) acquire interests in a money market fund as long as we do not pay a sales charge or service fee in connection with the purchase. With respect to the portion of our portfolio invested in securities issued by investment companies, it should be noted that such investments might subject our stockholders to additional expenses. None of our policies described above are fundamental and each such policy may be changed without stockholder approval, subject to any limitations imposed by the Investment Company Act.
Private funds that are excluded from the definition of investment company pursuant to either Section 3(c)(1) or 3(c)(7) of the Investment Company Act are also subject to certain of the limits under the Investment Company Act noted above. Specifically, such private funds may not acquire directly or through a controlled entity more than 3% of our total outstanding voting stock (measured at the time of the acquisition). Investment companies registered under the Investment Company Act are also subject to the restriction as well as other limitations under the Investment Company Act that would restrict the amount that they are able to invest in our securities. As a result, certain investors would be required to hold a smaller position in our shares than if they were not subject to such restrictions.
144
Qualifying Assets
Under the Investment Company Act, a BDC may not acquire any asset other than assets of the type listed in Section 55(a) of the Investment Company Act, which are referred to as qualifying assets, unless, at the time the acquisition is made, qualifying assets (not including certain assets specified in the Investment Company Act) represent at least 70% of the companys total assets. The principal categories of qualifying assets relevant to our proposed business are the following:
(1) | Securities purchased in transactions not involving any public offering from the issuer of such securities, which issuer (subject to certain exceptions) is an eligible portfolio company, or from any person who is, or has been during the preceding thirteen months, an affiliated person of an eligible portfolio company, or from any other person, subject to such rules and regulations as may be prescribed by the SEC. An eligible portfolio company is defined in the Investment Company Act as any issuer that: |
(a) | is organized under the laws of, and has its principal place of business in, the United States; |
(b) | is not an investment company (other than a small business investment company wholly owned by the BDC) or a company that would be an investment company but for certain exclusions under the Investment Company Act; and |
(c) | satisfies any of the following: |
| does not have any class of securities listed on a national securities exchange or has a class of securities listed on a national securities exchange but has an aggregate market value of outstanding common equity of less than $250 million; |
| is controlled by a BDC or a group of companies including a BDC, and the BDC has an affiliated person who is a director of the eligible portfolio company; or |
| is a small and solvent company having total assets of not more than $4 million and capital and surplus of not less than $2 million. |
(2) | Securities of any eligible portfolio company that we control. |
(3) | Securities purchased in a private transaction from a U.S. issuer that is not an investment company or from an affiliated person of the issuer, or in transactions incident thereto, if the issuer is in bankruptcy and subject to reorganization or if the issuer, immediately prior to the purchase of its securities, was unable to meet its obligations as they came due without material assistance other than conventional lending or financing arrangements. |
(4) | Securities of an eligible portfolio company purchased from any person in a private transaction if there is no ready market for such securities and we already own at least 60% of the outstanding equity of the eligible portfolio company. |
(5) | Securities received in exchange for or distributed on or with respect to securities described in (1) through (4) above, or pursuant to the exercise of options, warrants or rights relating to such securities. |
(6) | Cash, cash equivalents, U.S. government securities or high-quality debt securities maturing in one year or less from the time of investment. |
145
Managerial Assistance to Portfolio Companies
A BDC must be organized and have its principal place of business in the United States and must be operated for the purpose of making investments in the types of securities described in (1), (2) or (3) above under Qualifying Assets. However, in order to count portfolio securities as qualifying assets for the purpose of the 70% test, the BDC must also either control the issuer of the securities or offer to make available to the issuer of the securities (other than small and solvent companies described above) significant managerial assistance; except that, where the BDC purchases such securities in conjunction with one or more other persons acting together, one of the other persons in the group may make available such managerial assistance (as long as the BDC does not make available significant managerial assistance solely in this fashion). Making available significant managerial assistance means, among other things, any arrangement whereby the BDC, through its directors, officers or employees, offers to provide, and, if accepted, does so provide, significant guidance and counsel concerning the management, operations or business objectives and policies of a portfolio company.
Temporary Investments
As a BDC, pending investment in other types of qualifying assets, as described above, our investments may consist of cash, cash items (such as money market funds), U.S. government securities or high-quality debt securities maturing in one year or less from the time of investment, which we refer to, collectively, as temporary investments, so that 70% of our assets are qualifying assets. Typically, we will invest in U.S. Treasury bills or in repurchase agreements, provided that such agreements are fully collateralized by cash or securities issued by the U.S. government or its agencies. A repurchase agreement involves the purchase by an investor, such as us, of a specified security and the simultaneous agreement by the seller to repurchase it at an agreed-upon future date and at a price which is greater than the purchase price by an amount that reflects an agreed-upon interest rate. There is no percentage restriction on the proportion of our assets that may be invested in such repurchase agreements. However, if more than 25% of our total assets constitute repurchase agreements from a single counterparty, we would not meet the asset diversification requirements in order to qualify as a RIC for U.S. federal income tax purposes. Thus, we do not intend to enter into repurchase agreements with a single counterparty in excess of this limit. Our investment adviser will monitor the creditworthiness of the counterparties with which we enter into repurchase agreement transactions.
Indebtedness and Senior Securities
As a BDC, we are permitted, under specified conditions, to issue multiple classes of indebtedness and one class of shares of stock senior to our common stock if our asset coverage ratio, as defined under the Investment Company Act, is at least equal to 2 to 1 immediately after each such issuance. In addition, except in limited circumstances, while any indebtedness and senior securities remain outstanding, we must make provisions to prohibit any distribution to our stockholders or the repurchase of such securities or stock unless we meet the applicable asset coverage ratios at the time of the distribution or repurchase. We may also borrow amounts up to 5% of the value of our total assets for temporary or emergency purposes without regard to asset coverage. For a discussion of the risks associated with leverage, see Risk FactorsRisks Relating to Our Business and StructureRegulations governing our operation as a BDC affect our ability to, and the way in which we, raise additional capital.
Code of Ethics
We have adopted a Code of Ethics pursuant to Rule 17j-1 under the Investment Company Act and we have also approved our investment advisers Code of Ethics that it adopted in accordance with Rule 17j-1 and Rule 204A-1 under the Advisers Act. These Codes of Ethics establish, among other things, procedures for personal investments and restrict certain personal securities transactions, including transactions in securities that are held by us. Personnel subject to each code may invest in securities for their personal investment accounts, so long as such investments are made in accordance with the codes requirements. The Codes of Ethics can be
146
reviewed and copied at the SECs Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling the SEC at (202) 551-8090 or (800) SEC-0330. The Codes of Ethics are also available on the EDGAR Database on the SECs Internet site at http://www.sec.gov. Copies may also be obtained after paying a duplicating fee by writing the SECs Public Reference Section, Washington, DC 20549-0102, or by electronic request to publicinfo@sec.gov.
Proxy Voting Policies and Procedures
We have delegated the voting of portfolio securities to our investment adviser. For client accounts for which our investment adviser has voting discretion, our investment adviser has adopted policies and procedures (the Proxy Voting Policy) for the voting of proxies. Under the Proxy Voting Policy, our investment advisers guiding principles in performing proxy voting are to make decisions that favor proposals that tend to maximize a companys shareholder value and are not influenced by conflicts of interest. To implement these guiding principles for investments in publicly traded equities, our investment adviser has developed customized proxy voting guidelines (the Guidelines) that it generally applies when voting on behalf of client accounts. Attached as Annex A is a summary of the Guidelines. These Guidelines address a wide variety of individual topics, including, among other matters, shareholder voting rights, anti-takeover defenses, board structures, the election of directors, executive and director compensation, reorganizations, mergers, issues of corporate social responsibility and various shareholder proposals.
The Proxy Voting Policy, including the Guidelines, is reviewed periodically to assure that it continues to be consistent with our investment advisers guiding principles. The Guidelines embody the positions and factors our investment adviser generally considers important in casting proxy votes.
Our investment adviser has retained a third-party proxy voting service (the Proxy Service), currently Institutional Shareholder Services, to assist in the implementation and administration of certain proxy voting-related functions including, without limitation, operational, recordkeeping, and reporting services. The Proxy Service also prepares a written analysis and recommendation (a Recommendation) of each proxy vote that reflects the Proxy Services application of the Guidelines to particular proxy issues. While it is our investment advisers policy generally to follow the Guidelines and Recommendations from the Proxy Service, our investment advisers portfolio management teams (the Portfolio Management Teams) may on certain proxy votes seek approval to diverge from the Guidelines or a Recommendation by following an override process. Such decisions are subject to a review and approval process, including a determination that the decision is not influenced by any conflict of interest. A Portfolio Management Team that receives approval through the override process to cast a proxy vote that diverges from the Guidelines and/or a Recommendation may vote differently than other Portfolio Management Teams that did not seek to override the vote. In forming their views on particular matters, the Portfolio Management Teams are also permitted to consider applicable regional rules and practices, including codes of conduct and other guides, regarding proxy voting, in addition to the Guidelines and Recommendations. Our investment adviser may hire other service providers to replace or supplement the Proxy Service with respect to any of the services our investment adviser currently receives from the Proxy Service.
From time to time, our investment adviser may face regulatory, compliance, legal or logistical limits with respect to voting securities that it may purchase or hold for client accounts, which can affect our investment advisers ability to vote such proxies, as well as the desirability of voting such proxies. Among other limits, federal, state and foreign regulatory restrictions or company specific ownership limits, as well as legal matters related to consolidated groups, may restrict the total percentage of an issuers voting securities that our investment adviser can hold for clients and the nature of our investment advisers voting in such securities. Our investment advisers ability to vote proxies may also be affected by, among other things: (i) late receipt of meeting notices; (ii) requirements to vote proxies in person; (iii) restrictions on a foreigners ability to exercise votes; (iv) potential difficulties in translating the proxy; (v) requirements to provide local agents with unrestricted powers of attorney to facilitate voting instructions; and (vi) requirements that investors who exercise their voting rights surrender the right to dispose of their holdings for some specified period in proximity to the shareholder meeting.
147
Our investment adviser conducts periodic due diligence meetings with the Proxy Service which include a review of the Proxy Services general organizational structure, new developments with respect to research and technology, work flow improvements and internal due diligence with respect to conflicts of interest.
Our investment adviser has adopted policies and procedures designed to prevent conflicts of interest from influencing its proxy voting decisions that our investment adviser makes on behalf of a client account and to help assure that such decisions are made in accordance with our investment advisers fiduciary obligations to its clients. These policies and procedures include our investment advisers use of the Guidelines and Recommendations from the Proxy Service, the override approval process previously discussed, and the establishment of information barriers between our investment adviser and other Goldman Sachs businesses. Notwithstanding such proxy voting policies and procedures, actual proxy voting decision of our investment adviser may have the effect of benefitting the interest of other clients or businesses of other divisions or units of Goldman Sachs and/or its affiliates, provided that our investment adviser believes such voting decisions to be in accordance with its fiduciary obligations. See Potential Conflicts of Interest.
Voting decisions with respect to fixed income securities and the securities of privately held issuers generally will be made by our investment adviser based on its assessment of the particular transactions or other matters at issue.
Information regarding how we vote proxies relating to portfolio securities during the twelve-month period ended June 30, 2014 will be available on or through our website at www.GoldmanSachsBDC.com.
Privacy Principles
The following information is provided to help investors understand what personal information we collect, how we protect that information and why, in certain cases, we may share information with select other parties.
We generally will not receive any nonpublic personal information relating to stockholders who purchase our common stock. We may collect nonpublic personal information regarding our existing investors from sources such as subscription agreements, investor questionnaires and other forms; individual investors account histories; and correspondence between us and individual investors. We may share information that we collect regarding an investor with our affiliates and the employees of such affiliates for everyday business purposes, for example, to service the investors accounts and, unless an investor opts out, provide the investor with information about other products and services offered by us or our affiliates that may be of interest to the investor. In addition, we may disclose information that we collect regarding investors to third parties who are not affiliated with us (i) as authorized by our investors in investor subscription agreements or our organizational documents; (ii) as required by applicable law or in connection with a properly authorized legal or regulatory investigation, subpoena or summons, or to respond to judicial process or government regulatory authorities having property jurisdiction; (iii) as required to fulfill investor instructions; or (iv) as otherwise permitted by applicable law to perform support services for investor accounts or process investor transactions with us or our affiliates.
Any party not affiliated with us that receives nonpublic personal information relating to investors from us is required to adhere to confidentiality agreements and to maintain appropriate safeguards to protect your information. Additionally, for officers, employees and agents of ours and our affiliates, access to such information is restricted to those who need such access to provide services to us and investors. We maintain physical, electronic and procedural safeguards to seek to guard investor nonpublic personal information.
Other
We may also be prohibited under the Investment Company Act from knowingly participating in certain transactions with our affiliates without the prior approval of the members of our Board of Directors who are not interested persons and, in some cases, prior approval by the SEC. The SEC has interpreted the prohibition on
148
transactions by BDCs with affiliates to prohibit joint transactions among entities that share a common investment adviser. The staff of the SEC has granted no-action relief permitting purchases of a single class of privately placed securities provided that the adviser negotiates no term other than price and certain other conditions are met. Except in certain limited circumstances, we will be unable to invest in any issuer in which another client sponsored or managed by our investment adviser has previously invested. We and our investment adviser have submitted an exemptive application to the SEC to permit greater flexibility to negotiate the terms of co-investments if our Board of Directors determines that it would be advantageous for us to co-invest with other accounts managed by our investment adviser or its affiliates in a manner consistent with our investment objectives, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors. However, there can be no assurance that we will obtain any such order.
As a BDC, the SEC will periodically examine us for compliance with the Investment Company Act.
We are required to provide and maintain a bond issued by a reputable fidelity insurance company, to protect against larceny and embezzlement, covering each of our officers and employees, who may singly, or jointly with others, have access to our securities or funds. Furthermore, as a BDC, we are prohibited from protecting any director, officer, investment adviser or underwriter against any liability to us or our stockholders arising from willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such persons office.
We and our investment adviser are each required to adopt and implement written policies and procedures reasonably designed to prevent violation of the federal securities laws, review these policies and procedures annually for their adequacy and the effectiveness of their implementation and designate a chief compliance officer to be responsible for administering the policies and procedures.
Compliance with the Sarbanes-Oxley Act
The Sarbanes-Oxley Act imposes a wide variety of regulatory requirements on publicly held companies and their insiders. The Sarbanes-Oxley Act requires us to review our policies and procedures to determine whether we comply with the Sarbanes-Oxley Act and the regulations promulgated thereunder. We will continue to monitor our compliance with all future regulations that are adopted under the Sarbanes-Oxley Act and will take actions necessary to ensure that we are in compliance therewith.
Compliance with Listing Requirements
Our common stock has been approved for listing on the NYSE under the symbol GSBD. As a listed company on the NYSE, we will be subject to various listing standards including corporate governance listing standards. We will monitor our compliance with all listing standards and will take actions necessary to ensure that we are in compliance therewith.
Compliance with the JOBS Act
We currently are, and following the completion of this offering expect to remain, an emerging growth company, as defined in the JOBS Act signed into law in April 2012 until the earliest of:
| the last day of our fiscal year ending December 31, 2020; |
| the last day of the fiscal year in which our total annual gross revenues first exceed $1.0 billion; |
| the date on which we have, during the prior three-year period, issued more than $1.0 billion in non-convertible debt; or |
149
| the last day of a fiscal year in which we (1) have an aggregate worldwide market value of our common stock held by non-affiliates of $700 million or more (measured at the end of each fiscal year) as of the last business day of our most recently completed second fiscal quarter and (2) have been an Exchange Act reporting company for at least one year (and filed at least one annual report under the Exchange Act). |
Under the JOBS Act, we are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act, which would require that our independent registered public accounting firm provide an attestation report on the effectiveness of our internal control over financial reporting. This may increase the risk that material weaknesses or other deficiencies in our internal control over financial reporting go undetected. See Risk FactorsRisks Relating to Our Business and StructureEfforts to comply with Section 404 of the Sarbanes-Oxley Act will involve significant expenditures, and non-compliance with Section 404 of the Sarbanes-Oxley Act may adversely affect us and the market price of our common stock.
In addition, Section 7(a)(2)(B) of the Securities Act and Section 13(a) of the Exchange Act, as amended by Section 102(b) of the JOBS Act, provide that an emerging growth company can take advantage of the extended transition period for complying with new or revised accounting standards. However, pursuant to Section 107 of the JOBS Act, we are choosing to opt out of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.
Compliance with the Bank Holding Company Act
As a BHC and FHC, the activities of Group Inc. and its affiliates are subject to certain restrictions imposed by the BHCA and related regulations. BHCs and FHCs are subject to supervision and regulation by the Federal Reserve. Because Group Inc. may be deemed to control us within the meaning of the BHCA, restrictions under the BHCA could apply to us. Accordingly, the BHCA and other applicable banking laws, rules, regulations and guidelines, and their interpretation and administration by the appropriate regulatory agencies, including the Federal Reserve, may restrict our investments, transactions and operations and may restrict the transactions and relationships between our investment adviser, Group Inc. and their affiliates, on the one hand, and us on the other hand. For example, the BHCA regulations applicable to Group Inc. and us may, among other things, restrict our ability to make certain investments or the size of certain investments, impose a maximum holding period on some or all of our investments and restrict our and our investment advisers ability to participate in the management and operations of the companies in which we invest. In addition, certain BHCA regulations may require aggregation of the positions owned, held or controlled by related entities. Thus, in certain circumstances, positions held by Group Inc. and its affiliates (including our investment adviser) for client and proprietary accounts may need to be aggregated with positions held by us. In this case, where BHCA regulations impose a cap on the amount of a position that may be held, Goldman Sachs may utilize available capacity to make investments for its proprietary accounts or for the accounts of other clients, which may require us to limit and/or liquidate certain investments. See Potential Conflicts of Interest. Additionally, Goldman Sachs may in the future, in its sole discretion and without notice to investors, engage in activities impacting us and/or our investment adviser in order to comply with the BHCA or other legal requirements applicable to, or reduce or eliminate the impact or applicability of any bank regulatory or other restrictions on, Goldman Sachs, us or other funds and accounts managed by our investment adviser and its affiliates. In addition, Goldman Sachs may cease in the future to qualify as a FHC, which may subject us to additional restrictions. Moreover, there can be no assurance that the bank regulatory requirements applicable to Goldman Sachs and us, or the interpretation thereof, will not change, or that any such change will not have a material adverse effect on us. See Risk FactorsRisks Relating to Our Business and StructureOur activities may be limited as a result of potentially being deemed to be controlled by a bank holding company.
150
U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a general summary of certain material U.S. federal income tax considerations applicable to us and an investment in shares of our common stock. The discussion is based upon the Code, the regulations of the U.S. Department of Treasury promulgated thereunder, which we refer to as the Treasury regulations, the legislative history of the Code, current administrative interpretations and practices of the Internal Revenue Service, which we refer to as the IRS (including administrative interpretations and practices of the IRS expressed in private letter rulings which are binding on the IRS only with respect to the particular taxpayers that requested and received those rulings) and judicial decisions, each as of the date of this prospectus and all of which are subject to change or differing interpretations, possibly retroactively, which could affect the continuing validity of this discussion. We have not sought, and will not seek, any ruling from the IRS regarding any matter discussed in this summary, and this summary is not binding on the IRS. Accordingly, there can be no assurance that the IRS will not assert, and a court will not sustain, a position contrary to any of the tax consequences discussed below.
You should note that this summary does not purport to be a complete description of all the tax aspects affecting us or the beneficial owners of shares of our common stock, which we refer to as stockholders. For example, this summary does not describe all of the U.S. federal income tax consequences that may be relevant to certain types of stockholders subject to special treatment under the U.S. federal income tax laws, including stockholders subject to the alternative minimum tax, tax-exempt organizations, insurance companies, partnerships or other pass-through entities and their owners, Non-U.S. stockholders (as defined below) engaged in a trade or business in the United States or entitled to claim the benefits of an applicable income tax treaty, persons who have ceased to be U.S. citizens or to be taxed as residents of the United States, U.S. stockholders (as defined below) whose functional currency is not the U.S. dollar, persons holding our common stock in connection with a hedging, straddle, conversion or other integrated transaction, dealers in securities, traders in securities that elect to use a market-to-market method of accounting for securities holdings, pension plans and trusts and financial institutions. This summary assumes that our stockholders hold shares of our common stock as capital assets for U.S. federal income tax purposes (generally, assets held for investment). This summary does not discuss any aspects of U.S. estate or gift taxation, U.S. state or local taxation or non-U.S. taxation. It does not discuss the special treatment under U.S. federal income tax laws that could result if we invest in tax-exempt securities or certain other investment assets.
For purposes of this discussion, a U.S. stockholder is a beneficial owner of shares of our common stock that is, for U.S. federal income tax purposes:
| an individual who is a citizen or resident of the United States; |
| a corporation, or other entity treated as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the United States or any state thereof, including, for this purpose, the District of Columbia; |
| a trust if (i) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons (as defined in the Code) have the authority to control all substantive decisions of the trust, or (ii) the trust has in effect a valid election to be treated as a domestic trust for U.S. federal income tax purposes; or |
| an estate, the income of which is subject to U.S. federal income taxation regardless of its source. |
For purposes of this discussion, a Non-U.S. stockholder is a beneficial owner of shares of our common stock that is not a U.S. stockholder or a partnership (or an entity or arrangement treated as a partnership) for U.S. federal income tax purposes.
151
If a partnership, or other entity or arrangement treated as a partnership for U.S. federal income tax purposes, holds shares of our common stock, the U.S. federal income tax treatment of a partner in the partnership generally will depend on the status of the partner, the activities of the partnership and certain determinations made at the partner level. A stockholder that is a partnership holding shares of our common stock, and each partner in such a partnership, should consult his, her or its own tax adviser with respect to the tax consequences of the purchase, ownership and disposition of shares of our common stock.
Tax matters are very complicated and the tax consequences to each stockholder of the ownership and disposition of shares of our common stock will depend on the facts of his, her or its particular situation. You should consult your own tax adviser regarding the specific tax consequences of the ownership and disposition of shares of our common stock to you, including tax reporting requirements, the applicability of U.S. federal, state and local tax laws and non-U.S. tax laws, eligibility for the benefits of any applicable income tax treaty and the effect of any possible changes in the tax laws.
We intend to pay quarterly distributions to our stockholders out of assets legally available for distribution, but will reinvest distributions on behalf of those investors that do not elect to receive their distributions in cash. See Distributions and Dividend Reinvestment Plan for a description of our dividend policy and obligations.
Election to be Taxed as a RIC
We have elected to be treated, and intend to qualify annually, as a RIC under Subchapter M of the Code, commencing with our taxable year ended December 31, 2013. As a RIC, we generally will not pay corporate-level U.S. federal income taxes on any net ordinary income or capital gains that we timely distribute to our stockholders as dividends. Rather, dividends we distribute generally will be taxable to our stockholders, and any net operating losses, foreign tax credits and other of our tax attributes generally will not pass through to our stockholders, subject to special rules for certain items such as net capital gains and qualified dividend income we recognize. See Taxation of U.S. Stockholders and Taxation of Non-U.S. Stockholders below.
To maintain our status as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements (as described below). In addition, to maintain our status as a RIC, we must timely distribute to our stockholders at least 90% of our investment company taxable income (determined without regard to the dividends paid deduction), which is generally our net ordinary income plus the excess of realized net short-term capital gains over realized net long-term capital losses, if any, for each taxable year (the Annual Distribution Requirement).
Taxation as a RIC
If we maintain our status as a RIC and satisfy the Annual Distribution Requirement, then we will not be subject to U.S. federal income tax on the portion of our investment company taxable income and net capital gain (generally, net long-term capital gain in excess of net short-term capital loss) that we timely distribute (or are deemed to timely distribute) to our stockholders. We will be subject to U.S. federal income tax at the regular corporate rates on any income or capital gain not distributed (or deemed distributed) to our stockholders.
We generally will be subject to a 4% nondeductible U.S. federal excise tax on certain undistributed income unless we distribute in a timely manner an amount at least equal to the sum of (1) 98% of our net ordinary income (taking into account certain deferrals and elections) for each calendar year, (2) 98.2% of our capital gains in excess of capital losses for the one-year period ending October 31 in that calendar year and (3) any net ordinary income and capital gains in excess of capital losses recognized, but not distributed, in preceding years (the Excise Tax Avoidance Requirement). We will not be subject to the U.S. federal excise tax on amounts on which we are required to pay U.S. federal income tax (such as retained net capital gains). Depending upon the level of taxable income earned in a year, we may choose to carry forward taxable income for distribution in the following year and pay the applicable U.S. federal excise tax.
152
In order to maintain our status as a RIC for U.S. federal income tax purposes, we must, among other things:
| qualify and have in effect an election to be treated as a BDC under the Investment Company Act at all times during each taxable year; |
| derive in each taxable year at least 90% of our gross income from dividends, interest, payments with respect to loans of certain securities, gains from the sale of stock or other securities, net income derived from an interest in a qualified publicly traded partnership (as defined in the Code), or other income derived with respect to our business of investing in such stock or securities (the 90% Income Test); and |
| diversify our holdings so that at the end of each quarter of the taxable year: |
| at least 50% of the value of our assets consists of cash, cash equivalents, U.S. government securities, securities of other RICs and other securities if such other securities of any one issuer do not represent more than 5% of the value of our assets or more than 10% of the outstanding voting securities of the issuer; and |
| no more than 25% of the value of our assets is invested in (a) the securities, other than U.S. government securities or securities of other RICs, of one issuer or of two or more issuers that are controlled, as determined under applicable Code rules, by us and that are engaged in the same or similar or related trades or businesses or (b) the securities of one or more qualified publicly traded partnerships (the Diversification Tests). |
For U.S. federal income tax purposes, we will include in our taxable income certain amounts that we have not yet received in cash. For example, if we hold debt obligations that are treated under applicable U.S. federal income tax rules as having original issue discount (such as debt instruments with PIK interest or, in certain cases, that have increasing interest rates or are issued with warrants), we must include in our taxable income in each year a portion of the original issue discount that accrues over the life of the obligation, regardless of whether we receive cash representing such income in the same taxable year. We may also have to include in our taxable income other amounts that we have not yet received in cash, such as accruals on a contingent payment debt instrument or deferred loan origination fees that are paid after origination of the loan or are paid in non-cash compensation such as warrants or stock. Because such original issue discount or other amounts accrued will be included in our investment company taxable income for the year of accrual, we may be required to make distributions to our stockholders in order to satisfy the Annual Distribution Requirement and/or the Excise Tax Avoidance Requirement, even though we will have not received any corresponding cash payments. Accordingly, to enable us to make distributions to our stockholders that will be sufficient to enable us to satisfy the Annual Distribution Requirement, we may need to sell some of our assets at times and/or at prices that we would not consider advantageous, we may need to raise additional equity or debt capital or we may need to forego new investment opportunities or otherwise take actions that are disadvantageous to our business (or be unable to take actions that are advantageous to our business). If we are unable to obtain cash from other sources to enable us to satisfy the Annual Distribution Requirement, we may fail to qualify for the U.S. federal income tax benefits allowable to RICs and, thus, become subject to a corporate-level U.S. federal income tax (and any applicable state and local taxes).
Because we expect to use debt financing, we may be prevented by financial covenants contained in our debt financing agreements from making distributions to our stockholders in certain circumstances. In addition, under the Investment Company Act, we are generally not permitted to make distributions to our stockholders while our debt obligations and other senior securities are outstanding unless certain asset coverage tests are met. See RegulationSenior Securities. Limits on our distributions to our stockholders may prevent us from satisfying the Annual Distribution Requirement and, therefore, may jeopardize our status for taxation as a RIC, or subject us to the 4% U.S. federal excise tax.
153
Although we do not presently expect to do so, we may borrow funds and sell assets in order to make distributions to our stockholders that are sufficient for us to satisfy the Annual Distribution Requirement. However, our ability to dispose of assets may be limited by (1) the illiquid nature of our portfolio and/or (2) other requirements relating to our status as a RIC, including the Diversification Tests. If we dispose of assets in order to meet the Annual Distribution Requirement or the Excise Tax Avoidance Requirement, we may make such dispositions at times that, from an investment standpoint, are not advantageous. Alternatively, although we currently do not intend to do so, to satisfy the Annual Distribution Requirement, we may declare a taxable dividend payable in our stock or cash at the election of each stockholder. In such case, for U.S. federal income tax purposes, the amount of the dividend paid in our common stock generally will be equal to the amount of cash that could have been received instead of our stock. See Taxation of Stockholders below for a discussion of the tax consequences to stockholders upon receipt of such dividends.
A RIC is limited in its ability to deduct expenses in excess of its investment company taxable income. If our expenses in a given year exceed our investment company taxable income, we would experience a net operating loss for that year. However, a RIC is not permitted to carry forward net operating losses to subsequent years and such net operating losses do not pass through to its stockholders. In addition, expenses can be used only to offset investment company taxable income, not net capital gain. A RIC may not use any net capital losses (that is, realized capital losses in excess of realized capital gains) to offset the RICs investment company taxable income, but may carry forward such losses, and use them to offset future capital gains, indefinitely. As a result of these limits on the deductibility of expenses and net capital losses, we may for tax purposes have aggregate taxable income for several years that we are required to distribute and that is taxable to our stockholders even if such income is greater than the aggregate net income we actually earned during those years. In addition, if future capital gains are offset by carried forward capital losses, such future capital gains are not subject to any corporate-level U.S. federal income tax, regardless of whether they are distributed to our stockholders. Accordingly, we do not expect to distribute any such offsetting capital gains.
Distributions we make to our stockholders may be made from our cash assets or by liquidation of our investments, if necessary. We may recognize gains or losses from such liquidations. In the event we recognize net capital gains from such transactions, you may receive a larger capital gain distribution than you would have received in the absence of such transactions.
Failure to Qualify as a RIC
If we failed to satisfy the 90% Income Test for any taxable year or the Diversification Tests for any quarter of a taxable year, we might nevertheless continue to qualify as a RIC for such year if certain relief provisions of the Code applied (which might, among other things, require us to pay certain corporate-level U.S. federal taxes or to dispose of certain assets). If we failed to qualify for treatment as a RIC and such relief provisions did not apply to us, we would be subject to U.S. federal income tax on all of our taxable income at regular corporate U.S. federal income tax rates (and we also would be subject to any applicable state and local taxes), regardless of whether we make any distributions to our stockholders. We would not be able to deduct distributions to our stockholders, nor would distributions to our stockholders be required to be made for U.S. federal income tax purposes. Any distributions we make generally would be taxable to our U.S. stockholders as ordinary dividend income and, subject to certain limitations under the Code, would be eligible for the 20% maximum rate applicable to individuals and other non-corporate U.S. stockholders, to the extent of our current or accumulated earnings and profits. Subject to certain limitations under the Code, U.S. stockholders that are corporations for U.S. federal income tax purposes would be eligible for the dividends-received deduction. Distributions in excess of our current and accumulated earnings and profits would be treated first as a return of capital to the extent of the stockholders adjusted tax basis, and any remaining distributions would be treated as a capital gain.
Subject to a limited exception applicable to RICs that qualified as such under Subchapter M of the Code for at least one year prior to disqualification and that requalify as a RIC no later than the second year following the non-qualifying year, we could be subject to U.S. federal income tax on any unrealized net built-in gains in the
154
assets held by us during the period in which we failed to qualify as a RIC that are recognized during the 10-year period after our requalification as a RIC, unless we made a special election to pay corporate-level U.S. federal income tax on such net built-in gains at the time of our requalification as a RIC. We may decide to be taxed as a regular corporation even if we would otherwise qualify as a RIC if we determine that treatment as a corporation for a particular year would be in our best interests.
Our InvestmentsGeneral
Certain of our investment practices may be subject to special and complex U.S. federal income tax provisions that may, among other things, (1) treat dividends that would otherwise constitute qualified dividend income as non-qualified dividend income, (2) disallow, suspend or otherwise limit the allowance of certain losses or deductions, (3) convert lower-taxed long-term capital gain into higher-taxed short-term capital gain or ordinary income, (4) convert an ordinary loss or a deduction into a capital loss (the deductibility of which is more limited), (5) cause us to recognize income or gain without receipt of a corresponding cash payment, (6) adversely affect the time as to when a purchase or sale of stock or securities is deemed to occur, (7) adversely alter the characterization of certain complex financial transactions and (8) produce income that will not be qualifying income for purposes of the 90% Income Test. We intend to monitor our transactions and may make certain tax elections to mitigate the potential adverse effect of these provisions, but there can be no assurance that we will be eligible for any such tax elections or that any adverse effects of these provisions will be mitigated.
Gain or loss recognized by us from warrants or other securities acquired by us, as well as any loss attributable to the lapse of such warrants, generally will be treated as capital gain or loss. Such gain or loss generally will be long-term or short-term depending on how long we held a particular warrant or security.
A portfolio company in which we invest may face financial difficulties that require us to work-out, modify or otherwise restructure our investment in the portfolio company. Any such transaction could, depending upon the specific terms of the transaction, result in unusable capital losses and future non-cash income. Any such transaction could also result in our receiving assets that give rise to non-qualifying income for purposes of the 90% Income Test or otherwise would not count toward satisfying the Diversification Requirements.
Our investment in non-U.S. securities may be subject to non-U.S. income, withholding and other taxes. In that case, our yield on those securities would be decreased. Stockholders generally will not be entitled to claim a U.S. foreign tax credit or deduction with respect to non-U.S. taxes paid by us.
If we purchase shares in a passive foreign investment company (a PFIC), we may be subject to U.S. federal income tax on a portion of any excess distribution received on, or any gain from the disposition of, such shares even if we distribute such income as a taxable dividend to our stockholders. Additional charges in the nature of interest generally will be imposed on us in respect of deferred taxes arising from any such excess distribution or gain. If we invest in a PFIC and elect to treat the PFIC as a qualified electing fund under the Code (a QEF), in lieu of the foregoing requirements, we will be required to include in income each year our proportionate share of the ordinary earnings and net capital gain of the QEF, even if such income is not distributed by the QEF. Alternatively, we may be able to elect to mark-to-market at the end of each taxable year our shares in a PFIC; in this case, we will recognize as ordinary income any increase in the value of such shares, and as ordinary loss any decrease in such value to the extent that any such decrease does not exceed prior increases included in our income. Our ability to make either election will depend on factors beyond our control, and is subject to restrictions which may limit the availability of the benefit of these elections. Under either election, we may be required to recognize in a year income in excess of any distributions we receive from PFICs and any proceeds from dispositions of PFIC stock during that year, and such income will nevertheless be subject to the Annual Distribution Requirement and will be taken into account for purposes of determining whether we satisfy the Excise Tax Avoidance Requirement. See Taxation as a RIC above.
Under Section 988 of the Code, gains or losses attributable to fluctuations in exchange rates between the time we accrue income, expenses or other liabilities denominated in a foreign currency and the time we actually
155
collect such income or pay such expenses or liabilities are generally treated as ordinary income or loss. Similarly, gains or losses on foreign currency forward contracts and the disposition of debt obligations denominated in a foreign currency, to the extent attributable to fluctuations in exchange rates between the acquisition and disposition dates, are also treated as ordinary income or loss.
Some of the income that we might otherwise earn, such as fees for providing managerial assistance, certain fees earned with respect to our investments, income recognized in a work-out or restructuring of a portfolio investment or income recognized from an equity investment in an operating partnership, may not satisfy the 90% Income Test. To manage the risk that such income might disqualify us as a RIC for failure to satisfy the 90% Income Test, one or more subsidiary entities treated as U.S. corporations for U.S. federal income tax purposes may be employed to earn such income and (if applicable) hold the related asset. Such subsidiary entities will be required to pay U.S. federal income tax on their earnings, which ultimately will reduce the yield to our stockholders on such fees and income.
The remainder of this discussion assumes that we qualify as a RIC for each taxable year.
Taxation of U.S. Stockholders
The following discussion only applies to U.S. stockholders. Prospective stockholders that are not U.S. stockholders should refer to Taxation of Non-U.S. Stockholders below.
Distributions
Distributions by us (including distributions where stockholders can elect to receive cash or stock) generally are taxable to U.S. stockholders as ordinary income or capital gains. Distributions of our investment company taxable income will be taxable as ordinary income to U.S. stockholders to the extent of our current or accumulated earnings and profits, whether paid in cash or stock. To the extent that such distributions paid by us to non-corporate U.S. stockholders (including individuals) are attributable to dividends from U.S. corporations and certain qualified foreign corporations, such distributions (Qualifying Dividends) may be eligible for a reduced maximum U.S. federal income tax rate of 20%. In this regard, it is anticipated that our distributions generally will not be attributable to dividends received by us and, therefore, generally will not qualify for the 20% maximum rate applicable to Qualifying Dividends. Distributions of our net capital gain (which is generally our realized net long-term capital gains in excess of realized net short-term capital losses) properly designated by us as capital gain dividends will be taxable to U.S. stockholders as long-term capital gains (currently taxable at a maximum U.S. federal income tax rate of 20% in the case of non-corporate U.S. stockholders (including individuals)), regardless of the U.S. stockholders holding period for his, her or its common stock and regardless of whether paid in cash or stock. Distributions in excess of our earnings and profits first will reduce a U.S. stockholders adjusted tax basis in such stockholders common stock and, after the adjusted tax basis is reduced to zero, will constitute capital gains to such U.S. stockholder.
We may decide to retain some or all of our net capital gain for reinvestment, but designate the retained net capital gain as a deemed distribution. In that case, among other consequences, (i) we will pay tax on the retained amount, (ii) each U.S. stockholder will be required to include his, her or its share of the deemed distribution in income as if it had been actually distributed to the U.S. stockholder and (iii) the U.S. stockholder will be entitled to claim a credit equal to his, her or its allocable share of the tax paid thereon by us. Because we expect to pay tax on any retained net capital gains at the regular corporate U.S. federal income tax rate, and because that rate is in excess of the maximum U.S. federal income tax rate currently payable by individuals (and other non-corporate U.S. stockholders) on long-term capital gains, the amount of tax that individuals (and other non-corporate U.S. stockholders) will be treated as having paid will exceed the tax they owe on the capital gain distribution. Such excess generally may be claimed as a credit against the U.S. stockholders other federal income tax obligations or may be refunded to the extent it exceeds the U.S. stockholders U.S. federal income tax liability. The amount of the deemed distribution net of such tax will be added to the U.S. stockholders tax basis
156
for his, her or its common stock. In order to utilize the deemed distribution approach, we must provide written notice to our stockholders prior to the expiration of 60 days after the close of the relevant taxable year. We cannot treat any of our investment company taxable income as a deemed distribution.
For purposes of determining (1) whether the Annual Distribution Requirement is satisfied for any year and (2) the amount of capital gain dividends paid for that year, under certain circumstances, we may elect to treat a dividend that is paid during the following taxable year as if it had been paid during the taxable year in question. If we make such an election, U.S. stockholders will still be treated as receiving the dividend in the taxable year in which the distribution is made. However, any dividend declared by us in October, November or December of any calendar year, payable to stockholders of record on a specified date in such a month and actually paid during January of the following year, will be treated as if it had been received by our U.S. stockholders on December 31 of the year in which the dividend was declared.
Although we currently do not intend to do so, we have the ability to declare a large portion of a dividend in shares of our stock. As long as a portion of such dividend is paid in cash and certain requirements are met, the entire distribution will be treated as a dividend for U.S. federal income tax purposes. As a result, our U.S. stockholders generally will be taxed on 100% of the fair market value of the dividend on the date the dividend is received in the same manner as a cash dividend, even though most of the dividend was paid in shares of our stock. This may result in our U.S. stockholders having to pay tax on such dividends, even if no cash is received.
We expect to be treated as a publicly offered regulated investment company (within the meaning of Section 67 of the Code) as a result of either (i) shares of our common stock being held by at least 500 persons at all times during a taxable year or (ii) shares of our common stock being treated as regularly traded on an established securities market. However, we cannot assure you that we will be treated as a publicly offered regulated investment company for all years. If we are not treated as a publicly offered regulated investment company for any calendar year, for purposes of computing the taxable income of U.S. stockholders that are individuals, trusts or estates, (i) our earnings will be computed without taking into account such U.S. stockholders allocable shares of the management and incentive fees paid to our investment adviser and certain of our other expenses, (ii) each such U.S. stockholder will be treated as having received or accrued a dividend from us in the amount of such U.S. stockholders allocable share of these fees and expenses for the calendar year, (iii) each such U.S. stockholder will be treated as having paid or incurred such U.S. stockholders allocable share of these fees and expenses for the calendar year and (iv) each such U.S. stockholders allocable share of these fees and expenses will be treated as miscellaneous itemized deductions by such U.S. stockholder. Miscellaneous itemized deductions generally are deductible by a U.S. stockholder that is an individual, trust or estate only to the extent that the aggregate of such U.S. stockholders miscellaneous itemized deductions exceeds 2% of such U.S. stockholders adjusted gross income for U.S. federal income tax purposes, are not deductible for purposes of the alternative minimum tax and are subject to the overall limitation on itemized deductions under Section 67 of the Code.
If an investor purchases shares of our common stock shortly before the record date of a distribution, the price of the shares will include the value of the distribution, and the investor will be subject to tax on the distribution, even though economically it may represent a return of his, her or its investment. We have the potential to build up large amounts of unrealized gain which, when realized and distributed, could have the effect of a taxable return of capital to U.S. stockholders.
Our U.S. stockholders will receive, as promptly as possible after the end of each calendar year, a notice reporting the amounts includible in such U.S. stockholders taxable income for such year as ordinary income and as long-term capital gain. In addition, the U.S. federal tax status of each years distributions from us generally will be reported to the IRS (including the amount of any dividends that are Qualifying Dividends eligible for the 20% maximum rate). Dividends paid by us generally will not be eligible for the dividends-received deduction or the preferential tax rate applicable to Qualifying Dividends because our income generally will not consist of dividends. Distributions may also be subject to additional state, local and non-U.S. taxes depending on a U.S. stockholders particular situation.
157
Concurrent with this offering, we will adopt a dividend reinvestment plan under which stockholders who do not opt out will receive distributions in the form of additional shares instead of in cash. If a U.S. stockholder reinvests distributions in additional shares, such U.S. stockholder will generally be subject to the same U.S. federal, state and local tax consequences as if it had received a distribution in cash and, for this purpose, a U.S. stockholder receiving a distribution in the form of additional shares will generally be treated as receiving a distribution equal to the fair market value of the shares received through the plan. Any such additional shares will have a tax basis equal to the amount treated as a distribution for U.S. federal income tax purposes. The additional shares will have a new holding period commencing on the day following the day on which the shares are credited to the U.S. stockholders account.
Alternative Minimum Tax
As a RIC, we will be subject to alternative minimum tax, also referred to as AMT, but any items that are treated differently for AMT purposes must be apportioned between us and our U.S. stockholders, and this may affect the U.S. stockholders AMT liabilities. Although Treasury regulations explaining the precise method of apportionment have not yet been issued, such items will generally be apportioned in the same proportion that dividends paid to each U.S. stockholder bear to our taxable income (determined without regard to the dividends paid deduction), unless a different method for a particular item is warranted under the circumstances.
Dispositions
A U.S. stockholder generally will recognize taxable gain or loss if the U.S. stockholder sells or otherwise disposes of his, her or its shares of our common stock. The amount of gain or loss will be measured by the difference between such stockholders adjusted tax basis in the common stock sold and the amount of the proceeds received in exchange. Any gain or loss arising from such sale or disposition generally will be treated as long-term capital gain or loss if the U.S. stockholder has held his, her or its shares for more than one year; otherwise, any such gain or loss will be classified as short-term capital gain or loss. However, any capital loss arising from the sale or disposition of shares of our common stock held for six months or less will be treated as long-term capital loss to the extent of the amount of capital gain dividends received, or undistributed capital gain deemed received, with respect to such shares. In addition, all or a portion of any loss recognized upon a disposition of shares of our common stock may be disallowed if other shares of our common stock are purchased (whether through reinvestment of distributions or otherwise) within 30 days before or after the disposition.
In general, non-corporate U.S. stockholders (including individuals) currently are subject to a maximum U.S. federal income tax rate of 20% on their net capital gain (i.e., the excess of realized net long-term capital gains over realized net short-term capital losses), including any long-term capital gain derived from an investment in shares of our common stock. Such rate is lower than the maximum rate on ordinary income currently payable by individuals. Corporate U.S. stockholders currently are subject to U.S. federal income tax on net capital gain at the maximum 35% rate also applied to ordinary income. Non-corporate U.S. stockholders (including individuals) with net capital losses for a year (i.e., capital losses in excess of capital gains) generally may deduct up to $3,000 of such losses against their ordinary income each year; any net capital losses of a non-corporate U.S. stockholder (including an individual) in excess of $3,000 generally may be carried forward and used in subsequent years as provided in the Code. Corporate U.S. stockholders generally may not deduct any net capital losses for a year, but may carry back such losses for three years or carry forward such losses for five years.
Medicare Tax on Net Investment Income
A U.S. stockholder that is an individual or estate, or a trust that does not fall into a special class of trusts that is exempt from such tax, will generally be subject to a 3.8% tax on the lesser of (i) the U.S. stockholders net investment income for a taxable year and (ii) the excess of the U.S. stockholders modified adjusted gross income for such taxable year over $200,000 ($250,000 in the case of joint filers). For these purposes, net
158
investment income will generally include taxable distributions and deemed distributions paid with respect to stock, including our common stock, and net gain attributable to the disposition of stock, including our common stock (in each case, unless such stock is held in connection with certain trades or businesses), but will be reduced by any deductions properly allocable to such distributions or net gain.
Tax Shelter Reporting Regulations
Under applicable Treasury regulations, if a U.S. stockholder recognizes a loss with respect to our common stock of $2 million or more for a non-corporate U.S. stockholder or $10 million or more for a corporate U.S. stockholder in any single taxable year (or a greater loss over a combination of years), the U.S. stockholder must file with the IRS a disclosure statement on Form 8886. Direct U.S. stockholders of portfolio securities are in many cases excepted from this reporting requirement, but, under current guidance, U.S. stockholders of a RIC are not excepted. Future guidance may extend the current exception from this reporting requirement to U.S. stockholders of most or all RICs. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayers treatment of the loss is proper. Significant monetary penalties apply to a failure to comply with this reporting requirement. States may also have a similar reporting requirement. U.S. stockholders should consult their own tax advisers to determine the applicability of these Treasury regulations in light of their individual circumstances.
Backup Withholding
The relevant withholding agent may be required to withhold U.S. federal income tax (backup withholding), at a current rate of 28%, from any taxable distribution to a U.S. stockholder (other than a corporation, a financial institution or a stockholder that otherwise qualifies for an exemption) (1) that fails to provide a correct taxpayer identification number or a certificate that such stockholder is exempt from backup withholding or (2) with respect to whom the IRS notifies the withholding agent that such stockholder has failed to properly report certain interest and dividend income to the IRS and to respond to notices to that effect. An individuals taxpayer identification number is his or her social security number. Backup withholding is not an additional tax, and any amount withheld under the backup withholding rules is allowed as a credit against the U.S. stockholders U.S. federal income tax liability, provided that proper information is timely provided to the IRS.
Withholding and Information Reporting on Foreign Financial Accounts
Under the Code and recently issued Treasury regulations, the applicable withholding agent generally will be required to withhold 30% of any dividends on our common stock and, after December 31, 2016, 30% of the gross proceeds from a sale of our common stock paid to (i) a non-U.S. financial institution (whether such financial institution is the beneficial owner or an intermediary) unless such non-U.S. financial institution agrees to verify, report and disclose its U.S. accountholders and meets certain other specified requirements or (ii) a non-financial non-U.S. entity (whether such entity is the beneficial owner or an intermediary) unless such entity certifies that it does not have any substantial U.S. owners or provides the name, address and taxpayer identification number of each substantial U.S. owner and such entity meets certain other specified requirements. We will not pay any additional amounts in respect of any amounts withheld.
Taxation of Non-U.S. Stockholders
The following discussion applies only to Non-U.S. stockholders. Whether an investment in shares of our common stock is appropriate for a Non-U.S. stockholder will depend upon that stockholders particular circumstances. An investment in shares of our common stock by a Non-U.S. stockholder may have adverse tax consequences to such Non-U.S. stockholder. Non-U.S. stockholders should consult their own tax advisers before investing in our common stock.
159
Distributions; Dispositions
Subject to the discussion below, distributions of our investment company taxable income to a Non-U.S. stockholder that are not effectively connected with the Non-U.S. stockholders conduct of a trade or business within the United States will be subject to withholding of U.S. federal income tax at a 30% rate (or lower rate provided by an applicable income tax treaty) to the extent of our current or accumulated earnings and profits.
For our taxable years beginning before January 1, 2015, certain properly designated dividends were generally exempt from withholding of U.S. federal income tax where they were paid in respect of our (i) qualified net interest income (generally, our U.S.-source interest income, other than certain contingent interest and interest from obligations of a corporation or partnership in which we or the Non-U.S. stockholder are at least a 10% shareholder, reduced by expenses that are allocable to such income) or (ii) qualified short-term capital gains (generally, the excess of our net short-term capital gain over our long-term capital loss for such taxable year), and certain other requirements were satisfied. This provision expired on December 31, 2014 and, as a result, this exemption from withholding of U.S. federal income tax does not apply for any taxable year beginning on or after January 1, 2015. No assurance can be given that this provision will be reinstated and, if this provision is reinstated, the form or effective date of any such reinstatement.
In addition, even if this provision is reinstated, no assurance can be given as to whether any of our distributions will be eligible for this exemption from withholding of U.S. federal income tax or, if eligible, will be designated as such by us. In particular, under the provision that was in effect through December 31, 2014, the exemption did not apply to our distributions paid in respect of our non-U.S. source interest income or our dividend income (or any other type of income other than our non-contingent U.S.-source interest income received from unrelated obligors and our qualified short-term capital gains). In the case of our common stock held through an intermediary, the intermediary may have withheld U.S. federal income tax even if we designated the payment as qualified net interest income or qualified short-term capital gain.
Distributions of our investment company taxable income to a Non-U.S. stockholder that are effectively connected with the Non-U.S. stockholders conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, are attributable to a U.S. permanent establishment of the Non-U.S. stockholder) generally will not be subject to withholding of U.S. federal income tax if the Non-U.S. stockholder complies with applicable certification and disclosure requirements, although the distributions (to the extent of our current or accumulated earnings and profits) will be subject to U.S. federal income tax on a net basis at the rates and in the manner applicable to U.S. stockholders generally.
Actual or deemed distributions of our net capital gains to a Non-U.S. stockholder, and gains realized by a Non-U.S. stockholder upon the sale of our common stock, will not be subject to U.S. federal income tax or any withholding of such tax, unless (a) the distributions or gains, as the case may be, are effectively connected with the Non-U.S. stockholders conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, are attributable to a U.S. permanent establishment of the Non-U.S. stockholder), in which case the distributions or gains will be subject to U.S. federal income tax on a net basis at the rates and in the manner applicable to U.S. stockholders generally, or (b) the Non-U.S. stockholder is an individual who has been present in the United States for 183 days or more during the taxable year and satisfies certain other conditions, in which case, except as otherwise provided by an applicable income tax treaty, the distributions or gains, which may be offset by certain U.S.-source capital losses, generally will be subject to a flat 30% U.S. federal income tax, even though the Non-U.S. stockholder is not considered a resident alien under the Code.
If we distribute our net capital gains in the form of deemed rather than actual distributions, a Non-U.S. stockholder will be entitled to a U.S. federal income tax credit or tax refund equal to the stockholders allocable share of the tax we pay on the capital gains deemed to have been distributed. In order to obtain the refund, the Non-U.S. stockholder must obtain a U.S. taxpayer identification number and file a U.S. federal income tax return, even if the Non-U.S. stockholder would not otherwise be required to obtain a U.S. taxpayer identification number or file a U.S. federal income tax return.
160
For a corporate Non-U.S. stockholder, both distributions (actual or deemed) and gains realized upon the sale of our common stock that are effectively connected with the Non-U.S. stockholders conduct of a trade or business within the United States may, under certain circumstances, be subject to an additional branch profits tax at a 30% rate (or at a lower rate if provided for by an applicable income tax treaty).
Although we currently do not intend to do so, we have the ability to declare a large portion of a dividend in shares of our stock. As long as a portion of such dividend is paid in cash and certain requirements are met, the entire distribution will be treated as a dividend for U.S. federal income tax purposes. As a result, our non-U.S. stockholders will be taxed on 100% of the fair market value of the dividend on the date the dividend is received in the same manner as a cash dividend (including the application of the withholding tax rules discussed above), even though most of the dividend was paid in shares of our stock. In such a circumstance, all or substantially all of the cash that would otherwise be distributed to a Non-U.S. stockholder may be withheld or shares of our stock may be withheld and sold to fund the applicable withholding.
Concurrent with this offering, we will adopt a dividend reinvestment plan under which stockholders who do not opt out will receive distributions in the form of additional shares instead of in cash. If a Non-U.S. stockholder reinvests distributions in additional shares, such Non-U.S. stockholder will generally be subject to the same U.S. federal, state and local tax consequences as if it had received a distribution in cash and, for this purpose, a Non-U.S. stockholder receiving a distribution in the form of additional shares will generally be treated as receiving a distribution equal to the fair market value of the shares received through the plan. If the distribution is a distribution of our investment company taxable income and is not effectively connected with a U.S. trade or business of the Non-U.S. stockholder (or, if required by an applicable income tax treaty, is not attributable to a U.S. permanent establishment of the Non-U.S. stockholder), the amount distributed (to the extent of our current or accumulated earnings and profits) will be subject to withholding of U.S. federal income tax at a 30% rate (or lower rate provided by an applicable income tax treaty) and only the net after-tax amount will be reinvested in our common stock. If the distribution is effectively connected with a U.S. trade or business of the Non-U.S. stockholder (and, if required by an applicable income tax treaty, is attributable to a U.S. permanent establishment of the Non-U.S. stockholder), the full amount of the distribution generally will be reinvested in our common stock and will nevertheless be subject to U.S. federal income tax at the ordinary income rates applicable to U.S. persons. The Non-U.S. stockholder will have an adjusted tax basis in the additional shares of our common stock purchased through the dividend reinvestment plan equal to the total dollar amount treated as a distribution for U.S. federal income tax purposes. The additional shares will have a new holding period commencing on the day following the day on which the shares are credited to the Non-U.S. stockholders account.
Backup Withholding
A Non-U.S. stockholder who is a non-resident alien individual, and who is otherwise subject to withholding of U.S. federal income tax, will be subject to information reporting and may be subject to backup withholding of U.S. federal income tax on taxable distributions unless the Non-U.S. stockholder provides the applicable withholding agent with an IRS Form W-8BEN or W-8BEN-E or an acceptable substitute form or otherwise establishes an exemption from backup withholding.
Withholding and Information Reporting on Foreign Financial Accounts
Under the Code and recently issued Treasury regulations, the applicable withholding agent generally will be required to withhold 30% of the dividends on our common stock and, after December 31, 2016, 30% of the gross proceeds from a sale of our common stock paid to (i) a non-U.S. financial institution (whether such financial institution is the beneficial owner or an intermediary) unless such non-U.S. financial institution agrees to verify, report and disclose its U.S. accountholders and meets certain other specified requirements or (ii) a non-financial non-U.S. entity (whether such entity is the beneficial owner or an intermediary) unless such entity certifies that it does not have any substantial U.S. owners or provides the name, address and taxpayer
161
identification number of each substantial U.S. owner and such entity meets certain other specified requirements. If payment of this withholding tax is made, Non-U.S. stockholders that are otherwise eligible for an exemption from, or a reduction in, withholding of U.S. federal income taxes with respect to such dividends or proceeds will be required to seek a credit or refund from the IRS to obtain the benefit of such exemption or reduction. We will not pay any additional amounts in respect of any amounts withheld.
Non-U.S. stockholders should consult their own tax advisers with respect to the U.S. federal income and withholding tax consequences, and state, local and non-U.S. tax consequences, of an investment in shares of our common stock.
162
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
Our assets are held by State Street Bank and Trust Company pursuant to a custody agreement. The principal business address of State Street Bank and Trust Company is One Lincoln Street, Boston, Massachusetts 02111. Additionally, State Street Bank and Trust Company acts as our administrator. See ManagementOur Administrator.
Goldman, Sachs & Co. currently serves as our transfer agent and dividend disbursing agent. Goldman, Sachs & Co. has retained State Street Bank and Trust Company as sub-transfer agent to assist in certain related functions. Fees of any sub-transfer agent will be paid out of the transfer agent and dividend disbursing agent fee noted above. The principal business address of Goldman, Sachs & Co. is 200 West Street, New York, New York 10282. Upon completion of our IPO, State Street Bank and Trust Company will serve as our transfer agent and dividend disbursing agent. The principal business address of State Street Bank and Trust Company is One Lincoln Street, Boston, Massachusetts 02111.
163
PORTFOLIO TRANSACTIONS AND BROKERAGE
Since we will generally acquire and dispose of investments in privately negotiated transactions, we will infrequently use brokers in the normal course of our business. Subject to policies established by our Board of Directors, our investment adviser will be primarily responsible for the execution of the publicly traded securities portion of our portfolio transactions and the allocation of brokerage commissions. Our investment adviser does not expect to execute transactions through any particular broker or dealer, but will seek to obtain the best net results for us, taking into account such factors as price (including the applicable brokerage commission or dealer spread), size of order, difficulty of execution and operational facilities of the firm and the firms risk and skill in positioning blocks of securities. While our investment adviser generally will seek reasonably competitive trade execution costs, we will not necessarily pay the lowest spread or commission available. Subject to applicable legal requirements, our investment adviser may select a broker based partly upon brokerage or research services provided to us, our investment adviser and any other Accounts. Such brokerage or research services may include research reports on companies, industries and securities; economic and financial data; financial publications; computer data bases; quotation equipment and services; and research-oriented computer hardware, software and other services. In return for such services, we may pay a higher commission than other brokers would charge if our investment adviser determines in good faith that such commission is reasonable in relation to the services provided.
The Investment Management Agreement permits our investment adviser, subject to review by the Board of Directors from time to time, to purchase and sell portfolio securities to and from brokers who provide our investment adviser with access to supplemental investment and market research and security and economic analyses. Such brokers may execute brokerage transactions at a higher cost to us than may result when allocating brokerage to other brokers on the basis of seeking the most favorable price and efficient execution. Brokerage and research services furnished by firms through which we effect our securities transactions may be used by our investment adviser in servicing other clients and not all of these services may be used by our investment adviser in connection with the client generating the brokerage credits. The fees received under the Investment Management Agreement are not reduced by reason of an investment adviser receiving such brokerage and research services.
Our portfolio transactions are generally effected at a net price without a brokers commission ( i.e ., a dealer is dealing with us as principal and receives compensation equal to the spread between the dealers cost for a given security and the resale price of such security). In certain foreign countries, debt securities are traded on exchanges at fixed commission rates. The Investment Management Agreement provides that our investment adviser, on occasions when it deems the purchase or sale of a security to be in the best interests of us as well as other customers, to aggregate, to the extent permitted by applicable laws and regulations, the securities to be sold or purchased for us with those to be sold or purchased for other customers in order to obtain the best net price and the most favorable execution. In such event, allocation of the securities so purchased or sold, will be made by our investment adviser in the manner it considers to be equitable. In some instances, this procedure may adversely affect the size and price of the position obtainable for us.
Subject to the above considerations, our investment adviser may use Group Inc. or another affiliate as our broker. In order for Group Inc. or another affiliate, acting as agent, to effect securities or futures transactions for us, the commissions, fees or other remuneration received by Group Inc. or another affiliate must be reasonable and fair compared to the commissions, fees or other remuneration received by other brokers in connection with comparable transactions involving similar services, securities or futures contracts. Furthermore, our Board of Directors, including a majority of our Independent Directors, has adopted procedures which are reasonably designed to provide that any commissions, fees or other remuneration paid to Goldman Sachs are consistent with the foregoing standard. Brokerage transactions with Goldman Sachs are also subject to such fiduciary standards as may be imposed upon Goldman Sachs by applicable law. The amount of brokerage commissions paid by us may vary substantially from year to year because of differences in portfolio turnover rates and other factors. See Potential Conflicts of InterestBrokerage Transactions.
164
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Goldman Sachs & Co. and Morgan Stanley & Co. LLC are acting as representatives of each of the underwriters named below for this offering. Subject to the terms and conditions set forth in a underwriting agreement among us, our investment adviser and the underwriters, we have agreed to sell to the underwriters, and each of the underwriters has agreed, severally and not jointly, to purchase from us, the number of shares of common stock set forth opposite its name below.
Underwriter
|
Number of
Shares |
|
Merrill Lynch, Pierce, Fenner & Smith Incorporated |
||
Goldman, Sachs & Co. |
||
Morgan Stanley & Co. LLC |
||
Citigroup Global Markets Inc. |
||
Credit Suisse Securities (USA) LLC |
||
Wells Fargo Securities, LLC |
||
|
||
Total |
||
|
Subject to the terms and conditions set forth in the underwriting agreement, the underwriters have agreed, severally and not jointly, to purchase all of the shares sold under the underwriting agreement if any of these shares are purchased. If an underwriter defaults, the underwriting agreement provides that the purchase commitments of the non-defaulting underwriters may be increased or the underwriting agreement may be terminated.
We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make in respect of those liabilities.
The underwriters are offering the shares, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel, including the validity of the shares, and other conditions contained in the underwriting agreement, such as the receipt by the underwriters of officers certificates and legal opinions. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.
Commissions and Discounts
The representatives have advised us that the underwriters propose initially to offer the underwritten shares to the public at the public offering price set forth on the cover of this prospectus and to dealers at that price less a concession not in excess of $ per share. The underwriters may allow, and the dealers may reallow, a discount not in excess of $ per share to other dealers. After the initial offering, the public offering price, concession or any other term of the offering may be changed.
The following table shows the public offering price, underwriting discount and proceeds before expenses to us. The information assumes either no exercise or full exercise by the underwriters of their over-allotment option to purchase additional shares.
Per Share |
Without Option |
With Option |
||||||||||
Public offering price |
$ | $ | $ | |||||||||
Underwriting discount and commissions |
$ | $ | $ | |||||||||
Proceeds, before expenses, to Goldman Sachs BDC, Inc. |
$ | $ | $ |
165
The expenses of the offering, not including the underwriting discount, but including up to $ in reimbursement of certain underwriters counsel fees in connection with the review of the terms of this offering by the Financial Industry Regulatory Authority, Inc., are estimated at approximately $ and are payable by us.
Over-allotment Option
We have granted an over-allotment option to the underwriters, exercisable for 30 days from the date of this prospectus, to purchase up to additional shares at the public offering price, less the underwriting discount. solely to cover over-allotments, if any. If the underwriters exercise this option, each will be obligated, subject to conditions contained in the underwriting agreement, to purchase a number of additional shares proportionate to that underwriters initial amount reflected in the above table.
No Sales of Similar Securities
We have agreed not to sell or transfer any common stock or securities convertible into, exchangeable for, exercisable for or repayable with common stock, for 180 days after the date of this prospectus without first obtaining the written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated and Morgan Stanley & Co. LLC. Our executive officers and directors and Group Inc. have agreed not to sell or transfer any common stock or securities convertible into, exchangeable for, exercisable for or repayable with common stock, for 365 days after the date of this prospectus without first obtaining the written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated and Morgan Stanley & Co. LLC. Specifically, we and these other persons have agreed, with certain limited exceptions, not to directly or indirectly:
| offer, pledge, sell or contract to sell any common stock; |
| sell any option or contract to purchase any common stock; |
| purchase any option or contract to sell any common stock; |
| grant any option, right or warrant for the sale of any common stock; |
| otherwise dispose of or transfer any common stock; |
| request or demand that we file a registration statement related to the common stock; or |
| enter into any swap or other agreement that transfers, in whole or in part, the economic consequence of ownership of any common stock, whether any such swap or transaction is to be settled by delivery of shares or other securities, in cash or otherwise. |
The lock-ups will apply to all shares of our common stock acquired prior to the date of the IPO, but will not apply to any shares acquired in open market transactions or acquired from us under the dividend reinvestment plan after the completion of the IPO, subject to certain exceptions.
Stockholders that purchased our shares of common stock prior to our IPO are not permitted to transfer their shares without our prior written consent (which we have agreed with the underwriters not to grant without their consent) for 180 days after the consummation of this offering.
Listing
Our common stock has been approved for listing on the NYSE under the symbol GSBD.
166
Determination of the Initial Public Offering Price
Before this offering, there has been no public market for our common stock. The initial public offering price will be determined through negotiations between us and the representatives of the underwriters. In addition to prevailing market conditions, the factors to be considered in determining the initial public offering price are:
| the information included in this prospectus and otherwise available to the representatives, |
| the valuation multiples of publicly traded companies that the representatives believe to be comparable to us, |
| our financial information, |
| the history of, and the prospects for, our company and the industry in which we compete, |
| an assessment of our management, its past and present operations, and the prospects for, and timing of, our future revenues, |
| the present state of our development, |
| the general condition of the securities markets at the time of the offering, |
| the above factors in relation to market values and various valuation measures of other companies engaged in activities similar to ours, and |
| other factors deemed relevant by us and the representatives. |
An active trading market for the shares may not develop. It is also possible that after the offering the shares will not trade in the public market at or above the initial public offering price.
The underwriters do not expect to sell more than 5% of the shares in the aggregate to accounts over which they exercise discretionary authority.
Price Stabilization, Short Positions and Penalty Bids
In order to facilitate the offering of our common stock, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of our common stock. Specifically, the underwriters may sell more shares than they are obligated to purchase under the underwriting agreement, creating a short position in our common stock for their own account. A short sale is covered if the short position is no greater than the number of shares available for purchase by the underwriters under the over-allotment option. The underwriters can close out a covered short sale by exercising the over-allotment option or purchasing shares in the open market. In determining the source of shares to close out a covered short sale, the underwriters will consider, among other things, the open market price of shares compared to the price available under the over-allotment option. The underwriters may also sell shares in excess of the over-allotment option, creating a naked short position. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of our common stock in the open market after pricing that could adversely affect investors who purchase in the offering. In addition, in order to cover any over-allotments or to stabilize the price of our common stock, the underwriters may bid for, and purchase, shares of our common stock in the open market. Finally, the underwriting syndicate may also reclaim selling concessions allowed to an underwriter or a dealer for distributing our common stock in the offering, if the syndicate repurchases previously distributed shares of our common stock to cover syndicate short positions or to stabilize the price of the common stock. Any of these activities may stabilize or maintain the market price of our common stock above independent market levels. The underwriters are not required to engage in these activities, and may end any of these activities at any time.
167
Electronic Offer, Sale and Distribution of Shares
The underwriters may make prospectuses available in electronic (PDF) format. A prospectus in electronic (PDF) format may be made available on a web site maintained by the underwriters, and the underwriters may distribute such prospectuses electronically. The underwriters may allocate a limited number of shares for sale to their online brokerage customers.
Other Relationships
Some of the underwriters and their affiliates have engaged in, and may in the future engage in, investment banking and other commercial dealings in the ordinary course of business with us, our affiliates or our portfolio companies. They have received, or may in the future receive, customary fees and commissions for these transactions.
In addition, in the ordinary course of their business activities, the underwriters and their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers. Such investments and securities activities may involve securities and/or instruments of ours or our affiliates. The underwriters and their affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.
Merrill Lynch, Pierce, Fenner & Smith Incorporated is a joint lead arranger under our Revolving Credit Facility and an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated is the syndication agent under our Revolving Credit Facility. Additionally, Goldman, Sachs & Co. served as our placement agent in our prior private placements of shares of our common stock and will serve as our transfer agent and dividend disbursing agent until the completion of this offering.
Proceeds of this offering will be used to repay outstanding indebtedness under the Revolving Credit Facility. Affiliates of Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. LLC, Citigroup Global Markets Inc. and Credit Suisse Securities (USA) LLC are lenders under the Revolving Credit Facility. As a result of this application of proceeds, affiliates of Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. LLC, Citigroup Global Markets Inc. and Credit Suisse Securities (USA) LLC will benefit from the repayment of debt under the Revolving Credit Facility and may receive more than 5% of the proceeds of this offering, subject to re-borrowing by us at any time to make long-term investments. Furthermore, Group Inc. controls Goldman, Sachs & Co., a participating underwriter in this offering, and Group Inc. and other affiliates of Goldman, Sachs & Co. will be deemed to receive in excess of 5% of the proceeds of this offering.
We are under common control with Goldman, Sachs & Co., an underwriter of this offering.
Goldman, Sachs & Co. has adopted the 10b5-1 Plan, under which Goldman, Sachs & Co. will buy in the open market up to the lesser of $25.00 million in the aggregate of our common stock or such amount that would not bring Goldman, Sachs & Co.s collective ownership (with Group Inc.) over 19.9% of our outstanding common stock. Any such purchases under the 10b5-1 Plan will occur during the period beginning after four full calendar weeks after the closing of this offering and ending on the earlier of the date on which all the capital committed to the plan has been exhausted or one year after the closing of this offering, subject to certain conditions. See Related Party Transactions and Certain Relationships.
Notice to Prospective Investors in the Dubai International Financial Centre
This prospectus relates to an Exempt Offer in accordance with the Offered Securities Rules of the Dubai Financial Services Authority (DFSA). This prospectus is intended for distribution only to persons of a type specified in the Offered Securities Rules of the DFSA. It must not be delivered to, or relied on by, any other
168
person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this prospectus nor taken steps to verify the information set forth herein and has no responsibility for the prospectus. The shares to which this prospectus relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the shares offered should conduct their own due diligence on the shares. If you do not understand the contents of this prospectus you should consult an authorized financial advisor.
Notice to Prospective Investors in Australia
No placement document, prospectus, product disclosure statement or other disclosure document has been lodged with the Australian Securities and Investments Commission (ASIC), in relation to the offering. This prospectus does not constitute a prospectus, product disclosure statement or other disclosure document under the Corporations Act 2001 (the Corporations Act), and does not purport to include the information required for a prospectus, product disclosure statement or other disclosure document under the Corporations Act.
Any offer in Australia of the shares may only be made to persons (the Exempt Investors) who are sophisticated investors (within the meaning of section 708(8) of the Corporations Act), professional investors (within the meaning of section 708(11) of the Corporations Act), or otherwise pursuant to one or more exemptions contained in section 708 of the Corporations Act so that it is lawful to offer the shares without disclosure to investors under Chapter 6D of the Corporations Act.
The shares applied for by Exempt Investors in Australia must not be offered for sale in Australia in the period of twelve months after the date of allotment under the offering, except in circumstances where disclosure to investors under Chapter 6D of the Corporations Act would not be required pursuant to an exemption under section 708 of the Corporations Act or otherwise or where the offer is pursuant to a disclosure document which complies with Chapter 6D of the Corporations Act. Any person acquiring shares must observe such Australian on-sale restrictions.
This prospectus contains general information only and does not take account of the investment objectives, financial situation or particular needs of any particular person. It does not contain any securities recommendations or financial product advice. Before making an investment decision, investors need to consider whether the information in this prospectus is appropriate to their needs, objectives and circumstances, and, if necessary, seek expert advice on those matters.
Notice to Prospective Investors in Hong Kong
The securities have not been offered or sold and will not be offered or sold in Hong Kong, by means of any document, other than (a) to professional investors as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance; or (b) in other circumstances which do not result in the document being a prospectus as defined in the Companies Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance. No advertisement, invitation or document relating to the securities has been or may be issued or has been or may be in the possession of any person for the purposes of issue, whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to securities which are or are intended to be disposed of only to persons outside Hong Kong or only to professional investors as defined in the Securities and Futures Ordinance and any rules made under that Ordinance.
Principal Business Address
The principal business address of Merrill Lynch, Pierce, Fenner & Smith Incorporated is One Bryant Park, New York, New York 10026. The principal business address of Goldman, Sachs & Co. is 200 West Street, New York, New York 10282. The principal business address of Morgan Stanley & Co. LLC is 1585 Broadway, New York, New York 10036.
169
Certain legal matters regarding the securities offered by this prospectus will be passed upon for Goldman Sachs BDC, Inc. by Fried, Frank, Harris, Shriver & Jacobson LLP. In addition, Willkie Farr & Gallagher LLP has advised the Company in connection with certain matters under the Investment Company Act. Dechert LLP serves as counsel to the Company and to the Independent Directors. Certain legal matters in connection with the offering will be passed upon for the underwriters by Proskauer Rose LLP.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The financial statements as of December 31, 2014 and 2013 and for the two years ended December 31, 2014 and for the period from November 15, 2012 (commencement of operations) through December 31, 2012, and the senior securities schedule under the heading Senior Securities, included herein, have so been included in reliance on the report of PricewaterhouseCoopers LLP, 125 High Street, Boston, MA 02110, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.
We have filed with the SEC a registration statement on Form N-2, together with all amendments and related exhibits, under the Securities Act, with respect to our shares of common stock offered by this prospectus. The registration statement contains additional information about us and our shares of common stock being offered by this prospectus.
Upon completion of this offering, we will file with or submit to the SEC annual, quarterly and current reports, proxy statements and other information meeting the informational requirements of the Exchange Act. You may inspect and copy these reports, proxy statements and other information, as well as the registration statement and related exhibits and schedules, at the Public Reference Room of the SEC at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at (202) 551-8090 or (800) SEC-0330. We maintain a website at www.GoldmanSachsBDC.com and intend to make all of our annual, quarterly and current reports, proxy statements and other publicly filed information available, free of charge, on or through our website. You may obtain such information by contacting us, in writing at: , or by telephone at . The SEC maintains an Internet site that contains reports, proxy and information statements and other information filed electronically by us with the SEC which are available on the SECs Internet site at http://www.sec.gov. Copies of these reports, proxy and information statements and other information may be obtained, after paying a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov, or by writing the SECs Public Reference Section, Washington, D.C. 20549-0102.
170
Audited Financial Statements
F-2 | ||||
Statements of Assets and Liabilities as of December 31, 2014 and December 31, 2013 |
F-3 | |||
F-4 | ||||
F-5 | ||||
F-6 | ||||
Schedules of Investments as of December 31, 2014 and December 31, 2013 |
F-7 | |||
F-12 |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Goldman Sachs BDC, Inc.:
In our opinion, the accompanying statements of assets and liabilities, including the schedules of investments, and the related statements of operations, of changes in net assets and of cash flows present fairly, in all material respects, the financial position of Goldman Sachs BDC, Inc. (the Company) at December 31, 2014 and 2013, and the results of its operations, the changes in its net assets and its cash flows for the years ended December 31, 2014 and 2013 and for the period from November 15, 2012 (commencement of operations) through December 31, 2012, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2014 by correspondence with the custodian, transfer agent and brokers, and the application of alternative auditing procedures where confirmations were not received, provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 17, 2015
F-2
STATEMENTS OF ASSETS AND LIABILITIES
(in thousands, except share and per share amounts)
December 31, 2014 |
December 31, 2013 |
|||||||
Assets |
||||||||
Investments, at fair value |
||||||||
Non-controlled/non-affiliated investments (cost of $893,464 and $492,546, respectively) |
$ | 882,742 | $ | 493,417 | ||||
Non-controlled affiliated investments (cost of $9,237 and $0, respectively) |
6,578 | | ||||||
Controlled affiliated investments (cost of $25,000 and $0, respectively) |
24,627 | | ||||||
Investments in affiliated money market fund (cost of $29,568 and $120,518, respectively) |
29,568 | 120,518 | ||||||
|
|
|
|
|||||
Total investments, at fair value (cost of $957,269 and $613,064, respectively) |
943,515 | 613,935 | ||||||
Cash |
8,609 | 7,411 | ||||||
Dividend receivable from controlled affiliated investments |
309 | | ||||||
Interest and dividends receivable from non-controlled/non-affiliated investments |
8,701 | 3,642 | ||||||
Deferred financing costs |
4,974 | 3,722 | ||||||
Deferred offering costs |
1,384 | 732 | ||||||
Receivable from Investment Adviser |
| 780 | ||||||
|
|
|
|
|||||
Total assets |
$ | 967,492 | $ | 630,222 | ||||
|
|
|
|
|||||
Liabilities |
||||||||
Debt |
$ | 350,000 | $ | | ||||
Payable for investments purchased |
19,700 | 4,926 | ||||||
Common stock repurchased |
732 | 4,994 | ||||||
Distribution payable |
15,506 | 7,069 | ||||||
Management fees payable |
3,326 | 2,660 | ||||||
Transfer agent fees payable |
15 | 3 | ||||||
Directors fees payable |
115 | 114 | ||||||
Interest and credit facility expense payable |
527 | 417 | ||||||
Accrued organization and offering costs |
474 | 1,360 | ||||||
Accrued expenses and other liabilities |
2,515 | 894 | ||||||
|
|
|
|
|||||
Total liabilities |
$ | 392,910 | $ | 22,437 | ||||
|
|
|
|
|||||
Commitments and Contingencies (Note 5 and 7) |
||||||||
Net Assets |
||||||||
Common stock, par value $0.001 per share (200,000,000 shares authorized, 29,381,127 and 30,390,114 shares issued and outstanding at December 31, 2014 and December 31, 2013, respectively) |
$ | 29 | $ | 30 | ||||
Paid-in capital in excess of par |
587,882 | 608,152 | ||||||
Accumulated net realized gain (loss) |
(2,212 | ) | 143 | |||||
Accumulated undistributed net investment income |
4,058 | 10 | ||||||
Net unrealized appreciation (depreciation) on investments |
(13,754 | ) | 871 | |||||
Allocated income tax expense |
(1,421 | ) | (1,421 | ) | ||||
|
|
|
|
|||||
TOTAL NET ASSETS |
$ | 574,582 | $ | 607,785 | ||||
|
|
|
|
|||||
TOTAL LIABILITIES AND NET ASSETS |
$ | 967,492 | $ | 630,222 | ||||
|
|
|
|
|||||
Net asset value per share |
$ | 19.56 | $ | 20.00 | ||||
|
|
|
|
F-3
(in thousands, except share and per share amounts)
For the year ended December 31, 2014 |
For the year ended December 31, 2013 |
For the period from November 15, 2012
(commencement of
December 31, 2012 |
||||||||||
Investment income: |
||||||||||||
Interest from non-controlled/non-affiliated investments |
$ | 69,454 | $ | 22,813 | $ | 162 | ||||||
Dividend income from non-controlled/non-affiliated investments |
2,881 | | | |||||||||
Dividend income from non-controlled affiliated investment |
3 | 18 | | |||||||||
Dividend income from controlled affiliated investments |
309 | | | |||||||||
Other income from non-controlled/non-affiliated investments |
632 | 4 | | |||||||||
|
|
|
|
|
|
|||||||
Total Investment Income |
$ | 73,279 | $ | 22,835 | $ | 162 | ||||||
|
|
|
|
|
|
|||||||
Expenses: |
||||||||||||
Interest and credit facility expense |
$ | 4,683 | $ | 658 | $ | | ||||||
Management fees |
10,069 | 3,586 | 71 | |||||||||
Incentive fees |
1,495 | 340 | 209 | |||||||||
Professional fees |
2,007 | 1,055 | 40 | |||||||||
Administration and custodian fees |
844 | 468 | 19 | |||||||||
Directors fees |
399 | 444 | | |||||||||
Transfer agent fees |
12 | 9 | | |||||||||
Organization expense |
| 576 | | |||||||||
Other expenses |
913 | 330 | 7 | |||||||||
|
|
|
|
|
|
|||||||
Total expenses |
$ | 20,422 | $ | 7,466 | $ | 346 | ||||||
|
|
|
|
|
|
|||||||
Expense reimbursement from Investment Adviser |
$ | | $ | (567 | ) | $ | | |||||
|
|
|
|
|
|
|||||||
Net expenses |
$ | 20,422 | $ | 6,899 | $ | 346 | ||||||
|
|
|
|
|
|
|||||||
NET INVESTMENT INCOME (LOSS) BEFORE TAXES |
$ | 52,857 | $ | 15,936 | $ | (184 | ) | |||||
|
|
|
|
|
|
|||||||
Excise tax expense |
$ | 119 | $ | | $ | | ||||||
|
|
|
|
|
|
|||||||
NET INVESTMENT INCOME (LOSS) AFTER TAXES |
$ | 52,738 | $ | 15,936 | $ | (184 | ) | |||||
|
|
|
|
|
|
|||||||
Net realized and unrealized gains (losses) on investment transactions: |
||||||||||||
Net realized gain (loss) from: |
||||||||||||
Non-controlled/non-affiliated investments |
$ | (1,191 | ) | $ | 3,293 | $ | | |||||
Net change in unrealized appreciation (depreciation) from: |
||||||||||||
Non-controlled/non-affiliated investments |
(11,593 | ) | (175 | ) | 1,046 | |||||||
Non-controlled affiliated investments |
(2,659 | ) | | | ||||||||
Controlled affiliated investments |
(373 | ) | | | ||||||||
|
|
|
|
|
|
|||||||
Net realized and unrealized gains (losses) |
$ | (15,816 | ) | $ | 3,118 | $ | 1,046 | |||||
|
|
|
|
|
|
|||||||
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS BEFORE TAXES |
$ | 36,922 | $ | 19,054 | $ | 862 | ||||||
|
|
|
|
|
|
|||||||
Income tax expense |
$ | | $ | (1,070 | ) | $ | (351 | ) | ||||
|
|
|
|
|
|
|||||||
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS AFTER TAXES |
$ | 36,922 | $ | 17,984 | $ | 511 | ||||||
|
|
|
|
|
|
|||||||
Net investment income (loss) per share (basic and diluted): |
$ | 1.77 | $ | 0.67 | $ | (0.09 | ) | |||||
Earnings per share (basic and diluted): |
$ | 1.24 | $ | 0.76 | $ | 0.26 | ||||||
Weighted average shares outstanding: |
29,737,113 | 23,819,077 | 1,968,388 |
F-4
STATEMENTS OF CHANGES IN NET ASSETS
(in thousands, except share and per share amounts)
For the year ended
|
For the year ended
|
For the period from November 15, 2012 (commencement of operations) through December 31, 2012 |
||||||||||
Increase (decrease) in net assets resulting from operations: |
||||||||||||
Net investment income (loss) |
$ | 52,738 | $ | 15,936 | $ | (184 | ) | |||||
Net realized gain (loss) on investments |
(1,191 | ) | 3,293 | | ||||||||
Net change in unrealized appreciation (depreciation) on investments |
(14,625 | ) | (175 | ) | 1,046 | |||||||
Income tax expense |
| (1,070 | ) | (351 | ) | |||||||
|
|
|
|
|
|
|||||||
Net increase (decrease) in net assets resulting from operations |
$ | 36,922 | $ | 17,984 | $ | 511 | ||||||
|
|
|
|
|
|
|||||||
Distributions to stockholders from: |
||||||||||||
Net investment income |
$ | (47,712 | ) | $ | (14,919 | ) | $ | | ||||
Net realized gain |
(2,268 | ) | (398 | ) | | |||||||
|
|
|
|
|
|
|||||||
Total distributions to stockholders |
$ | (49,980 | ) | $ | (15,317 | ) | $ | | ||||
|
|
|
|
|
|
|||||||
Capital transactions: |
||||||||||||
Issuance of common stock (0; 30,639,824 and 0 shares, respectively) |
$ | | $ | 505,428 | $ | | ||||||
Offering costs |
| (1,250 | ) | | ||||||||
Contributions (0; 2,724,337 and 2,655,017 shares, respectively) |
| 53,442 | 50,560 | |||||||||
Deemed contribution for income tax expense |
| 1,070 | 352 | |||||||||
Repurchase of common stock (1,008,987; 249,710 and 0 shares, respectively) |
(20,145 | ) | (4,995 | ) | | |||||||
|
|
|
|
|
|
|||||||
Net increase (decrease) in net assets resulting from capital transactions |
$ | (20,145 | ) | $ | 553,695 | $ | 50,912 | |||||
|
|
|
|
|
|
|||||||
TOTAL INCREASE (DECREASE) IN NET ASSETS |
$ | (33,203 | ) | $ | 556,362 | $ | 51,423 | |||||
|
|
|
|
|
|
|||||||
Net assets at beginning of period |
$ | 607,785 | $ | 51,423 | $ | | ||||||
|
|
|
|
|
|
|||||||
Net assets at end of period |
$ | 574,582 | $ | 607,785 | $ | 51,423 | ||||||
|
|
|
|
|
|
|||||||
Accumulated undistributed net investment income (loss) |
$ | 4,058 | $ | 10 | $ | (184 | ) | |||||
|
|
|
|
|
|
|||||||
Distribution declared per share: |
$ | 1.69 | $ | 0.50 | $ | |
F-5
(in thousands, except share and per share amounts)
For the year ended
|
For the year ended
|
For the period from
through
|
||||||||||
Cash flows from operating activities: |
||||||||||||
Net increase (decrease) in net assets resulting from operations |
$ | 36,922 | $ | 17,984 | $ | 511 | ||||||
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used for) operating activities: |
||||||||||||
Purchases of investments |
(697,039 | ) | (476,384 | ) | (48,900 | ) | ||||||
Payment-in-kind investments |
(412 | ) | | | ||||||||
Investments in affiliated money market fund, net |
90,950 | (120,518 | ) | | ||||||||
Proceeds from sales of investments and principal repayments |
263,738 | 36,558 | | |||||||||
Net realized (gain) loss on investments |
1,191 | (3,293 | ) | | ||||||||
Net change in unrealized (appreciation) depreciation on investments |
14,625 | 175 | (1,047 | ) | ||||||||
Amortization of premium and accretion of discount, net |
(2,633 | ) | (508 | ) | (18 | ) | ||||||
Amortization of deferred financing costs |
1,013 | 290 | | |||||||||
Income tax expense |
| 1,070 | 352 | |||||||||
Increase (decrease) in operating assets and liabilities: |
||||||||||||
(Increase) decrease in interest and dividends receivable |
(5,368 | ) | (3,374 | ) | (268 | ) | ||||||
(Increase) decrease in deferred financing costs |
24 | | | |||||||||
(Increase) decrease in receivable from Investment Adviser |
780 | (567 | ) | | ||||||||
Increase (decrease) in payable for investments purchased |
14,774 | 4,926 | | |||||||||
Increase (decrease) in management fees payable |
666 | 2,589 | 71 | |||||||||
Increase (decrease) in incentive fees payable |
| (209 | ) | 209 | ||||||||
Increase (decrease) in directors fees payable |
1 | 114 | | |||||||||
Increase (decrease) in interest and credit facility payable |
110 | 329 | | |||||||||
Increase (decrease) in accrued organization costs |
(497 | ) | 497 | | ||||||||
Increase (decrease) in accrued expenses and other liabilities |
1,633 | 831 | 66 | |||||||||
|
|
|
|
|
|
|||||||
Net cash used for operating activities |
$ | (279,522 | ) | $ | (539,490 | ) | $ | (49,024 | ) | |||
|
|
|
|
|
|
|||||||
Cash flows from financing activities: |
||||||||||||
Issuance of common stock |
$ | | $ | 505,428 | $ | | ||||||
Repurchase of common stock |
(24,407 | ) | | | ||||||||
Contributions |
| 53,442 | 50,560 | |||||||||
Distributions paid |
(41,543 | ) | (8,249 | ) | | |||||||
Offering costs paid |
(1,040 | ) | (1,333 | ) | | |||||||
Financing costs paid |
(2,290 | ) | (3,923 | ) | | |||||||
Borrowings on debt |
450,000 | | | |||||||||
Repayments of debt |
(100,000 | ) | | | ||||||||
|
|
|
|
|
|
|||||||
Net cash provided by financing activities |
$ | 280,720 | $ | 545,365 | $ | 50,560 | ||||||
|
|
|
|
|
|
|||||||
Net increase in cash |
1,198 | 5,875 | 1,536 | |||||||||
|
|
|
|
|
|
|||||||
Cash, beginning of period |
7,411 | 1,536 | | |||||||||
|
|
|
|
|
|
|||||||
Cash, end of period |
$ | 8,609 | $ | 7,411 | $ | 1,536 | ||||||
|
|
|
|
|
|
|||||||
Supplemental and non-cash financing activities |
||||||||||||
Interest expense paid |
$ | 2,118 | $ | | $ | | ||||||
Deemed contribution for income tax expense |
$ | | $ | 1,070 | $ | 352 | ||||||
Accrued but unpaid deferred financing costs |
$ | 63 | $ | 88 | $ | | ||||||
Accrued but unpaid offering costs |
$ | 474 | $ | 862 | $ | | ||||||
Accrued but unpaid distributions |
$ | 15,506 | $ | 7,069 | $ | | ||||||
Accrued but unpaid common stock repurchase |
$ | 732 | $ | 4,994 | $ | |
F-6
December 31, 2014 (in thousands, except share and per share amounts)
Portfolio Company |
Industry |
Interest |
Maturity |
Par
|
Cost |
Fair
|
||||||||||||
Investments at Fair Value159.06%# |
||||||||||||||||||
Corporate Debt (1)150.07% |
||||||||||||||||||
1st Lien/Senior Secured Debt40.93% |
||||||||||||||||||
Artesyn Embedded Technologies, Inc. (2) |
Electronic Equipment,
Instruments & Components |
9.75% | 10/15/2020 | $ | 20,000 | $ | 20,000 | $ | 19,000 | |||||||||
Bolttech Mannings, Inc. (3)(4) |
Commercial Services &
Supplies |
L + 7.75% (1.00% Floor) | 12/21/2018 | 10,640 | (106 | ) | (213 | ) | ||||||||||
CLP ST Inc. (++) |
Electronic Equipment,
Instruments & Components |
L + 9.50% (1.00% Floor) | 10/09/2019 | 49,525 | 48,583 | 48,534 | ||||||||||||
CLP ST Inc. (3)(4) |
Electronic Equipment,
Instruments & Components |
L + 9.50% (1.00% Floor) | 10/09/2019 | 5,000 | (88 | ) | (100 | ) | ||||||||||
Dispensing Dynamics International (2) |
Building Products | 12.50% | 01/01/2018 | 24,000 | 25,055 | 24,960 | ||||||||||||
Heligear Acquisition Co. (2) |
Aerospace & Defense | 10.25% | 10/15/2019 | 17,500 | 17,175 | 17,150 | ||||||||||||
Infinity Sales Group (+) |
Media | L + 10.50% (1.00% Floor) | 11/21/2018 | 37,500 | 36,880 | 34,500 | ||||||||||||
Iracore International Holdings, Inc. (2) |
Energy Equipment &
Services |
9.50% | 06/01/2018 | 24,250 | 19,832 | 14,308 | ||||||||||||
Legacy Buyer Corp. (++) |
Health Care Providers &
Services |
L + 8.00% (1.00% Floor) | 10/24/2019 | 31,000 | 30,402 | 30,380 | ||||||||||||
Legacy Buyer Corp. (3)(4) |
Health Care Providers &
Services |
L + 8.00% (1.00% Floor) | 10/24/2019 | 2,500 | (48 | ) | (50 | ) | ||||||||||
Liquidnet Holdings, Inc. (++) |
Capital Markets | L + 6.75% (1.00% Floor) | 05/22/2019 | 3,604 | 3,555 | 3,424 | ||||||||||||
NTS Communications, Inc. (++) |
Diversified
Telecommunication Services |
L + 9.00% (1.25% Floor) | 06/06/2019 | 39,700 | 38,946 | 38,906 | ||||||||||||
NTS Communications, Inc. (++) (3) |
Diversified
Telecommunication Services |
L + 9.00% (1.25% Floor) | 06/06/2019 | 5,000 | 4,409 | 4,400 | ||||||||||||
|
|
|
|
|||||||||||||||
Total 1st Lien/Senior Secured Debt |
|
244,595 | 235,199 | |||||||||||||||
1st Lien/Last-Out Unitranche (5) 47.96% |
||||||||||||||||||
Associations, Inc. (++) |
Real Estate Management &
Development |
L + 7.00% (1.00% Floor) | 12/23/2019 | 76,500 | 74,977 | 74,970 | ||||||||||||
Associations, Inc. (3) (4) |
Real Estate Management &
Development |
L + 7.00% (1.00% Floor) | 12/22/2018 | 13,002 | (259 | ) | (260 | ) | ||||||||||
Avenue Stores, LLC (++) |
Specialty Retail | L + 8.00% (1.00% Floor) | 09/19/2019 | 30,000 | 29,284 | 29,250 | ||||||||||||
Bolttech Mannings, Inc. (+) |
Commercial Services &
Supplies |
L + 7.75% (1.00% Floor) | 12/21/2018 | 33,000 | 32,368 | 32,010 | ||||||||||||
Bolttech Mannings, Inc. (+) |
Commercial Services &
Supplies |
L + 7.75% (1.00% Floor) | 12/21/2018 | 3,346 | 3,284 | 3,245 | ||||||||||||
Mervin Manufacturing, Inc. (++) |
Leisure Equipment &
Products |
L + 7.50% (1.00% Floor) | 10/10/2019 | 20,000 | 19,617 | 19,600 | ||||||||||||
Pro-Pet, LLC (+) |
Household Products | L + 7.25% (0.75% Floor) | 11/21/2019 | 28,600 | 28,117 | 28,107 | ||||||||||||
The Service Companies Inc. (++) |
Professional Services | L + 10.25% (1.00% Floor) | 03/26/2019 | 45,340 | 44,540 | 44,320 | ||||||||||||
United Road Services, Inc. (+) |
Air Freight & Logistics | L + 7.50% (1.00% Floor) | 12/14/2017 | 45,000 | 44,390 | 44,325 | ||||||||||||
|
|
|
|
|||||||||||||||
Total 1st Lien/Last-Out Unitranche |
|
276,318 | 275,567 | |||||||||||||||
2nd Lien/Senior Secured Debt 61.18% |
||||||||||||||||||
Affordable Care, Inc. (+) |
Health Care Providers &
Services |
L + 9.25% (1.25% Floor) | 12/26/2019 | 23,220 | 23,376 | 22,872 | ||||||||||||
Extraction Oil & Gas Holdings, LLC |
Oil, Gas & Consumable
Fuels |
11.00% | 05/29/2019 | 15,000 | 14,796 | 15,300 | ||||||||||||
Extraction Oil & Gas Holdings, LLC |
Oil, Gas & Consumable
Fuels |
10.00% | 05/29/2019 | 8,412 | 8,292 | 8,286 | ||||||||||||
Global Tel * Link Corporation (++) |
Diversified
Telecommunication Services |
L + 7.75% (1.25% Floor) | 11/23/2020 | 28,000 | 27,526 | 27,323 |
F-7
Portfolio Company |
Industry |
Interest |
Maturity |
Par
|
Cost |
Fair
|
||||||||||||
Investments at Fair Value(continued) |
||||||||||||||||||
Highwinds Capital, Inc. (+) |
Internet Software &
Services |
L + 12.25% (1.25% Floor) | 01/29/2019 | $ | 59,050 | $ | 58,287 | $ | 59,050 | |||||||||
Hunter Defense Technologies, Inc. (++) |
Aerospace & Defense | L + 10.00% (1.00% Floor) | 02/05/2020 | 28,000 | 26,674 | 27,300 | ||||||||||||
Hutchinson Technology, Inc. |
Electronic Equipment,
Instruments & Components |
10.88% | 01/15/2017 | 12,200 | 11,839 | 12,627 | ||||||||||||
iFly Holdings LLC (++) |
Leisure Equipment &
Products |
L + 9.00% (1.00% Floor) | 04/08/2020 | 10,000 | 9,818 | 9,825 | ||||||||||||
iFly Holdings LLC (3) |
Leisure Equipment &
Products |
L + 9.00% (1.00% Floor) | 04/08/2020 | 10,000 | | 25 | ||||||||||||
IPC Systems, Inc. (+) |
Diversified
Telecommunication Services |
L + 8.50% (1.00% Floor) | 05/08/2021 | 11,000 | 10,795 | 11,440 | ||||||||||||
MPI Products LLC (++) |
Auto Components | L + 9.00% (1.00% Floor) | 01/30/2020 | 35,000 | 34,506 | 34,475 | ||||||||||||
Oasis Outsourcing Holdings, Inc. (6) |
Commercial Services &
Supplies |
L + 8.75% (1.00% Floor) | 12/26/2022 | 20,000 | 19,700 | 19,700 | ||||||||||||
Orchard Brands Corporation (+) |
Internet & Catalog Retail | L + 10.00% (1.50% Floor) | 06/20/2019 | 40,000 | 39,141 | 40,000 | ||||||||||||
P2 Upstream Acquisition Co. (+++) |
Software | L + 8.00% (1.00% Floor) | 04/30/2021 | 10,000 | 9,911 | 9,450 | ||||||||||||
Reddy Ice Corporation (++) |
Food Products | L + 9.50% (1.25% Floor) | 11/01/2019 | 13,500 | 13,007 | 10,260 | ||||||||||||
Securus Technologies Holdings, Inc. (++) |
Diversified
Telecommunication Services |
L + 7.75% (1.25% Floor) | 04/30/2021 | 20,000 | 19,805 | 19,700 | ||||||||||||
Washington Inventory Service (++) |
Professional Services | L + 9.00% (1.25% Floor) | 06/20/2019 | 24,450 | 24,666 | 23,931 | ||||||||||||
|
|
|
|
|||||||||||||||
Total 2nd Lien/Senior Secured Debt |
|
352,139 | 351,564 | |||||||||||||||
|
|
|
|
|||||||||||||||
Total Corporate Debt |
|
873,052 | 862,330 | |||||||||||||||
|
|
|
|
Portfolio Company |
Industry |
Interest |
Shares |
Cost |
Fair
|
|||||||||||
Preferred Stock (1) 4.59% |
||||||||||||||||
Crowley Holdings Preferred LLC (2) |
Marine | 12.00% (Includes 2% PIK) | 20,412 | $ | 20,412 | $ | 20,412 | |||||||||
Lone Pine Resources CDA, Ltd. (7)(9)(11) |
Oil, Gas & Consumable Fuels | 10.00% | 3,745,909 | 4,791 | 5,946 | |||||||||||
|
|
|
|
|||||||||||||
Total Preferred Stock |
|
25,203 | 26,358 | |||||||||||||
Common Stock (1) 0.11% |
||||||||||||||||
Lone Pine Resources CDA, Ltd. (7)(8)(10)(11) |
Oil, Gas & Consumable Fuels | 972,919 | 4,446 | 632 | ||||||||||||
|
|
|
|
|||||||||||||
Total Common Stock |
|
4,446 | 632 | |||||||||||||
|
|
|
|
Portfolio Company |
LLC Interest |
Cost |
Fair
|
|||||||||
Investment Funds & Vehicles (1) 4.29% |
||||||||||||
Senior Credit Fund, LLC (7)(12) |
$ | 25,000 | $ | 25,000 | $ | 24,627 | ||||||
|
|
|
|
|||||||||
Total Investment Funds & Vehicles |
25,000 | 24,627 | ||||||||||
|
|
|
|
Shares |
Cost |
Fair
|
||||||||||
Investments in Affiliated Money Market Fund (1) 5.15%# |
|
|||||||||||
Goldman Sachs Financial Square Government Fund 0.01% (13) |
29,568,233 | $ | 29,568 | $ | 29,568 | |||||||
|
|
|
|
|||||||||
Total Investments in Affiliated Money Market Fund |
29,568 | 29,568 | ||||||||||
|
|
|
|
|||||||||
TOTAL INVESTMENTS 164.21% |
$ | 957,269 | $ | 943,515 | ||||||||
|
|
|
|
|||||||||
LIABILITIES IN EXCESS OF OTHER ASSETS (64.21%) |
$ | (368,933 | ) | |||||||||
|
|
|||||||||||
NET ASSETS 100.00% |
$ | 574,582 | ||||||||||
|
|
# | Percentages are based on net assets |
(+) | The interest rate on these loans is subject to a base rate plus 1 month LIBOR, which as of December 31, 2014 was 0.17%. As the interest rate is subject to a minimum LIBOR floor which was greater than the 1 month LIBOR rate at December 31, 2014, the prevailing rate in effect at December 31, 2014 was the base rate plus the LIBOR floor. |
F-8
(++) | The interest rate on these loans is subject to a base rate plus 3 month LIBOR, which as of December 31, 2014 was 0.26%. As the interest rate is subject to a minimum LIBOR floor which was greater than the 3 month LIBOR rate at December 31, 2014, the prevailing rate in effect at December 31, 2014 was the base rate plus the LIBOR floor. |
(+++) | The interest rate on these loans is subject to a base rate plus 6 month LIBOR, which as of December 31, 2014 was 0.36%. As the interest rate is subject to a minimum LIBOR floor which was greater than the 6 month LIBOR rate at December 31, 2014, the prevailing rate in effect at December 31, 2014 was the base rate plus the LIBOR floor. |
(1) | Assets are pledged as collateral for the Credit Facility. See Note 9 Significant Agreements and Related Parties. |
(2) | Security exempt from registration pursuant to Rule 144A under the Securities Act of 1933. These securities may be sold in certain transactions (normally to qualified institutional buyers) and remain exempt from registration. As of December 31, 2014, the aggregate fair value of these securities is $95,830 or 16.68% of the Companys net assets. |
(3) | Position or portion thereof is an unfunded loan commitment, and no interest is being earned on the unfunded portion. See Note 5 Commitments. |
(4) | The negative cost is the result of the capitalized discount being greater than the principal amount outstanding on the loan. The negative fair value is the result of the capitalized discount on the loan. |
(5) | In addition to the interest earned based on the stated rate of this loan, the Company may be entitled to receive additional interest as a result of its arrangement with other lenders in a syndication. |
(6) | Position or portion thereof unsettled as of December 31, 2014. |
(7) | The investment is not a qualifying asset under Section 55(a) of the Investment Company Act of 1940. The Company may not acquire any non-qualifying asset unless, at the time of acquisition is made, qualifying assets represent at least 70% of the Companys total assets. |
(8) | Non-income producing security. |
(9) | In addition the Company holds 3,745,909 shares of voting securities in an affiliated entity with zero cost and zero value. |
(10) | In addition the Company holds 972,919 shares of voting securities in an affiliated entity with zero cost and zero value. |
(11) | As defined in the Investment Company Act of 1940, the investment is deemed to be an affiliated person of the Company because the Company owns, either directly or indirectly, 5% or more of the portfolio companys outstanding voting securities. See Note 9 Significant Agreements and Related Parties. |
(12) | As defined in the Investment Company Act of 1940, the investment is deemed to be a controlled affiliated person of the Company because the Company owns, either directly or indirectly, 25% or more of the portfolio companys outstanding voting securities or has the power to exercise control over management or policies of such portfolio company. See Note 9 Significant Agreements and Related Parties. |
(13) | The rate shown is the annualized seven-day yield as of December 31, 2014. |
L LIBOR
PIK Payment-In-Kind
F-9
SCHEDULE OF INVESTMENTS
December 31, 2013 (in thousands, except share and per share amounts)
Portfolio Company |
Industry |
Interest |
Maturity |
Par
|
Cost |
Fair
|
||||||||||||
Investments at Fair Value81.18%* |
|
|||||||||||||||||
Corporate Debt81.18% |
|
|||||||||||||||||
1st Lien/Senior Secured Debt34.53% |
|
|||||||||||||||||
Artesyn Escrow, Inc. (1) |
Electronic Equipment,
Instruments & Components |
9.75% | 10/15/2020 | $ | 20,000 | $ | 20,000 | $ | 21,100 | |||||||||
Bolttech Mannings, Inc. (2) |
Commercial Services &
Supplies |
L+7.75% (1.00% Floor) | 12/21/2018 | | | | ||||||||||||
Bolttech Mannings, Inc. (3) |
Commercial Services &
Supplies |
L+8.96% (1.00% Floor) | 12/21/2018 | 33,000 | 32,243 | 32,241 | ||||||||||||
Convergeone Holdings Corp. |
Communications Equipment | L+8.00% (1.25% Floor) | 05/08/2019 | 28,121 | 27,735 | 27,700 | ||||||||||||
Dispensing Dynamics International |
Building Products | 12.50% | 01/01/2018 | 15,000 | 15,367 | 16,087 | ||||||||||||
Fairpoint Communications, Inc. |
Integrated
Telecommunication Services |
L+6.25% (1.25% Floor) | 02/14/2019 | 19,950 | 19,586 | 20,593 | ||||||||||||
Infinity Sales Group |
Media | L+10.50% (1.00% Floor) | 11/21/2018 | 50,000 | 49,020 | 49,000 | ||||||||||||
Iracore International Holdings, Inc. (1) |
Energy Equipment &
Services |
9.50% | 06/01/2018 | 10,000 | 10,000 | 10,500 | ||||||||||||
Liquidnet Holdings, Inc. |
Capital Markets | L+8.00% (1.25% Floor) | 05/08/2017 | 24,063 | 23,934 | 23,701 | ||||||||||||
Molycorp, Inc. (4) |
Diversified Metals &
Mining |
10.00% | 06/01/2020 | 9,061 | 8,813 | 8,948 | ||||||||||||
|
|
|
|
|||||||||||||||
Total 1st Lien/Senior Secured Debt |
|
206,698 | 209,870 | |||||||||||||||
2nd Lien/Senior Secured Debt42.10% |
||||||||||||||||||
Affordable Care, Inc. |
Health Care Providers &
Services |
L+9.25% (1.25% Floor) | 12/26/2019 | 21,500 | 21,696 | 21,500 | ||||||||||||
Answers Corp. |
Internet Software & Services | L+10.00% (1.00% Floor) | 06/19/2020 | 20,000 | 19,601 | 19,600 | ||||||||||||
EZE Software Group LLC. |
Software | L+7.25% (1.25% Floor) | 04/05/2021 | 2,000 | 2,033 | 2,030 | ||||||||||||
Global Tel Link Corp. |
Diversified
Telecommunication Services |
L+7.75% (1.25% Floor) | 11/23/2020 | 28,000 | 27,470 | 26,320 | ||||||||||||
Highwinds Capital, Inc. |
Internet Software & Services | L+12.25% (1.25% Floor) | 01/29/2019 | 55,000 | 54,223 | 54,175 | ||||||||||||
Hutchinson Technology, Inc. |
Electronic Equipment,
Instruments & Components |
10.88% | 01/15/2017 | 12,200 | 11,692 | 11,986 | ||||||||||||
Learfield Communications, Inc. |
Media | L+7.75% (1.00% Floor) | 10/09/2021 | 2,000 | 1,980 | 2,040 | ||||||||||||
Orchard Brands Corp. |
Internet and Catalog Retail | L+10.00% (1.50% Floor) | 06/20/2019 | 40,000 | 39,006 | 39,000 | ||||||||||||
P2 Upstream Acquisition Co. |
Software | L+8.00% (1.00% Floor) | 04/30/2021 | 10,000 | 9,902 | 10,150 | ||||||||||||
Reddy Ice Group, Inc. |
Food Products | L+9.50% (1.25% Floor) | 10/01/2019 | 10,000 | 9,811 | 9,650 | ||||||||||||
Securus Technologies, Inc. (5) |
Diversified
Telecommunication Services |
L+7.75% (1.25% Floor) | 04/30/2021 | 20,000 | 19,784 | 19,813 | ||||||||||||
TriNet Group, Inc. |
Diversified Financial
Services |
L+7.75% (1.00% Floor) | 02/20/2021 | 21,000 | 20,588 | 21,105 | ||||||||||||
Washington Inventory Services |
Commercial Services &
Supplies |
L+9.00% (1.25% Floor) | 06/20/2019 | 18,200 | 18,536 | 18,519 | ||||||||||||
|
|
|
|
|||||||||||||||
Total 2nd Lien/Senior Secured Debt |
|
256,322 | 255,888 | |||||||||||||||
Unsecured DebtFixed1.17% |
||||||||||||||||||
Goodrich Petroleum Corp. (4) |
Oil, Gas & Consumable
Fuels |
8.88% | 03/15/2019 | 2,545 | 2,619 | 2,653 | ||||||||||||
Lone Pine Resources Inc. (4) (6) |
Oil, Gas & Consumable
Fuels |
10.38% | 02/15/2017 | 7,800 | 6,907 | 4,446 | ||||||||||||
|
|
|
|
|||||||||||||||
Total Unsecured DebtFixed |
|
9,526 | 7,099 | |||||||||||||||
Preferred Stock3.38% |
||||||||||||||||||
Crowley Holdings Preferred LLC |
Marine | 12% (includes 2% PIK) | 20,000 | $ | 20,000 | $ | 20,560 | |||||||||||
|
|
|
|
|||||||||||||||
Total Preferred Stock |
|
20,000 | 20,560 | |||||||||||||||
|
|
|
|
|||||||||||||||
Total Investments at Fair Value |
|
$ | 492,546 | $ | 493,417 | |||||||||||||
|
|
|
|
F-10
Shares |
Cost |
Fair Value |
||||||||||
Investments in Affiliated Money Market Fund19.83%* | ||||||||||||
Goldman Sachs Financial Square Government Fund, 0.01% (7) |
120,518,281 | $ | 120,518 | $ | 120,518 | |||||||
|
|
|
|
|||||||||
Total Investments in Affiliated Money Market Fund |
$ | 120,518 | $ | 120,518 | ||||||||
|
|
|
|
|||||||||
TOTAL INVESTMENTS101.01% |
$ | 613,064 | $ | 613,935 | ||||||||
|
|
|
|
|||||||||
LIABILITIES IN EXCESS OF OTHER ASSETS(1.01%) |
$ | (6,150 | ) | |||||||||
|
|
|||||||||||
NET ASSETS100.00% |
$ | 607,785 | ||||||||||
|
|
* | Percentages are based on net assets |
(1) | Security exempt from registration pursuant to Rule 144A under the Securities Act of 1933. These securities may be sold in certain transactions (normally to qualified institutional buyers) and remain exempt from registration. At December 31, 2013, the aggregate fair value of these securities is $31,600 or 5.20% of the Companys net assets. |
(2) | Unfunded loan commitments. See Note 5 Commitments. |
(3) | Loan is structured as a Last Out First Lien, and reflects the yield on the date presented. |
(4) | The investment is not a qualifying asset under Section 55(a) of the Investment Company Act of 1940. The company may not acquire any non-qualifying asset unless, at the time of acquisition is made, qualifying assets represent at least 70% of the Companys total assets. |
(5) | Position or portion thereof unsettled as of December 31, 2013. |
(6) | Investment is currently in default and/or non-income producing. |
(7) | The rate shown is the annualized seven-day yield as of December 31, 2013. |
L LIBOR
PIK Payment-In-Kind
F-11
December 31, 2014 (in thousands, except share and per share amounts)
1. Organization
Goldman Sachs BDC, Inc. (the Company) was initially established as Goldman Sachs Liberty Harbor Capital, LLC, a single member Delaware limited liability company (SMLLC), on September 26, 2012 and commenced operations on November 15, 2012 with Goldman Sachs Group, Inc. (Group Inc.) as its sole member. On March 29, 2013, the Company elected to be regulated as a business development company under the Investment Company Act of 1940, as amended (the Investment Company Act). Effective April 1, 2013, the Company converted from an SMLLC to a corporation (the Conversion).
In connection with the Conversion, all membership units were converted to common stock at a ratio of 5.38 common shares to 1 unit. Accordingly, earnings and other per unit data in the accompanying financial statements and related notes give retroactive effect to the Conversion.
The Companys investment objective is to generate current income and, to a lesser extent, capital appreciation through direct originations of secured debt, including first lien, first lien/last-out unitranche and second lien debt, unsecured debt, including mezzanine debt, and, to a lesser extent, in equities.
Goldman Sachs Asset Management, L.P. (GSAM), a Delaware limited partnership and an affiliate of Goldman Sachs & Co. (Goldman Sachs), is the investment adviser (the Investment Adviser) of the Company.
On March 29, 2013, the Company filed a registration statement on Form N-2 (File No. 333-187642) with the Securities and Exchange Commission (the SEC) (which has been subsequently amended) related to an initial public offering of the Companys common stock. The timing of the Companys initial public offering is uncertain. The SEC has not declared this registration statement effective and the Companys common stock may not be sold, nor may offers to buy the common stock be accepted, prior to the time this registration statement becomes effective.
2. Significant Accounting Policies
A. Basis of Presentation The Companys functional currency is United States dollars and these financial statements have been prepared in that currency. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and pursuant to Regulation S-X. This requires the Company to make certain estimates and assumptions that may affect the amounts reported in the financial statements and accompanying notes. These financial statements reflect adjustments that in the opinion of the Company are necessary for the fair statement of the results for the periods presented. Actual results may differ from the estimates and assumptions included in the financial statements.
B. Revenue Recognition The Company records its investment transactions on a trade date basis. Realized gains and losses are based on the specific identification method.
Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis. Discount and premiums to par value on investments purchased are accreted and amortized, respectively, into interest income over the life of the respective investment using the effective interest method. Loan origination fees, original issue discount and market discounts or premiums are capitalized and amortized into interest income using the effective interest method or straight-line method, as applicable. Upon prepayment of a loan or debt security, any prepayment premiums, unamortized upfront loan origination fees and unamortized discounts are recorded as interest income.
F-12
Dividend income on preferred equity investments is recorded on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity investments is recorded on the record date for private portfolio companies and on the ex-dividend date for publicly traded portfolio companies. Interest and dividend income are presented net of withholding tax, if any.
Certain investments may have contractual payment-in-kind (PIK) interest or dividends. PIK represents accrued interest or accumulated dividends that are added to the loan principal of the investment on the respective interest or dividend payment dates rather than being paid in cash and generally becomes due at maturity or upon being called by the issuer. PIK is recorded as interest or dividend income, as applicable. If at any point the Company believes PIK is not expected to be realized, the investment generating PIK will be placed on non-accrual status. Accrued PIK interest or dividends are generally reversed through interest or dividend income, respectively, when an investment is placed on non-accrual status.
Structuring fees are recorded as other income when earned. Administrative agent fees received by the Company are recorded as other income when the services are rendered.
C. Non-Accrual LoansLoans or debt securities are placed on non-accrual status when there is reasonable doubt that principal or interest will be collected. Accrued interest generally is reversed when a loan or debt security is placed on non-accrual status. Interest payments received on non-accrual loans or debt securities may be recognized as income or applied to principal depending upon managements judgment. Non-accrual loans and debt securities are restored to accrual status when past due principal and interest are paid and, in managements judgment, principal and interest payments are likely to remain current. The Company may make exceptions to this treatment if a loan has sufficient collateral value and is in the process of collection.
D. Investments The Company carries its investments in accordance with Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures (ASC 820), issued by the Financial Accounting Standards Board, which defines fair value, establishes a framework for measuring fair value and requires disclosures about fair value measurements. Fair value is generally based on quoted market prices provided by independent pricing services, broker or dealer quotations or alternative price sources. In the absence of quoted market prices, broker or dealer quotations or alternative price sources, investments are measured at fair value as determined by the Board of Directors.
Due to the inherent uncertainties of valuation, certain estimated fair values may differ significantly from the values that would have been realized had a ready market for these investments existed, and these differences could be material. See Note 6 Fair Value Measurement.
The Company expects it will generally invest in illiquid securities, including debt and equity investments, of middle-market companies. The Board of Directors has delegated to the Investment Adviser day-to-day responsibility for implementing and maintaining internal controls and procedures related to the valuation of the Companys portfolio investments. Under valuation procedures adopted by the Board of Directors, market quotations are generally used to assess the value of the investments for which market quotations are readily available. The Investment Adviser obtains these market quotations from independent pricing services or at the bid prices obtained from at least two brokers or dealers, if available; otherwise from a principal market maker or a primary market dealer. To assess the continuing appropriateness of pricing sources and methodologies, the Investment Adviser regularly performs price verification procedures and issues challenges as necessary to independent pricing services or brokers, and any differences are reviewed in accordance with the valuation procedures. If the Board of Directors or Investment Adviser has a bona fide reason to believe any such market quotation does not reflect the fair value of an investment, it may independently value such investments in accordance with valuation procedures for investments for which market quotations are not readily available.
F-13
With respect to investments for which market quotations are not readily available, or for which market quotations are deemed not reflective of the fair value, the valuation procedures adopted by the Board of Directors contemplates a multi-step valuation process each quarter, as described below:
(1) | The quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals of the Investment Adviser responsible for the portfolio investment; |
(2) | The Board of Directors also engages independent valuation firms (the Independent Valuation Advisers) to provide independent valuations of the investments for which market quotations are not readily available, or are readily available but deemed not reflective of the fair value of an investment. The Independent Valuation Advisers independently value such investments using quantitative and qualitative information provided by the investment professionals of the Investment Adviser as well as any market quotations obtained from independent pricing services, brokers, dealers or market dealers. The Independent Valuation Advisers also provide analyses to support their valuation methodology and calculations. The Independent Valuation Advisers provide an opinion on a final range of values on such investments to the Board of Directors or the Audit Committee. The Independent Valuation Advisers define fair value in accordance with ASC 820 and utilize valuation techniques including the market approach, the income approach or both. A portion of the portfolio will be reviewed on a quarterly basis, and all investments in the portfolio for which market quotations are not readily available, or are readily available, but deemed not reflective of the fair value of an investment, will be reviewed at least annually by an Independent Valuation Adviser; |
(3) | The Independent Valuation Advisers preliminary valuations are reviewed by the Investment Adviser and the Valuation Oversight Group (VOG), a team that is part of the Controllers Department within the Finance Division of Goldman Sachs. The Independent Valuation Advisers valuation ranges are compared to the Investment Advisers valuations to ensure the Investment Advisers valuations are reasonable. VOG presents the valuations to the Private Investment Sub-Committee of the GSAM Valuation Committee, which is comprised of representatives from GSAM who are independent of the investment decision making process; |
(4) | The GSAM Valuation Committee ratifies fair valuations and makes recommendations to the Audit Committee of the Board of Directors; |
(5) | The Audit Committee of the Board of Directors reviews valuation information provided by the GSAM Valuation Committee, the Investment Adviser and the Independent Valuation Advisers. The Audit Committee then assesses and supplements, as it deems appropriate, such valuation recommendations; and |
(6) | The Board of Directors discusses the valuations and determines the fair value of each of the investments in good faith, based on the inputs of the Investment Adviser, the Independent Valuation Advisers and the Audit Committee. |
E. Money Market FundsInvestments in money market funds are valued at amortized cost, which approximates fair value. See Note 9 Significant Agreements and Related Parties.
F. CashCash consists of deposits held at a custodian bank. As of December 31, 2014 and December 31, 2013, the Company held $8,609 and $7,411, respectively.
G. Foreign Currency TranslationAmounts denominated in foreign currencies are translated into U.S. dollars on the following basis: (i) investments and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars based upon currency exchange rates effective on the date of valuation; and
F-14
(ii) purchases and sales of investments and income and expense items denominated in foreign currencies are translated into U.S. dollars based upon currency exchange rates prevailing on the transaction dates.
The Company does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from fluctuations arising from changes in market prices of securities held. Such fluctuations are included within the net realized and unrealized gain or loss from investments.
H. Income TaxesThe Company recognizes tax positions in its financial statements only when it is more likely than not that the position will be sustained upon examination by the relevant taxing authority based on the technical merits of the position. A position that meets this standard is measured at the largest amount of benefit that will more likely than not be realized upon settlement. The Company reports any interest expense related to income tax matters in income tax expense and any income tax penalties under expenses in the Statement of Operations.
The Companys tax positions have been reviewed based on applicable statutes of limitation for tax assessments, which may vary by jurisdiction and has concluded that no additional provision for income tax is required in the Companys financial statements. The Company is subject to potential examination by certain taxing authorities in various jurisdictions. The potential tax liability is also subject to ongoing interpretation of laws and regulations by taxing authorities.
Prior to the Conversion, the Company was an SMLLC which was disregarded for U.S. tax purposes. As a disregarded entity, the Company was considered a branch of its member (a C corporation for income tax purposes) and therefore the Company accrued U.S. federal and various state and local income taxes as if it were also a C corporation. The Company was included with its member and subsidiaries in the consolidated corporate federal tax return as well as consolidated/combined state and local tax returns. The Company computed its tax liability on a modified separate company basis and the member funded any expense directly. The liability associated with the tax expense recorded in the Statement of Operations is recorded as a deemed contribution.
Effective April 1, 2013, the Company converted from an SMLLC into a corporation for U.S. tax purposes, and has elected to be treated, and intends to qualify annually as a regulated investment company (RIC) under Subchapter M of the Internal Revenue Code of 1986, commencing with its taxable year ended on December 31, 2013. As a RIC, the Company is not subject to corporate-level U.S. federal income taxes on any net ordinary income or capital gains that the Company distributes to stockholders if certain source of income, distribution and asset diversification requirements are met. The Companys conversion from an SMLLC to a RIC was considered a taxable event.
In order for the Company not to be subject to federal excise taxes, it must distribute annually an amount at least equal to the sum of (i) 98% of its ordinary income (taking into account certain deferrals and elections), (ii) 98.2% of its net capital gains from the current year and (iii) any undistributed ordinary income and net capital gains from preceding years. The Company, at its discretion, may carry forward taxable income in excess of calendar year dividends and pay a 4% excise tax on this income. If the Company chooses to do so, this generally would increase expenses and reduce the amount available to be distributed to stockholders. The Company will accrue excise tax on estimated undistributed taxable income as required. For the year ended December 31, 2014, the Company accrued excise tax of $119. As of December 31, 2014, $119 remained payable.
Dividends from net investment income and net realized capital gains are determined in accordance with U.S. federal income tax regulations, which may differ from those amounts determined in accordance with GAAP. The Company may pay distributions in excess of its taxable net investment income. This excess would be a tax-free return of capital in the period and reduce the stockholders tax basis in its shares. These book/tax differences are either temporary or permanent in nature. To the extent these differences are permanent, they are charged or credited to paid-in capital in excess of par or accumulated net realized gain (loss), as appropriate, in the period that the differences arise. Book and tax basis differences relating to stockholder dividends and distributions and other permanent book and tax differences are reclassified among the Companys capital accounts. Temporary and
F-15
permanent differences are primarily attributable to differences in the tax treatment of certain loans and the tax characterization of income and non-deductible expenses. These differences are generally determined in conjunction with the preparation of the Companys annual RIC tax return.
I. Organization and Offering CostsOrganization costs consist primarily of legal, incorporation and accounting fees incurred in connection with the organization of the Company and the Conversion described in Note 1, Organization. Organization costs are expensed as incurred.
Offering costs consist primarily of fees and expenses incurred in connection with the offering of shares, including legal, underwriting, printing and other costs, as well as costs associated with the preparation and filing of applicable registration statements. Upon the issuance of shares, offering costs will be offset against proceeds of the offering in paid-in capital in excess of par.
The Investment Adviser has agreed to reimburse the Company for organization and private placement offering costs in excess of $1,250. See Note 9 Significant Agreements and Related Parties.
3. Earnings Per Share
The following information sets forth the computation of basic and diluted earnings per share for the years ended December 31, 2014 and December 31, 2013 and the period ended December 31, 2012.
Year ended December 31, 2014 |
Year ended December 31, 2013 |
Period ended December 31, 2012 |
||||||||||
Numerator for basic and diluted earnings per shareincrease in net assets resulting from operations after tax |
$ | 36,922 | $ | 17,984 | $ | 511 | ||||||
Denominator for basic and diluted earnings per shareweighted average shares outstanding |
29,737,113 | 23,819,077 | 1,968,388 | |||||||||
Basic and diluted earnings per share |
$ | 1.24 | $ | 0.76 | $ | 0.26 |
Diluted earnings per share equals basic earnings per share because there were no common stock equivalents outstanding during the periods presented.
4. Investments
Investments consisted of the following:
December 31, 2014 |
December 31, 2013 |
|||||||||||||||
Investment Type |
Cost |
Fair Value |
Cost |
Fair Value |
||||||||||||
1st Lien/Senior Secured Debt |
$ | 244,595 | $ | 235,199 | $ | 174,455 | $ | 177,629 | ||||||||
1st Lien/Last-Out Unitranche 1 |
276,318 | 275,567 | 32,243 | 32,241 | ||||||||||||
2nd Lien/Senior Secured Debt |
352,139 | 351,564 | 256,322 | 255,888 | ||||||||||||
Unsecured DebtFixed |
| | 9,526 | 7,099 | ||||||||||||
Preferred Stock |
25,203 | 26,358 | 20,000 | 20,560 | ||||||||||||
Common Stock |
4,446 | 632 | | | ||||||||||||
Investment Funds & Vehicles 2 |
25,000 | 24,627 | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Investments |
$ | 927,701 | $ | 913,947 | $ | 492,546 | $ | 493,417 | ||||||||
|
|
|
|
|
|
|
|
1 | Included in first lien senior secured debt as of December 31, 2013. |
2 | Includes equity investments in the Senior Credit Fund, LLC (SCF) |
F-16
The industry composition of the portfolio at fair value was as follows:
Industry |
December 31, 2014 |
December 31, 2013 |
||||||
Diversified Telecommunication Services |
11.1 | % | 9.3 | % | ||||
Electronic Equipment, Instruments & Components |
8.7 | 6.7 | ||||||
Real Estate Management & Development |
8.2 | | ||||||
Professional Services |
7.5 | | ||||||
Internet Software & Services |
6.5 | 15.0 | ||||||
Commercial Services & Supplies |
6.0 | 10.2 | ||||||
Health Care Providers & Services |
5.8 | 4.4 | ||||||
Aerospace & Defense |
4.9 | | ||||||
Air Freight & Logistics |
4.8 | | ||||||
Internet & Catalog Retail |
4.4 | 7.9 | ||||||
Media |
3.8 | 10.3 | ||||||
Auto Components |
3.8 | | ||||||
Oil, Gas & Consumable Fuels |
3.3 | 1.4 | ||||||
Leisure Equipment & Products |
3.2 | | ||||||
Specialty Retail |
3.2 | | ||||||
Household Products |
3.1 | | ||||||
Building Products |
2.7 | 3.3 | ||||||
Investment Funds & Vehicles |
2.7 | | ||||||
Marine |
2.2 | 4.2 | ||||||
Energy Equipment & Services |
1.6 | 2.1 | ||||||
Food Products |
1.1 | 2.0 | ||||||
Software |
1.0 | 2.5 | ||||||
Capital Markets |
0.4 | 4.8 | ||||||
Communications Equipment |
| 5.6 | ||||||
Diversified Financial Services |
| 4.3 | ||||||
Integrated Telecommunication Services |
| 4.2 | ||||||
Diversified Metals & Mining |
| 1.8 | ||||||
|
|
|
|
|||||
Total |
100.0 | % | 100.0 | % | ||||
|
|
|
|
The geographic composition of the portfolio at fair value was as follows:
Geographic |
December 31, 2014 |
December 31, 2013 |
||||||
United States |
99.3 | % | 99.1 | % | ||||
Canada |
0.7 | 0.9 | ||||||
|
|
|
|
|||||
Total |
100.0 | % | 100.0 | % | ||||
|
|
|
|
Senior Credit Fund, LLC
SCF, an unconsolidated Delaware limited liability company, was formed on May 7, 2014 and commenced operations on October 1, 2014. Effective July 18, 2014, the Company agreed to co-invest with The Regents of the University of California (Cal Regents) through SCF. SCFs principal purpose is to make investments, either directly or indirectly through its wholly owned subsidiary Senior Credit Fund SPV I, LLC (SPV I), primarily in senior secured loans to middle-market companies. The Company and Cal Regents each has 50% economic ownership of SCF and each has subscribed $100,000. Except under certain circumstances, contributions to SCF cannot be redeemed. SCF is managed by a six member board of managers, of which the Company and Cal Regents have equal representation. Investment decisions generally must be unanimously approved by a quorum of the board of managers.
F-17
SCF has entered into a revolving credit facility (the Subscription Facility) with Versailles Assets LLC and Natixis, New York Branch (Natixis) as the facility agent. The Subscription Facility provides for borrowings in an aggregate amount up to $50,000 on a committed basis.
SPV I has entered into a revolving credit and term loan facility (collectively, the Warehouse Facility) with Bleacher Finance 1 Limited, and Natixis, as the facility agent. The Warehouse Facility provides for borrowings in an aggregate amount up to $200,000 on a committed basis. The Warehouse Facility includes an uncommitted accordion feature that allows the SPV I, under certain circumstances, to increase the size of the Warehouse Facility up to $400,000.
In October 2014, SCF purchased seven investments at fair value, as prescribed under the valuation procedures in Note 2 Significant Accounting Policies, from the Company for an aggregate amount of approximately $97,640. In connection with the transaction, the Company recorded a realized gain of $2.
As of December 31, 2014, the Company and Cal Regents each had contributed $25,000 to SCF. SCF had total investments at fair value of $111,168 and its portfolio was comprised of eight first lien senior secured debt, none of which were on non-accrual status.
Below is a summary of SCFs portfolio, followed by a listing of the individual loans in SCFs portfolio as of December 31, 2014:
As of
|
||||
Total 1st Lien/Senior Secured Debt (1) |
$ | 113,157 | ||
Weighted average current interest rate on 1st Lien/Senior Secured Debt (2) |
6.8 | % | ||
Number of borrowers in SCF |
8 | |||
Largest loan to a single borrower (1) |
$ | 23,696 |
(1) | At par amount. |
(2) | Computed as the (a) annual stated interest rate on accruing 1st Lien/Senior Secured Debt, divided by (b) total 1st Lien/Senior Secured Debt at par amount. |
Portfolio Company |
Industry |
Interest |
Maturity |
Par
|
Cost |
Fair
|
||||||||||||
1st Lien/Senior Secured Debt |
||||||||||||||||||
Compass Automotive Group, LLC (+) (1) |
Auto Components | L + 6.75% (0.75% Floor) | 03/28/2019 | $ | 9,667 | $ | 9,574 | $ | 9,618 | |||||||||
ConvergeOne Holdings Corporation (++) (1) |
Communications
Equipment |
L + 5.00% (1.00% Floor) | 06/17/2020 | 9,950 | 9,902 | 9,900 | ||||||||||||
Crowne Group, LLC (++) (1) |
Auto Components | L + 5.00% (1.00% Floor) | 09/30/2020 | 14,963 | 14,818 | 14,663 | ||||||||||||
Liquidnet Holdings, Inc. (++) (1) (2) |
Capital Markets | L + 6.75% (1.00% Floor) | 05/22/2019 | 23,696 | 23,244 | 22,511 | ||||||||||||
Motor Coach Industries, Inc. (+) |
Automobiles | L + 7.50% (0.50% Floor) | 09/26/2019 | 15,000 | 14,775 | 14,775 | ||||||||||||
OH Acquisition, LLC (+++) (1) |
Diversified Financial
Services |
L + 6.25% (1.00% Floor) | 08/29/2019 | 9,975 | 9,928 | 9,925 | ||||||||||||
PGX Holdings, Inc. (+++) (1) |
Professional Services | L + 5.25% (1.00% Floor) | 09/29/2020 | 14,906 | 14,799 | 14,888 | ||||||||||||
SkinnyPop Popcorn LLC (++) (1) |
Food Products | L + 4.50% (1.00% Floor) | 07/17/2019 | 15,000 | 14,857 | 14,888 | ||||||||||||
|
|
|
|
|||||||||||||||
Total 1st Lien/Senior Secured Debt |
111,897 | 111,168 | ||||||||||||||||
|
|
|
|
|||||||||||||||
TOTAL INVESTMENTS |
$ | 111,897 | $ | 111,168 | ||||||||||||||
|
|
|
|
(+) | The interest rate on these loans is subject to a base rate plus 1 month LIBOR, which as of December 31, 2014 was 0.17%. As the interest rate is subject to a minimum LIBOR floor which was greater than the 1 month LIBOR rate at December 31, 2014, the prevailing rate in effect at December 31, 2014 was the base rate plus the LIBOR floor. |
(++) | The interest rate on these loans is subject to a base rate plus 3 month LIBOR, which as of December 31, 2014 was 0.26%. As the interest rate is subject to a minimum LIBOR floor which was greater than the 3 month LIBOR rate at December 31, 2014, the prevailing rate in effect at December 31, 2014 was the base rate plus the LIBOR floor. |
(+++) | The interest rate on these loans is subject to a base rate plus 6 month LIBOR, which as of December 31, 2014 was 0.36%. As the interest rate is subject to a minimum LIBOR floor which was greater than the 6 month LIBOR rate at December 31, 2014, the prevailing rate in effect at December 31, 2014 was the base rate plus the LIBOR floor. |
F-18
(1) | Investment was purchased from the Company. |
(2) | The Company also holds a portion of the 1 st lien/senior secured debt in this portfolio company. |
L LIBOR
Below is certain summarized financial information for SCF for the period ended December 31, 2014:
December 31, 2014 |
||||
Selected Balance Sheet Information, at fair value |
||||
Total investments, at fair value |
$ | 111,168 | ||
Cash and other assets |
6,723 | |||
|
|
|||
Total assets |
$ | 117,891 | ||
|
|
|||
Debt |
$ | 67,000 | ||
Other liabilities |
1,637 | |||
|
|
|||
Total liabilities |
$ | 68,637 | ||
|
|
|||
Members equity |
49,254 | |||
|
|
|||
Total liabilities and members equity |
$ | 117,891 | ||
|
|
For the period
|
||||
Selected Statement of Operations Information: |
||||
Total investment income |
$ | 1,698 | ||
Total expenses |
(1,096 | ) | ||
Net change in unrealized appreciation (depreciation) on investments |
(729 | ) | ||
|
|
|||
Net increase (decrease) in net assets |
$ | (127 | ) | |
|
|
5. Commitments
The Company had the following unfunded commitments by investment type:
December 31, 2014 |
December 31, 2013 |
|||||||||||||||
Unfunded
|
Fair
|
Unfunded
|
Fair
|
|||||||||||||
1st Lien/Senior Secured Debt |
||||||||||||||||
Bolttech Mannings, Inc. |
$ | 10,534 | $ | (213 | ) | $ | 15,000 | $ | | |||||||
CLP ST. Inc. |
5,000 | (100 | ) | | | |||||||||||
Legacy Buyer Corp. |
2,500 | (50 | ) | | | |||||||||||
NTS Communications, Inc. |
500 | | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total 1st Lien/Senior Secured Debt |
18,534 | (363 | ) | 15,000 | | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
1st Lien/Last-Out Unitranche |
||||||||||||||||
Associations, Inc. |
13,002 | (260 | ) | | | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total 1st Lien/Last-Out Unitranche |
13,002 | (260 | ) | | | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
2nd Lien/Senior Secured Debt |
||||||||||||||||
iFly Holdings LLC |
9,800 | 25 | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total 2nd Lien/Senior Secured Debt |
9,800 | 25 | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 41,336 | $ | (598 | ) | $ | 15,000 | $ | | |||||||
|
|
|
|
|
|
|
|
(1) | The negative fair value was reflected as investments, at fair value in the Statement of Assets and Liabilities. The negative fair value is the result of the capitalized discount on the loan. |
F-19
6. Fair Value Measurement
The fair value of a financial instrument is the amount that would be received to sell an asset or would be paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., the exit price).
The fair value hierarchy under ASC 820 prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The levels used for classifying investments are not necessarily an indication of the risk associated with investing in these securities. The three levels of the fair value hierarchy are as follows:
Basis of Fair Value Measurement
Level 1Inputs to the valuation methodology are quoted prices available in active markets for identical instruments as of the reporting date. The types of financial instruments included in Level 1 includes unrestricted securities, including equities and derivatives, listed in active markets.
Level 2Inputs to the valuation methodology are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date. The type of financial instruments in this category include less liquid and restricted securities listed in active markets, securities traded in other than active markets, government and agency securities and certain over-the-counter derivatives where the fair value is based on observable inputs.
Level 3Inputs to the valuation methodology are unobservable and significant to overall fair value measurement. The inputs into the determination of fair value require significant management judgment or estimation. Financial instruments that are included in this category include investments in privately held entities and certain over-the-counter derivatives where the fair value is based on unobservable inputs.
A financial instruments level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Note 2 Significant Accounting Policies should be read in conjunction with the information outlined below.
The table below presents the valuation techniques and the nature of significant inputs generally used in determining the fair value of Level 2 Instruments.
Level 2 Instruments |
Valuation Techniques and Significant Inputs |
|
Equity and Fixed Income |
The types of instruments that trade in markets that are not considered to be active but are valued based on quoted market prices, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency include commercial paper, most government agency obligations, most corporate debt securities, certain mortgage-backed securities, certain bank loans, less liquid publicly listed equities, certain state and municipal obligations, certain money market instruments and certain loan commitments.
Valuations of Level 2 Equity and Fixed Income instruments can be verified to quoted prices, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. Consideration is given to the nature of the quotations (e.g. indicative or firm) and the relationship of recent market activity to the prices provided from alternative pricing sources. |
F-20
The table below presents the valuation techniques and the nature of significant inputs generally used in determining the fair values of Level 3 Instruments.
Level 3 Instruments |
Valuation Techniques and Significant Inputs |
|
Bank Loans, Corporate Debt, and Other Debt Obligations |
Valuations are generally based on discounted cash flow techniques, for which the significant inputs are the amount and timing of expected future cash flows, market yields and recovery assumptions. The significant inputs are generally determined based on relative value analyses, which incorporate comparisons both to credit default swaps that reference the same underlying credit risk and to other debt instruments for the same issuer for which observable prices or broker quotes are available. Other valuation methodologies are used as appropriate including but not limited to market comparables, transactions in similar instruments and recovery/liquidation analysis. |
|
Equity |
Recent third-party investments or pending transactions are considered to be the best evidence for any change in fair value. When these are not available, the following valuation methodologies are used, as appropriate and available:
Transactions in similar instruments
Discounted cash flow techniques
Third party appraisals
Industry multiples and public comparables
Evidence includes recent or pending reorganizations (for example, merger proposals, tender offers and debt restructurings) and significant changes in financial metrics, including:
Current financial performance as compared to projected performance
Capitalization rates and multiples
Market yields implied by transactions of similar or related assets
Net asset value of underlying fund investments as a practical expedient where appropriate |
F-21
The tables below present the ranges of significant unobservable inputs used to value the Companys Level 3 assets and liabilities. These ranges represent the significant unobservable inputs that were used in the valuation of each type of instrument, but they do not represent a range of values for any one instrument. For example, the lowest yield in 1st Lien/Senior Secured is appropriate for valuing that specific debt investment, but may not be appropriate for valuing any other debt investments in this asset class. Accordingly, the ranges of inputs presented below do not represent uncertainty in, or possible ranges of, fair value measurements of the Companys Level 3 assets and liabilities.
Level 3 Instruments |
Level 3 Assets as of December 31, 2014 1 |
Significant Unobservable Inputs by Valuation Techniques 2 |
Range
3
of Significant
Inputs (Weighted
December 31, 2014 |
|||
Bank Loans, Corporate Debt, and Other Debt Obligations |
1st Lien/Senior Secured Debt |
Discounted cash flows: | 10.7% - 15.4%(12.8%) | |||
$143,177 | Discount Rate | |||||
1st Lien/Last-Out Unitranche | Discounted cash flows: | 11.1% - 13.2%(12.4%) | ||||
$153,150 | Discount Rate | |||||
2nd Lien/Senior Secured Debt | Discounted cash flows: | 8.9% - 14.4%(12.4%) | ||||
$179,588 | Discount Rate | |||||
Equity |
Preferred Stock | Discounted cash flows: | ||||
$26,358 | Discount Rate | 10% - 12%(11.7%) | ||||
Comparable multiples: | ||||||
EV/EBITDA 5 | 2.8x - 5.6x (4.2x) | |||||
EV/Production 6 | $24 - $63($40) | |||||
Common Stock | Discounted cash flows: | |||||
$632 | Discount Rate | 10.0% | ||||
Comparable multiples: | ||||||
EV/EBITDA 5 | 2.8x - 5.6x (4.2x) | |||||
EV/Production 6 | $24 - $63($40) |
1 | Included within Level 3 Assets of $808,656 is an amount of $305,751 for which the Investment Adviser did not develop the unobservable inputs (examples include but are not limited to single source broker quotations, third party pricing, prior transactions, and NAV statements). |
2 | The fair value of any one instrument may be determined using multiple valuation techniques. For example, market comparable and discounted cash flows may be used together to determine fair value. Therefore, the Level 3 balance encompasses both of these techniques. |
3 | The range for an asset category consisting of a single investment represents the relevant market data considered in determining the fair value of the investment. |
4 | Weighted average for an asset category consisting of multiple investments is calculated by weighting the significant unobservable input by the relative fair value of the investments. Weighted average for an asset category consisting of a single investment represents the significant unobservable input used in the fair value of the investment. |
5 | Enterprise value of portfolio company as a multiple of earnings before interest, taxes, depreciation and amortization. |
6 | Enterprise value of portfolio company as a multiple of oil and gas production (barrels of oil equivalent per day). |
F-22
Level 3 Instruments |
Level 3 Assets as of December 31, 2013 1 |
Significant Unobservable Inputs by Valuation Techniques 2 |
Range of Significant Unobservable
|
|||
Bank Loans, Corporate Debt, and Other Debt Obligations |
2nd Lien/Senior
Secured Debt $66,161 |
Discounted cash flows:
Yield |
11.6% - 13.9%(13.5)% | |||
Unsecured Debt
$4,446 |
Discounted cash flows:
Discount Rate EV/EBITDA EV/Production |
10.0%
3.2x - 6.2x (4.6x) $18 - $73($42) |
1 | Included within Level 3 assets of $313,003 is an amount of $242,396 for which the Investment Adviser did not develop the unobservable inputs (examples include, but are not limited to, single source broker quotations, third party pricing and prior transactions) for the valuation of such assets and liabilities as of December 31, 2013, and therefore is not presented in the table. |
2 | The fair value of any one instrument may be determined using multiple valuation techniques. For example, market comparable and discounted cash flows may be used together to determine fair value. Therefore, the Level 3 balance encompasses both of these techniques. |
3 | Ranges were determined using a weighted average based upon the fair value of investments in each category. |
As noted above, the income and market approaches were used in the determination of fair value of certain Level 3 assets as of December 31, 2014 and December 31, 2013. The significant unobservable inputs used in the income approach are the discount rate or market yield used to discount the estimated future cash flows expected to be received from the underlying investment, which include both future principal and interest payments. An increase in the discount rate or market yield would result in a decrease in the fair value. Included in the consideration and selection of discount rates is risk of default, rating of the investment, call provisions and comparable company investments. The significant unobservable inputs used in the market approach are based on market comparable transactions and market multiples of publicly traded comparable companies. Significant increases or decreases in market multiples would result in an increase or decrease in the fair value.
The following is a summary of the Companys assets categorized within the fair value hierarchy as of December 31, 2014:
Assets |
Level 1 |
Level 2 |
Level 3 |
Total |
||||||||||||
1st Lien/Senior Secured Debt |
$ | | $ | 58,268 | $ | 176,931 | $ | 235,199 | ||||||||
1st Lien/Last-Out Unitranche |
| | 275,567 | 275,567 | ||||||||||||
2nd Lien/Senior Secured Debt |
| 47,023 | 304,541 | 351,564 | ||||||||||||
Preferred Stock |
| | 26,358 | 26,358 | ||||||||||||
Common Stock |
| | 632 | 632 | ||||||||||||
Investment Funds & Vehicles 1 |
| | 24,627 | 24,627 | ||||||||||||
Affiliated Money Market Fund |
29,568 | | | 29,568 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets |
$ | 29,568 | $ | 105,291 | $ | 808,656 | $ | 943,515 | ||||||||
|
|
|
|
|
|
|
|
1 | Includes equity investments in SCF. |
F-23
The following is a summary of the Companys assets categorized within the fair value hierarchy as of December 31, 2013:
Assets |
Level 1 |
Level 2 |
Level 3 |
Total |
||||||||||||
1st Lien/Senior Secured Debt |
$ | | $ | 100,929 | $ | 108,941 | $ | 209,870 | ||||||||
2nd Lien/Senior Secured Debt |
| 76,832 | 179,056 | 255,888 | ||||||||||||
Unsecured Debt Fixed |
| 2,653 | 4,446 | 7,099 | ||||||||||||
Preferred Stock |
| | 20,560 | 20,560 | ||||||||||||
Affiliated Money Market Fund |
120,518 | | | 120,518 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets |
$ | 120,518 | $ | 180,414 | $ | 313,003 | $ | 613,935 | ||||||||
|
|
|
|
|
|
|
|
The following is a reconciliation of Level 3 assets for the year ended December 31, 2014:
Level 3 |
Beginning
as of
|
Purchases (1) |
Net
|
Net change
in
|
Sales and
|
Net
Discount |
Transfers
|
Transfers
|
Ending
as of
|
|||||||||||||||||||||||||||
1st Lien/Senior Secured Debt |
$ | 76,700 | $ | 167,468 | $ | (152 | ) | $ | (2,756 | ) | $ | (64,641 | ) | $ | 312 | $ | | $ | | $ | 176,931 | |||||||||||||||
1st Lien/Last-Out Unitranche (3) |
32,241 | 245,359 | 9 | (749 | ) | (1,673 | ) | 380 | | | 275,567 | |||||||||||||||||||||||||
2nd Lien/Senior Secured Debt |
179,056 | 159,130 | 249 | (381 | ) | (62,745 | ) | 563 | 28,669 | | 304,541 | |||||||||||||||||||||||||
Unsecured Debt Fixed |
4,446 | | | | (4,446 | ) | | | | | ||||||||||||||||||||||||||
Preferred Stock |
20,560 | 5,203 | | 595 | | | | | 26,358 | |||||||||||||||||||||||||||
Common Stock |
| 4,446 | | (3,814 | ) | | | | | 632 | ||||||||||||||||||||||||||
Investment Funds & Vehicles |
| 25,000 | | (373 | ) | | | | | 24,627 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total assets |
$ | 313,003 | $ | 606,606 | $ | 106 | $ | (7,478 | ) | $ | (133,505 | ) | $ | 1,255 | $ | 28,669 | $ | | $ | 808,656 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Purchases may include securities received in corporate actions and PIK. Sales and Settlements may include securities delivered in corporate actions. |
(2) | Change in unrealized appreciation (depreciation) relating to assets still held at December 31, 2014 totaled $(7,350) consisting of the following: 1st Lien/Senior Secured Debt $(2,642), 1st Lien/Last-Out Unitranche $(810), 2nd Lien/Senior Secured Debt $(306), Preferred Stock $595, Common Stock $(3,814), and Investment Funds & Vehicles $(373). |
(3) | Beginning balance included in first lien senior secured debt as of December 31, 2013. |
The following is a reconciliation of Level 3 assets for the year ended December 31, 2013:
Level 3 |
Beginning
|
Purchases |
Net
|
Net change in
|
Sales and
|
Net
Discount |
Transfers
|
Transfers
|
Ending
as of
|
|||||||||||||||||||||||||||
1st Lien/Senior Secured Debt |
$ | | $ | 110,796 | $ | 26 | $ | (57 | ) | $ | (1,879 | ) | $ | 55 | $ | | $ | | $ | 108,941 | ||||||||||||||||
2nd Lien/Senior Secured Debt |
| 169,763 | (26 | ) | 459 | (4,040 | ) | 160 | 12,740 | | 179,056 | |||||||||||||||||||||||||
Unsecured Debt Fixed |
| 4,887 | | (2,461 | ) | | 160 | 1,860 | | 4,446 | ||||||||||||||||||||||||||
Preferred Stock |
| 20,000 | | 560 | | | | | 20,560 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total assets |
$ | | $ | 305,446 | $ | | $ | (1,499 | ) | $ | (5,919 | ) | $ | 375 | $ | 14,600 | $ | | $ | 313,003 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 | Change in unrealized appreciation (depreciation) relating to assets and liabilities still held at December 31, 2013 totaled $(1,499), consisting of the following: 1st Lien/Senior Secured Debt $(57), 2nd Lien/Senior Secured Debt $459, Unsecured DebtFixed $(2,461), and Preferred Stock $560. |
F-24
Transfers between levels of the fair value hierarchy are reported at the beginning of the reporting period in which they occur. For the years ended December 31, 2014 and December 31, 2013, transfers from Level 2 to Level 3 were primarily due to decreased price transparency of certain corporate debt securities.
Debt Not Carried at Fair Value
The fair value of the Companys debt, which is categorized as Level 3 within the fair value hierarchy as of December 31, 2014, approximates its carrying value. There was no debt outstanding as of December 31, 2013.
7. Indemnifications
In the normal course of business, the Company enters into contracts that provide a variety of general indemnifications. Any exposure to the Company under these arrangements could involve future claims that may be made against the Company. Currently, no such claims exist or are expected to arise and, accordingly, the Company has not accrued any liability in connection with such indemnifications.
8. Private Offering and Distributions
Common shares were offered at $20 per share in a private placement on April 1, 2013. Thereafter, additional shares were issued at a price per share equal to the net asset value (NAV) per share at the time of offering. For the year ended December 31, 2013, the Company closed offerings of 25,260,470 of its common shares in private placements totaling $505,428, of which Group Inc. acquired 701,760 common shares totaling $14,076. In addition to the shares acquired in the private placements, as part of the Conversion, Group Inc. received 5,379,354 common shares of the Company in exchange for its SMLLC units totaling $107,587 as of April 1, 2013. For the year ended December 31, 2014, there was no offering of the Companys common shares in a private placement.
The Company intends to pay quarterly distributions to its stockholders from assets available for distribution. Quarterly distributions, if any, will be determined by the Companys Board of Directors. All distributions will be subject to available funds, and no assurance can be given that the Company will be able to declare such distributions in future periods.
The following table reflects the Companys distributions declared on its shares for the year ended December 31, 2014:
Date Declared |
Record Date |
Ex-Date |
Payment Date |
Amount Per Share |
||||
March 28, 2014 |
March 17, 2014 | March 31, 2014 | April 30, 2014 | $0.33 | ||||
June 27, 2014 |
June 17, 2014 | June 30, 2014 | July 31, 2014 | $0.41 | ||||
September 29, 2014 |
September 24, 2014 | September 30, 2014 | October 31, 2014 | $0.42 | ||||
December 30, 2014 |
December 23, 2014 | December 31, 2014 | January 30, 2015 | $0.53 |
The following table reflects the Companys distributions declared on its shares for the year ended December 31, 2013:
Date Declared |
Record Date |
Ex-Date |
Payment Date |
Amount Per Share |
||||
July 17, 2013 |
June 28, 2013 | June 28, 2013 | July 22, 2013 | $0.08 | ||||
October 17, 2013 |
September 27, 2013 | September 30, 2013 | October 21, 2013 | $0.19 | ||||
December 10, 2013 |
December 10, 2013 | December 10, 2013 | January 30, 2014 | $0.23 |
There were no distributions declared during the period ended December 31, 2012.
F-25
9. Significant Agreements and Related Parties
Management
The Company has entered into an investment management agreement (as amended, the Management Agreement) with the Investment Adviser, pursuant to which the Investment Adviser manages the Companys investment program and related activities.
The Company pays the Investment Adviser a management fee (the Management Fee), accrued and payable quarterly. The Management Fee is calculated, after making appropriate adjustments for equity capital raises and repurchases, at an annual rate of 1.5% of the Companys average gross assets (other than cash or investments in money market funds, but including assets purchased with borrowed amounts) at the end of each of the two most recently completed calendar quarters. The Management Fee for any partial month or quarter has been appropriately prorated.
For the years ended December 31, 2014 and December 31, 2013 and the period ended December 31, 2012, Management Fees charged amounted to $10,069, $3,586, and $71, respectively. As of December 31, 2014, $3,326 remained payable.
Incentive Fees
The Incentive Fee (the Incentive Fee) is calculated pursuant to the Management Agreement, effective as of April 1, 2013, which is a modification from the method applied up to March 31, 2013.
The Company calculates the Incentive Fee on:
i) | income |
ii) | capital gains |
Quarterly Incentive Fees Based on Income. The Company accrues monthly and pays the Investment Adviser a quarterly Incentive Fee based on the amount by which (A) aggregate net investment income in respect of the relevant trailing four quarters (Ordinary Income) less the amount of any net realized and unrealized capital loss (Adjusted Ordinary Income) exceeds (B) the quarterly hurdle of 1.75% (7% annualized) of the Companys net asset value at the beginning of the trailing four quarters after making appropriate adjustments for subscriptions and distributions (Adjusted Net Asset Value). The trailing four quarter period is the Companys current quarter and the three preceding quarters or the appropriate portion in the Companys first and last year. The amount of the excess of (A) over (B) is referred to as the Excess Income Amount. Net investment income is net of all fees and expenses, including the Management Fee, but excluding any Incentive Fee expense.
The Incentive Fee for a quarter equals 100% of the trailing four quarters Excess Income Amount until the Companys Adjusted Ordinary Income exceeds an annualized hurdle rate of 8.75% of the Companys Adjusted Net Asset Value. Thereafter, the Incentive Fee for the quarter will equal 20% of the trailing four quarters remaining Excess Income Amount. The Incentive Fee paid to the Investment Adviser for a quarter equals the excess of the calculated Incentive Fee less the cumulative amount of such Incentive Fees paid in the preceding three quarters.
Annual Incentive Fees Based on Capital Gains . Annually, the Company pays the Investment Adviser an Incentive Fee equal to (A) 20% of net realized capital gains and unrealized capital depreciation, from April 1, 2013 until the end of the year less (B) the cumulative amount of such Incentive Fees paid to the Investment Adviser from April 1, 2013.
F-26
The Incentive Fee for each annual period is limited to the amount by which the Ordinary Income (reduced by the Incentive Fee based on income for the period) plus/minus net capital gain/loss for the period exceeds the annual hurdle of 7%.
Unrealized capital appreciation is excluded from the calculation in (A) above, however, the Company, in accordance with GAAP, accrues, but does not pay, that part of the Incentive Fee relating to unrealized capital appreciation. There can be no assurance that such unrealized capital appreciation will be realized in the future.
The calculation of the Incentive Fee, pursuant to the Management Agreement, has been modified from the method used prior to the Conversion.
Prior to Conversion, the Company paid the Investment Adviser an Incentive Fee in two parts:
The first part of the Incentive Fee was accrued monthly and paid quarterly in arrears based on the Companys pre-Incentive Fee net investment income for the immediately preceding calendar quarter. The Company paid the Investment Adviser with respect to the Companys pre-Incentive Fee net investment income in each calendar quarter as follows: (1) no Incentive Fee in any calendar quarter in which the Companys pre-Incentive Fee net investment income did not exceed 1.75% (7% annualized) of the Companys net asset value at the beginning of the quarter after making appropriate adjustments for subscriptions and redemptions; (2) 100% of the Companys pre-Incentive Fee net investment income with respect to that portion of such pre-Incentive Fee net investment income, if any, that exceeds 1.75% (7% annualized) but did not exceed 2.1875% (8.75% annualized) of the Companys net asset value at the beginning of the quarter after making appropriate adjustments in any calendar quarter; and (3) 20% of the amount of the Companys pre-Incentive Fee net investment income, if any, that exceeds 2.1875% in any calendar quarter.
The second part of the Incentive Fee (the Capital Gains Fee) was payable in arrears as of the end of each calendar year and was calculated at the end of each applicable year by subtracting (A) the sum of the Companys cumulative aggregate realized capital losses and aggregate unrealized capital depreciation from (B) the Companys cumulative aggregate realized capital gains, in each case calculated from the date of the Companys formation. If such amount was positive at the end of such year, then the Capital Gains Fee for such year was equal to 20% of such amount attributable to the units, less the aggregate amount of Capital Gains Fees attributable to the units paid in all prior years. If such amount was negative, then there was not a Capital Gains Fee for such year.
For the years ended December 31, 2014 and December 31, 2013 and the period ended December 31, 2012, the Company vested Incentive Fees based on income of $1,495, $340, and $209, respectively. For the years ended December 31, 2014 and December 31, 2013 and the period ended December 31, 2012, the Company did not accrue Incentive Fees based on capital gains.
Financing
On September 19, 2013, the Company entered into a revolving credit facility (as amended, the Credit Facility) with various lenders. SunTrust Bank, one of the lenders, also serves as administrative agent under the Credit Facility. Effective October 3, 2014 the Company entered into an amendment to the Credit Facility to, among other things, increase the aggregate committed amount of $340,000 to $485,000, increase the size of the uncommitted accordion amount of $160,000 to $415,000, extend the maturity date from September 19, 2017 to October 3, 2019, and reduce the interest rate for borrowings.
The Companys obligations to the lenders are secured by a first priority security interest in substantially the entire portfolio of investments and cash. The Credit Facility contains certain covenants, including, but not limited to: (i) maintaining a minimum stockholders equity of $400,000, subject to increase pending certain equity sales, (ii) maintaining an asset coverage ratio of at least 2 to 1, and (iii) maintaining a minimum liquidity
F-27
test of at least 10% of the covered debt amount during any period when the adjusted covered debt balance is greater than 90% of the adjusted borrowing base, as defined in the Credit Facility. As of December 31, 2014, the Company was in compliance with these covenants.
Borrowings under the Credit Facility, including amounts drawn in respect of letters of credit, bear interest (at the Companys annual election) of either (i) London Interbank Offered Rate (LIBOR) plus 2.25% with no LIBOR floor or (ii) 1.25% plus an alternate base rate based on the highest of the Prime Rate, Federal Funds Rate plus 0.5% or overnight LIBOR plus 1.0%. The Company pays a fee of 0.375% per annum on committed but undrawn amounts under the Credit Facility and a fee per annum equal to the then-applicable LIBOR margin on the face amount of outstanding undrawn letters of credit, payable quarterly in arrears. Interest is payable quarterly in arrears. Any amounts borrowed under the Credit Facility will mature, and all accrued and unpaid interest will be due and payable, on October 3, 2019.
Costs of $6,276 were incurred in connection with obtaining and amending the Credit Facility, which have been recorded as deferred financing costs on the Statement of Assets and Liabilities and are being amortized over the life of the Credit Facility.
In accordance with the Investment Company Act, with certain exceptions, the Company is only allowed to borrow amounts such that its asset coverage ratio, as defined in the Investment Company Act, is at least 2 to 1 after such borrowing. As of December 31, 2014, there was $350,000 of outstanding borrowings under the Credit Facility; and the Companys asset coverage ratio was 2.64 to 1. There were no borrowings outstanding under the Credit Facility as of December 31, 2013. The summary information regarding the Credit Facility for the years ended December 31, 2014 and December 31, 2013 were as follows:
Year ended
|
Year ended
|
|||||||
Borrowing interest expense |
$ | 2,587 | $ | | ||||
Facility fees |
1,083 | 368 | ||||||
Amortization of financing costs |
1,013 | 290 | ||||||
|
|
|
|
|||||
Total |
$ | 4,683 | $ | 658 | ||||
|
|
|
|
|||||
Weighted average interest rate |
2.53 | % | | |||||
Average outstanding balance |
102,285 | |
F-28
Affiliates
At December 31, 2014 and December 31, 2013, affiliates of Goldman Sachs owned 25.77% and 25.78%, respectively, of the outstanding shares of the Company.
A summary of the Companys investments in affiliated investments for the year ended December 31, 2014, was as follows:
Fair Value as of
|
Purchases (2) |
Sales (2) |
Change in
|
Fair Value as of
|
Dividend
|
|||||||||||||||||||
Controlled Affiliates |
||||||||||||||||||||||||
Senior Credit Fund LLC (*) |
$ | | $ | 25,000 | $ | | $ | (373 | ) | $ | 24,627 | $ | 309 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total Controlled Affiliates |
$ | | $ | 25,000 | $ | | $ | (373 | ) | $ | 24,627 | $ | 309 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Non-Controlled Affiliates |
||||||||||||||||||||||||
Goldman Sachs Financial Square Government Fund (1) |
$ | 120,518 | $ | 644,571 | $ | (735,521 | ) | $ | | $ | 29,568 | $ | 3 | |||||||||||
Lone Pine Resources CDA, Ltd. (Preferred Stock) |
| 4,791 | | 1,155 | 5,946 | | ||||||||||||||||||
Lone Pine Resources CDA, Ltd. (Common Stock) |
| 4,446 | | (3,814 | ) | 632 | | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total Non-Controlled Affiliates |
$ | 120,518 | $ | 653,808 | $ | (735,521 | ) | $ | (2,659 | ) | $ | 36,146 | $ | 3 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total Affiliates |
$ | 120,518 | $ | 678,808 | $ | (735,521 | ) | $ | (3,032 | ) | $ | 60,773 | $ | 312 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Fund advised by an affiliate of Goldman Sachs. |
(2) | Purchases may include securities received in corporate actions and PIK. Sales may include securities delivered in corporate actions. |
(*) | Together with Cal Regents, the Company co-invests through SCF. Although the Company owns more than 25% of the voting securities of SCF, the Company does not believe that it has control over SCF (other than for purposes of the Investment Company Act). See Note 4 Investments. |
A summary of the Companys investments in the affiliated investments for the year ended December 31, 2013, was as follows:
Fair Value as of
|
Purchases |
Sales |
Change in
|
Fair Value as of
|
Dividend
|
|||||||||||||||||||
Goldman Sachs Financial Square Government Fund (1) |
$ | 500 | $ | 577,518 | $ | 457,500 | $ | | $ | 120,518 | $ | 18 |
(1) | Fund advised by an affiliate of Goldman Sachs. |
Administration and Custodian Fees
The Company has entered into an administration agreement with State Street Bank and Trust Company (the Administrator) under which the Administrator provides various accounting and administrative services to the Company. Administrative services may include maintenance of the Companys books and records, processing of investor transactions, calculation of the NAV and payments of the Companys fees and expenses. To the extent that the Administrator outsources any of its functions, the Administrator will pay any compensation associated with such functions. The Administrator also serves as the Companys custodian (the Custodian) and sub-transfer agent.
F-29
For the years ended December 31, 2014 and December 31, 2013 and the period ended December 31, 2012, the Company incurred expenses for services provided by the Administrator and the Custodian of $844, $468 and $19, respectively. As of December 31, 2014, $452 remained payable.
Transfer Agent Fees
Goldman Sachs serves as the Companys transfer agent (Transfer Agent) and dividend agent. Prior to the Conversion, International Fund Services was the Transfer Agent. For the years ended December 31, 2014 and December 31, 2013 and the period ended December 31, 2012 the Company incurred expenses for services provided by the Transfer Agent of $12, $9 and $0, respectively. As of December 31, 2014, $15 remained payable.
Reimbursement of Organization and Offering Costs
The Investment Adviser has reimbursed the Company for organization and private placement offering costs in excess of $1,250. For the year ended December 31, 2014, the Company incurred $10 of private placement offering costs. For the year ended December 31, 2013, the Company incurred $2,762 of organization and private placement offering costs.
10. Share Repurchase Offers
Each quarter, beginning with the calendar quarter ended December 31, 2013, the Board of Directors, in its sole discretion, determines the number of shares, if any, that the Company will offer to repurchase (the Repurchase Offer Amount). The quarterly Repurchase Offer Amount can be up to 5% of the total number of shares outstanding on the date by which a stockholder can tender its shares in response to the Companys offer to repurchase shares (Repurchase Offer). The Company will repurchase shares at NAV per share of the Company at the end of the quarter.
For the year ended December 31, 2014, the Company extended the following Repurchase Offers:
Repurchase Request
|
Percentage of
|
Amount of Shares
|
Number of Shares
|
Number of Shares
|
Total Number of
|
|||||||||||||||
March 18, 2014 |
5 | % | 1,519,506 | 136,498 | 551,250 | 687,748 | ||||||||||||||
June 18, 2014 |
5 | % | 1,485,118 | 47,666 | 192,500 | 240,166 | ||||||||||||||
September 25, 2014 |
2 | % | 589,244 | 8,662 | 34,983 | 43,645 | ||||||||||||||
December 24, 2014 |
1 | % | 294,186 | 7,428 | 30,000 | 37,428 |
For the year ended December 31, 2013, the Company extended the following Repurchase Offers:
Repurchase Request
|
Percentage of
|
Amount of Shares
|
Number of Shares
|
Number of Shares
|
Total Number of
|
|||||||||||||||
December 11, 2013 |
5 | % | 1,531,991 | 49,560 | 200,150 | 249,710 |
F-30
11. Tax Information
There were no distributions during the period ended December 31, 2012. The tax character of distributions during the years ended December 31, 2014 and December 31, 2013 were as follows:
Year Ended December 31, 2014 |
Year Ended December 31, 2013 |
|||||||
Distributions paid from: |
||||||||
Ordinary Income |
$ | 48,813 | $ | 15,317 | ||||
Net Long-Term Capital Gains |
$ | 1,167 | $ | | ||||
|
|
|
|
|||||
Total Taxable Distributions |
$ | 49,980 | $ | 15,317 | ||||
|
|
|
|
As of December 31, 2014 and December 31, 2013, the components of Accumulated Earnings (Losses) on a tax basis were as follows:
December 31, 2014 |
December 31, 2013 |
|||||||
Undistributed Ordinary Incomenet |
$ | 4,079 | $ | 152 | ||||
Undistributed Long-Term Capital Gains |
$ | 248 | $ | | ||||
|
|
|
|
|||||
Total Undistributed Earnings |
$ | 4,327 | $ | 152 | ||||
Unrealized Earnings (Losses)net |
$ | (16,235 | ) | $ | 871 | |||
|
|
|
|
|||||
Total Accumulated Earnings (Losses)net |
$ | (11,908 | ) | $ | 1,023 | |||
|
|
|
|
As of December 31, 2014 and December 31, 2013, the Companys aggregate unrealized appreciation and depreciation on investments based on cost for U.S. federal income tax purposes were as follows:
December 31, 2014 |
December 31, 2013 |
|||||||
Tax cost |
$ | 959,750 | $ | 613,064 | ||||
Gross unrealized appreciation |
$ | 5,372 | $ | 5,204 | ||||
Gross unrealized depreciation |
$ | (21,607 | ) | $ | (4,333 | ) | ||
Net unrealized investment appreciation on investments |
$ | (16,235 | ) | $ | 871 |
The difference between GAAP-basis and tax basis unrealized gains (losses) is attributable primarily to differences in the tax treatment of underlying fund investments.
In order to present certain components of the Companys capital accounts on a tax-basis, certain reclassifications have been recorded to the Companys accounts. These reclassifications have no impact on the net asset value of the Companys and result primarily from dividend redesignations, certain non-deductible expenses, and differences in the tax treatment of paydown gains and losses.
December 31, 2014 |
December 31, 2013 |
|||||||
Paid-in capital in excess of par |
$ | (126 | ) | $ | 3,576 | |||
Accumulated undistributed net investment income |
$ | (978 | ) | $ | (823 | ) | ||
Accumulated net realized gain (loss) |
$ | 1,104 | $ | (2,753 | ) |
ASC 740 Accounting for Uncertainty in Income Taxes (ASC 740) provides guidance on the accounting for and disclosure of uncertainty in tax position. ASC 740 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Companys tax returns to determine whether the tax positions are more-likely-than-not of being sustained by the applicable tax authority. Tax positions deemed to
F-31
meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. Based on its analysis of its tax position for all open tax years (the current and prior years, as applicable), the Company has concluded that it does not have any uncertain tax positions that met the recognition or measurement criteria of ASC 740. Such open tax years remain subject to examination and adjustment by tax authorities.
The March 31, 2013 effective tax rate of 39.3% differs from statutory rates due principally to state and local taxes. Net tax expense of $1,070 for the three months ended March 31, 2013 is comprised of a current tax expense of $375 resulting from net investment income and deferred tax expense of $695 resulting from unrealized and realized gains.
12. Other Risks
The Companys investing activities expose it to various types of risk that are associated with the financial instruments and markets in which it invests. The significant types of financial risks to which the Company is exposed are market risk and credit risk.
A. Market Risk Market risk encompasses the potential for both losses and gains and includes interest rate risk and price risk. The Companys market risk management strategy is driven by the Companys investment objective.
i. Interest Rate RiskThe Company invests in fixed income securities. Any change to the interest rates relevant for particular securities may result in the Investment Adviser being unable to secure similar returns on the expiration of contracts or the sale of securities. In addition, changes to prevailing rates or changes in expectations of future rates may result in an increase or decrease in the value of the securities held. In general, if interest rates rise, the value of the debt securities will decline. A decline in interest rates will in general have the opposite effect.
ii. Price RiskPrice risk is the risk that the value of the instrument will fluctuate as a result of changes in market prices, whether caused by factors specific to an individual investment, or its issuer, or by any factor affecting financial instruments traded in the market. As the Companys financial instruments are carried at fair value with fair value changes recognized in the Statement of Operations, all changes in market conditions will directly affect net assets.
B. Credit RiskCredit risk is the risk that a counterparty to or an issuer of a financial instrument will cause a financial loss to the other party by failing to discharge an obligation.
Debt securities are subject to the risk of the issuers or a guarantors inability to meet principal and interest payments on its obligations and are subject to price volatility due to factors such as interest rate sensitivity, market perception of the creditworthiness of the issuer, and general market liquidity. The Company may invest in non-investment grade and unrated securities. Non-investment grade debt securities have historically experienced greater default rates than investment grade securities.
F-32
13. Financial Highlights
Below is the schedule of financial highlights of the Company for the years ended December 31, 2014 and December 31, 2013 and the period ended December 31, 2012:
Year ended
|
Year ended
|
Period from
|
||||||||||
Per Share Data: (1) |
||||||||||||
Net asset value, beginning of year/period |
$ | 20.00 | $ | 19.37 | $ | 18.59 | ||||||
Net investment income (loss) |
1.77 | 0.67 | (.10 | ) | ||||||||
Net realized and unrealized gains (losses) |
(0.52 | ) | 0.51 | 0.88 | ||||||||
|
|
|
|
|
|
|||||||
Net increase (decrease) in net assets resulting from operations (2) |
1.25 | 1.18 | 0.78 | |||||||||
|
|
|
|
|
|
|||||||
Distributions declared from:(3) |
||||||||||||
Net investment income |
(1.61 | ) | (0.49 | ) | | |||||||
Net realized gain |
(0.08 | ) | (0.01 | ) | | |||||||
|
|
|
|
|
|
|||||||
Total distributions |
(1.69 | ) | (0.50 | ) | | |||||||
Offering costs |
| (0.05 | ) | | ||||||||
|
|
|
|
|
|
|||||||
Net asset value, end of year/period |
$ | 19.56 | $ | 20.00 | $ | 19.37 | ||||||
|
|
|
|
|
|
|||||||
Shares outstanding, end of year/period |
29,381,127 | 30,390,114 | 2,655,017 | |||||||||
Total return (4) |
6.36 | % | 5.86 | % | 4.20 | % | ||||||
Ratio/Supplemental Data (all amounts in thousands except ratios): |
||||||||||||
Net assets, end of year/period |
$ | 574,582 | $ | 607,785 | $ | 51,423 | ||||||
Ratio of total expenses to average net assets |
3.45 | % | 1.57 | % | 3.01 | %(6) | ||||||
Ratio of net investment income to average net assets |
8.85 | % | 3.34 | % | 0.95 | %(6) | ||||||
Ratio of interest and credit facility expenses to average net assets |
0.79 | % | 0.14 | % | | %(6) | ||||||
Ratio of incentive fees to average net assets |
0.25 | % | 0.07 | % | 0.66 | %(5) | ||||||
Ratio of net expenses to average net assets |
3.45 | % | 1.45 | % | 3.01 | %(6) | ||||||
Portfolio turnover |
41 | % | 15 | % | 0 | % |
(1) | The per share data was derived by using the weighted average shares outstanding during the applicable period. |
(2) | Includes the effect of income tax expense and the related deemed contribution. |
(3) | The per share data for distributions declared reflects the actual amount of distributions declared per share for the applicable period. |
(4) | The total return is calculated by taking the increase or decrease in net asset value per share, adding dividends per share declared during the period, assuming dividend reinvestment prices based on the net asset value per share on ex-date, and dividing by the beginning net asset value per share. |
(5) | Not annualized. |
(6) | Annualized except for Incentive Fees and certain operating expenses. |
F-33
14. Selected Quarterly Financial Data (Unaudited)
The following are the quarterly results of operations for the years ended December 31, 2014 and December 31, 2013. The following information reflects all normal recurring adjustments necessary for a fair presentation of the information for the periods presented. The operating results for any quarter are not necessarily indicative of results for any future period.
Quarter Ended |
||||||||||||||||
December 31, 2014 |
September 30, 2014 |
June 30, 2014 |
March 31, 2014 |
|||||||||||||
Investment income |
$ | 24,359 | $ | 19,076 | $ | 16,106 | $ | 13,738 | ||||||||
Expenses: |
||||||||||||||||
Total expenses |
6,964 | 6,660 | 3,581 | 3,336 | ||||||||||||
Less: Expense reimbursement from Investment Adviser |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net expenses |
6,964 | 6,660 | 3,581 | 3,336 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net investment income (loss) |
17,395 | 12,416 | 12,525 | 10,402 | ||||||||||||
Net realized and unrealized gains (losses) |
(13,619 | ) | (1,161 | ) | (96 | ) | (940 | ) | ||||||||
Income tax expense |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net increase in net assets resulting from operations after tax |
$ | 3,776 | $ | 11,255 | $ | 12,429 | $ | 9,462 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net investment income per share (basic and diluted) |
$ | 0.59 | $ | 0.42 | $ | 0.42 | $ | 0.34 | ||||||||
Earnings per share (basic and diluted) |
$ | 0.13 | $ | 0.38 | $ | 0.42 | $ | 0.31 | ||||||||
Weighted average shares outstanding |
29,418,149 | 29,461,726 | 29,699,727 | 30,382,473 |
Quarter Ended |
||||||||||||||||
December 31, 2013 |
September 30, 2013 |
June 30, 2013 |
March 31, 2013 |
|||||||||||||
Investment income |
$ | 9,603 | $ | 7,047 | $ | 4,180 | $ | 2,005 | ||||||||
Expenses: |
||||||||||||||||
Total expenses |
3,098 | 1,681 | 1,296 | 1,391 | ||||||||||||
Less: Expense reimbursement from Investment Adviser |
(157 | ) | | | (410 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net expenses |
2,941 | 1,681 | 1,296 | 981 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net investment income (loss) |
6,662 | 5,366 | 2,884 | 1,024 | ||||||||||||
Net realized and unrealized gains (losses) |
3,158 | (249 | ) | (1,490 | ) | 1,699 | ||||||||||
Income tax expense |
| | | (1,070 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net increase in net assets resulting from operations after tax |
$ | 9,820 | $ | 5,117 | $ | 1,394 | $ | 1,653 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net investment income per share (basic and diluted) |
$ | 0.22 | $ | 0.18 | $ | 0.10 | $ | 0.24 | ||||||||
Earnings per share (basic and diluted) |
$ | 0.32 | $ | 0.17 | $ | 0.05 | $ | 0.38 | ||||||||
Weighted average shares outstanding |
30,555,683 | 30,639,824 | 29,373,224 | 4,344,591 |
The sum of quarterly per share amounts does not equal per share amounts reported for the years ended December 31, 2014 and December 31, 2013. This is due to changes in the number of weighted-average shares outstanding and the effects of rounding for each period.
F-34
15. Subsequent Events
Subsequent events after the Statement of Assets and Liabilities date have been evaluated through February 17, 2015, the date the audited financial statements were available to be issued. Other than the items discussed below, the Company has concluded that there is no impact requiring adjustment or disclosure in the financial statements.
In January 2015, the Company exercised the right under the accordion feature and increased the size of the Credit Facility to $535,000. The remaining available balance under the accordion is $365,000.
Effective January 1, 2015, the Management Agreement was amended and restated to revise how the Incentive Fee based on income and the Incentive Fee based on capital gains are calculated. Effective January 1, 2015, the Incentive Fee is calculated as follows:
Quarterly Incentive Fee Based on Income
The Company pays the Investment Adviser quarterly in arrears an Incentive Fee based on the amount by which aggregate net investment income in respect of the relevant Trailing Twelve Quarters (as defined below) exceeds a quarterly hurdle amount of 1.75% (7% annualized) of the Companys Adjusted Net Asset Value (the Hurdle Amount). The Trailing Twelve Quarters means the calendar quarter for which the Incentive Fee is being determined and the eleven preceding quarters (or, if shorter, the number of calendar quarters that have occurred since January 1, 2015).
No Incentive Fee based on income is payable to the Investment Adviser for a quarter unless the Companys aggregate net investment income in respect of the relevant Trailing Twelve Quarters exceeds the Hurdle Amount. The Incentive Fee based on income for a quarter equals 100% of the amount, if any, by which the Trailing Twelve Quarters aggregate net investment income exceeds the Trailing Twelve Quarters hurdle amount but is less than the sum of 2.1875% (8.75% annualized) of the Companys Adjusted Net Asset Value for each of the Trailing Twelve Quarters (the Catch-up Amount). Thereafter, the Incentive Fee based on income for the quarter will equal 20% of the Companys aggregate net investment income for the Trailing Twelve Quarters in excess of the Catch-up Amount. The amount of the Incentive Fee based on income that will be paid to the Investment Adviser for a particular quarter will equal the Incentive Fee as calculated above less the aggregate Incentive Fees on income that were paid in respect of the first eleven calendar quarters (or the portion thereof) included in the relevant Trailing Twelve Quarters.
The Incentive Fee is subject to a cap (the Incentive Fee Cap). The Incentive Fee Cap for any quarter is an amount equal to (a) 20% of the Companys aggregate net investment income adjusted for capital losses during the relevant Trailing Twelve Quarters minus (b) the aggregate Incentive Fees based on income that were paid in respect of the first eleven calendar quarters (or the portion thereof) included in the relevant Trailing Twelve Quarters.
Annual Incentive Fee Based on Capital Gains
Annually, the Company pays the Investment Adviser an Incentive Fee equal to 20% of net realized capital gains less unrealized capital deprecation, from April 1, 2013 until the end of the year less the cumulative amount of such Incentive Fees paid to the Investment Adviser from April 1, 2013.
Goldman Sachs BDC, Inc. Tax Information (unaudited)
During the year ended December 31, 2014, the Goldman Sachs BDC, Inc. designates 100% of its distributions from net investment income and short-term gains as interest-related dividends and short-term capital gain dividends, respectively, pursuant to Section 871(k) of the Internal Revenue Code.
Pursuant to Section 852 of the Internal Revenue Code, the Goldman Sachs BDC, Inc. designates $1,166,999, or if different, the maximum amount allowable, as capital gain dividends paid during the year ended December 31, 2014.
F-35
ANNEX A
Effective: April 2014
GSAM PROXY VOTING GUIDELINES SUMMARY
The following is a summary of the material GSAM Proxy Voting Guidelines (the Guidelines), which form the substantive basis of GSAMs Policy on Proxy Voting for Client Accounts (Policy). As described in the main body of the Policy, one or more GSAM portfolio management teams may diverge from the Guidelines and a related Recommendation on any particular proxy vote or in connection with any individual investment decision in accordance with the Policy.
A. US proxy items: |
||||
1. | Operational Items | page 1 | ||
2. | Board of Directors | page 2 | ||
3. | Executive Compensation | page 5 | ||
4. | Proxy Contests and Access | page 8 | ||
5. | Shareholder Rights and Defenses | page 9 | ||
6. | Mergers and Corporate Restructurings | page 10 | ||
7. | State of Incorporation | page 10 | ||
8. | Capital Structure | page 11 | ||
9. | Corporate Social Responsibility (CSR)/Environmental, Social, Governance (ESG) Issues | page 11 | ||
B. Non-U.S. proxy items: |
||||
1. | Operational Items | page 14 | ||
2. | Board of Directors | page 15 | ||
3. | Compensation | page 18 | ||
4. | Board Structure | page 19 | ||
5. | Capital Structure | page 19 | ||
6. | Mergers and Corporate Restructurings & Other | page 21 | ||
7. | Corporate Social Responsibility (CSR)/Environmental, Social, Governance (ESG) Issues | page 22 |
U.S. Proxy Items
The following section is a summary of the Guidelines, which form the substantive basis of the Policy with respect to U.S. public equity investments.
Auditor Ratification
Vote FOR proposals to ratify auditors, unless any of the following apply within the last year:
| An auditor has a financial interest in or association with the company, and is therefore not independent; |
| There is reason to believe that the independent auditor has rendered an opinion which is neither accurate nor indicative of the companys financial position; |
| Poor accounting practices are identified that rise to a serious level of concern, such as: fraud; misapplication of GAAP; or material weaknesses identified in Section 404 disclosures; or |
| Fees for non-audit services are excessive (generally over 50% or more of the audit fees). |
A-1
Vote CASE-BY-CASE on shareholder proposals asking companies to prohibit or limit their auditors from engaging in non-audit services or asking for audit firm rotation.
The Board of Directors should promote the interests of shareholders by acting in an oversight and/or advisory role; the board should consist of a majority of independent directors and should be held accountable for actions and results related to their responsibilities. When evaluating board composition, GSAM believes a diversity of ethnicity, gender and experience is an important consideration.
Classification of Directors
Where applicable, the New York Stock Exchange or NASDAQ Listing Standards definition is to be used to classify directors as insiders or affiliated outsiders. General definitions are as follows:
| Inside Director |
| Employee of the company or one of its affiliates |
| Among the five most highly paid individuals (excluding interim CEO) |
| Listed as an officer as defined under Section 16 of the Securities and Exchange Act of 1934 |
| Current interim CEO |
| Beneficial owner of more than 50 percent of the companys voting power (this may be aggregated if voting power is distributed among more than one member of a defined group) |
| Affiliated Outside Director |
| Board attestation that an outside director is not independent |
| Former CEO or other executive of the company within the last 3 years |
| Former CEO or other executive of an acquired company within the past three years |
| Independent Outside Director |
| No material connection to the company other than a board seat |
Additionally, GSAM will consider compensation committee interlocking directors to be affiliated (defined as CEOs who sit on each others compensation committees).
Voting on Director Nominees in Uncontested Elections
Vote on director nominees should be determined on a CASE-BY-CASE basis.
Vote AGAINST or WITHHOLD from individual directors who:
| Attend less than 75 percent of the board and committee meetings without a disclosed valid excuse for each of the last two years; |
| Sit on more than six public operating and/or holding company boards; |
| Are CEOs of public companies who sit on the boards of more than two public companies besides their ownwithhold only at their outside boards. |
A-2
Other items considered for an AGAINST vote include specific concerns about the individual or the company, such as criminal wrongdoing or breach of fiduciary responsibilities, sanctions from government or authority, violations of laws and regulations, or other issues related to improper business practice.
Vote AGAINST or WITHHOLD from Inside Directors and Affiliated Outside Directors (per the Classification of Directors above) in the case of operating and/or holding companies when:
| The Inside Director or Affiliated Outside Director serves on the Audit, Compensation, or Nominating Committees (vote against Affiliated Outside Directors only for nominating committee); |
| The company lacks an Audit or Compensation Committee so that the full board functions as such committees and Insider Directors are participating in voting on matters that independent committees should be voting on; |
| The full board is less than majority independent (in this case withhold from Affiliated Outside Directors); at controlled companies, GSAM will first vote against the election of an Inside Director, other than the CEO or chairperson or second, against a nominee that is affiliated with the controlling shareholder or third, vote against a nominee affiliated with the company for any other reason. |
Vote AGAINST or WITHHOLD from members of the appropriate committee for the following reasons (or independent chairman or lead director in cases of a classified board and members of appropriate committee are not up for reelection). Extreme cases may warrant a vote against the entire board.
| Material failures of governance, stewardship, or fiduciary responsibilities at the company; |
| Egregious actions related to the director(s) service on other boards that raise substantial doubt about his or her ability to effectively oversee management and serve the best interests of shareholders at any company; |
| At the previous board election, any director received more than 50 percent withhold/against votes of the shares cast and the company has failed to address the underlying issue(s) that caused the high withhold/against vote (members of the Nominating or Governance Committees); |
| The board failed to act on a shareholder proposal that received approval of the majority of shares cast for the previous two consecutive years (a management proposal with other than a FOR recommendation by management will not be considered as sufficient action taken); an adopted proposal that is substantially similar to the original shareholder proposal will be deemed sufficient; (vote against members of the committee of the board that is responsible for the issue under consideration). If GSAM did not support the shareholder proposal in both years, GSAM will still vote against the committee member(s). |
Vote AGAINST or WITHHOLD from the members of the Audit Committee if:
| The non-audit fees paid to the auditor are excessive (generally over 50% or more of the audit fees); |
| The company receives an adverse opinion on the companys financial statements from its auditor and there is not clear evidence that the situation has been remedied; or |
| There is persuasive evidence that the Audit Committee entered into an inappropriate indemnification agreement with its auditor that limits the ability of the company, or its shareholders, to pursue legitimate legal recourse against the audit firm. |
A-3
Vote CASE-BY-CASE on members of the Audit Committee and/or the full board if poor accounting practices, which rise to a level of serious concern are identified, such as fraud, misapplication of GAAP and material weaknesses identified in Section 404 disclosures.
Examine the severity, breadth, chronological sequence and duration, as well as the companys efforts at remediation or corrective actions, in determining whether negative vote recommendations are warranted against the members of the Audit Committee who are responsible for the poor accounting practices, or the entire board.
See section 3 on executive and director compensation for reasons to withhold from members of the Compensation Committee.
In limited circumstances, GSAM may vote AGAINST or WITHHOLD from all nominees of the board of directors (except from new nominees who should be considered on a CASE-BY-CASE basis and except as discussed below) if:
| The companys poison pill has a dead-hand or modified dead-hand feature for two or more years. Vote against/withhold every year until this feature is removed; however, vote against the poison pill if there is one on the ballot with this feature rather than the director; |
| The board adopts or renews a poison pill without shareholder approval, does not commit to putting it to shareholder vote within 12 months of adoption (or in the case of an newly public company, does not commit to put the pill to a shareholder vote within 12 months following the IPO), or reneges on a commitment to put the pill to a vote, and has not yet received a withhold/against recommendation for this issue; |
| The board failed to act on takeover offers where the majority of the shareholders tendered their shares; |
| If in an extreme situation the board lacks accountability and oversight, coupled with sustained poor performance relative to peers. |
Shareholder proposal regarding Independent Chair (Separate Chair/CEO)
Vote on a CASE-BY-CASE basis.
GSAM will generally recommend a vote AGAINST shareholder proposals requiring that the chairmans position be filled by an independent director, if the company satisfies 3 of the 4 following criteria:
| Designated lead director, elected by and from the independent board members with clearly delineated and comprehensive duties; |
| Two-thirds independent board; |
| All independent key committees (audit, compensation and nominating committees); or |
| Established, disclosed governance guidelines. |
Shareholder proposal regarding board declassification
GSAM will generally vote FOR proposals requesting that the board adopt a declassified structure in the case of operating and holding companies.
A-4
Majority Vote Shareholder Proposals
GSAM will vote FOR proposals requesting that the board adopt majority voting in the election of directors provided it does not conflict with the state law where the company is incorporated.
GSAM also looks for companies to adopt a post-election policy outlining how the company will address the situation of a holdover director.
Cumulative Vote Shareholder Proposals
GSAM will generally support shareholder proposals to restore or provide cumulative voting in the case of operating and holding companies unless:
| The company has adopted (i) majority vote standard with a carve-out for plurality voting in situations where there are more nominees than seats and (ii) a director resignation policy to address failed elections. |
Pay Practices
Good pay practices should align managements interests with long-term shareholder value creation. Detailed disclosure of compensation criteria is preferred; proof that companies follow the criteria should be evident and retroactive performance target changes without proper disclosure is not viewed favorably. Compensation practices should allow a company to attract and retain proven talent. Some examples of poor pay practices include: abnormally large bonus payouts without justifiable performance linkage or proper disclosure, egregious employment contracts, excessive severance and/or change in control provisions, repricing or replacing of underwater stock options/stock appreciation rights without prior shareholder approval, and excessive perquisites. A company should also have an appropriate balance of short-term vs. long-term metrics and the metrics should be aligned with business goals and objectives.
If the company maintains problematic or poor pay practices, generally vote:
| AGAINST Management Say on Pay (MSOP) Proposals; or |
| AGAINST an equity-based incentive plan proposal if excessive non-performance-based equity awards are the major contributor to a pay-for-performance misalignment. |
| If no MSOP or equity-based incentive plan proposal item is on the ballot, vote AGAINST/WITHHOLD from compensation committee members. |
Equity Compensation Plans
Vote CASE-BY-CASE on equity-based compensation plans. Reasons to vote AGAINST the equity plan could include the following factors:
| The plan permits the repricing of stock options/stock appreciation rights (SARs) without prior shareholder approval; |
| The plan is a vehicle for poor pay practices; or |
| There is more than one problematic feature of the plan, which could include one of the following calculations materially exceeding industry group metrics (i) the companys three year burn rate or (ii) Shareholder Value Transfer (SVT). |
A-5
Advisory Vote on Executive Compensation (Say-on-Pay, MSOP) Management Proposals
Vote FOR annual frequency and AGAINST shareholder or management proposals asking for any frequency less than annual.
Vote CASE-BY-CASE on management proposals for an advisory vote on executive compensation. For U.S. companies, consider the following factors in the context of each companys specific circumstances and the boards disclosed rationale for its practices. In general more than one factor will need to be present in order to warrant a vote AGAINST.
Pay-for-Performance Disconnect:
| GSAM will consider there to be a disconnect based on a quantitative assessment of the following: CEO pay vs. TSR and peers, CEO pay as a percentage of the median peer group or CEO pay vs. shareholder return over time. |
Additional Factors Considered Include:
| Boards responsiveness if company received 70% or less shareholder support in the previous years MSOP vote; |
| Abnormally large bonus payouts without justifiable performance linkage or proper disclosure; |
| Egregious employment contracts; |
| Excessive perquisites or excessive severance and/or change in control provisions; |
| Repricing or replacing of underwater stock options without prior shareholder approval; |
| Excessive pledging or hedging of stock by executives; |
| Egregious pension/SERP (supplemental executive retirement plan) payouts; |
| Extraordinary relocation benefits; |
| Internal pay disparity; |
| Lack of transparent disclosure of compensation philosophy and goals and targets, including details on short-term and long-term performance incentives; and |
| Long-term equity-based compensation is 100% time-based. |
Other Compensation Proposals and Policies
Employee Stock Purchase PlansNon-Qualified Plans
Vote CASE-BY-CASE on nonqualified employee stock purchase plans taking into account the following factors:
| Broad-based participation; |
| Limits on employee contributions; |
A-6
| Company matching contributions; and |
| Presence of a discount on the stock price on the date of purchase. |
Option Exchange Programs/Repricing Options
Vote CASE-BY-CASE on management proposals seeking approval to exchange/reprice options, taking into consideration:
| Historic trading patternsthe stock price should not be so volatile that the options are likely to be back in-the-money over the near term; |
| Rationale for the re-pricing; |
| If it is a value-for-value exchange; |
| If surrendered stock options are added back to the plan reserve; |
| Option vesting; |
| Term of the optionthe term should remain the same as that of the replaced option; |
| Exercise priceshould be set at fair market or a premium to market; |
| Participantsexecutive officers and directors should be excluded. |
Vote FOR shareholder proposals to put option repricings to a shareholder vote.
Other Shareholder Proposals on Compensation
Advisory Vote on Executive Compensation (Frequency on Pay)
Vote FOR annual frequency.
Stock retention holding period
Vote FOR shareholder proposals asking for a policy requiring that senior executives retain a significant percentage of shares acquired through equity compensation programs if the policy requests retention for two years or less following the termination of their employment (through retirement or otherwise) and a holding threshold percentage of 50% or less.
Also consider:
| Whether the company has any holding period, retention ratio, or officer ownership requirements in place and the terms/provisions of awards already granted. |
Elimination of accelerated vesting in the event of a change in control
Vote AGAINST shareholder proposals seeking a policy eliminating the accelerated vesting of time-based equity awards in the event of a change-in-control.
A-7
Performance-based equity awards and pay-for-superior-performance proposals
Generally support unless there is sufficient evidence that the current compensation structure is already substantially performance-based. GSAM considers performance-based awards to include awards that are tied to shareholder return or other metrics that are relevant to the business.
Say on Supplemental Executive Retirement Plans (SERP)
Generally vote AGAINST proposals asking for shareholder votes on SERP.
Voting for Director Nominees in Contested Elections
Vote CASE-BY-CASE on the election of directors of operating and holding companies in contested elections, considering the following factors:
| Long-term financial performance of the target company relative to its industry; |
| Managements track record; |
| Background to the proxy contest; |
| Qualifications of director nominees (both slates); |
| Strategic plan of dissident slate and quality of critique against management; |
| Likelihood that the proposed goals and objectives can be achieved (both slates); |
| Likelihood that the Board will be productive as a result; |
| Stock ownership positions. |
Proxy Access
Vote CASE-BY-CASE on shareholder or management proposals asking for proxy access.
GSAM may support proxy access as an important right for shareholders of operating and holding companies and as an alternative to costly proxy contests and as a method for GSAM to vote for directors on an individual basis, as appropriate, rather than voting on one slate or the other. While this could be an important shareholder right, the following will be taken into account when evaluating the shareholder proposals:
| The ownership thresholds, percentage and duration proposed (GSAM will not support if the ownership threshold is less than 3%); |
| The maximum proportion of directors that shareholders may nominate each year (GSAM will not support if the proportion of directors is greater than 25%); |
| The method of determining which nominations should appear on the ballot if multiple shareholders submit nominations; and |
| The governance of the company in question. |
A-8
Reimbursing Proxy Solicitation Expenses
Vote CASE-BY-CASE on proposals to reimburse proxy solicitation expenses. When voting in conjunction with support of a dissident slate, vote FOR the reimbursement of all appropriate proxy solicitation expenses associated with the election.
5. Shareholders Rights & Defenses
Shareholder Ability to Act by Written Consent
In the case of operating and holding companies, generally vote FOR shareholder proposals that provide shareholders with the ability to act by written consent, unless:
| The company already gives shareholders the right to call special meetings at a threshold of 25% or lower; and |
| The company has a history of strong governance practices. |
Shareholder Ability to Call Special Meetings
In the case of operating and holding companies, generally vote FOR management proposals that provide shareholders with the ability to call special meetings.
In the case of operating and holding companies, generally vote FOR shareholder proposals that provide shareholders with the ability to call special meetings at a threshold of 25% or lower if the company currently does not give shareholders the right to call special meetings. However, if a company already gives shareholders the right to call special meetings at a threshold of at least 25%, do not support shareholder proposals to further reduce the threshold.
Advance Notice Requirements for Shareholder Proposals/Nominations
In the case of operating and holding companies, vote CASE-BY-CASE on advance notice proposals, giving support to proposals that allow shareholders to submit proposals/nominations reasonably close to the meeting date and within the broadest window possible, recognizing the need to allow sufficient notice for company, regulatory and shareholder review.
Poison Pills
Vote FOR shareholder proposals requesting that the company submit its poison pill to a shareholder vote or redeem it UNLESS the company has: (1) A shareholder-approved poison pill in place; or (2) the company has adopted a policy concerning the adoption of a pill in the future specifying certain shareholder friendly provisions.
Vote FOR shareholder proposals calling for poison pills to be put to a vote within a time period of less than one year after adoption.
Vote CASE-BY-CASE on management proposals on poison pill ratification, focusing on the features of the shareholder rights plan.
In addition, the rationale for adopting the pill should be thoroughly explained by the company. In examining the request for the pill, take into consideration the companys existing governance structure, including: board independence, existing takeover defenses, and any problematic governance concerns.
A-9
6. Mergers and Corporate Restructurings
Vote CASE-BY-CASE on mergers and acquisitions taking into account the following based on publicly available information:
| Valuation; |
| Market reaction; |
| Strategic rationale; |
| Managements track record of successful integration of historical acquisitions; |
| Presence of conflicts of interest; and |
| Governance profile of the combined company. |
Reincorporation Proposals
GSAM may support management proposals to reincorporate as long as the reincorporation would not substantially diminish shareholder rights. GSAM may not support shareholder proposals for reincorporation unless the current state of incorporation is substantially less shareholder friendly than the proposed reincorporation, there is a strong economic case to reincorporate or the company has a history of making decisions that are not shareholder friendly.
Exclusive venue for shareholder lawsuits
Generally vote FOR on exclusive venue proposals, taking into account:
| Whether the company has been materially harmed by shareholder litigation outside its jurisdiction of incorporation, based on disclosure in the companys proxy statement; |
| Whether the company has the following good governance features: |
| Majority independent board; |
| Independent key committees; |
| An annually elected board; |
| A majority vote standard in uncontested director elections; |
| The absence of a poison pill, unless the pill was approved by shareholder; and/or |
| Separate Chairman CEO role or, if combined, an independent chairman with clearly delineated duties. |
A-10
Common Stock Authorization
Votes on proposals to increase the number of shares of common stock authorized for issuance are determined on a CASE-BY-CASE basis. We consider company-specific factors that include, at a minimum, the following:
| Past Board performance; |
| The companys use of authorized shares during the last three years; |
| One- and three-year total shareholder return; |
| The boards governance structure and practices; |
| The current request; |
| Disclosure in the proxy statement of specific reasons for the proposed increase; |
| The dilutive impact of the request as determined through an allowable increase, which examines the companys need for shares and total shareholder returns; and |
| Risks to shareholders of not approving the request. |
9. Corporate Social Responsibility (CSR)/Environmental, Social, Governance (ESG) Issues
Overall Approach
GSAM recognizes that Environmental, Social and Governance (ESG) factors can affect investment performance, expose potential investment risks and provide an indication of management excellence and leadership. When evaluating ESG proxy issues, GSAM balances the purpose of a proposal with the overall benefit to shareholders.
Shareholder proposals considered under this category could include, among others, reports asking for details on 1) employee labor and safety policies; 2) impact on the environment of the companys oil sands or fracturing operations; 3) water-related risks or 4) societal impact of products manufactured.
When evaluating social and environmental shareholder proposals the following factors are generally considered:
| Whether adoption of the proposal is likely to enhance or protect shareholder value; |
| Whether the information requested concerns business issues that relate to a meaningful percentage of the companys business; |
| The degree to which the companys stated position on the issues raised in the proposal could affect its reputation or sales, or leave it vulnerable to a boycott or selective purchasing; |
| Whether the company has already responded in some appropriate manner to the request embodied in the proposal; |
A-11
| What other companies in the relevant industry have done in response to the issue addressed in the proposal; |
| Whether the proposal itself is well framed and the cost of preparing the report is reasonable; |
| Whether the subject of the proposal is best left to the discretion of the board; |
| Whether the company has material fines or violations in the area and if so, if appropriate actions have already been taken to remedy going forward; |
| Whether the requested information is available to shareholders either from the company or from a publicly available source; and |
| Whether providing this information would reveal proprietary or confidential information that would place the company at a competitive disadvantage. |
Sustainability, climate change reporting
Generally vote FOR proposals requesting the company to report on its policies, initiatives and oversight mechanisms related to social, economic, and environmental sustainability, or how the company may be impacted by climate change. The following factors will be considered:
| The companys current level of publicly-available disclosure including if the company already discloses similar information through existing reports or policies |
| If the company has formally committed to the implementation of a reporting program based on Global Reporting Initiative (GRI) guidelines or a similar standard within a specified time frame; |
| If the companys current level of disclosure is comparable to that of its industry peers; and |
| If there are significant controversies, fines, penalties, or litigation associated with the companys environmental performance. |
Establishing goals or targets for emissions reduction
Vote CASE-BY-CASE on proposals that call for the adoption of Greenhouse Gas (GHG) reduction goals from products and operations, taking into account:
| Overly prescriptive requests for the reduction in GHG emissions by specific amounts or within a specific time frame; |
| Whether company disclosure lags behind industry peers; |
| Whether the company has been the subject of recent, significant violations, fines, litigation, or controversy related to GHG emissions; |
| The feasibility of reduction of GHGs given the companys product line and current technology and; |
| Whether the company already provides meaningful disclosure on GHG emissions from its products and operations. |
A-12
Political Contributions and Trade Association Spending/Lobbying Expenditures and Initiatives
Generally vote AGAINST proposals asking the company to affirm political nonpartisanship in the workplace so long as:
| There are no recent, significant controversies, fines or litigation regarding the companys political contributions or trade association spending; and |
| The company has procedures in place to ensure that employee contributions to company-sponsored political action committees (PACs) are strictly voluntary and prohibits coercion. |
Vote CASE-BY-CASE on proposals to improve the disclosure of a companys political contributions and trade association spending, considering:
| Recent significant controversy or litigation related to the companys political contributions or governmental affairs; |
| The public availability of a company policy on political contributions and trade association spending including information on the types of organizations supported, the business rationale for supporting these organizations, and the oversight and compliance procedures related to such expenditures of corporate assets. |
GSAM will not necessarily vote for the proposal merely to encourage further disclosure of trade association or lobbying spending.
Vote AGAINST proposals barring the company from making political contributions. Businesses are affected by legislation at the federal, state, and local level and barring political contributions can put the company at a competitive disadvantage.
Gender Identity and Sexual Orientation
A company should have a clear, public Equal Employment Opportunity (EEO) statement and/or diversity policy. Generally vote FOR proposals seeking to amend a companys EEO statement or diversity policies to additionally prohibit discrimination based on sexual orientation and/or gender identity.
Labor and Human Rights Standards
Generally vote FOR proposals requesting a report or implementation of a policy on company or company supplier labor and/or human rights standards and policies unless such information is already publicly disclosed considering:
| The degree to which existing relevant policies and practices are disclosed; |
| Whether or not existing relevant policies are consistent with internationally recognized standards; |
| Whether company facilities and those of its suppliers are monitored and how; |
| Company participation in fair labor organizations or other internationally recognized human rights initiatives; |
| Scope and nature of business conducted in markets known to have higher risk of workplace labor/human rights abuse; |
A-13
| Recent, significant company controversies, fines, or litigation regarding human rights at the company or its suppliers; |
| The scope of the request; and |
| Deviation from industry sector peer company standards and practices. |
Non-U.S. Proxy Items
The following section is a broad summary of the Guidelines, which form the basis of the Policy with respect to non-U.S. public equity investments. Applying these guidelines is subject to certain regional and country-specific exceptions and modifications and is not inclusive of all considerations in each market.
Financial Results/Director and Auditor Reports
Vote FOR approval of financial statements and director and auditor reports, unless:
| There are concerns about the accounts presented or audit procedures used; or |
| The company is not responsive to shareholder questions about specific items that should be publicly disclosed. |
Appointment of Auditors and Auditor Fees
Vote FOR the re-election of auditors and proposals authorizing the board to fix auditor fees, unless:
| There are serious concerns about the accounts presented, audit procedures used or audit opinion rendered; |
| There is reason to believe that the auditor has rendered an opinion, which is neither accurate nor indicative of the companys financial position; |
| Name of the proposed auditor has not been published; |
| The auditors are being changed without explanation; non-audit-related fees are substantial or are in excess of standard annual audit-related fees; or the appointment of external auditors if they have previously served the company in an executive capacity or can otherwise be considered affiliated with the company. |
Appointment of Statutory Auditors
Vote FOR the appointment or reelection of statutory auditors, unless:
| There are serious concerns about the statutory reports presented or the audit procedures used; |
| Questions exist concerning any of the statutory auditors being appointed; or |
| The auditors have previously served the company in an executive capacity or can otherwise be considered affiliated with the company. |
A-14
Allocation of Income
Vote FOR approval of the allocation of income, unless:
| The dividend payout ratio has been consistently low without adequate explanation; or |
| The payout is excessive given the companys financial position. |
Stock (Scrip) Dividend Alternative
Vote FOR most stock (scrip) dividend proposals.
Vote AGAINST proposals that do not allow for a cash option unless management demonstrates that the cash option is harmful to shareholder value.
Amendments to Articles of Association
Vote amendments to the articles of association on a CASE-BY-CASE basis.
Change in Company Fiscal Term
Vote FOR resolutions to change a companys fiscal term unless a companys motivation for the change is to postpone its AGM.
Lower Disclosure Threshold for Stock Ownership
Vote AGAINST resolutions to lower the stock ownership disclosure threshold below 5 percent unless specific reasons exist to implement a lower threshold.
Amend Quorum Requirements
Vote proposals to amend quorum requirements for shareholder meetings on a CASE-BY-CASE basis.
Transact Other Business
Vote AGAINST other business when it appears as a voting item.
Director Elections
Vote FOR management nominees taking into consideration the following:
| Adequate disclosure has not been provided in a timely manner; or |
| There are clear concerns over questionable finances or restatements; or |
| There have been questionable transactions or conflicts of interest; or |
| There are any records of abuses against minority shareholder interests; or |
| The board fails to meet minimum corporate governance standards. or |
A-15
| There are reservations about: |
| Director terms |
| Bundling of proposals to elect directors |
| Board independence |
| Disclosure of named nominees |
| Combined Chairman/CEO |
| Election of former CEO as Chairman of the Board |
| Overboarded directors |
| Composition of committees |
| Director independence |
| Specific concerns about the individual or company, such as criminal wrongdoing or breach of fiduciary responsibilities; or |
| Repeated absences at board meetings have not been explained (in countries where this information is disclosed); or |
| Unless there are other considerations which may include sanctions from government or authority, violations of laws and regulations, or other issues related to improper business practice, failure to replace management, or egregious actions related to service on other boards. |
Vote on a CASE-BY-CASE basis in contested elections of directors, e.g., the election of shareholder nominees or the dismissal of incumbent directors, determining which directors are best suited to add value for shareholders.
The analysis will generally be based on, but not limited to, the following major decision factors:
| Company performance relative to its peers; |
| Strategy of the incumbents versus the dissidents; |
| Independence of board candidates; |
| Experience and skills of board candidates; |
| Governance profile of the company; |
| Evidence of management entrenchment; |
| Responsiveness to shareholders; |
| Whether a takeover offer has been rebuffed; |
| Whether minority or majority representation is being sought. |
A-16
Vote FOR employee and/or labor representatives if they sit on either the audit or compensation committee and are required by law to be on those committees.
Vote AGAINST employee and/or labor representatives if they sit on either the audit or compensation committee, if they are not required to be on those committees.
Classification of directors
Executive Director
| Employee or executive of the company; |
| Any director who is classified as a non-executive, but receives salary, fees, bonus, and/or other benefits that are in line with the highest-paid executives of the company. |
Non-Independent Non-Executive Director (NED)
| Any director who is attested by the board to be a non-independent NED; |
| Any director specifically designated as a representative of a significant shareholder of the company; |
| Any director who is also an employee or executive of a significant shareholder of the company; |
| Beneficial owner (direct or indirect) of at least 10% of the companys stock, either in economic terms or in voting rights (this may be aggregated if voting power is distributed among more than one member of a defined group, e.g., family members who beneficially own less than 10% individually, but collectively own more than 10%), unless market best practice dictates a lower ownership and/or disclosure threshold (and in other special market-specific circumstances); |
| Government representative; |
| Currently provides (or a relative provides) professional services to the company, to an affiliate of the company, or to an individual officer of the company or of one of its affiliates in excess of $10,000 per year; |
| Represents customer, supplier, creditor, banker, or other entity with which company maintains transactional/commercial relationship (unless company discloses information to apply a materiality test); |
| Any director who has conflicting or cross-directorships with executive directors or the chairman of the company; |
| Relative of a current employee of the company or its affiliates; |
| Relative of a former executive of the company or its affiliates; |
| A new appointee elected other than by a formal process through the General Meeting (such as a contractual appointment by a substantial shareholder); |
| Founder/co-founder/member of founding family but not currently an employee; |
| Former executive (5 year cooling off period); |
A-17
| Years of service is generally not a determining factor unless it is recommended best practice in a market and/or in extreme circumstances, in which case it may be considered; and |
| Any additional relationship or principle considered to compromise independence under local corporate governance best practice guidance. |
Independent NED
| No material connection, either directly or indirectly, to the company other than a board seat. |
Employee Representative
| Represents employees or employee shareholders of the company (classified as employee representative but considered a non-independent NED). |
Discharge of Directors
Generally vote FOR the discharge of directors, including members of the management board and/or supervisory board, unless there is reliable information about significant and compelling controversies that the board is not fulfilling its fiduciary duties warranted by:
| A lack of oversight or actions by board members which invoke shareholder distrust related to malfeasance or poor supervision, such as operating in private or company interest rather than in shareholder interest; or |
| Any legal issues (e.g., civil/criminal) aiming to hold the board responsible for breach of trust in the past or related to currently alleged actions yet to be confirmed (and not only the fiscal year in question), such as price fixing, insider trading, bribery, fraud, and other illegal actions; or |
| Other egregious governance issues where shareholders may bring legal action against the company or its directors; or |
| Vote on a CASE-BY-CASE basis where a vote against other agenda items are deemed inappropriate. |
Good pay practices should align managements interests with long-term shareholder value creation. Detailed disclosure of compensation criteria is preferred; proof that companies follow the criteria should be evident and retroactive performance target changes without proper disclosure is not viewed favorably. Compensation practices should allow a company to attract and retain proven talent. Some examples of poor pay practices include: abnormally large bonus payouts without justifiable performance linkage or proper disclosure, egregious employment contracts, excessive severance and/or change in control provisions, repricing or replacing of underwater stock options/stock appreciation rights without prior shareholder approval, and excessive perquisites. A company should also have an appropriate balance of short-term vs. long-term metrics and the metrics should be aligned with business goals and objectives.
Director Compensation
Vote FOR proposals to award cash fees to non-executive directors unless the amounts are excessive relative to other companies in the country or industry.
A-18
Vote non-executive director compensation proposals that include both cash and share-based components on a CASE-BY-CASE basis.
Vote proposals that bundle compensation for both non-executive and executive directors into a single resolution on a CASE-BY-CASE basis.
Vote AGAINST proposals to introduce retirement benefits for non-executive directors.
Compensation Plans
Vote compensation plans on a CASE-BY-CASE basis.
Director, Officer, and Auditor Indemnification and Liability Provisions
Vote proposals seeking indemnification and liability protection for directors and officers on a CASE-BY-CASE basis.
Vote AGAINST proposals to indemnify auditors.
Vote AGAINST the introduction of classified boards and mandatory retirement ages for directors.
Vote AGAINST proposals to alter board structure or size in the context of a fight for control of the company or the board.
Chairman CEO combined role (for applicable markets)
GSAM will generally recommend a vote AGAINST shareholder proposals requiring that the chairmans position be filled by an independent director, if the company satisfies 3 of the 4 following criteria:
| 2/3 independent board, or majority in countries where employee representation is common practice; |
| A designated, or a rotating, lead director, elected by and from the independent board members with clearly delineated and comprehensive duties; |
| Fully independent key committees; and/or |
| Established, publicly disclosed, governance guidelines and director biographies/profiles. |
Share Issuance Requests
General Issuances:
Vote FOR issuance requests with preemptive rights to a maximum of 100 percent over currently issued capital.
Vote FOR issuance requests without preemptive rights to a maximum of 20 percent of currently issued capital.
Specific Issuances:
Vote on a CASE-BY-CASE basis on all requests, with or without preemptive rights.
A-19
Increases in Authorized Capital
Vote FOR non-specific proposals to increase authorized capital up to 100 percent over the current authorization unless the increase would leave the company with less than 30 percent of its new authorization outstanding.
Vote FOR specific proposals to increase authorized capital to any amount, unless:
| The specific purpose of the increase (such as a share-based acquisition or merger) does not meet guidelines for the purpose being proposed; or |
| The increase would leave the company with less than 30 percent of its new authorization outstanding after adjusting for all proposed issuances. |
Vote AGAINST proposals to adopt unlimited capital authorizations.
Reduction of Capital
Vote FOR proposals to reduce capital for routine accounting purposes unless the terms are unfavorable to shareholders.
Vote proposals to reduce capital in connection with corporate restructuring on a CASE-BY-CASE basis.
Capital Structures
Vote FOR resolutions that seek to maintain or convert to a one-share, one-vote capital structure.
Vote AGAINST requests for the creation or continuation of dual-class capital structures or the creation of new or additional super voting shares.
Preferred Stock
Vote FOR the creation of a new class of preferred stock or for issuances of preferred stock up to 50 percent of issued capital unless the terms of the preferred stock would adversely affect the rights of existing shareholders.
Vote FOR the creation/issuance of convertible preferred stock as long as the maximum number of common shares that could be issued upon conversion meets guidelines on equity issuance requests.
Vote AGAINST the creation of a new class of preference shares that would carry superior voting rights to the common shares.
Vote AGAINST the creation of blank check preferred stock unless the board clearly states that the authorization will not be used to thwart a takeover bid.
Vote proposals to increase blank check preferred authorizations on a CASE-BY-CASE basis.
Debt Issuance Requests
Vote non-convertible debt issuance requests on a CASE-BY-CASE basis, with or without preemptive rights.
A-20
Vote FOR the creation/issuance of convertible debt instruments as long as the maximum number of common shares that could be issued upon conversion meets guidelines on equity issuance requests.
Vote FOR proposals to restructure existing debt arrangements unless the terms of the restructuring would adversely affect the rights of shareholders.
Increase in Borrowing Powers
Vote proposals to approve increases in a companys borrowing powers on a CASE-BY-CASE basis.
Share Repurchase Plans
GSAM will generally recommend FOR share repurchase programs taking into account whether:
| The share repurchase program can be used as a takeover defense; |
| There is clear evidence of historical abuse; |
| There is no safeguard in the share repurchase program against selective buybacks; |
| Pricing provisions and safeguards in the share repurchase program are deemed to be unreasonable in light of market practice. |
Reissuance of Repurchased Shares
Vote FOR requests to reissue any repurchased shares unless there is clear evidence of abuse of this authority in the past.
Capitalization of Reserves for Bonus Issues/Increase in Par Value
Vote FOR requests to capitalize reserves for bonus issues of shares or to increase par value.
6. Mergers and Corporate Restructuring & Other
Reorganizations/Restructurings
Vote reorganizations and restructurings on a CASE-BY-CASE basis.
Mergers and Acquisitions
Vote CASE-BY-CASE on mergers and acquisitions taking into account the following based on publicly available information:
| Valuation; |
| Market reaction; |
| Strategic rationale; |
| Managements track record of successful integration of historical acquisitions; |
| Presence of conflicts of interest; and |
| Governance profile of the combined company. |
A-21
Antitakeover Mechanisms
Generally vote AGAINST all antitakeover proposals, unless they are structured in such a way that they give shareholders the ultimate decision on any proposal or offer.
Reincorporation Proposals
Vote reincorporation proposals on a CASE-BY-CASE basis.
Related-Party Transactions
Vote related-party transactions on a CASE-BY-CASE basis, considering factors including, but not limited to, the following:
| The parties on either side of the transaction; |
| The nature of the asset to be transferred/service to be provided; |
| The pricing of the transaction (and any associated professional valuation); |
| The views of independent directors (where provided); |
| The views of an independent financial adviser (where appointed); |
| Whether any entities party to the transaction (including advisers) is conflicted; and |
| The stated rationale for the transaction, including discussions of timing. |
Shareholder Proposals
Vote all shareholder proposals on a CASE-BY-CASE basis.
Vote FOR proposals that would improve the companys corporate governance or business profile at a reasonable cost.
Vote AGAINST proposals that limit the companys business activities or capabilities or result in significant costs being incurred with little or not benefit.
7. Corporate Social Responsibility (CSR)/Environmental, Social, Governance (ESG) Issues
Please refer to page 9 for our current approach to these important topics
A-22
Through and including (25 days after the date of the prospectus), all dealers that effect transactions in our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers obligations to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
SHARES
GOLDMAN SACHS BDC, INC.
PROSPECTUS
BofA Merrill Lynch
Goldman Sachs & Co.
Morgan Stanley
Citigroup
Credit Suisse
Wells Fargo Securities
, 2015
PART C
OTHER INFORMATION
Item 25. Financial Statements and Exhibits
(1) Financial Statements
The following financial statements are provided in Part A of this Registration Statement for Goldman Sachs BDC, Inc. (and its predecessor Goldman Sachs Liberty Harbor Capital, LLC) (the Registrant):
Audited Financial Statements
Report of Independent Registered Public Accounting Firm |
F-2 | |||
Statements of Assets and Liabilities as of December 31, 2014 and December 31, 2013 |
F-3 | |||
Statements of Operations for the years ended December 31, 2014 and December 31, 2013 and for the period from November 15, 2012 (commencement of operations) through December 31, 2012 |
F-4 | |||
Statements of Changes in Net Assets for the years ended December 31, 2014 and December 31, 2013 and for the period from November 15, 2012 (commencement of operations) through December 31, 2012 |
F-5 | |||
Statements of Cash Flows for the years ended ended December 31, 2014 and December 31, 2013 and for the period from November 15, 2012 (commencement of operations) through December 31, 2012 |
F-6 | |||
Schedules of Investments as of December 31, 2014 and December 31, 2013 |
F-7 | |||
Notes to Financial Statements |
F-12 |
C-1
(2) Exhibits
(a) | Certificate of Incorporation. | |
(b) | Bylaws. | |
(c) | Not Applicable. | |
(d) | Form of Stock Certificate.* | |
(e) | Dividend Reinvestment Plan of Goldman Sachs BDC, Inc.* | |
(f) | Not Applicable. | |
(g) | Amended and Restated Investment Management Agreement between the Goldman Sachs BDC, Inc. and Goldman Sachs Asset Management, L.P. | |
(h) | Form of Underwriting Agreement.* | |
(i) | Not Applicable. | |
(j) | Custody Agreement between Registrant and State Street Bank and Trust Company.* | |
(k)(1) | Transfer Agency Agreement between Registrant and Goldman, Sachs & Co.* | |
(k)(2) | Transfer Agency Agreement between Registrant and State Street Bank and Trust Company.* | |
(k)(3) | Administration Agreement between Registrant and State Street Bank and Trust Company. | |
(k)(4) | License Agreement between the Registrant and the Goldman, Sachs & Co. | |
(k)(5) | Senior Secured Revolving Credit Agreement, dated as of September 19, 2013 among Goldman Sachs BDC, Inc., as Borrower, the Lenders party thereto, and SunTrust Bank, as Administrative Agent.* | |
(k)(5)(a) | First Omnibus Amendment to Senior Secured Revolving Credit Agreement and Guarantee and Security Agreement, dated as of October 3, 2014 among Goldman Sachs BDC, Inc., as Borrower, the Lenders party thereto, and SunTrust Bank, as Administrative Agent and as Collateral Agent.* | |
(k)(6) | Senior Credit Fund, LLC Limited Liability Company Agreement, dated as of July 18, 2014, between Goldman Sachs BDC, Inc. and Regents of the University of California. | |
(l) | Opinion and Consent of Fried, Frank, Harris, Shriver & Jacobson LLP. | |
(m) | Not Applicable. | |
(n)(1) | Report of Independent Registered Public Accounting Firm, regarding senior securities table contained herein. | |
(n)(2) | Consent of Independent Registered Public Accounting Firm. | |
(o) | Not Applicable. | |
(p) | Not Applicable. | |
(q) | Not Applicable. | |
(r)(1) | Code of Ethics of Registrant. | |
(r)(2) | Code of Ethics of Goldman Sachs Asset Management, L.P.* |
* | To be filed by amendment. |
C-2
Item 26. Marketing Arrangements
The information contained under the heading Underwriting on this Registration Statement is incorporated herein by reference.
Item 27. Other Expenses of Issuance and Distribution
Securities and Exchange Commission registration fee |
$ | |||
listing fees |
||||
Financial Industry Regulatory Authority fees |
||||
Printing expenses |
||||
Accounting fees and expenses |
||||
Legal fees and expenses |
||||
Miscellaneous |
||||
|
|
|||
Total |
||||
|
|
Item 28. Persons Controlled by or Under Common Control with Registrant
Not applicable.
Item 29. Number of Holders of Securities
The following table sets forth the approximate number of record holders of the Registrants common stock at , 2015.
Title of Class |
Number of Record
|
|
Common shares, par value $0.001 per share |
Item 30. Indemnification
As permitted by Section 102 of the Delaware General Corporation Law (DGCL), the Registrant has adopted provisions in its certificate of incorporation, as amended, that limit or eliminate the personal liability of its directors for a breach of their fiduciary duty of care as a director. The duty of care generally requires that, when acting on behalf of the Registrant, directors exercise an informed business judgment based on all material information reasonably available to them. Consequently, a director will not be personally liable to the Registrant or its stockholders for monetary damages or breach of fiduciary duty as a director, except for liability for: any breach of the directors duty of loyalty to the Registrant or its stockholders; any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law; any act related to unlawful stock repurchases, redemptions or other distributions or payment of dividends; or any transaction from which the director derived an improper personal benefit. These limitations of liability do not affect the availability of equitable remedies such as injunctive relief or rescission.
The Registrants certificate of incorporation and bylaws each provide that all directors, officers, employees and agents of the Registrant will be entitled to be indemnified by us to the fullest extent permitted by the DGCL, subject to the requirements of the Investment Company Act. Under Section 145 of the DGCL, the Registrant is permitted to offer indemnification to its directors, officers, employees and agents.
Section 145(a) of the DGCL empowers the Registrant to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Registrant) by reason of the fact that the person is or was a director, officer, employee or agent of the Registrant, or is or was serving at the
C-3
request of the Registrant as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit or proceeding if (1) such person acted in good faith, (2) in a manner such person reasonably believed to be in or not opposed to the best interests of the Registrant and (3) with respect to any criminal action or proceeding, such person had no reasonable cause to believe the persons conduct was unlawful.
Section 145(b) of the DGCL empowers the Registrant to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Registrant to procure a judgment in its favor by reason of the fact that the person is or was a director, officer, employee or agent of the Registrant, or is or was serving at the request of the Registrant as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner the person reasonably believed to be in, or not opposed to, the best interests of the Registrant, and except that no indemnification may be made in respect of any claim, issue or matter as to which such person has been adjudged to be liable to the Registrant unless and only to the extent that the Delaware Court of Chancery or the court in which such action or suit was brought determines upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court deems proper.
Section 145(c) of the DGCL provides that to the extent that a present or former director or officer of the Registrant has been successful, on the merits or otherwise, in defense of any action, suit or proceeding referred to in subsections (a) and (b) of Section 145, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys fees) actually and reasonably incurred by such person in connection with such action, suit or proceeding.
Section 145(d) of the DGCL provides that in all cases in which indemnification is permitted under subsections (a) and (b) of Section 145 (unless ordered by a court), it will be made by the Registrant only if it is consistent with the Investment Company Act and as authorized in the specific case upon a determination that indemnification of the present or former director, officer, employee or agent is proper in the circumstances because the person to be indemnified has met the applicable standard of conduct set forth in those subsections. Such determination must be made, with respect to a person who is a director or officer at the time of such determination, (1) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (2) by a committee of such directors designated by majority vote of such directors, even though less than a quorum, or (3) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion or (4) by the stockholders.
Section 145(e) authorizes the Registrant to pay expenses (including attorneys fees) incurred by an officer or director of the Registrant in defending any civil, criminal, administrative or investigative action, suit or proceeding in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the person to whom the advancement will be made to repay the advanced amounts if it is ultimately determined that he or she was not entitled to be indemnified by the Registrant as authorized by Section 145. Section 145(e) also provides that such expenses (including attorneys fees) incurred by former directors and officers or other employees and agents of the Registrant, or persons serving at the request of the Registrant as directors, officers, employees or agents of another corporation, partnership, joint venture, trust or other enterprise may be so paid upon such terms and conditions, if any, as the Registrant deems appropriate.
Section 145(f) provides that indemnification and advancement of expenses provided by, or granted pursuant to, the other subsections of such Section are not to be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors, or otherwise.
C-4
Section 145(g) authorizes the Registrant to purchase and maintain insurance on behalf of its current and former directors, officers, employees and agents (and on behalf of any person who is or was serving at the request of the Registrant as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise) against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such persons status as such, regardless of whether the Registrant would have the power to indemnify such persons against such liability under Section 145.
Section 102(b)(7) of the DGCL allows the Registrant to provide in its certificate of incorporation a provision that limits or eliminates the personal liability of a director of the Registrant to the Registrant or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that such provision may not limit or eliminate the liability of a director (1) for any breach of the directors duty of loyalty to the Registrant or its stockholders, (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) under Section 174 of the DGCL, relating to unlawful payment of dividends or unlawful stock purchases or redemption of stock or (4) for any transaction from which the director derived an improper personal benefit. Our certificate of incorporation will provide that our directors will not be liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director to the fullest extent permitted by the current DGCL or as the DGCL may hereafter be amended.
The Administration Agreement provides that we shall indemnify and hold the Administrator harmless from all loss, cost, damage and expense, including reasonable fees and expenses for counsel, incurred by the Administrator resulting from any claim, demand, action or suit in connection with the Administrators acceptance of this Agreement, any action or omission by it in the performance of its duties hereunder, or as a result of acting upon any instructions reasonably believed by it to have been duly authorized by us or upon reasonable reliance on information or records given or made by us or our investment adviser, provided that this indemnification shall not apply to actions or omissions of the Administrator, its officers or employees in cases of its or their own negligence, bad faith or willful misconduct.
The Underwriting Agreement provides that we will indemnify the underwriters against specified liabilities for actions taken in their capacities as such, including liabilities under the Securities Act, or contribute to payments that the underwriters may be required to make in respect thereof.
Insofar as indemnification for liability arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
Item 31. Business and Other Connections of Our Investment Adviser
A description of any other business, profession, vocation or employment of a substantial nature in which our investment adviser, and each managing director, director or executive officer of our investment adviser, is or has been during the past two fiscal years, engaged in for his or her own account or in the capacity of director, officer, employee, partner or trustee, is set forth in Part A of this Registration Statement in the section entitled Management. Additional information regarding our investment adviser and its officers and directors is set forth in its Form ADV, as filed with the Securities and Exchange Commission (SEC File No. 801-37591), and is incorporated herein by reference.
C-5
Item 32. Locations of Accounts and Records
All accounts, books and other documents required to be maintained by Section 31(a) of the Investment Company Act of 1940, and the rules thereunder are maintained at the offices of:
(1) | the Registrant, Goldman Sachs BDC, Inc., c/o Goldman Sachs Asset Management, L.P., 200 West Street, New York, New York 10282; |
(2) | the Transfer Agent, Goldman, Sachs & Co., 200 West Street, New York, New York 10282 (State Street Bank and Trust Company, One Lincoln Street, Boston, Massachusetts 02111, which will serve as the transfer agent upon completion of the initial public offering); |
(3) | the Custodian, State Street Bank and Trust Company, One Lincoln Street, Boston, Massachusetts 02111; and |
(4) | the Investment Adviser, Goldman Sachs Asset Management, L.P., 200 West Street, New York, New York 10282. |
Item 33. Management Services
Not applicable.
Item 34. Undertakings
1. | The Registrant undertakes to suspend the offering of shares until the Prospectus is amended if (1) subsequent to the effective date of its registration statement, the net asset value declines more than ten percent from its net asset value as of the effective date of the registration statement; or (2) the net asset value increases to an amount greater than the net proceeds as stated in the Prospectus. |
2. | Not applicable. |
3. | Not applicable. |
4. | Not applicable. |
5. | The Registrant undertakes that: |
(a) | For the purpose of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 497(h) under the Securities Act of 1933 shall be deemed to be part of this registration statement as of the time it was declared effective; and |
(b) | For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
6. | Not applicable. |
C-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in The City of New York, State of New York on the third day of March, 2015.
GOLDMAN SACHS BDC, INC.
|
||
By: |
/s/ Brendan McGovern |
|
Name: | Brendan McGovern | |
Title: | Chief Executive Officer and President |
Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
Signature |
Title |
Date |
||
/s/ Brendan McGovern Brendan McGovern |
Chief Executive Officer and President (Principal Executive Officer) |
March 3, 2015 | ||
/s/ Jonathan Lamm Jonathan Lamm |
Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer) |
March 3, 2015 | ||
* Ashok N. Bakhru |
Director | March 3, 2015 | ||
* John P. Coblentz, Jr. |
Director | March 3, 2015 | ||
* Katherine Uniacke |
Director | March 3, 2015 | ||
* Richard P. Strubel |
Director | March 3, 2015 |
*By: |
/s/ Caroline Kraus |
|
Caroline Kraus Attorney-in-Fact |
EX-99.(a)
I, JEFFREY W. BULLOCK, SECRETARY OF STATE OF THE STATE OF DELAWARE DO HEREBY CERTIFY THAT THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF CONVERSION OF A DELAWARE LIMITED LIABILITY COMPANY UNDER THE NAME OF GOLDMAN SACHS LIBERTY HARBOR CAPITAL, LLC TO A DELAWARE CORPORATION, CHANGING ITS NAME FROM GOLDMAN SACHS LIBERTY HARBOR CAPITAL, LLC TO GOLDMAN SACHS BDC, INC., FILED IN THIS OFFICE ON THE TWENTY-EIGHTH DAY OF MARCH, A.D. 2013, AT 12:15 OCLOCK P.M.
AND I DO HEREBY FURTHER CERTIFY THAT THE EFFECTIVE DATE OF THE AFORESAID CERTIFICATE OF CONVERSION IS THE FIRST DAY OF APRIL, A.D. 2013, AT 12:01 OCLOCK A.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE COUNTY RECORDER OF DEEDS.
I, JEFFREY W. BULLOCK, SECRETARY OF STATE OF THE STATE OF DELAWARE DO HEREBY CERTIFY THAT THE ATTACHED IS A TRUE AND CORRECT COPY OF CERTIFICATE OF INCORPORATION OF GOLDMAN SACHS BDC, INC. FILED IN THIS OFFICE ON THE TWENTY-EIGHTH DAY OF MARCH, A.D. 2013, AT 12:15 OCLOCK P.M.
AND I DO HEREBY FURTHER CERTIFY THAT THE EFFECTIVE DATE OF THE AFORESAID CERTIFICATE OF INCORPORATION IS THE FIRST DAY OF APRIL, A.D. 2013, AT 12:01 OCLOCK A.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE COUNTY RECORDER OF DEEDS.
CERTIFICATE OF CONVERSION TO CORPORATION
OF
GOLDMAN SACHS LIBERTY HARBOR CAPITAL, LLC
TO
GOLDMAN SACHS BDC, INC.
This Certificate of Conversion to Corporation, dated as of March 29, 2013, is being duly executed and filed by Goldman Sachs Liberty Harbor Capital, LLC, a Delaware limited liability company (the LLC), to convert the LLC to Goldman Sachs BDC, Inc., a Delaware corporation (the Corporation), under the Delaware Limited Liability Company Act (6 Del. C. § 18-101, et seq. ) and the General Corporation Law of the State of Delaware (8 Del. C. § 101, et seq .).
1. The LLC was first formed on September 26, 2012. The LLC was first formed under the laws of the State of Delaware and was a limited liability company under the laws of the State of Delaware immediately prior to the filing of this Certificate of Conversion to Corporation.
2. The LLCs name immediately prior to the filing of this Certificate of Conversion to Corporation was Goldman Sachs Liberty Harbor Capital, LLC, a Delaware limited liability company.
3. The name of the Corporation as set forth in its certificate of incorporation filed in accordance with Section 265(b) of the General Corporation Law of the State of Delaware is Goldman Sachs BDC, Inc.
4. The conversion of the LLC to the Corporation shall be effective at 12:01 a.m. (EDT) on April 1, 2013.
[ Remainder of Page Intentionally Left Blank ]
RLF1 8137185v.2
IN WITNESS WHEREOF, the undersigned has executed this Certificate of Conversion to Corporation as of the date first-above written.
GOLDMAN SACHS LIBERTY HARBOR CAPITAL, LLC | ||||
By: |
|
|||
Name: | Jonathan Lamm | |||
Title: | Chief Financial Officer and Treasurer Authorized Person |
CERTIFICATE OF INCORPORATION
OF
GOLDMAN SACHS BDC, INC.
I, the undersigned, being the Incorporator for purposes of incorporating and organizing a corporation under the General Corporation Law of the State of Delaware, do make, file and record this Certificate of Incorporation and do hereby certify as follows:
ARTICLE I
NAME
The name of the Corporation is Goldman Sachs BDC, Inc. (the Corporation ).
ARTICLE II
REGISTERED OFFICE AND AGENT
The address of the registered office of the Corporation in the State of Delaware is Corporation Trust Center, 1209 Orange Street in the City of Wilmington, County of New Castle, 19801. The name of the registered agent of the Corporation in the State of Delaware at such address is The Corporation Trust Company.
ARTICLE III
PURPOSE
The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the DGCL) and to possess and exercise all of the powers and privileges granted by such law and any other law of the State of Delaware.
ARTICLE IV
CAPITAL STOCK
A. The total number of shares of all classes of stock that the Corporation shall have authority to issue is 201,000,000, which shall be divided into two classes as follows: 200,000,000 shares of common stock, par value $0,001 per share ( Common Stock ), and 1,000,000 shares of preferred stock, par value $0,001 per share ( Preferred Stock ).
B. Upon the effectiveness of the filing of the Certificate of Conversion of Goldman Sachs Liberty Harbor Capital, LLC ( Liberty LLC ) to the Corporation and this Certificate of Incorporation (the Effective Time ), all limited liability company interests in Liberty LLC outstanding immediately prior to the Effective Time shall, without any further action on the part of the Corporation or the former holder of such limited liability company interests, be converted into the consideration set forth in the Plan of Conversion of Liberty LLC to the Corporation, a copy of which is included in the books and records of the Corporation (the Plan of Conversion ).
RLF1 8176989v.7
C. To the extent permitted by the Investment Company Act of 1940, as amended (the Investment Company Act ), the Board of Directors is hereby expressly authorized, by resolution or resolutions, to provide, out of the unissued shares of Preferred Stock, for one or more series of Preferred Stock and, with respect to each such series, to fix, without further stockholder approval, powers (including voting powers), preferences and relative, participating, optional and other special rights, and the qualifications, limitations or restrictions thereof, of each series of Preferred Stock and the number of shares of the series, as may be permitted by the DGCL. Unless otherwise provided in this Certificate of Incorporation, the powers, preferences and relative, participating, optional and other special rights, and the qualifications, limitations or restrictions thereof, of each series of Preferred Stock, if any, may differ from those of any and all other series of Preferred Stock at any time outstanding. Except as otherwise required by law, holders of Preferred Stock shall be entitled to only such voting rights and powers, if any, as shall expressly be granted thereto by this Certificate of Incorporation (including any certificate of designation relating to any series of Preferred Stock). Notwithstanding anything to the contrary set forth herein or in any certificate of designation relating to any series of Preferred Stock, if one or more series of Preferred Stock is entitled, either separately or together with the holders of one or more other such series, to elect one or more directors, all series of Preferred Stock shall be entitled to participate in the vote to elect such directors, voting as a single class.
D. Each holder of record of Common Stock, as such, shall have one vote for each share of Common Stock which is outstanding in his, her or its name on the books of the Corporation as of the record date for voting on all matters on which stockholders are entitled to vote generally. Except as otherwise required by law, holders of record of Common Stock shall not be entitled to vote on any amendment to this Certificate of Incorporation (including any certificate of designation relating to any series of Preferred Stock) that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together with the holders of one or more other such series, to vote thereon pursuant to this Certificate of Incorporation (including any certificate of designation relating to any series of Preferred Stock) or pursuant to the DGCL.
E. Subject to applicable law and the rights, if any, of the holders of any outstanding series of Preferred Stock or any class or series of stock having a preference over or the right to participate with the Common Stock with respect to the payment of dividends, dividends may be declared and paid ratably on the Common Stock out of the assets of the Corporation which are legally available for this purpose at such times and in such amounts as the Board of Directors in its discretion shall determine.
F. Upon the dissolution, liquidation or winding up of the Corporation, after payment or provision for payment of the debts and other liabilities of the Corporation and subject to the rights, if any, of the holders of any outstanding series of Preferred Stock or any class or series of stock having a preference over or the right to participate with the Common Stock with respect to the distribution of assets of the Corporation upon such dissolution, liquidation or winding up of the Corporation, the holders of Common Stock shall be entitled to receive the remaining assets of the Corporation available for distribution to its stockholders ratably in proportion to the number of shares held by them.
G. The number of authorized shares of Preferred Stock or Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority in voting power of the stock of the Corporation entitled to vote thereon irrespective of the provisions of Section 242(b)(2) of the DGCL (or any successor provision thereto), and no vote of the holders of any of the Common Stock or the Preferred Stock voting separately as a class shall be required therefor, unless a vote of any such holder is required pursuant to the terms of any certificate of designation designating a series of Preferred Stock.
6
RLF1 8176989v.7
ARTICLE V
AMENDMENT OF THE CERTIFICATE OF INCORPORATION AND BYLAWS
A. Notwithstanding anything contained in this Certificate of Incorporation to the contrary, but in addition to any other vote required by applicable law, the following provisions of this Certificate of Incorporation may be amended, altered or repealed, in whole or in part, or any provision inconsistent therewith or herewith may be adopted, only by the affirmative vote of at least 66 2/3% in voting power of all the then-outstanding shares of stock of the Corporation entitled to vote thereon, voting together as a single class: this Article V, Article VI, Article VII, Article VIII, and Article IX.
B. In furtherance and not in limitation of the powers conferred by the DGCL, the Board of Directors, acting by the affirmative vote of directors constituting a majority of the total number of directors, is expressly authorized to make, repeal, alter, amend and rescind, in whole or in part, the bylaws of the Corporation (as in effect from time to time, the Bylaws ) without the assent or vote of the stockholders in any manner not inconsistent with the laws of the State of Delaware or this Certificate of Incorporation. Notwithstanding anything to the contrary contained in this Certificate of Incorporation or any provision of law which might otherwise permit a lesser vote of the stockholders, but in addition to any other vote of the holders of any class or series of capital stock of the Corporation required herein or by law, the affirmative vote of at least 66 2/3% in voting power of all the then-outstanding shares of stock of the Corporation entitled to vote thereon, voting together as a single class, shall be required in order for the stockholders of the Corporation to alter, amend, repeal or rescind, in whole or in part, any provision of the Bylaws or to adopt any provision inconsistent therewith.
ARTICLE VI
BOARD OF DIRECTORS
A. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. The directors in their discretion may submit any contract or act for approval or ratification at any annual meeting of the stockholders or at any meeting of the stockholders called for the purpose of considering any such act or contract, and any contract or act that shall be approved or be ratified by a majority of the votes cast by stockholders present in person or by proxy at such meeting and entitled to vote thereat (provided that a lawful quorum of stockholders be there represented in person or by proxy), unless a higher vote is required by applicable law, shall, to the fullest extent permitted by law, be as valid and binding upon the Corporation and upon all the stockholders as though it had been approved or ratified by every stockholder of the Corporation, whether or not the contract or act would otherwise be open to legal attack because of directors interests, or for any other reason.
B. Except as otherwise provided by Section G of this Article VI, the total number of directors shall be determined from time to time exclusively by resolution adopted by the Board of Directors. Each director shall hold office until the next annual meeting for the election of directors (or, if applicable, the next election of the class of directors for which such director shall have been appointed or elected) and until his or her successor is elected and qualified, or until his or her earlier death, resignation, retirement, disqualification or removal.
C. Concurrent with the first sale of shares of Common Stock by the Corporation to the general public pursuant to a registration statement filed with, and declared effective by, the United States Securities and Exchange Commission under the Securities Act of 1933, as amended (the IPO ), and the listing of shares of Common Stock on a national securities exchange (the Listing ), the directors (other than any Additional Preferred Directors (as defined below)) shall be divided into three classes, designated Class I, Class II and Class III, and each class shall consist, as nearly as possible, of one-third of the total number of directors. The Board of Directors may assign members of the Board of Directors already in office to such classes at the time such classification becomes effective. Class I directors shall initially serve for a term expiring at the first annual
7
RLF1 8176989v.7
meeting of stockholders following the IPO and the Listing; Class II directors shall initially serve for a term expiring at the second annual meeting of stockholders following the IPO and the Listing; and Class III directors shall initially serve for a term expiring at the third annual meeting of stockholders following the IPO and the Listing. At each succeeding annual meeting, successors to the class of directors whose term expires at that annual meeting shall be elected for a term expiring at the third succeeding annual meeting of stockholders. If the number of directors so divided into classes is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any such additional director of any class elected to fill a newly created directorship resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case shall a decrease in the number of directors remove or shorten the term of any incumbent director.
D. Except as otherwise provided by applicable law, including the Investment Company Act, or Section G of this Article VI, any newly created directorship on the Board of Directors that results from an increase in the number of directors, and any vacancy occurring in the Board of Directors that results from the death, resignation, retirement, disqualification or removal of a director or other cause, shall be filled exclusively by a majority of the directors then in office, although less than a quorum, or by a sole remaining director; provided , that whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by this Certificate of Incorporation (including any certificate of designation relating to any series of Preferred Stock), any such vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected. Any director elected to fill a vacancy or newly created directorship shall hold office until the next annual meeting for the election of directors (or, if applicable, the next election of the class of directors for which such director shall have been appointed) and until his or her successor shall be elected and qualified, or until his or her earlier death, resignation, retirement, disqualification or removal.
E. Following the time at which the Board of Directors is classified pursuant to Section C of this Article VI, any or all of the directors divided into classes may be removed only for cause and only by the affirmative vote of at least 66 2/3% in voting power of all the then-outstanding shares of stock of the Corporation entitled to vote thereon, voting together as a single class.
F. Elections of directors need not be by written ballot unless the Bylaws shall so provide.
G. During any period when the holders of one or more series of Preferred Stock, due to the occurrence of an event or events, have the special right to elect additional directors who, together with the directors elected by the separate vote of the holders of one or more series of Preferred Stock prior to such event or events, constitute a majority of the total number of directors (the additional directors elected by the separate vote of such holders following such event, the Additional Preferred Directors ), then upon commencement and for the duration of the period during which such right continues: (i) the then otherwise total authorized number of directors of the Corporation shall automatically be increased by such specified number of directors, and the holders of such Preferred Stock shall be entitled to elect the Additional Preferred Directors so provided for or fixed pursuant to said provisions, and (ii) each such Additional Preferred Director shall serve until the next meeting at which directors are elected and until his or her successor is duly elected and qualified, or until his or her right to hold such office terminates pursuant to said provisions, whichever occurs earlier, subject to his or her earlier death, resignation, retirement, disqualification or removal. Except as otherwise provided by the Board of Directors in the resolution or resolutions establishing such series, whenever the holders of any series of Preferred Stock having such right to elect Additional Preferred Directors are divested of such right pursuant to the provisions of such stock, the terms of office of all such additional directors elected by the holders of such stock, or elected to fill any vacancies resulting from the death, resignation, disqualification or removal of such additional directors, shall forthwith terminate, all such additional directors shall automatically cease to be qualified to serve as directors, and the total authorized number of directors of the Corporation shall be automatically reduced accordingly.
8
RLF1 8176989v.7
ARTICLE VII
LIMITATION ON LIABILITY
A. To the fullest extent permitted by the DGCL as it now exists or may hereafter be amended, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty owed to the Corporation or its stockholders. Without limiting the generality of the foregoing, no director of the Corporation shall be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the directors duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL, or (iv) for any transaction from which the director derived an improper personal benefit. Neither the amendment nor repeal of this Section A of this Article VII, nor the adoption of any provision of this Certificate of Incorporation, nor, to the fullest extent permitted by the DGCL, any modification of law shall eliminate, reduce or otherwise adversely affect any right or protection of a current or former director of the Corporation existing at the time of such amendment, repeal, adoption or modification.
B. The Corporation, to the full extent permitted by Section 145 of the DGCL, shall indemnify all persons whom it may indemnify pursuant thereto. Expenses (including attorneys fees) incurred by an officer or director in defending any civil, criminal, administrative, or investigative action, suit or proceeding for which such officer or director may be entitled to indemnification hereunder shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Corporation as authorized hereby. Notwithstanding anything to the contrary set forth in this Section B of this Article VII, any indemnification or payment or reimbursement of expenses made pursuant to this Section B of this Article VII shall be subject to applicable requirements of the Investment Company Act. The provision of indemnification or advancement of expenses to any person entitled thereto under this Section B of this Article VII, or the entitlement of any such person to indemnification or advancement of expenses under this Section B of this Article VII, shall not limit or restrict in any way the power of the Corporation to indemnify or advance expenses to such person in any other way permitted by law or be deemed exclusive of, or invalidate, any right to which any person seeking indemnification or advancement of expenses and costs may be entitled under the Bylaws or any law, agreement, vote of stockholders or disinterested directors or otherwise.
ARTICLE VIII
CONSENT OF STOCKHOLDERS IN LIEU OF MEETING, ANNUAL AND SPECIAL MEETINGS OF STOCKHOLDERS
A. From and after the consummation of the IPO and the Listing, any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by such holders.
B. An annual meeting of stockholders for the election of directors to succeed those whose terms expire and for the transaction of such other business as may properly come before the meeting, shall be held at such place, if any, on such date, and at such time as shall be fixed exclusively by resolution of the Board of Directors or a duly authorized committee thereof.
C. Special meetings of the stockholders of the Corporation for any purpose or purposes may be called at any time only by or at the direction of the Board of Directors, the Chairman of the Board of Directors, or the Chief Executive Officer, and may not be called by any other person.
9
RLF1 8176989v.7
ARTICLE IX
DGCL SECTION 203 AND BUSINESS COMBINATIONS
A. The Corporation hereby expressly elects not to be governed by Section 203 of the DGCL.
B. Notwithstanding the foregoing, the Corporation shall not engage in any business combination (as defined below), at any point in time at which the Common Stock is registered under Section 12(b) or 12(g) of the Exchange Act, with any interested stockholder (as defined below) for a period of three (3) years following the time that such stockholder became an interested stockholder, unless:
1. | prior to such time, the Board of Directors approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder, or |
2. | upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock (as defined below) of the Corporation outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding (but not the outstanding voting stock owned by the interested stockholder) those shares owned (i) by persons who are directors and also officers and (ii) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer, or |
3. | at or subsequent to such time, the business combination is approved by the Board of Directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock of the Corporation which is not owned by the interested stockholder. |
C. For purposes of this Article IX, references to:
1. | affiliate means a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, another person. |
2. | associate , when used to indicate a relationship with any person, means: (i) any corporation, partnership, unincorporated association or other entity of which such person is a director, officer or partner or is, directly or indirectly, the owner of 20% or more of any class of voting stock; (ii) any trust or other estate in which such person has at least a 20% beneficial interest or as to which such person serves as trustee or in a similar fiduciary capacity; and (iii) any relative or spouse of such person, or any relative of such spouse, who has the same residence as such person. |
3. | Goldman Direct Transferee means any person that acquires (other than in a registered public offering) directly from Group Inc., Goldman Sachs Asset Management, L.P., Goldman, Sachs & Co. or any of their other subsidiaries or affiliates (collectively, Goldman ) or their successors or any group, or any member of any such group, of which such persons are a party under Rule 13d-5 of the Exchange Act, beneficial ownership of 15% or more of the then outstanding voting stock of the Corporation. |
4. | Goldman Indirect Transferee means any person that acquires (other than in a registered public offering) directly from any Goldman Direct Transferee or any other Goldman Indirect Transferee beneficial ownership of 15% or more of the then outstanding voting stock of the Corporation. |
10
RLF1 8176989v.7
5. | business combination , when used in reference to the Corporation and any interested stockholder of the Corporation, means: |
(i) | any merger or consolidation of the Corporation or any direct or indirect majority-owned subsidiary of the Corporation (a) with the interested stockholder, or (b) with any other corporation, partnership, unincorporated association or other entity if the merger or consolidation is caused by the interested stockholder and as a result of such merger or consolidation Section B of this Article IX is not applicable to the surviving entity; |
(ii) | any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions), except proportionately as a stockholder of the Corporation, to or with the interested stockholder, whether as part of a dissolution or otherwise, of assets of the Corporation or of any direct or indirect majority-owned subsidiary of the Corporation which assets have an aggregate market value equal to 10% or more of either the aggregate market value of all the assets of the Corporation determined on a consolidated basis or the aggregate market value of all the outstanding stock of the Corporation; |
(iii) | any transaction which results in the issuance or transfer by the Corporation or by any direct or indirect majority-owned subsidiary of the Corporation of any stock of the Corporation or of such subsidiary to the interested stockholder, except: (a) pursuant to the exercise, exchange or conversion of securities exercisable for, exchangeable for or convertible into stock of the Corporation or any such subsidiary which securities were outstanding prior to the time that the interested stockholder became such; (b) pursuant to a merger under Section 251 (g) of the DGCL; (c) pursuant to a dividend or distribution paid or made, or the exercise, exchange or conversion of securities exercisable for, exchangeable for or convertible into stock of the Corporation or any such subsidiary which security is distributed, pro rata to all holders of a class or series of stock of the Corporation subsequent to the time the interested stockholder became such; (d) pursuant to an exchange offer by the Corporation to purchase stock made on the same terms to all holders of said stock; or (e) any issuance or transfer of stock by the Corporation; provided, however, that in no case under items (c)-(e) of this subsection (iii) shall there be an increase in the interested stockholders proportionate share of the stock of any class or series of the Corporation or of the voting stock of the Corporation (except as a result of immaterial changes due to fractional share adjustments); |
(iv) | any transaction involving the Corporation or any direct or indirect majority-owned subsidiary of the Corporation which has the effect, directly or indirectly, of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the Corporation or of any such subsidiary which is owned by the interested stockholder, except as a result of immaterial changes due to fractional share adjustments or as a result of any purchase or redemption of any shares of stock not caused, directly or indirectly, by the interested stockholder; or |
(v) | any receipt by the interested stockholder of the benefit, directly or indirectly (except proportionately as a stockholder of the Corporation), of any loans, advances, guarantees, pledges, or other financial benefits (other than those expressly permitted in subsections (i)-(iv) above) provided by or through the Corporation or any direct or indirect majority-owned subsidiary. |
6. |
control, including the terms controlling , controlled by and under common control with , means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting stock, by contract, or otherwise. A person who is the owner of 20% or more of the outstanding voting stock of the Corporation, partnership, unincorporated association or other entity shall be presumed to have |
11
RLF1 8176989v.7
control of such entity, in the absence of proof by a preponderance of the evidence to the contrary. Notwithstanding the foregoing, a presumption of control shall not apply where such person holds voting stock, in good faith and not for the purpose of circumventing Sections B or C of this Article IX, as an agent, bank, broker, nominee, custodian or trustee for one or more owners who do not individually or as a group have control of such entity. |
7. | interested stockholder means any person (other than the Corporation or any direct or indirect majority-owned subsidiary of the Corporation) that (i) is the owner of 15% or more of the outstanding voting stock of the Corporation, or (ii) is an affiliate or associate of the Corporation and was the owner of 15% or more of the outstanding voting stock of the Corporation at any time within the three (3) year period immediately prior to the date on which it is sought to be determined whether such person is an interested stockholder; and the affiliates and associates of such person; provided, however, that interested stockholder shall not include (a) Goldman, any Goldman Direct Transferee, any Goldman Indirect Transferee or any of their respective affiliates or successors or any group, or any member of any such group, to which such persons are a party under Rule 13d-5 of the Exchange Act, or (b) any person whose ownership of shares in excess of the 15% limitation set forth herein is the result of any action taken solely by the Corporation, provided that such person described in this clause (b) shall be an interested stockholder if thereafter such person acquires additional shares of voting stock of the Corporation, except as a result of further corporate action not caused, directly or indirectly, by such person. For the purpose of determining whether a person is an interested stockholder, the voting stock of the Corporation deemed to be outstanding shall include stock deemed to be owned by the person through application of the definition of owner below but shall not include any other unissued stock of the Corporation which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise. |
8. | owner . including the terms own and owned , when used with respect to any stock, means a person that individually or with or through any of its affiliates or associates: |
(i) | beneficially owns such stock, directly or indirectly; or |
(ii) | has (a) the right to acquire such stock (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding, or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise; provided, however, that a person shall not be deemed the owner of stock tendered pursuant to a tender or exchange offer made by such person or any of such persons affiliates or associates until such tendered stock is accepted for purchase or exchange; or (b) the right to vote such stock pursuant to any agreement, arrangement or understanding; provided , however, that a person shall not be deemed the owner of any stock because of such persons right to vote such stock if the agreement, arrangement or understanding to vote such stock arises solely from a revocable proxy or consent given in response to a proxy or consent solicitation made to ten (10) or more persons; or |
(iii) | has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting (except voting pursuant to a revocable proxy or consent as described in item (b) of subsection (ii) above), or disposing of such stock with any other person that beneficially owns, or whose affiliates or associates beneficially own, directly or indirectly, such stock. |
9. | person means any individual, corporation, partnership, unincorporated association or other entity. |
10. | stock means, with respect to any corporation, capital stock and, with respect to any other entity, any equity interest. |
11. | voting stock means stock of any class or series entitled to vote generally in the election of directors. |
12
RLF1 8176989v.7
ARTICLE X
TRANSFER RESTRICTIONS
A stockholder shall not transfer (whether by sale, gift, merger, by operation of law or otherwise), assign, pledge or otherwise dispose of or encumber (collectively, Transfer ) any shares of Common Stock issued prior to the IPO to any person or entity unless such Transfer is previously approved in writing by the Corporation prior to such Transfer, which approval may be granted or withheld in the Corporations sole and absolute discretion. While such consent should not be unreasonably withheld, such consent may be withheld if any such Transfer would or may result in the Corporation having fewer than 550 beneficial owners of its capital stock. The Corporation may impose certain conditions in connection with granting its consent to a Transfer, including, without limitation, that the transferring stockholder retain an amount of Common Stock worth at least $1,000 at the time of such Transfer. Any purported Transfer of any shares of Common Stock effected in violation of this Article X shall be void ab initio and shall have no force or effect, and the Corporation shall not register or permit registration of (and shall direct its transfer agent, if any, not to register or permit registration of) any such purported Transfer on its books and records. This Article X, and the transfer restrictions set forth herein, shall automatically terminate upon a date established by the Corporation (which date shall be included in a notice to stockholders or disclosed in a public announcement) that is not more than 180 days after the consummation of the IPO. Notwithstanding the foregoing, unless otherwise waived in writing by the Corporation in the Corporations sole and absolute discretion, following the consummation of an IPO, stockholders who became stockholders prior to the IPO shall be required to retain an amount of Common Stock worth at least $1,000 at the time of any Transfer until the first day of the Corporations taxable year following its taxable year in which the IPO occurs.
ARTICLE XI
POWERS OF INCORPORATOR: INITIAL DIRECTORS
The Incorporator of the Corporation is Jonathan Lamm, whose mailing address is c/o Goldman Sachs Asset Management, L.P., 200 West Street, New York, New York 10282. The powers of the Incorporator shall terminate upon the filing of this Certificate of Incorporation with the Secretary of State of the State of Delaware. The names and addresses of the initial members of the Board of Directors are as follows:
Ashok N. Bakhru
c/o Goldman Sachs Asset Management, L.P.
200 West Street
New York, New York 10282
John P. Coblentz, Jr.
c/o Goldman Sachs Asset Management, L.P.
200 West Street
New York, New York 10282
James A. McNamara
c/o Goldman Sachs Asset Management, L.P.
200 West Street
New York, New York 10282
Richard P. Strubel
c/o Goldman Sachs Asset Management, L.P.
200 West Street
New York, New York 10282
13
RLF1 8176989v.7
ARTICLE XII
MISCELLANEOUS
If any provision or provisions of this Certificate of Incorporation shall be held to be invalid, illegal or unenforceable as applied to any circumstance for any reason whatsoever: (i) the validity, legality and enforceability of such provisions in any other circumstance and of the remaining provisions of this Certificate of Incorporation (including, without limitation, each portion of any paragraph of this Certificate of Incorporation containing any such provision held to be invalid, illegal or unenforceable that is not itself held to be invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and (ii) to the fullest extent possible, the provisions of this Certificate of Incorporation (including, without limitation, each such portion of any paragraph of this Certificate of Incorporation containing any such provision held to be invalid, illegal or unenforceable) shall be construed so as to permit the Corporation to protect its directors, officers, employees and agents from personal liability in respect of their good faith service or for the benefit of the Corporation to the fullest extent permitted by law.
* * *
This Certificate of Incorporation shall become on April 1, 2013 at 12:01 a.m. Eastern Daylight Time.
[ Remainder of Page Intentionally Left Blank ]
14
RLF1 8176989v.7
IN WITNESS WHEREOF, the undersigned Incorporator hereby acknowledges that the foregoing Certificate of Incorporation is his act and deed as of the date first written above.
|
Jonathan Lamm |
Incorporator |
EX-99.(b)
BYLAWS
OF
GOLDMAN SACHS BDC, INC.
ARTICLE I
Offices
SECTION 1.01 Registered Office . The registered office and registered agent of Goldman Sachs BDC, Inc., a Delaware corporation (the Corporation ), shall be as set forth in the Corporations certificate of incorporation as then in effect (as the same may be amended and/or restated from time to time, the Certificate of Incorporation ). The Corporation may also have offices in such other places in the United States or elsewhere (and may change the Corporations registered agent) as the board of directors of the Corporation (the Board of Directors ) may, from time to time, determine or as the business of the Corporation may require.
ARTICLE II
Meetings of Stockholders
SECTION 2.01 Annual Meetings . Annual meetings of stockholders may be held at such place, if any, either within or without the State of Delaware, and at such time and date as the Board of Directors shall determine and state in the notice of meeting. The Board of Directors may, in its sole discretion, determine that the meeting shall not be held at any place, but may instead be held solely by means of remote communication as described in Section 2.10 of these Bylaws in accordance with Section 211(a)(2) of the General Corporation Law of the State of Delaware (the DGCL ). The Board of Directors may postpone, adjourn, reschedule or cancel any annual meeting of stockholders previously scheduled by the Board of Directors.
SECTION 2.02 Special Meetings . Special meetings of stockholders may only be called by the Board of Directors, the Chairman of the Board or the Chief Executive Officer and may be held either within or without the State of Delaware. The Board of Directors may, in its sole discretion, determine that the meeting shall not be held at any place, but may instead be held solely by means of remote communication as described in Section 2.10 of these Bylaws in accordance with Section 211(a)(2) of the DGCL. The Board of Directors may postpone, adjourn, reschedule or cancel any special meeting of stockholders previously scheduled by the Board of Directors, the Chairman of the Board or the Chief Executive Officer.
SECTION 2.03 Notice of Stockholder Business and Nominations . For each annual meeting of stockholders scheduled to be held on a date occurring prior to the first sale of shares of Common Stock by the Corporation to the general public pursuant to a registration statement filed with, and declared effective by, the United States Securities and Exchange Commission under the Securities Act of 1933, as amended (the IPO ), and the listing of shares of Common Stock on a national securities exchange (the Listing ), nominations of persons for election to the Board of Directors and the proposal of other business to be considered by the stockholders may be made at such meeting (a) pursuant to the Corporations notice of meeting (or any supplement thereto) delivered pursuant to Section 2.04 of Article II of these Bylaws, (b) by or at the direction of the Board of Directors or any authorized committee thereof, or (c) by any stockholder of record as of the record date for notice and voting at the meeting who is entitled to vote at the meeting and who holds shares of stock entitled to vote at the meeting of record continuously through the date of the meeting, without regard to the provisions of paragraph (A) of this Section 2.03. For each annual meeting scheduled to be held on a date occurring on or after the date of the IPO and the Listing, nominations of persons for election to the Board of Directors and the proposal of other business to be considered by the stockholders shall be subject to, and may only be made in compliance with, the provisions of paragraph (A) of this Section 2.03.
(A) Annual Meetings of Stockholders .
(1) Nominations of persons for election to the Board of Directors and the proposal of other business to be considered by the stockholders may be made at an annual meeting of stockholders only (a) pursuant to the Corporations notice of meeting (or any supplement thereto) delivered pursuant to Section 2.04 of Article II of these Bylaws, (b) by or at the direction of the Board of Directors or any authorized committee thereof or (c) by any stockholder of the Corporation who is entitled to vote at the meeting, who complied with the notice procedures set forth in paragraphs (A)(2) and (A)(3) of this Section 2.03 and who was a stockholder of record at the time such notice is delivered to the Secretary of the Corporation.
(2) For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (c) of paragraph (A)(1) of this Section 2.03, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation, and, in the case of business other than nominations of persons for election to the Board of Directors, such other business must constitute a proper matter for stockholder action. To be timely, a stockholders notice shall be delivered to the Secretary of the Corporation at the principal executive offices of the Corporation not less than ninety (90) days nor more than one hundred and twenty (120) days prior to the first anniversary of the preceding years annual meeting; provided, however , that in the event that the date of the annual meeting is advanced by more than thirty (30) days, or delayed by more than seventy (70) days, from the anniversary date of the previous years meeting, or if no annual meeting was held in the preceding year, notice by the stockholder to be timely must be so delivered not earlier than one hundred and twenty (120) days prior to such annual meeting and not later than the close of business on the later of the ninetieth (90th) day prior to such annual meeting or the tenth (10th) day following the day on which public announcement of the date of such meeting is first made. Public announcement of an adjournment or postponement of an annual meeting shall not commence a new time period (or extend any time period) for the giving of a stockholders notice. Notwithstanding anything in this Section 2.03(A)(2) to the contrary, if the number of directors to be elected to the Board of Directors of the Corporation at an annual meeting is increased and there is no public announcement by the Corporation naming all of the nominees for director or specifying the size of the increased board of directors at least one hundred (100) calendar days prior to the first anniversary of the prior years annual meeting of stockholders, then a stockholders notice required by this Section shall be considered timely, but only with respect to nominees for any new positions created by such increase, if it is received by the Secretary of the Corporation not later than the close of business on the tenth (10th) calendar day following the day on which such public announcement is first made by the Corporation.
(3) Such stockholders notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election as a director, (i) all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Section 14(a) of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (the Exchange Act ), including such persons written consent to being named in the proxy statement as a nominee and to serving as a director if elected, and (ii) whether such stockholder believes such person is, or is not, an interested person of the Corporation, as defined in the Investment Company Act of 1940, as amended, and the rules promulgated thereunder (the Investment Company Act ), and information regarding such person that is sufficient, in the discretion of the Board of Directors or any committee thereof or any authorized officer of the Corporation, to make such determination; (b) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the text of the proposal or business (including the text of any resolutions proposed for consideration and, in the event that such business includes a proposal to amend these Bylaws of the Corporation, the language of the proposed amendment), the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; (c) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such stockholder, as they appear on the Corporations books and records, and of such beneficial owner, (ii) the class or series and number of shares of capital stock of the Corporation which are owned, directly or indirectly, beneficially and of record by such
2
stockholder and such beneficial owner, (iii) a representation that the stockholder is a holder of record of the stock of the Corporation at the time of the giving of the notice, will be entitled to vote at such meeting and will appear in person or by proxy at the meeting to propose such business or nomination, (iv) a representation whether the stockholder or the beneficial owner, if any, will be or is part of a group which will (x) deliver a proxy statement and/or form of proxy to holders of at least the percentage of the voting power of the Corporations outstanding capital stock required to approve or adopt the proposal or elect the nominee and/or (y) otherwise to solicit proxies or votes from stockholders in support of such proposal or nomination, (v) a certification regarding whether such stockholder and beneficial owner, if any, have complied with all applicable federal, state and other legal requirements in connection with the stockholders and/or beneficial owners acquisition of shares of capital stock or other securities of the Corporation and/or the stockholders and/or beneficial owners acts or omissions as a stockholder of the Corporation and (vi) any other information relating to such stockholder and beneficial owner, if any, required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for, as applicable, the proposal and/or for the election of directors in an election contest pursuant to and in accordance with Section 14(a) of the Exchange Act; (d) a description of any agreement, arrangement or understanding with respect to the nomination or proposal and/or the voting of shares of any class or series of stock of the Corporation between or among the stockholder giving the notice, the beneficial owner, if any, on whose behalf the nomination or proposal is made, any of their respective affiliates or associates and/or any others acting in concert with any of the foregoing (collectively, proponent persons ); and (e) a description of any agreement, arrangement or understanding (including without limitation any contract to purchase or sell, acquisition or grant of any option, right or warrant to purchase or sell, swap or other instrument) to which any proponent person is a party, the intent or effect of which may be (i) to transfer to or from any proponent person, in whole or in part, any of the economic consequences of ownership of any security of the Corporation, (ii) to increase or decrease the voting power of any proponent person with respect to shares of any class or series of stock of the Corporation and/or (iii) to provide any proponent person, directly or indirectly, with the opportunity to profit or share in any profit derived from, or to otherwise benefit economically from, any increase or decrease in the value of any security of the Corporation. A stockholder providing notice of a proposed nomination for election to the Board of Directors or other business proposed to be brought before a meeting (whether given pursuant to this paragraph (A)(3) or paragraph (B) of this Section 2.03 of these Bylaws) shall update and supplement such notice from time to time to the extent necessary so that the information provided or required to be provided in such notice shall be true and correct (x) as of the record date for determining the stockholders entitled to notice of the meeting and (y) as of the date that is fifteen (15) days prior to the meeting or any adjournment or postponement thereof, provided that if the record date for determining the stockholders entitled to vote at the meeting is less than fifteen (15) days prior to the meeting or any adjournment or postponement thereof, the information shall be supplemented and updated as of such later date. Any such update and supplement shall be delivered in writing to the Secretary of the Corporation at the principal executive offices of the Corporation not later than five (5) days after the record date for determining the stockholders entitled to notice of the meeting (in the case of any update and supplement required to be made as of the record date for determining the stockholders entitled to notice of the meeting), not later than ten (10) days prior to the date for the meeting or any adjournment or postponement thereof (in the case of any update or supplement required to be made as of fifteen (15) days prior to the meeting or adjournment or postponement thereof) and not later than five (5) days after the record date for determining the stockholders entitled to vote at the meeting, but no later than the date prior to the meeting or any adjournment or postponement thereof (in the case of any update and supplement required to be made as of a date less than fifteen (15) days prior the date of the meeting or any adjournment or postponement thereof). The Corporation may require any proposed nominee to furnish such other information as it may reasonably require to determine the eligibility of such proposed nominee to serve as a director of the Corporation and to determine the independence of such director under the Exchange Act, the Investment Company Act and applicable stock exchange rules.
(B) Special Meetings of Stockholders . Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporations notice of meeting. Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the Corporations notice of meeting (1) by or at the direction of
3
the Board of Directors or any committee thereof or (2) provided that the Board of Directors has determined that directors shall be elected at such meeting, by any stockholder of the Corporation who is entitled to vote at the meeting and, if the meeting is scheduled to occur on or after the date of the IPO and the Listing, who complies with the notice procedures set forth in paragraphs (A) and (B) of this Section 2.03 and is a stockholder of record at the time such notice is delivered to the Secretary of the Corporation. In the event the Corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board of Directors, which meeting is scheduled to occur on or after the date of the IPO and the Listing, any such stockholder entitled to vote in such election of directors may nominate a person or persons (as the case may be) for election to such position(s) as specified in the Corporations notice of meeting if the stockholders notice as required by paragraph (A)(2) of this Section 2.03 shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the close of business on the 120th day prior to such special meeting and not later than the close of business on the later of the 90th day prior to such special meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall the public announcement of an adjournment or postponement of a special meeting commence a new time period (or extend any time period) for the giving of a stockholders notice as described above.
(C) General . (1) Only such persons who are nominated in accordance with the procedures set forth in this Section 2.03 shall be eligible to serve as directors and only such business shall be conducted at an annual or special meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section. Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, the chairman of the meeting shall, in addition to making any other determination that may be appropriate for the conduct of the meeting, have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in these Bylaws and, if any proposed nomination or business is not in compliance with these Bylaws, to declare that such defective proposal or nomination shall be disregarded. The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting by the chairman of the meeting. The Board of Directors may adopt by resolution such rules and regulations for the conduct of the meeting of stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the chairman of the meeting shall have the right and authority to convene and (for any or no reason) to recess and/or adjourn the meeting, to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are appropriate for the proper conduct of the meeting. Notwithstanding the foregoing provisions of this Section 2.03, unless otherwise required by law, if the stockholder (or a qualified representative of the stockholder) does not appear at the annual or special meeting of stockholders of the Corporation to present a nomination or business, such nomination shall be disregarded and such proposed business shall not be transacted, notwithstanding that proxies in respect of such vote may have been received by the Corporation. For purposes of this Section 2.03, to be considered a qualified representative of the stockholder, a person must be a duly authorized officer, manager or partner of such stockholder or must be authorized by a writing executed by such stockholder or an electronic transmission delivered by such stockholder to act for such stockholder as proxy at the meeting of stockholders and such person must produce such writing or electronic transmission, or a reliable reproduction of the writing or electronic transmission, at the meeting of stockholders. Unless and to the extent determined by the Board of Directors or the chairman of the meeting, meeting of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure.
(2) Whenever used in these Bylaws, public announcement shall mean disclosure (a) in a press release released by the Corporation, provided such press release is released by the Corporation following its customary procedures, is reported by the Dow Jones News Service, Associated Press or comparable national news service, or is generally available on internet news sites, or (b) in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to the Exchange Act or the Investment Company Act.
(3) Notwithstanding the foregoing provisions of this Section 2.03, from and after the date of the IPO and the Listing, a stockholder shall also comply with all applicable requirements of the Exchange Act with respect to
4
the matters set forth in this Section 2.03; provided, however , that, to the fullest extent permitted by law, any references in these Bylaws to the Exchange Act are not intended to and shall not limit any requirements applicable to nominations or proposals as to any other business to be considered pursuant to these Bylaws (including paragraphs (A)(1)(c) and (B) hereof), and compliance with paragraphs (A)(1)(c) and (B) of this Section 2.03 of these Bylaws shall be the exclusive means for a stockholder to make nominations or submit other business. Nothing in these Bylaws shall be deemed to affect any special rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect additional directors upon the occurrence of a specified event or events.
SECTION 2.04 Notice of Meetings . Whenever stockholders are required or permitted to take any action at a meeting, a timely notice in writing or by electronic transmission, in the manner provided in Section 232 of the DGCL, of the meeting, which shall state the place, if any, date and time of the meeting, the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such meeting, the record date for determining the stockholders entitled to vote at the meeting, if such date is different from the record date for determining stockholders entitled to notice of the meeting, and, in the case of a special meeting, the purposes for which the meeting is called, shall be mailed to or transmitted electronically by the Secretary of the Corporation to each stockholder of record entitled to vote thereat as of the record date for determining the stockholders entitled to notice of the meeting. Unless otherwise provided by law, the Certificate of Incorporation or these Bylaws, the notice of any meeting shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting as of the record date for determining the stockholders entitled to notice of the meeting.
SECTION 2.05 Quorum . Unless otherwise required by law, the Certificate of Incorporation or the rules of any stock exchange upon which the Corporations securities are listed, the holders of record of a majority of the issued and outstanding shares of capital stock of the Corporation entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum for the transaction of business at all meetings of stockholders; provided that where a separate vote by a class or classes or series of stock is required, the holders of a majority of all issued and outstanding stock of such class or classes or series, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to such matter. Abstentions will be treated as shares of capital stock of the Corporation that are present and entitled to vote for purposes of determining the number present and entitled to vote with respect to any particular proposal, but will not be counted as a vote in favor of such proposal. If a broker or nominee holding shares of capital stock of the Corporation in street name indicates on the proxy that it does not have discretionary authority to vote as to a particular proposal, those shares of capital stock of the Corporation will not be considered as present and entitled to vote with respect to such proposal. Once a quorum is present to organize a meeting, it shall not be broken by the subsequent withdrawal of any stockholders.
SECTION 2.06 Voting; Proxies . (A) Except as otherwise provided by or pursuant to the provisions of the Certificate of Incorporation, each stockholder entitled to vote at any meeting of stockholders shall be entitled to one vote for each share of stock held by such stockholder which has voting power upon the matter in question. When a quorum is present or represented at any meeting, the vote of the holders of a majority of the shares of stock present in person or represented by proxy and entitled to vote on the subject matter shall decide any question (other than the election of directors) brought before such meeting, unless the question is one upon which, by express provision of applicable law, of the rules or regulations of any stock exchange applicable to the Corporation, of any regulation applicable to the Corporation or its securities, of the Certificate of Incorporation or of these Bylaws, a different vote is required, in which case such express provision shall govern and control the decision of such question.
(B) Except as otherwise provided by these Bylaws, each director shall be elected by the vote of the majority of the votes cast with respect to such directors election at any meeting for the election of directors at which a quorum is present, provided that if, as of the tenth (10th) day preceding the date the Corporation first mails the notice of such meeting to the stockholders, the number of nominees for the directorships (or, if
5
applicable, the directorships of a particular class of directors) exceeds the number of such directors to be elected (a Contested Election), such directors shall be elected by the vote of a plurality of the votes cast. For purposes of this Section 2.06, a majority of votes cast shall mean that the number of votes cast for a directors election exceeds the number of votes cast against that directors election (with abstentions and broker non-votes not counted as a vote cast either for or against that directors election).
(C) Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for such stockholder by proxy in any manner provided by applicable law, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by delivering to the Secretary of the Corporation a revocation of the proxy or a new proxy bearing a later date. Unless required by the Certificate of Incorporation or applicable law, or determined by the chairman of the meeting to be advisable, the vote on any question need not be by ballot. On a vote by ballot, each ballot shall be signed by the stockholder voting, or by such stockholders proxy, if there be such proxy.
SECTION 2.07 Chairman of Meetings . The Chairman of the Board, if one is elected, or, in his or her absence or disability, the Chief Executive Officer, or, in the absence of the Chairman of the Board and the Chief Executive Officer, a person designated by the Board of Directors, shall be the chairman of the meeting and, as such, preside at all meetings of the stockholders.
SECTION 2.08 Secretary of Meetings . The Secretary of the Corporation shall act as secretary at all meetings of the stockholders. In the absence or disability of the Secretary, the Chairman of the Board or the Chief Executive Officer shall appoint a person to act as secretary at such meetings.
SECTION 2.09 Adjournment . At any meeting of stockholders of the Corporation, if less than a quorum be present or if an insufficient number of votes be present for the adoption of a matter at such meeting, the chairman of the meeting or stockholders holding a majority of the shares of stock of the Corporation, present in person or by proxy and entitled to vote thereat, shall have the power to adjourn the meeting from time to time without notice other than announcement at the meeting until a quorum shall be present. Any business may be transacted at the adjourned meeting that might have been transacted at the meeting originally noticed. If the adjournment is for more than thirty (30) days, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. If after the adjournment a new record date for determination of stockholders entitled to vote is fixed for the adjourned meeting, the Board of Directors shall fix as the record date for determining stockholders entitled to notice of such adjourned meeting the same or an earlier date as that fixed for determination of stockholders entitled to vote at the adjourned meeting, and shall give notice of the adjourned meeting to each stockholder of record entitled to vote at such adjourned meeting as of the record date so fixed for notice of such adjourned meeting.
SECTION 2.10 Remote Communication . If authorized by the Board of Directors in its sole discretion, and subject to such guidelines and procedures as the Board of Directors may adopt, stockholders and proxy holders not physically present at a meeting of stockholders may, by means of remote communication:
(a) participate in a meeting of stockholders; and
(b) be deemed present in person and vote at a meeting of stockholders whether such meeting is to be held at a designated place or solely by means of remote communication,
provided , that
(i) the Corporation shall implement reasonable measures to verify that each person deemed present and permitted to vote at the meeting by means of remote communication is a stockholder or proxyholder;
6
(ii) the Corporation shall implement reasonable measures to provide such stockholders and proxyholders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the stockholders, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with such proceedings; and
(iii) if any stockholder or proxyholder votes or takes other action at the meeting by means of remote communication, a record of such vote or other action shall be maintained by the Corporation.
SECTION 2.11 Inspectors of Election . The Corporation may, and shall if required by law, in advance of any meeting of stockholders, appoint one or more inspectors of election to act at the meeting or any adjournment thereof and to make a written report thereof. The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. In the event that no inspector so appointed or designated is able to act at a meeting of stockholders, the chairman of the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath to execute faithfully the duties of inspector with strict impartiality and according to the best of his or her ability. The inspector or inspectors so appointed or designated shall (i) ascertain the number of shares of capital stock of the Corporation outstanding and the voting power of each such share, (ii) determine the shares of capital stock of the corporation represented at the meeting and the validity of proxies and ballots, (iii) count all votes and ballots, (iv) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors, and (v) certify their determination of the number of shares of capital stock of the Corporation represented at the meeting and such inspectors count of all votes and ballots. Such certification and report shall specify such other information as may be required by law. In determining the validity and counting of proxies and ballots cast at any meeting of stockholders of the Corporation, the inspectors may consider such information as is permitted by applicable law. No person who is a candidate for an office at an election may serve as an inspector at such election.
ARTICLE III
Board of Directors
SECTION 3.01 Powers . The business and affairs of the Corporation shall be managed by or under the direction of its Board of Directors. The Board of Directors may exercise all such authority and powers of the Corporation and do all such lawful acts and things as are not by the DGCL or the Certificate of Incorporation directed or required to be exercised or done by the stockholders.
SECTION 3.02 Number and Term; Chairman . Subject to the Certificate of Incorporation, the number of directors shall be fixed exclusively by resolution of the Board of Directors. The term of each director shall be as set forth in the Certificate of Incorporation. Directors need not be stockholders. The Board of Directors shall elect a Chairman of the Board of Directors, who shall have the powers and perform such duties as provided in these Bylaws and as the Board of Directors may from time to time prescribe. The Chairman of the Board of Directors shall preside at all meetings of the Board of Directors at which he or she is present. If the Chairman of the Board of Directors is not present at a meeting of the Board of Directors, the Chief Executive Officer (if the Chief Executive Officer is a director and is not also the Chairman of the Board of Directors) shall preside at such meeting, and, if the Chief Executive Officer is not present at such meeting or is not a director, a majority of the directors present at such meeting shall elect one (1) of their members to preside.
SECTION 3.03 Resignations . Any director may resign at any time upon notice given in writing or by electronic transmission to the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the Secretary of the Corporation. The resignation shall take effect at the time specified therein, and if no time is specified, at the time of its receipt. The acceptance of a resignation shall not be necessary to make it effective unless otherwise expressly provided in the resignation.
7
SECTION 3.04 Removal . Directors of the Corporation may be removed only in the manner provided in the Certificate of Incorporation and applicable law.
SECTION 3.05 Vacancies and Newly Created Directorships . Vacancies occurring in any directorship (whether by death, resignation, retirement, disqualification, removal or other cause) and newly created directorships resulting from any increase in the number of directors shall be filled in accordance with the Certificate of Incorporation. Unless otherwise provided by the Certificate of Incorporation, any director elected to fill a vacancy or newly created directorship shall hold office until the next annual meeting for the election of directors (or, if applicable, the next meeting for the election of the class of directors for which such director shall have been appointed) and until his or her successor shall be elected and qualified, or until his or her earlier death, resignation, retirement, disqualification or removal.
SECTION 3.06 Meetings . Regular meetings of the Board of Directors may be held at such places and times as shall be determined from time to time by the Board of Directors. Special meetings of the Board of Directors may be called by the Chairman of the Board or the Chief Executive Officer, and shall be called by the Chief Executive Officer or the Secretary if directed by a majority of the directors then in office, and shall be at such places and times as he, she or they shall fix. Notice need not be given of regular meetings of the Board of Directors. At least twenty four (24) hours, or three (3) days if notice is mailed, before each special meeting of the Board of Directors, either written notice, notice by electronic transmission or oral notice (either in person or by telephone) of the time, date and place of the meeting shall be given to each director. Unless otherwise indicated in the notice thereof, any and all business may be transacted at a special meeting.
SECTION 3.07 Quorum, Voting and Adjournment . A majority of the total number of directors shall constitute a quorum for the transaction of business. Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, the act of a majority of the directors present (including directors present by telephone or other electronic means, unless the Investment Company Act requires that a particular action be taken only at a meeting of the Board of Directors in person) at a meeting at which a quorum is present shall be the act of the Board of Directors. In the absence of a quorum, a majority of the directors present thereat may adjourn such meeting to another time and place. Notice of such adjourned meeting need not be given if the time and place of such adjourned meeting are announced at the meeting so adjourned.
SECTION 3.08 Committees; Committee Rules . The Board of Directors may designate one or more committees, including but not limited to an Audit Committee and a Governance and Nominating Committee, each such committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee to replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution of the Board of Directors establishing such committee, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to the following matters: (a) approving or adopting, or recommending to the stockholders, any action or matter (other than the election or removal of directors) expressly required by the DGCL to be submitted to stockholders for approval or (b) adopting, amending or repealing any Bylaw of the Corporation. All committees of the Board of Directors shall keep minutes of their meetings and shall report their proceedings to the Board of Directors when requested or required by the Board of Directors. Each committee of the Board of Directors may fix its own rules of procedure and shall hold its meetings as provided by such rules, except as may otherwise be provided by a resolution of the Board of Directors designating such committee. Unless otherwise provided in such a resolution, the presence of the greater of one-third or two members of the committee shall be necessary to constitute a quorum unless the committee shall consist of one or two members, in which event one member shall constitute a quorum; and all matters shall be determined by a majority vote of the members present at a meeting of the committee at which a quorum is present. Unless otherwise provided in such a resolution, in the event that a member and that members alternate, if alternates are designated by the Board of Directors, of such committee is or are absent or disqualified, the member or members thereof present at
8
any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any such absent or disqualified member.
SECTION 3.09 Action Without a Meeting . Unless otherwise restricted by the Certificate of Incorporation, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all members of the Board of Directors or any committee thereof, as the case may be, consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmission or transmissions are filed in the minutes of proceedings of the Board of Directors; provided, however, that this Section 3.09 shall not apply to any action of the Board of Directors that requires the vote of the directors to be cast in person at a meeting pursuant to the Investment Company Act. Such filing shall be in paper form if the minutes are maintained in paper form or shall be in electronic form if the minutes are maintained in electronic form.
SECTION 3.10 Remote Meeting . Unless otherwise restricted by the Certificate of Incorporation, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting by means of conference telephone or other communications equipment in which all persons participating in the meeting can hear each other. Participation in a meeting by means of conference telephone or other communications equipment shall constitute presence in person at such meeting; provided, however, that this Section 3.10 shall not apply to any action of the Board of Directors that requires the vote of the directors to be cast in person at a meeting pursuant to the Investment Company Act.
SECTION 3.11 Compensation. The Board of Directors shall have the authority to fix the compensation, including fees and reimbursement of expenses, of directors for services to the Corporation in any capacity.
SECTION 3.12 Reliance on Books and Records. A member of the Board of Directors, or a member of any committee designated by the Board of Directors shall, in the performance of such persons duties, be fully protected in relying in good faith upon records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of the Corporations officers or employees, or committees of the Board of Directors, or by any other person as to matters the member reasonably believes are within such other persons professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation.
ARTICLE IV
Officers
SECTION 4.01 Number. The officers of the Corporation may include a Chief Executive Officer, a President, a Chief Financial Officer, a Chief Compliance Officer, a Chief Operating Officer, a Treasurer and a Secretary, each of whom shall be elected by the Board of Directors and who shall hold office for such terms as shall be determined by the Board of Directors and until their successors are elected and qualify or until their earlier resignation or removal. In addition, the Board of Directors may elect one or more Vice Presidents, including one or more Executive Vice Presidents or Senior Vice Presidents, and one or more Assistant Treasurers or Assistant Secretaries, each of whom shall hold office for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors. Any number of offices may be held by the same person.
SECTION 4.02 Other Officers and Agents . The Board of Directors may appoint such other officers and agents as it deems advisable, who shall hold their office for such terms and shall exercise and perform such powers and duties as shall be determined from time to time by the Board of Directors. The Board of Directors may appoint one or more officers called a Vice Chairman, each of whom does not need to be a member of the Board of Directors.
9
SECTION 4.03 Chief Executive Officer/President . The Chief Executive Officer, who may, if so determined by the Board of Directors, also be the President, shall have general executive charge, management, and control of the properties and operations of the Corporation in the ordinary course of its business, with all such powers with respect to such properties and operations as may be reasonably incident to such responsibilities. If the Board of Directors has not elected a Chairman of the Board or in the absence or inability to act as the Chairman of the Board, the Chief Executive Officer shall exercise all of the powers and discharge all of the duties of the Chairman of the Board, but only if the Chief Executive Officer is a director of the Corporation.
SECTION 4.04 Vice Presidents . Each Vice President, if any are elected, of whom one or more may be designated an Executive Vice President or Senior Vice President, shall have such powers and shall perform such duties as shall be assigned to him by the Chief Executive Officer or the Board of Directors.
SECTION 4.05 Chief Compliance Officer . The Chief Compliance Officer shall have general responsibility for the compliance matters of the Corporation and shall perform such other duties and exercise such other powers that are or from time to time may be delegated to him or her by the Board of Directors or these Bylaws, all in accordance with policies as established by and subject to oversight of the Board of Directors. Additionally, the Chief Compliance Officer shall, no less than annually, (i) provide a written report to the Board of Directors, the content of which shall comply with Rule 38a-1 of the Investment Company Act, and (ii) meet separately with the Corporations independent Directors.
SECTION 4.06 Treasurer . The Treasurer shall have custody of the corporate funds, securities, evidences of indebtedness and other valuables of the Corporation and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation. He shall deposit all moneys and other valuables in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors or its designees selected for such purposes. The Treasurer shall disburse the funds of the Corporation, taking proper vouchers therefor. He shall render to the Chief Executive Officer and the Board of Directors, upon their request, a report of the financial condition of the Corporation. If required by the Board of Directors, the Treasurer shall give the Corporation a bond in such amount and with such surety as the Board of Directors shall prescribe for the faithful discharge of his or her duties and for the restoration to the Corporation, in case of his or her death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his or her possession or under his or her control belonging to the Corporation.
In addition, the Treasurer shall have such further powers and perform such other duties incident to the office of Treasurer as from time to time are assigned to him by the Chief Executive Officer or the Board of Directors.
SECTION 4.07 Secretary . The Secretary shall: (a) cause minutes of all meetings of stockholders and the Board of Directors (or any committee thereof) to be recorded and kept properly; (b) cause all notices required by these Bylaws or otherwise to be given properly; (c) see that the minute books, stock books, and other nonfinancial books, records and papers of the Corporation are kept properly; and (d) cause all reports, statements, returns, certificates and other documents to be prepared and filed when and as required. The Secretary shall have such further powers and perform such other duties as prescribed from time to time by the Chief Executive Officer or the Board of Directors.
SECTION 4.08 Assistant Treasurers and Assistant Secretaries . Each Assistant Treasurer and each Assistant Secretary, if any are elected, shall be vested with all the powers and shall perform all the duties of the Treasurer and Secretary, respectively, in the absence or disability of such officer, unless or until the Chief Executive Officer or the Board of Directors shall otherwise determine. In addition, Assistant Treasurers and Assistant Secretaries shall have such powers and shall perform such duties as shall be assigned to them by the Chief Executive Officer, the Board of Directors or the Treasurer or Secretary, respectively.
SECTION 4.09 Corporate Funds and Checks . The funds of the Corporation shall be kept in such depositories as shall from time to time be prescribed by the Board of Directors or its designees selected for such
10
purposes. All checks or other orders for the payment of money shall be signed by the Chief Executive Officer, a Vice President, the Treasurer or the Secretary or such other person or agent as may from time to time be authorized and with such countersignature, if any, as may be required by the Board of Directors.
SECTION 4.10 Contracts and Other Documents . The Chief Executive Officer and the Secretary, or such other officer or officers as may from time to time be authorized by the Board of Directors or any other committee given specific authority in the premises by the Board of Directors during the intervals between the meetings of the Board of Directors, shall have power to sign and execute on behalf of the Corporation deeds, conveyances and contracts, and any and all other documents requiring execution by the Corporation.
SECTION 4.11 Ownership of Stock of Another Corporation . Unless otherwise directed by the Board of Directors, the Chief Executive Officer, a Vice President, the Treasurer or the Secretary, or such other officer or agent as shall be authorized by the Board of Directors, shall have the power and authority, on behalf of the Corporation, to attend and to vote at any meeting of securityholders of any entity in which the Corporation holds securities or equity interests and may exercise, on behalf of the Corporation, any and all of the rights and powers incident to the ownership of such securities or equity interests at any such meeting, including the authority to execute and deliver proxies and consents on behalf of the Corporation.
SECTION 4.12 Delegation of Duties . In the absence, disability or refusal of any officer to exercise and perform his or her duties, the Board of Directors may delegate to another officer such powers or duties.
SECTION 4.13 Resignation and Removal . Any officer of the Corporation may be removed from office for or without cause at any time by the Board of Directors. Any officer may resign at any time in the same manner prescribed under Section 3.03 of these Bylaws.
SECTION 4.14 Vacancies . Subject to the requirements of the Investment Company Act, the Board of Directors shall have the power to fill vacancies occurring in any office.
ARTICLE V
Stock
SECTION 5.01 Shares With Certificates . The shares of stock of the Corporation shall be represented by certificates, provided that the Board of Directors may provide by resolution or resolutions that some or all of any or all classes or series of the Corporations stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation. Every holder of stock in the Corporation represented by certificates shall be entitled to have a certificate signed by, or in the name of the Corporation by, the Chairman of the Board or the Vice Chairman of the Board, or the President or a Vice President, and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Corporation, certifying the number and class of shares of stock of the Corporation owned by such holder. Any or all of the signatures on the certificate may be a facsimile. The Board of Directors shall have the power to appoint one or more transfer agents and/or registrars for the transfer or registration of certificates of stock of any class, and may require stock certificates to be countersigned or registered by one or more of such transfer agents and/or registrars.
SECTION 5.02 Shares Without Certificates . If the Board of Directors chooses to issue shares of stock without certificates, the Corporation, if required by the DGCL, shall, within a reasonable time after the issue or transfer of shares without certificates, send the stockholder a written statement of the information required by the DGCL. The Corporation may adopt a system of issuance, recordation and transfer of its shares of stock by electronic or other means not involving the issuance of certificates, provided the use of such system by the Corporation is permitted in accordance with applicable law. The Board of Directors shall have the power to appoint one or more transfer agents and/or registrars for the recordation, transfer or registration of uncertificated shares of its stock.
11
SECTION 5.03 Transfer of Shares . Subject to any restrictions on transfer or ownership, including under the Certificate of Incorporation, any certificate of designation relating to any series of preferred stock of the Corporation, these Bylaws, any contract or agreement or applicable law or otherwise, shares of stock of the Corporation shall be transferable upon its books by the holders thereof, in person or by their duly authorized attorneys or legal representatives, upon surrender to the Corporation by delivery thereof to the person in charge of the stock and transfer books and ledgers. Certificates representing such shares, if any, shall be cancelled and new certificates, if the shares are to be certificated, shall thereupon be issued. Shares of capital stock of the Corporation that are not represented by a certificate shall be transferred in accordance with applicable law. A record shall be made of each transfer. Whenever any transfer of shares shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of the transfer if, when the certificates are presented, both the transferor and transferee request the Corporation to do so. The Board of Directors shall have power and authority to make such rules and regulations as it may deem necessary or proper concerning the issue, transfer and registration of certificates for shares of stock of the Corporation.
SECTION 5.04 Lost, Stolen, Destroyed or Mutilated Certificates . A new certificate of stock or uncertificated shares may be issued in the place of any certificate previously issued by the Corporation alleged to have been lost, stolen or destroyed, and the Board of Directors may, in its discretion, require the owner of such lost, stolen or destroyed certificate, or his or her legal representative, to give the Corporation a bond, in such sum as the Board of Directors may direct, in order to indemnify the Corporation against any claims that may be made against it in connection therewith. A new certificate or uncertificated shares of stock may be issued in the place of any certificate previously issued by the Corporation that has become mutilated upon the surrender by such owner of such mutilated certificate and, if required by the Corporation, the posting of a bond by such owner in an amount sufficient to indemnify the Corporation against any claim that may be made against it in connection therewith.
SECTION 5.05 List of Stockholders Entitled To Vote . The officer who has charge of the stock ledger shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting ( provided, however , if the record date for determining the stockholders entitled to vote is less than ten (10) days before the date of the meeting, the list shall reflect the stockholders entitled to vote as of the tenth day before the meeting date), arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting at least ten (10) days prior to the meeting (a) on a reasonably accessible electronic network; provided that the information required to gain access to such list is provided with the notice of meeting or (b) during ordinary business hours at the principal place of business of the Corporation. In the event that the Corporation determines to make the list available on an electronic network, the Corporation may take reasonable steps to ensure that such information is available only to stockholders of the Corporation. If the meeting is to be held at a place, then a list of stockholders entitled to vote at the meeting shall be produced and kept at the time and place of the meeting during the whole time thereof and may be examined by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting. Except as otherwise provided by law, the stock ledger shall be the only evidence as to who are the stockholders entitled to examine the list of stockholders required by this Section 5.05 or to vote in person or by proxy at any meeting of stockholders.
SECTION 5.06 Fixing Date for Determination of Stockholders of Record.
(A) In order that the Corporation may determine the stockholders entitled to notice of any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall, unless otherwise required by law, not be more than sixty (60) nor less than ten (10) days
12
before the date of such meeting. If the Board of Directors so fixes a date, such date shall also be the record date for determining the stockholders entitled to vote at such meeting unless the Board of Directors determines, at the time it fixes such record date, that a later date on or before the date of the meeting shall be the date for making such determination. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however , that the Board of Directors may fix a new record date for determination of stockholders entitled to vote at the adjourned meeting, and in such case shall also fix as the record date for stockholders entitled to notice of such adjourned meeting the same or an earlier date as that fixed for determination of stockholders entitled to vote in accordance herewith at the adjourned meeting.
(B) In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall not be more than sixty (60) days prior to such action. If no such record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
SECTION 5.07 Registered Stockholders . Prior to the surrender to the Corporation of the certificate or certificates for a share or shares of stock or notification to the Corporation of the transfer of uncertificated shares with a request to record the transfer of such share or shares, the Corporation may treat the registered owner of such share or shares as the person entitled to receive dividends, to vote, to receive notifications and otherwise to exercise all the rights and powers of an owner of such share or shares. To the fullest extent permitted by law, the Corporation shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof.
ARTICLE VI
Notice and Waiver of Notice
SECTION 6.01 Notice . If mailed, notice to stockholders shall be deemed given when deposited in the mail, postage prepaid, directed to the stockholder at such stockholders address as it appears on the records of the Corporation. Without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders may be given by electronic transmission in the manner provided in Section 232 of the DGCL.
SECTION 6.02 Waiver of Notice . A written waiver of any notice, signed by a stockholder or director, or waiver by electronic transmission by such person, whether given before or after the time of the event for which notice is to be given, shall be deemed equivalent to the notice required to be given to such person. Neither the business nor the purpose of any meeting need be specified in such a waiver. Attendance at any meeting (in person or by remote communication) shall constitute waiver of notice except attendance for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened.
13
ARTICLE VII
Indemnification
SECTION 7.01 Right to Indemnification . Each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a proceeding ), by reason of the fact that he or she is or was a director or an officer of the Corporation or, while a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee, agent or trustee of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan (hereinafter an indemnitee ), whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee, agent or trustee or in any other capacity while serving as a director, officer, employee, agent or trustee, shall be indemnified and held harmless by the Corporation to the fullest extent permitted by Delaware law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment), against all expense, liability and loss (including attorneys fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by such indemnitee in connection therewith; provided, however, that, except as provided in Section 7.03 with respect to proceedings to enforce rights to indemnification or advancement of expenses or with respect to any compulsory counterclaim brought by such indemnitee, the Corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the Board of Directors. Notwithstanding anything to the contrary set forth herein, any indemnification or payment or reimbursement of expenses made pursuant to this Article VII shall be subject to applicable requirements of the Investment Company Act.
SECTION 7.02 Right to Advancement of Expenses . In addition to the right to indemnification conferred in Section 7.01, an indemnitee shall also have the right to be paid by the Corporation the expenses (including attorneys fees) incurred in appearing at, participating in or defending any such proceeding in advance of its final disposition or in connection with a proceeding brought to establish or enforce a right to indemnification or advancement of expenses under this Article VII (which shall be governed by Section 7.03 (hereinafter an advancement of expenses ); provided, however, that, if the DGCL requires or in the case of an advance made in a proceeding brought to establish or enforce a right to indemnification or advancement, an advancement of expenses incurred by an indemnitee in his or her capacity as a director or officer shall be made solely upon delivery to the Corporation of an undertaking (hereinafter an undertaking ), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter a final adjudication ) that such indemnitee is not entitled to be indemnified or entitled to advancement of expenses under Sections 7.01 and 7.02 or otherwise.
SECTION 7.03 Right of Indemnitee to Bring Suit. If a claim under Section 7.01 or 7.02 is not paid in full by the Corporation within (i) 60 days after a written claim for indemnification has been received by the Corporation or (ii) 20 days after a claim for an advancement of expenses has been received by the Corporation, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim or to obtain advancement of expenses, as applicable. To the fullest extent permitted by law, if successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit. In (i) any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and (ii) any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that, the indemnitee has not met any applicable standard for indemnification set forth in the DGCL. Neither the failure of the Corporation (including its directors who are not parties to such action, a committee of such directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the
14
indemnitee has met the applicable standard of conduct set forth in the DGCL, nor an actual determination by the Corporation (including its directors who are not parties to such action, a committee of such directors, independent legal counsel, or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Article VII or otherwise shall be on the Corporation.
SECTION 7.04 Indemnification Not Exclusive .
(A) The provision of indemnification to or the advancement of expenses and costs to any indemnitee under this Article VII, or the entitlement of any indemnitee to indemnification or advancement of expenses and costs under this Article VII, shall not limit or restrict in any way the power of the Corporation to indemnify or advance expenses and costs to such indemnitee in any other way permitted by law or be deemed exclusive of, or invalidate, any right to which any indemnitee seeking indemnification or advancement of expenses and costs may be entitled under any law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such indemnitees capacity as an officer, director, employee or agent of the Corporation and as to action in any other capacity.
(B) Given that certain jointly indemnifiable claims (as defined below) may arise due to the service of the indemnitee as a director of the Corporation at the request of the indemnitee-related entities (as defined below), the Corporation shall be fully and primarily responsible for the payment to the indemnitee in respect of indemnification or advancement of expenses in connection with any such jointly indemnifiable claims, pursuant to and in accordance with the terms of this Article VII, irrespective of any right of recovery the indemnitee may have from the indemnitee-related entities. Under no circumstance shall the Corporation be entitled to any right of subrogation or contribution by the indemnitee-related entities and no right of advancement or recovery the indemnitee may have from the indemnitee-related entities shall reduce or otherwise alter the rights of the indemnitee or the obligations of the Corporation hereunder. In the event that any of the indemnitee-related entities shall make any payment to the indemnitee in respect of indemnification or advancement of expenses with respect to any jointly indemnifiable claim, the indemnitee-related entity making such payment shall be subrogated to the extent of such payment to all of the rights of recovery of the indemnitee against the Corporation, and the indemnitee shall execute all papers reasonably required and shall do all things that may be reasonably necessary to secure such rights, including the execution of such documents as may be necessary to enable the indemnitee-related entities effectively to bring suit to enforce such rights. Each of the indemnitee-related entities shall be third-party beneficiaries with respect to this Section 7.04(B) of Article VII, entitled to enforce this Section 7.04(B) of Article VII.
For purposes of this Section 7.04(B) of Article VII, the following terms shall have the following meanings:
(1) The term indemnitee-related entities means any corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise (other than the Corporation or any other corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise for which the indemnitee has agreed, on behalf of the Corporation or at the Corporations request, to serve as a director, officer, employee or agent and which service is covered by the indemnity described herein) from whom an indemnitee may be entitled to indemnification or advancement of expenses with respect to which, in whole or in part, the Corporation may also have an indemnification or advancement obligation.
(2) The term jointly indemnifiable claims shall be broadly construed and shall include, without limitation, any action, suit or proceeding for which the indemnitee shall be entitled to indemnification or
15
advancement of expenses from both the indemnitee-related entities and the Corporation pursuant to Delaware law, any agreement or certificate of incorporation, bylaws, partnership agreement, operating agreement, certificate of formation, certificate of limited partnership or comparable organizational documents of the Corporation or the indemnitee-related entities, as applicable.
SECTION 7.05 Corporate Obligations; Reliance . The rights granted pursuant to the provisions of this Article VII shall vest at the time a person becomes a director or officer of the Corporation and shall be deemed to create a binding contractual obligation on the part of the Corporation to the persons who from time to time are elected as officers or directors of the Corporation, and such persons in acting in their capacities as officers or directors of the Corporation (including any officer or director of the Corporation acting at the request of the Corporation as a director, officer, employee, agent or trustee of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan) shall be entitled to rely on such provisions of this Article VII without giving notice thereof to the Corporation.
SECTION 7.06 Nature of Rights. The rights conferred upon indemnitees in this Article VII shall be contract rights and such rights shall continue as to an indemnitee who has ceased to be a director or officer and shall inure to the benefit of the indemnitees heirs, executors and administrators. Any amendment, alteration or repeal of this Article VII that adversely affects any right of an indemnitee or its successors shall be prospective only and shall not limit, eliminate, or impair any such right with respect to any proceeding involving any occurrence or alleged occurrence of any action or omission to act that took place prior to such amendment or repeal.
SECTION 7.07 Insurance . The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the DGCL.
SECTION 7.08 Indemnification of Employees and Agents of the Corporation . The Corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification and to the advancement of expenses to any employee or agent of the Corporation to the fullest extent of the provisions of this Article VII with respect to the indemnification and advancement of expenses of directors and officers of the Corporation. The approval by the Board of Directors of any agreement containing rights to indemnification or advancement of expenses to any employee or agent of the Corporation shall be deemed to constitute authorization of the grant of the rights to indemnification or advancement of expenses to such employee or agent as set forth therein.
ARTICLE VIII
Miscellaneous
SECTION 8.01 Electronic Transmission . For purposes of these Bylaws, electronic transmission means any form of communication, not directly involving the physical transmission of paper, that creates a record that may be retained, retrieved, and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such a recipient through an automated process.
SECTION 8.02 Corporate Seal . The Board of Directors may provide a suitable seal, containing the name of the Corporation, which seal shall be in the charge of the Secretary. If and when so directed by the Board of Directors or a committee thereof, duplicates of the seal may be kept and used by the Treasurer or by an Assistant Secretary or Assistant Treasurer.
SECTION 8.03 Fiscal Year . The fiscal year of the Corporation shall end on the last day of each year or such other day as the Board of Directors may designate.
16
SECTION 8.04 Loans . Subject to compliance with applicable law, the Corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the Corporation or of its subsidiaries, including any officer or employee who is a director of the Corporation or its subsidiaries, whenever, in the judgment of the directors, such loan, guaranty or assistance may reasonably be expected to benefit the Corporation. The loan, guaranty or other assistance may be with or without interest, and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the Corporation. Nothing in this Section 8.04 shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the Corporation at common law or under any statute.
SECTION 8.05 Section Headings . Section headings in these Bylaws are for convenience of reference only and shall not be given any substantive effect in limiting or otherwise construing any provision herein.
SECTION 8.06 Inconsistent Provisions . In the event that any provision of these Bylaws is or becomes inconsistent with any provision of the Certificate of Incorporation, the DGCL or any other applicable law, such provision of these Bylaws shall not be given any effect to the extent of such inconsistency but shall otherwise be given full force and effect.
SECTION 8.07 Conflict with Investment Company Act . If and to the extent that any provision of the DGCL or any provision of these Bylaws shall conflict with any provision of the Investment Company Act, the applicable provision of the Investment Company Act shall control.
ARTICLE IX
Amendments
SECTION 9.01 Amendments . The Board of Directors is authorized to make, repeal, alter, amend and rescind, in whole or in part, these Bylaws without the assent or vote of the stockholders in any manner not inconsistent with the laws of the State of Delaware or the Certificate of Incorporation. Notwithstanding any other provisions of these Bylaws or any provision of law which might otherwise permit a lesser vote of the stockholders, but in addition to any other vote of the holders of any class or series of capital stock of the Corporation required by the Certificate of Incorporation or applicable law, the affirmative vote of at least 66 2/3% in voting power of all the then-outstanding shares of stock of the Corporation entitled to vote thereon, voting together as a single class, shall be required in order for the stockholders of the Corporation to alter, amend, repeal or rescind, in whole or in part, any provision of these Bylaws (including, without limitation, this Section 9.01) or to adopt any provision inconsistent with these Bylaws.
[ Remainder of Page Intentionally Left Blank ]
17
EX-99.(g)
Execution Copy
AMENDED AND RESTATED
INVESTMENT MANAGEMENT AGREEMENT
between
GOLDMAN SACHS BDC, INC.
and
GOLDMAN SACHS ASSET MANAGEMENT, L.P.
Execution Copy
AMENDED AND RESTATED INVESTMENT MANAGEMENT AGREEMENT
This AGREEMENT (this Agreement) is made as of the 1st day of January, 2015 between GOLDMAN SACHS ASSET MANAGEMENT, L.P. (the Investment Manager), a limited partnership formed under the laws of the state of Delaware, and GOLDMAN SACHS BDC, INC., a Delaware corporation (the Corporation).
WHEREAS, the Investment Manager and Goldman Sachs Liberty Harbor Capital, LLC (the LLC and, together with the Corporation, the Company) entered into an investment management agreement dated as of November 15, 2012, pursuant to which the Investment Manager agreed to furnish investment advisory services to the LLC (the Original Agreement);
WHEREAS, on April 1, 2013, the LLC converted into Goldman Sachs BDC, Inc. pursuant to a Certificate of Conversion filed with the Secretary of State of Delaware (the Conversion);
WHEREAS, in connection with the Conversion, the Company and the Investment Manager amended and restated the Original Agreement in its entirety on April 1, 2013 (the Amended Agreement); and
WHEREAS, the Companys shareholders approved changes to the Amended Agreement at a Special Meeting of Shareholders on January 9, 2015, and the Company and the Investment Manager desire to amend and restate the Amended Agreement in its entirety to reflect such changes.
NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the parties hereby agree that, effective as of the date hereof, this Agreement shall supersede the Amended Agreement (and the Amended Agreement shall be deemed of no further force and effect whatsoever):
1. Sub-Advisers . The Investment Manager may engage one or more investment advisers which are either registered as such or specifically exempt from registration under the Investment Advisers Act of 1940, as amended (the Advisers Act), to act as sub-advisers to provide the Company certain services set forth in Paragraphs 2 and 5 hereof, all as shall be set forth in a written contract to which the Company and the Investment Manager shall be parties, which contract shall be subject to approval by the vote of a majority of the board of directors of the Company (the Board of Directors) who are not interested persons of the Investment Manager, the sub-adviser, or of the Company, cast in person at a meeting called for the purpose of voting on such approval and, to the extent required by the Investment Company Act of 1940 Act, as amended (the Investment Company Act), by the vote of a majority of the outstanding voting securities of the Company and otherwise consistent with the terms of the Investment Company Act.
2. Management Services .
(a) The Investment Manager will regularly provide the Company with investment research, advice and supervision and will furnish continuously an investment program for the Company consistent with the investment objectives and policies of the Company. It will determine from time to time what securities or other investments (each such investment being called herein a Company Investment and collectively, Company Investments) shall be purchased for the Company, what Company Investments shall be held or sold by the Company, and what portion of the Company Investments shall be held uninvested as cash and cash equivalents, subject always to the provisions of the Companys Certificate of Incorporation and Bylaws and of the Investment Company Act, and to the investment objectives, policies and restrictions of the Company, as each of the same shall be from time to time in effect, and subject, further, to such policies and instructions as the Board of Directors may from time to time establish.
(b) The Investment Manager is hereby authorized to cause the Company to make Company Investments, directly or indirectly through one or more subsidiaries or special purposes vehicles.
(c) The Investment Manager is hereby authorized, on behalf of the Company and at the direction of the Board of Directors pursuant to delegated authority, to possess, transfer, mortgage, pledge or otherwise deal in, and exercise all rights, powers, privileges and other incidents of ownership or possession with respect to, Company Investments and other property and funds held or owned by the Company, including, without limitation, exercising and enforcing rights with respect to any claims relating to such Company Investments and other property and funds, including with respect to litigation, bankruptcy or other reorganization.
(d) Subject to the general supervision of the Board of Directors, the Investment Manager will provide certain administrative services to the Company other than such administrative services provided by the Companys administrator (such administrator, or any successor administrator, including any affiliate of the Investment Manager, the Administrator). The Investment Manager will, to the extent such services are not required to be performed by the Administrator or others pursuant to a custodian agreement (or a transfer agency agreement to the extent that a person other than the Investment Manager is serving thereunder as the Companys transfer agent), (i) provide supervision of all aspects of the Companys operations not referred to in paragraphs (a) to (c) above; (ii) coordinate with and oversee the services being performed by the Administrator and the Companys custodian and transfer agent, (iii) provide the Company with personnel to perform such executive, administrative and clerical services as are reasonably necessary to provide effective administration of the Company; (iv) provide significant managerial assistance to those portfolio companies of the Company that the Company is required to provide such services to under the Investment Company Act; (v) arrange for, at the Companys expense, (A) the preparation for the Company of all required tax returns, (B) the preparation and submission of reports to existing shareholders and regulatory authorities and (C) the preparation and submission of the Companys registration statement and all other documents necessary to fulfill regulatory requirements and maintain the registration and qualifications of the Company with the Securities and Exchange Commission and other regulatory authorities; (vi) maintain all of the Companys records and (vii) provide the Company with adequate office space and all necessary office equipment and services including telephone service, heat, utilities, stationery supplies and similar items.
(e) The Investment Manager will also provide to the Board of Directors such periodic and special reports as it may reasonably request. The Investment Manager shall for all purposes herein be deemed to be an independent contractor and shall, except as otherwise expressly provided or authorized, have no authority to act for or represent the Company in any way or otherwise be deemed an agent of the Company.
(f) The Investment Manager will maintain all books and records with respect to the Companys securities transactions required by sub-paragraphs (b)(5), (6), (9) and (10) and paragraph (f) of Rule 31a-1 under the Investment Company Act (other than those records being maintained by the Administrator or the Companys custodian or transfer agent) and preserve such records for the periods prescribed therefor by Rule 31a-2 of the Investment Company Act. The Investment Manager will also provide to the Board of Directors such periodic and special reports as it may reasonably request.
(g) The Investment Manager will notify the Board of Directors of any change in the Investment Managers membership within a reasonable time after such change.
(h) The Investment Managers services hereunder are not deemed exclusive and it shall be free to render similar services to others. The Investment Manager may engage in any other business or render similar or different services to others including, without limitation, the direct or indirect sponsorship or management of other investment based accounts or commingled pools of capital, however structured, having investment objectives similar to those of the Company; provided that its services to the Company hereunder are not impaired thereby. Nothing in this Agreement shall limit or restrict the right of the Investment Manager or any manager, partner, officer or employee of the
3
Investment Manager to engage in any other business or to devote his, her or its time and attention in part to any other business, whether of a similar or dissimilar nature, or to receive any fees or compensation in connection therewith (including fees for serving as a director of, or providing consulting services to, one or more of the investments of the Company, subject at all times to applicable law).
3. Allocation of Charges and Expenses . The Investment Manager will pay all costs incurred by it in connection with the performance of its duties under Paragraph 2. The Investment Manager will pay the compensation and expenses of all its personnel and will make available, without expense to the Company, the services of such of the Investment Managers partners, officers and employees as may duly be elected officers or directors of the Company, subject to their individual consent to serve and to any limitations imposed by law. The Investment Manager will not be required to pay any expenses of the Company other than those specifically allocated to it in this Section 3. In particular, but without limiting the generality of the foregoing, the Investment Manager will not be required to pay: (i) operational and organizational expenses of the Company; (ii) fees and expenses, including travel expenses, incurred by the Investment Manager or payable to third parties related to the investments of the Company, including, among others, professional fees (including, without limitation, the fees and expenses of consultants and experts) and fees and expenses relating to, or associated with, evaluating, monitoring, researching and performing due diligence on investments and prospective investments; (iii) interest payable on debt, if any, incurred to finance the Companys investments; (iv) fees and expenses incurred by the Company in connection with membership in investment company organizations; (v) brokers commissions; (vi) fees and expenses associated with calculating the Companys net asset value (including the costs and expenses of any independent valuation firm); (vii) legal, auditing or accounting expenses; (viii) taxes or governmental fees; (ix) the fees and expenses of the administrator, transfer agent or sub-transfer agent of the Company; (x) the cost of preparing stock certificates or any other expenses, including clerical expenses of issue, redemption or repurchase of shares of the Company; (xi) the expenses of and fees for registering or qualifying shares of the Company for sale and of maintaining the registration of the Company and registering the Company as a broker or a dealer; (xii) the fees and expenses of the directors of the Company who are not affiliated with the Investment Manager; (xiii) the cost of preparing and distributing reports, proxy statements and notices to shareholders, the Securities and Exchange Commission and other regulatory authorities; (xiv) costs of holding stockholder meetings; (xv) listing fees; (xvi) the fees or disbursements of custodians of the Companys assets, including expenses incurred in the performance of any obligations enumerated by the certificate of incorporation or bylaws of the Company insofar as they govern agreements with any such custodian; (xvii) insurance premiums; or (xviii) costs incurred in connection with any claim, litigation, arbitration, mediation, government investigation or dispute in connection with the business of the Company and the amount of any judgment or settlement paid in connection therewith, or the enforcement of the Companys rights against any person and indemnification or contribution expenses payable by the Company to any person and other extraordinary expenses not incurred in the ordinary course of the Companys business. The Investment Manager shall not be required to pay expenses of activities which are primarily intended to result in sales of shares of the Company, including, but not limited to, all costs and expenses associated with the preparation and distribution of an offering memorandum, a subscription agreement, if applicable, a registration statement or a shareholder application form.
The Investment Manager may impose a voluntary cap on the amount of expenses that will be borne by the Company on a monthly or annual basis. Any such expense cap may be increased, decreased, waived or eliminated at any time at the Investment Managers sole discretion.
To the extent that expenses to be borne by the Company pursuant to this Section 3 are paid by the Investment Manager, the Company shall reimburse the Investment Manager for such expenses, provided, however, that the Investment Manager may elect, from time to time and in its sole discretion, to bear certain of the Companys expenses set forth above, including organizational and other expenses.
4
4. Compensation of the Manager .
(a) The Company shall pay to the Investment Manager for its services to the Company a management fee (the Management Fee) and an Incentive Fee (the Incentive Fee) as set forth herein. The Company shall make any payments due hereunder to the Investment Manager (or to the Investment Managers designee as the Investment Manager may otherwise direct).
(b) The Management Fee shall be calculated at an annual rate of 1.50% (0.375% per quarter) of the average value of the Companys gross assets (excluding cash or cash equivalents but including assets purchased with borrowed amounts) at the end of each of the two most recently completed calendar quarters. The Management Fee will be payable quarterly in arrears. The Management Fee for any partial quarter will be appropriately prorated.
(c) The Incentive Fee consists of two components that are independent of each other, with the result that one component may be payable even if the other is not. A portion of the Incentive Fee is based on the Companys income (such fee referred to herein as the Subordinated Incentive Fee on Income) and a portion is based on the Companys capital gains (such fee referred to herein as the Incentive Fee on Capital Gains), each as described below.
(i) The Subordinated Incentive Fee on Income will be determined and paid quarterly in arrears based on the amount by which (x) the Pre-Incentive Fee Net Investment Income (as defined below) in respect of the current calendar quarter and the eleven preceding calendar quarters beginning with the calendar quarter that commences on or after January 1, 2015, as the case may be (or the appropriate portion thereof in the case of any of the Companys first eleven calendar quarters that commences on or after January 1, 2015) (in either case, the Trailing Twelve Quarters) exceeds (y) the Preferred Return Amount (as defined below) in respect of the Trailing Twelve Quarters. The Preferred Return Amount will be determined on a quarterly basis, and will be calculated by multiplying 1.75% by the Companys net asset value at the beginning of each applicable calendar quarter comprising the relevant Trailing Twelve Quarters. The Preferred Return Amount will be calculated after making appropriate adjustments to the Companys net asset value at the beginning of each applicable calendar quarter for Company subscriptions and distributions during the applicable calendar quarter. Subject to Section 4(c)(ii) below, the amount of the Subordinated Incentive Fee on Income that will be paid to the Investment Manager for a particular quarter will equal the excess of the Subordinated Incentive Fee on Income so calculated less the aggregate Subordinated Incentive Fees on Income that were paid to the Investment Manager in the preceding eleven calendar quarters (or portion thereof) comprising the relevant Trailing Twelve Quarters.
For this purpose, Pre-Incentive Fee Net Investment Income means interest income, dividend income and any other income (including, without limitation, any accrued income that the Company has not yet received in cash and any other fees such as commitment, origination, structuring, diligence and consulting fees or other fees that the Company receives from portfolio companies) (the Ordinary Income) accrued during the calendar quarter, minus the Companys operating expenses accrued during the calendar quarter (including, without limitation, the Management Fee, administration expenses and any interest expense and dividends paid on any issued and outstanding preferred stock, but excluding the Subordinated Incentive Fee on Income and the Incentive Fee on Capital Gains). For the avoidance of doubt, Pre-Incentive Fee Net Investment Income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation.
Net Capital Loss in respect of a particular period means the difference, if positive, between (i) aggregate capital losses, whether realized or unrealized, in such period and (ii) aggregate capital gains, whether realized or unrealized, in such period.
5
The calculation of the Subordinated Incentive Fee on Income for each quarter is as follows:
(A) | No Subordinated Incentive Fee on Income shall be payable to the Investment Manager in any calendar quarter in which the Companys Pre-Incentive Fee Net Investment Income for the Trailing Twelve Quarters does not exceed the Preferred Return Amount; |
(B) | 100% of the Companys Pre-Incentive Fee Net Investment Income for the Trailing Twelve Quarters, if any, that exceeds the Preferred Return Amount but is less than or equal to an amount (the Catch-Up Amount) determined on a quarterly basis by multiplying 2.1875% by the Companys net asset value at the beginning of each applicable calendar quarter comprising the relevant Trailing Twelve Quarters. The Catch-Up Amount is intended to provide the Investment Manager with an incentive fee of 20% on all of the Companys Pre-Incentive Fee Net Investment Income when the Companys Pre-Incentive Fee Net Investment Income reaches 2.1875% per quarter (8.75% annualized) during the Trailing Twelve Quarters; and |
(C) | For any quarter in which the Companys Pre-Incentive Fee Net Investment Income for the Trailing Twelve Quarters exceeds the Catch-Up Amount, the Subordinated Incentive Fee on Income shall equal 20% of the amount of the Companys Pre-Incentive Fee Net Investment Income for such Trailing Twelve Quarters, as the Preferred Return Amount and Catch-Up Amount will have been achieved. |
(ii) The Subordinated Incentive Fee on Income is subject to a cap (the Incentive Fee Cap). The Incentive Fee Cap in any quarter is an amount equal to (a) 20% of the Cumulative Pre-Incentive Fee Net Return (as defined below) during the relevant Trailing Twelve Quarters less (b) the aggregate Subordinated Incentive Fees on Income that were paid to the Investment Manager in the preceding eleven calendar quarters (or portion thereof) comprising the relevant Trailing Twelve Quarters. For this purpose, Cumulative Pre-Incentive Fee Net Return during the relevant Trailing Twelve Quarters means (x) Pre-Incentive Fee Net Investment Income in respect of the Trailing Twelve Quarters less (y) any Net Capital Loss, if any, in respect of the Trailing Twelve Quarters. If, in any quarter, the Incentive Fee Cap is zero or a negative value, the Company shall pay no Subordinated Incentive Fee on Income to the Investment Manager in that quarter. If, in any quarter, the Incentive Fee Cap is a positive value but is less than the Subordinated Incentive Fee on Income calculated in accordance with Section 4(c)(i) above, the Company shall pay the Investment Manager the Incentive Fee Cap for such quarter. If, in any quarter, the Incentive Fee Cap is equal to or greater than the Subordinated Incentive Fee on Income calculated in accordance with Section 4(c)(i) above, the Company shall pay the Investment Manager the Subordinated Incentive Fee on Income for such quarter.
(iii) The Incentive Fee on Capital Gains shall be determined and payable in arrears as of the end of each calendar year (or upon termination of this Agreement). This fee shall equal 20.0% of the Companys realized capital gains on a cumulative basis from April 1, 2013, calculated as of the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any Incentive Fees on Capital Gains previously paid to the Investment Manager. The aggregate unrealized capital depreciation of the Company shall be calculated as the sum of the differences, if negative, between (a) the valuation of each investment in the Companys portfolio as of the applicable calculation date and (b) the accreted or amortized cost basis of such investment.
5. Avoidance of Inconsistent Position . The Investment Manager or its agent shall arrange for the placing of all orders for the purchase and sale of Company Investments with brokers or dealers (including Goldman, Sachs & Co. or an affiliate thereof) selected by the Investment Manager. In the selection of such brokers or dealers (including Goldman, Sachs & Co. or an affiliate thereof) and the placing of such orders, the Investment
6
Manager is directed at all times to seek to obtain the best net results for the Company, taking into account such factors as price (including the applicable brokerage commission or dealer spread), size of order, difficulty of execution, and operational facilities of the brokerage firm and the brokerage firms risk and skill in positioning blocks of securities. Subject to applicable legal requirements, the Investment Manager may select a broker based partly upon brokerage or research services provided to the Company, the Investment Manager and any of its other accounts. It is also understood that it is desirable for the Company that the Investment Manager have access to supplemental investment and market research and security and economic analyses provided by brokers who may execute brokerage transactions at a higher cost to the Company than may result when allocating brokerage to other brokers on the basis of seeking the most favorable price and efficient execution. Therefore, the Investment Manager is authorized to place orders for the purchase and sale of securities for the Company with such brokers, subject to review by the Board of Directors from time to time with respect to the extent and continuation of this practice. It is understood that the services provided by such brokers may be useful to the Investment Manager in connection with its services to other clients. If any occasion should arise in which the Investment Manager gives any advice to its clients concerning the shares of the Company, it will act solely as investment counsel for such clients and not in any way on behalf of the Company. The Investment Manager may, on occasions when it deems the purchase or sale of a security to be in the best interests of the Company as well as its other customers (including any investment company or advisory account for which the Investment Manager or any of its affiliates acts as an investment adviser), aggregate, to the extent permitted by applicable laws and regulations, the securities to be sold or purchased in order to obtain the best net price and the most favorable execution. In such event, allocation of the securities so purchased or sold, as well as the expenses incurred in the transaction, will be made by the Investment Manager in the manner it considers to be the most equitable and consistent with its fiduciary obligations to the Company and to such other customers.
6. Limitation of Liability of Investment Manager and the Company . The Investment Manager shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Company in connection with the matters to which this Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on the Investment Managers part in the performance of its duties or from reckless disregard by the Investment Manager of its obligations and duties under this Agreement. Any person, even though also employed by the Investment Manager, who may be or become an employee of and paid by the Company shall be deemed, when acting within the scope of his employment by the Company, to be acting in such employment solely for the Company and not as the Investment Managers employee or agent.
7. Duration and Termination of this Agreement . This Agreement shall remain in full force and effect for two years from the date first written above and shall continue for periods of one year thereafter, but only so long as such continuance is specifically approved at least annually (a) by the vote of a majority of the Companys directors who are not interested persons (as defined in the Investment Company Act) and in accordance with the requirements of the Investment Company Act and (b) by a vote of a majority of the Board of Directors or of a majority of the outstanding voting securities of such Fund. The aforesaid requirement that continuance of this Agreement be specifically approved at least annually shall be construed in a manner consistent with the Investment Company Act and the rules and regulations thereunder. This Agreement may, on 60 days written notice to the other party, be terminated in its entirety at any time without the payment of any penalty, by the Board of Directors, by vote of a majority of the outstanding voting securities of the Company, or by the Investment Manager. This Agreement shall automatically terminate in the event of its assignment. In interpreting the provisions of this Agreement, the definitions contained in Section 2(a) of the Investment Company Act (particularly the definitions of interested person, assignment and majority of the outstanding voting securities), as from time to time amended, shall be applied, subject, however, to such exemptions as may be granted by the Securities and Exchange Commission by any rule, regulation or order.
Any termination of this Agreement pursuant to this Section 7 shall be without penalty or other additional payment save that (i) the Company shall pay the Management Fee and Incentive Fee referred to in Section 4 hereof prorated to the date of termination; and (ii) the Company shall honor any trades entered but not settled before the date of any such termination. Sections 3, 4, 6, 7, 9 and 10 hereof shall survive the termination of this Agreement.
7
8. Amendment of this Agreement . No provisions of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. To the extent required under the Investment Company Act, no amendment of this Agreement shall be effective as to the Company until approved by vote of the holders of a majority of the outstanding voting securities of the Company and by a majority of the Board of Directors, including a majority of the directors who are not interested persons (as defined in the Investment Company Act) of the Company and have no financial interest in this Agreement, cast in person at a meeting called for the purpose of voting on such amendment. If any provision or any part of a provision of this Agreement shall be found to be void or unenforceable, it shall not affect the remaining part which shall remain in full force and effect.
9. General . This Agreement shall be governed by and construed in accordance with the laws of the State of New York. The Company consents to exclusive jurisdiction and venue for any litigation arising out of this Agreement to the United States District Court for the Southern District of New York, unless no federal jurisdiction exists, in which case the Company consents to jurisdiction and venue in the Supreme Court of the State of New York, New York County. Nothing herein shall constitute a waiver or limitation of any rights which the Company may have, if any, under any applicable law.
10. Notices . Except as otherwise provided herein, all communications hereunder shall be in writing sent by courier or registered air mail, or by facsimile or electronic means (and, in respect of communications sent by facsimile or electronic means, confirmed in writing sent by courier or registered air mail), to the requisite party, at its address as follows:
If to the Investment Manager:
Goldman Sachs Asset Management, L.P.
200 West Street
New York, New York 10282
Attention: President
Fax: (212) 357-5281
If to the Company:
Goldman Sachs BDC, Inc.
c/o Goldman Sachs Asset Management, L.P.
200 West Street
New York, New York 10282
Attention: Chief Executive Officer
Fax: (212) 357-5281
or to such other address as to which the party receiving the notice shall have notified the other party in writing.
11. Miscellaneous . The captions in this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. In the event that Section 4(c) or any portion thereof is determined to be contrary to the requirements of Section 205(b)(3) of the Advisers Act as then in effect, Section 4(c) shall deemed to incorporate the applicable requirements of Section 205(b)(3), and as applicable, the compensation payable thereunder shall be reduced accordingly.
12. Effective Date . This Agreement shall be effective as of the date first written above.
8
Execution Copy
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly appointed agents.
EX.99.(k)(3)
Execution Copy
ADMINISTRATION AGREEMENT
This Administration Agreement (Agreement) dated and effective as of April 1, 2013, is by and between State Street Bank and Trust Company, a Massachusetts trust company (the Administrator), and Goldman Sachs BDC, Inc., a Delaware corporation (the Company).
WHEREAS, the Company is a closed-end management investment company registered with the U.S. Securities and Exchange Commission (SEC) by means of a registration statement (Registration Statement) under the Securities Act of 1933, as amended (1933 Act), and has elected to be regulated as a business development company under the Investment Company Act of 1940, as amended (the 1940 Act); and
WHEREAS, the Company desires to retain the Administrator to furnish certain administrative services to the Company, and the Administrator is willing to furnish such services, on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, the parties hereto agree as follows:
1. | A PPOINTMENT OF A DMINISTRATOR |
The Company hereby appoints the Administrator to act as administrator to the Company for purposes of providing certain administrative services for the period and on the terms set forth in this Agreement. The Administrator accepts such appointment and agrees to render the services stated herein.
2. | D ELIVERY OF D OCUMENTS |
The Company will promptly deliver to the Administrator copies of each of the following documents and all future amendments and supplements, if any:
a. | The Companys Certificate of Incorporation and By-laws and all amendments thereto; |
b. | The Companys Registration Statement under the 1933 Act and the Companys current private placement memorandum (PPM) and all amendments and supplements thereto as in effect from time to time; |
c. | A copy of the resolutions of the Board of Directors of the Company (the Board) certified by the Companys Secretary authorizing (1) the Company to enter into this Agreement and (2) certain individuals (Authorized Persons) on behalf of the Company to (a) give instructions to the Administrator pursuant to this Agreement and (b) sign checks and pay expenses; |
d. | A copy of the investment advisory agreement between the Company and its investment adviser; and |
e. | Such other certificates, documents or opinions which the Administrator may, in its reasonable discretion, deem necessary or appropriate in the proper performance of its duties. |
3. | R EPRESENTATIONS AND W ARRANTIES OF THE A DMINISTRATOR |
The Administrator represents and warrants to the Company that:
a. | It is a Massachusetts trust company, duly organized and existing under the laws of The Commonwealth of Massachusetts; |
1
b. | It has the corporate power and authority to carry on its business in The Commonwealth of Massachusetts; |
c. | All requisite corporate proceedings have been taken to authorize it to enter into and perform this Agreement; |
d. | No legal or administrative proceedings have been instituted or threatened which would impair the Administrators ability to perform its duties and obligations under this Agreement; and |
e. | Its entrance into this Agreement shall not cause a material breach or be in material conflict with any other agreement or obligation of the Administrator or any law or regulation applicable to it. |
4. | R EPRESENTATIONS AND W ARRANTIES OF THE C OMPANY |
The Company represents and warrants to the Administrator that:
a. | It is a corporation, duly organized, existing and in good standing under the laws of its state of formation; |
b. | It has the power and authority under applicable laws and by its Certificate of Incorporation and By-laws to enter into and perform this Agreement; |
c. | All requisite proceedings have been taken to authorize it to enter into, perform and receive services pursuant to this Agreement; |
d. | It has elected to be regulated as a business development company under the 1940 Act and it has elected to be treated for federal income tax purposes, and intends to qualify annually thereafter, as a regulated investment company under the Internal Revenue Code of 1986, as amended (the Code); |
e. | As of the effective date of this Agreement, all necessary filings under the securities laws of the states in which the Company offers or sells its shares have been made; |
f. | No legal or administrative proceedings have been instituted or threatened which would impair the Companys ability to perform its duties and obligations under this Agreement; |
g. | Its entrance into this Agreement will not cause a material breach or be in material conflict with any other agreement or obligation of the Company or any law or regulation applicable to it; and |
5. | A DMINISTRATION S ERVICES |
The Administrator shall provide the services described below, subject to the control, supervision and direction of the Company and, in each case where appropriate, the review and comment by the Companys independent accountants and legal counsel and in accordance with procedures which may be established from time to time between the Company and the Administrator:
Company Administration Treasury Services
a. | Coordinate the audit of the Companys financial statements by the Companys independent accountants, including the preparation of supporting audit workpapers and other schedules; |
b. | Prepare for the review by designated officer(s) of the Company financial information for financial reports (e.g., financial statements, schedules and notes) required to be included in and filed with the SEC as part of or in connection with the Companys (i) annual reports on Form 10-K, quarterly reports on Form 10-Q, annual shareholder reports, and other periodic and current reports (as mutually agreed upon) filed with the SEC, including tax footnote disclosures where applicable; and (ii) Registration Statement, amendments to the Registration Statement, prospectus supplements, proxy statements and such other reports, forms or filings as may be mutually agreed upon; |
2
c. | Monitor the Companys expense budget, as provided by the Company, perform accrual analyses and roll-forward calculations and recommend changes to Company expense accruals on a periodic basis, arrange for payment of the expenses of the Company, review calculations of fees paid to the Companys investment adviser, custodian, Company accountant, distributor and transfer agent, and obtain authorization of accrual changes and expense payments; |
d. | Provide sub-certificates in connection with the certification requirements of the Sarbanes-Oxley Act of 2002 with respect to the services provided by the Administrator; |
e. | Provide periodic certifications and reasonable documentation to the Chief Compliance Officer of the Company in connection with Rule 38a-1 under the 1940 Act; |
f. | Maintain certain books and records of the Company as required under Rule 31a-1(b) under the 1940 Act, as may be mutually agreed upon. |
The Administrator shall perform such other services for the Company that are mutually agreed to by the parties from time to time, for which the Company will pay such fees as may be mutually agreed upon, including the Administrators reasonable out-of-pocket expenses. The provision of such services shall be subject to the terms and conditions of this Agreement.
The Administrator shall provide the office facilities and the personnel determined by it to perform the services contemplated herein.
6. | F EES ; E XPENSES ; E XPENSE R EIMBURSEMENT |
The Administrator shall receive from the Company such compensation for the Administrators services provided pursuant to this Agreement as may be agreed to from time to time in a written fee schedule approved by the parties. The fees are accrued daily and billed monthly and shall be due and payable upon receipt of the invoice. Upon the termination of this Agreement before the end of any month, the fee for the part of the month before such termination shall be prorated according to the proportion which such part bears to the full monthly period and shall be due and payable upon the receipt of the final invoice. In addition, the Company shall reimburse the Administrator for its reasonable out-of-pocket costs incurred in connection with this Agreement. All rights of compensation and expense reimbursement under this Agreement for services performed as of the termination date shall survive the termination of this Agreement.
The Company agrees promptly to reimburse the Administrator for any equipment and supplies specially ordered by or for the Company through the Administrator and for any other expenses not contemplated by this Agreement that the Administrator may incur on the Companys behalf at the Companys request or with the Companys consent.
The Company will bear all expenses that are incurred in its operation and not specifically assumed by the Administrator. Expenses to be borne by the Company, include, but are not limited to: organizational expenses; cost of services of independent accountants and outside legal and tax counsel; cost of any services contracted for by the Company directly from parties other than the Administrator; cost of trading operations and brokerage fees, commissions and transfer taxes in connection with the purchase and sale of securities for the Company; investment advisory fees; taxes, insurance premiums and other fees and expenses applicable to its operation; costs incidental to any meetings of shareholders including, but not limited to, legal and accounting fees, proxy filing fees and the costs of preparation (e.g., typesetting, XBRL-tagging, page changes and all other print vendor and EDGAR charges, collectively referred to herein as Preparation), printing, distribution and mailing of any proxy materials; costs incidental to Board meetings, including fees and expenses of Board members; the salary and expenses of any officer, director\trustee or employee of the Company; costs of Preparation, printing, distribution and mailing, as applicable, of the Companys Registration Statements and any amendments and supplements thereto and shareholder reports; cost of Preparation and filing of the Companys
3
tax returns, regulatory forms (including Forms N-2, 10-K and 10-Q), and all notices, registrations and amendments associated with applicable federal and state tax and securities laws; all applicable registration fees and filing fees required under federal and state securities laws; the cost of fidelity bond and D&O/E&O liability insurance; and the cost of independent pricing services used in computing the Companys net asset value.
The Administrator is authorized to and may employ, associate or contract with such person or persons as the Administrator may deem desirable to assist it in performing its duties under this Agreement; provided, however, that the compensation of such person or persons shall be paid by the Administrator and that the Administrator shall be as fully responsible to the Company for the acts and omissions of any such person or persons as it is for its own acts and omissions.
7. | I NSTRUCTIONS AND A DVICE |
At any time, the Administrator may apply to any officer of the Company or other Authorized Persons for instructions and may consult with outside counsel for the Company or the independent accountants for the Company at the expense of the Company, with respect to any matter arising in connection with the services to be performed by the Administrator under this Agreement.
Subject to Section 8 hereof, the Administrator shall not be liable, and shall be indemnified by the Company, for any action taken or omitted by it in good faith in reliance upon any such instructions or advice or upon any paper or document believed by it to be genuine and to have been signed by the proper person or persons. The Administrator shall not be held to have notice of any change of authority of any person until receipt of written notice thereof from the Company. Nothing in this section shall be construed as imposing upon the Administrator any obligation to seek such instructions or advice, or to act in accordance with such advice when received.
8. | L IMITATION OF L IABILITY AND I NDEMNIFICATION |
The Administrator shall be responsible for the performance only of such duties as are set forth in this Agreement and, except as otherwise provided under Section 6 of this Agreement, shall have no responsibility for the actions or activities of any other party, including other service providers. The Administrator shall have no liability in respect of any loss, damage or expense suffered by the Company insofar as such loss, damage or expense arises from the performance of the Administrators duties hereunder in reliance upon records that were maintained for the Company by entities other than the Administrator prior to the Administrators appointment as administrator for the Company. The Administrator shall have no liability for any error of judgment or mistake of law or for any loss or damage resulting from the performance or nonperformance of its duties hereunder unless solely caused by or resulting from the negligence, bad faith or willful misconduct of the Administrator, its officers or employees. The Administrator shall not be liable for any special, indirect, incidental, punitive or consequential damages, including lost profits, of any kind whatsoever (including, without limitation, attorneys fees) under any provision of this Agreement or for any such damages arising out of any act or failure to act hereunder. In any event, the Administrators cumulative liability for each calendar year (a Liability Period) with respect to the Company under this Agreement regardless of the form of action or legal theory shall be limited to its total annual compensation earned and fees payable hereunder during the preceding Compensation Period, as defined herein, for any liability or loss suffered by the Company including, but not limited to, any liability relating to qualification of the Company as a regulated investment company or any liability relating to the Companys compliance with any federal or state tax or securities statute, regulation or ruling during such Liability Period. Compensation Period shall mean the calendar year ending immediately prior to each Liability Period in which the event(s) giving rise to the Administrators liability for that period have occurred. Notwithstanding the foregoing, the Compensation Period for purposes of calculating the annual cumulative liability of the Administrator for the Liability Period commencing on the date of this Agreement and terminating on December 31, 2013 shall be the date of this Agreement through December 31, 2013, calculated on an annualized basis, and the Compensation Period for the Liability Period commencing January 1, 2014 and terminating on December 31, 2014 shall be the date of this Agreement through December 31, 2013, calculated on an annualized basis.
4
The Administrator shall not be responsible or liable for any failure or delay in performance of its obligations under this Agreement arising out of or caused, directly or indirectly, by circumstances beyond its control, including without limitation, work stoppage, power or other mechanical failure, computer virus, natural disaster or governmental action.
The Company shall indemnify and hold the Administrator harmless from all loss, cost, damage and expense, including reasonable fees and expenses for counsel, incurred by the Administrator resulting from any claim, demand, action or suit in connection with the Administrators acceptance of this Agreement, any action or omission by it in the performance of its duties hereunder, or as a result of acting upon any instructions reasonably believed by it to have been duly authorized by the Company or upon reasonable reliance on information or records given or made by the Company or its investment adviser, provided that this indemnification shall not apply to actions or omissions of the Administrator, its officers or employees in cases of its or their own negligence, bad faith or willful misconduct.
The indemnification contained herein shall survive the termination of this Agreement.
9. | C ONFIDENTIALITY |
The parties hereto agree that each shall treat confidentially all information provided by each party to the other party regarding its business and operations. All confidential information provided by a party hereto shall be used by the other party hereto solely for the purpose of rendering or receiving services pursuant to this Agreement and, except as may be required in carrying out this Agreement, shall not be disclosed to any third party. Neither party will use or disclose confidential information for purposes other than the activities contemplated by this Agreement or except as required by law, court process or pursuant to the lawful requirement of a governmental agency, or if the party is advised by counsel that it may incur liability for failure to make a disclosure, or except at the request or with the written consent of the other party. Notwithstanding the foregoing, each party acknowledges that the other party may provide access to and use of confidential information relating to the other party to the disclosing partys employees, contractors, agents, professional advisors, auditors or persons performing similar functions.
The foregoing shall not be applicable to any information (i) that is publicly available when provided or thereafter becomes publicly available, other than through a breach of this Agreement, (ii) that is independently derived by a party hereto without the use of any information provided by the other party hereto in connection with this Agreement, (iii) that is required in any legal or regulatory proceeding, investigation, audit, examination, subpoena, civil investigative demand or other similar process, or by operation of law or regulation, or (iv) where the party seeking to disclose has received the prior written consent of the party providing the information, which consent shall not be unreasonably withheld.
The undertakings and obligations contained in this Section shall survive the termination or expiration of this Agreement for a period of three (3) years.
10. | C OMPLIANCE WITH G OVERNMENTAL R ULES AND R EGULATIONS ; R ECORDS |
The Company assumes full responsibility for complying with all securities, tax, commodities and other laws, rules and regulations applicable to it. The Administrator assumes full responsibility for complying with all laws applicable to it in connection with its performance of the services under this Agreement.
In compliance with the requirements of Rule 31a-3 under the 1940 Act, the Administrator agrees that all records which it maintains for the Company shall at all times remain the property of the Company, shall be readily accessible during normal business hours, and shall be promptly surrendered upon the termination of the Agreement or otherwise on written request. The Administrator further agrees that all records that it maintains for the Company pursuant to Rule 3la-1 under the 1940 Act will be preserved for the periods prescribed by Rule 3la-2 under the 1940 Act unless any such records are earlier surrendered as provided above. Records may be surrendered in machine-readable form.
5
11. | S ERVICES N OT E XCLUSIVE |
The services of the Administrator are not to be deemed exclusive, and the Administrator shall be free to render similar services to others. The Administrator shall be deemed to be an independent contractor and shall, unless otherwise expressly provided herein or authorized by the Company from time to time, have no authority to act or represent the Company in any way or otherwise be deemed an agent of the Company.
12. | E FFECTIVE P ERIOD AND T ERMINATION |
This Agreement shall become effective as of its execution, shall continue in full force and effect until termination as hereinafter provided and may be terminated by either party by an instrument in writing delivered or mailed, postage prepaid to the other party, such termination to take effect not sooner than thirty (30) days after the date of such delivery or mailing. Upon termination of this Agreement pursuant to this paragraph the Company shall pay to the Administrator such compensation as may be due as of the date of such termination and shall likewise reimburse the Administrator for its costs, expenses and disbursements.
13. | N OTICES |
All notices and other communications as required or permitted hereunder shall be in writing and deemed to have been given when delivered in person or by confirmed facsimile, by overnight delivery through a commercial courier service, or posted by certified mail, return receipt requested, to the following address (or such other address as a party may specify by written notice to the other):
If to the Company:
Goldman Sachs BDC, Inc.
c/o Goldman Sachs Asset Management, L.P.
200 West Street
New York, NY 10282
Attn: Legal Department
Facsimile: 212-357-9429
If to the Administrator:
State Street Bank and Trust Company
P.O. Box 5049
Boston, MA 02206-5049
Attn: Senior Vice President and Senior Managing Counsel
Facsimile: 617-662-2702
With a copy to:
State Street Bank and Trust Company
2 Avenue de Lafayette, 2 nd Floor (LCC/2)
Boston, MA 02111
Attn: Mary Zeven, Senior Vice President and Senior Managing Counsel
Facsimile: 617-662-2702
14. | A MENDMENT |
This Agreement may be amended at any time in writing by mutual agreement of the parties hereto.
6
15. | A SSIGNMENT |
This Agreement shall not be assigned by either party hereto without the prior consent in writing of the other party, except that the Administrator may assign this Agreement to a successor of all or a substantial portion of its business, or to a party controlling, controlled by or under common control with the Administrator.
16. | S UCCESSORS |
This Agreement shall be binding on and shall inure to the benefit of the Company and the Administrator and their respective successors and permitted assigns.
17. | D ATA P ROTECTION |
The Administrator shall implement and maintain a comprehensive written information security program that contains appropriate security measures to safeguard the personal information of the Companys shareholders, employees, directors and/or officers that the Administrator receives, stores, maintains, processes or otherwise accesses in connection with the provision of services hereunder. For these purposes, personal information shall mean (i) an individuals name (first initial and last name or first name and last name), address or telephone number plus (a) social security number, (b) drivers license number, (c) state identification card number, (d) debit or credit card number, (e) financial account number or (f) personal identification number or password that would permit access to a persons account or (ii) any combination of the foregoing that would allow a person to log onto or access an individuals account. Notwithstanding the foregoing personal information shall not include information that is lawfully obtained from publicly available information, or from federal, state or local government records lawfully made available to the general public.
18. | E NTIRE A GREEMENT |
This Agreement contains the entire understanding between the parties hereto with respect to the subject matter hereof and supersedes all previous representations, warranties or commitments regarding the services to be performed hereunder whether oral or in writing.
19. | W AIVER |
The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver nor shall it deprive such party of the right thereafter to insist upon strict adherence to that term or any term of this Agreement. Any waiver must be in writing signed by the waiving party.
20. | S EVERABILITY |
lf any provision of this Agreement is invalid or unenforceable, the balance of the Agreement shall remain in effect, and if any provision is inapplicable to any person or circumstance it shall nevertheless remain applicable to all other persons and circumstances.
21. | G OVERNING L AW |
This Agreement shall be construed and the provisions thereof interpreted under and in accordance with the laws of the state of New York, without regard to its conflicts of laws provisions.
22. | R EPRODUCTION OF D OCUMENTS |
This Agreement and all schedules, exhibits, attachments and amendments hereto may be reproduced by any photographic, xerographic, photostatic, microfilm, micro-card, miniature photographic or other similar process. The parties hereto all/each agree that any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding, whether or not the original is in existence and whether or not such reproduction was made by a party in the regular course of business, and that any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence.
7
23. | C OUNTERPARTS |
This Agreement may be executed by the parties hereto on any number of counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument.
[Remainder of page intentionally left blank.]
8
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their officers designated below as of the date first written above.
GOLDMAN SACHS BDC, INC. | ||
By: |
|
|
Name: | Jonathan Lamm | |
Title: | Authorized Signatory | |
STATE STREET BANK AND TRUST COMPANY | ||
By: |
|
|
Name: | Michael F. Rogers | |
Title: | Executive Vice President |
9
EX-99(k)(4)
EXECUTION COPY
LICENSE AGREEMENT
BETWEEN
GOLDMAN, SACHS & CO.
AND
GOLDMAN SACHS BDC, INC.
LICENSE AGREEMENT RELATING TO USE OF NAME
This license agreement, dated the 1st day of April, 2013 and effective as of the 1st day of April, 2013 (this Agreement ), is between Goldman, Sachs & Co., a limited partnership organized under the laws of the State of New York ( Goldman Sachs ), and Goldman Sachs BDC, Inc., a Delaware corporation (the Licensed Party ).
RECITALS:
The Licensed Party is a newly organized, externally managed, closed-end, non-diversified management investment company that has filed notice with the Securities and Exchange Commission that it intends to elect to be treated as a business development company under the Investment Company Act of 1940;
The Licensed Party is entering into an investment advisory and management agreement with Goldman Sachs Asset Management, L.P. ( GSAM ); and
The Licensed Party has requested that Goldman Sachs give its consent to the use of the mark Goldman Sachs (the Licensed Mark ) in the Licensed Partys corporate name and in connection with the operation of its business, and Goldman Sachs is willing to grant the Licensed Party a license to use the Licensed Mark, subject to the terms and conditions of this Agreement.
In consideration of the premises and of the covenants hereinafter contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
1. Grant of Licenses in Names . Goldman Sachs hereby grants to the Licensed Party, from the date of the Licensed Partys establishment until such time as GSAM or any other affiliate of Goldman Sachs is not the investment manager of the Licensed Party or if the Licensed Partys continued use of such license shall result in a violation of applicable law, result in a regulatory burden or shall have adverse regulatory consequences, a personal, non-exclusive, worldwide, royalty-free right and license solely to use the Licensed Mark in its name and in connection with marketing the investment management, investment consultation and investment advisory services that GSAM may provide to the Licensed Party and for no other purpose unless the Licensed Party obtains the prior written consent of Goldman Sachs.
2. Right to Withdraw License . The non-exclusive license to the Licensed Mark hereinabove referred shall expire if at any time GSAM or any other affiliate of Goldman Sachs is not the investment adviser to the Licensed Party or if the Licensed Partys continued use of such license shall result in a violation of applicable law, result in a regulatory burden or shall have adverse regulatory consequences. This Agreement shall be terminable by Goldman Sachs at any time and in its sole discretion in the event that Goldman Sachs or the Licensed Party receives notice of any claim that the Licensed Partys use of the Licensed Mark infringes the intellectual property rights of any third party in the United States (Third Party Claim) arising out of the Licensed Partys use of the Licensed Mark; by Goldman Sachs or the Licensed Party upon sixty (60) days written notice to the other party; or by Goldman Sachs at any time in the event the Licensed Party assigns or attempts to assign or sublicense this Agreement or any of the Licensed Partys rights or duties hereunder without the prior written consent of Goldman Sachs. Upon expiration or termination of this Agreement, all rights granted to the Licensed Party under this Agreement with respect to the Licensed Party shall cease and the Licensed Party shall immediately (a) change its name so that such name will not thereafter include the words Goldman Sachs, GS or any derivative thereof, (b) cease using, including in connection with marketing and offering materials, the Licensed Mark or any derivative thereof and also where practicable use its reasonable best efforts to ensure any other third parties cease using the Licensed Mark, and (c) subject to regulatory requirements, return or destroy all documents and other materials then in its possession containing said words or variations thereof.
3. Non-Exclusivity . Goldman Sachs shall have, and hereby reserves, the right to grant to any other entity, including without limitation, any other undertaking for collective investment, investment partnership or
- 1 -
unit trust, the right to use the Licensed Mark or any derivative thereof in its name and no consent or permission of the Licensed Party shall be necessary; but, if required by an applicable law of any country or political subdivision thereof, the Licensed Party will forthwith grant all requisite consents.
4. Limit of License . The Licensed Party agrees that it will not grant, sell, assign, market, sublicense, or otherwise transfer, to any other person, firm or corporation the right to use a name similar to that of Goldman Sachs or GS or containing the words Goldman Sachs or GS without the prior written consent of Goldman Sachs.
5. Further Use of Name . Regardless of whether the name of the Licensed Party should hereafter be changed to eliminate the words Goldman Sachs, GS or any derivative thereof from such name, the Licensed Party hereby grants to Goldman Sachs the right (a) to cause the organization of other voluntary associations or the incorporation of corporations which have names similar to that of the Licensed Party or to that to which the name of the Licensed Party may be changed, (b) to own all or any portion of the shares of such other corporations or associations and (c) to enter into contractual relationships with such other corporations or associations. The Licensed Party agrees to give and execute any such formal consents or agreements as may be necessary or requested by Goldman Sachs in connection therewith.
6. Mutual Representations . Each party hereby represents and warrants to the other party as follows:
A. Due Authorization . Such party is a duly organized and in good standing as of the date of this Agreement, and the execution, delivery and performance of this Agreement by such party have been duly authorized by all necessary action on the part of such party.
B. Due Execution . This Agreement has been duly executed and delivered by such party and, upon due authorization, execution and delivery of this Agreement by the other party, constitutes a legal, valid and binding obligation of such party, enforceable against such party in accordance with its terms.
C. No Conflict . Such partys execution, delivery and performance of this Agreement do not: (i) violate, conflict with or result in the breach of any provision of the charter or by-laws (or similar organizational documents) of such party; (ii) conflict with or violate any governmental order applicable to such party or any of its assets, properties or businesses; or (iii) conflict with, result in any breach of, constitute a default (or event which with the giving of notice or lapse of time, or both, would become a default) under, require any consent under, or give to others any rights of termination, amendment, acceleration, suspension, revocation or cancellation of any contract, agreement, lease, sublease, license, permit, franchise or other instrument or arrangement to which it is a party.
7. Confidentiality . The Licensed Party acknowledges that its employees, agents and representatives may be exposed to or acquire information which is proprietary or confidential to Goldman Sachs, its affiliated companies or third parties to whom Goldman Sachs has a duty of confidentiality. All such proprietary or confidential client information of Goldman Sachs shall be treated as confidential, shall not be disclosed to the public and shall not be used for any purpose whatsoever other than as contemplated by this Agreement except (a) if such information is already in, or comes into, such persons possession as a result of activities unrelated to, or from sources other than, Goldman Sachs, (b) if such information is or becomes available to the public or industry sources other than as a result of disclosure by the Licensed Party, (c) if such disclosure is requested by or through a judicial, administrative, governmental or self-regulatory organization process, investigation, inquiry or proceeding, or otherwise required by applicable law, or (d) in order for the Licensed Party to carry out its responsibilities hereunder. This provision shall survive the termination of this Agreement and the license granted herein.
8. Publicity . The Licensed Party agrees that its employees, if any, officers, directors, agents and representatives will not, without the prior written consent of Goldman Sachs in each instance, (a) otherwise than as set forth herein or in order to comply with its obligations under applicable law, use in advertising, publicity, or
- 2 -
otherwise, the words Goldman Sachs, GS, the name of Goldman Sachs, or of any affiliate of Goldman Sachs or GS, or of any officer or employee of Goldman Sachs, nor any trade name, trademark, trade device, service mark, symbol or any abbreviation, contraction or simulation thereof owned by Goldman Sachs or its affiliates or (b) represent, directly or indirectly, that any product or any service has been approved or endorsed by Goldman Sachs. This provision shall survive the termination of this Agreement and the license granted herein.
9. Independent Contractor . Neither party shall have, or shall represent that it has, any power, right or authority to bind the other party to any obligation or liability, or to assume or create any obligation or liability on behalf of the other party.
10. Notices . Except as otherwise provided herein, all notices and other communications as required or permitted hereunder shall be in writing and deemed to have been given when delivered in person or by confirmed facsimile, by overnight delivery through a commercial courier service, or posted by certified mail, return receipt requested, to the following address (or such other address as a party may specify by written notice to the other):
If to Goldman Sachs
Goldman, Sachs & Co.
200 West Street
New York, New York 10282
Attention: General Counsel, Investment Management Division
of Goldman, Sachs & Co.
Fax: (212) 902-4140
If to the Licensed Party
Goldman Sachs BDC, Inc.
c/o Goldman Sachs Asset Management, L.P.
200 West Street
New York, New York 10282
Attention: General Counsel, Investment Management Division
of Goldman, Sachs & Co.
Fax: (212) 902-4140
or to such other address as to which the party receiving the notice shall have notified the other party in writing.
11. Amendments . This Agreement, which is the entire agreement of the parties with respect to the subject matter hereof, may be amended at any time only by a writing signed by the parties hereto.
12. General . This Agreement and the performance hereunder shall be governed by, and construed in accordance with, the laws of the State of New York, United States of America, without reference to choice of law principles. The Licensed Party consents to exclusive jurisdiction and venue for any litigation arising out of this Agreement to the United States District Court for the Southern District of New York, unless no federal jurisdiction exists, in which case the Licensed Party consents to jurisdiction and venue in the Supreme Court of the State of New York, New York County. Nothing herein shall constitute a waiver or limitation of any rights which the Licensed Party may have, if any, under any applicable law.
13. No Waiver . The failure of either party to enforce at any time for any period the provisions of or any rights deriving from this Agreement shall not be construed to be a waiver of such provisions or rights or the right of such party thereafter to enforce such provisions, and no waiver shall be binding unless executed in writing by all parties hereto.
14. Severability . If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any law or public policy, all other terms and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not
- 3 -
affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby are consummated as originally contemplated to the greatest extent possible.
15. Headings . The descriptive headings contained in this Agreement are for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement.
16. Counterparts . This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument.
[SIGNATURE PAGES IMMEDIATELY FOLLOW]
- 4 -
IN WITNESS WHEREOF, each party has caused their duly authorized representatives to execute this Agreement on the date first above written.
GOLDMAN, SACHS & CO. | ||
By: |
|
|
Name: Brendan McGovern |
||
Title: Authorized Signatory |
GOLDMAN SACHS BDC, INC. | ||
By: |
|
|
Name: Brendan McGovern |
||
Title: Authorized Signatory |
EX-99.(k)(6)
Execution Copy
SENIOR CREDIT FUND, LLC
LIMITED LIABILITY COMPANY AGREEMENT
TABLE OF CONTENTS
Page | ||||||||
ARTICLE 1 DEFINITIONS |
1 | |||||||
ARTICLE 2 GENERAL PROVISIONS |
5 | |||||||
Section 2.1 |
Formation of the Limited Liability Company | 5 | ||||||
Section 2.2 |
Company Name | 5 | ||||||
Section 2.3 |
Place of Business; Agent for Service of Process. | 5 | ||||||
Section 2.4 |
Principal Purpose and Powers of the Company. | 5 | ||||||
Section 2.5 |
Fiscal Year | 7 | ||||||
Section 2.6 |
Liability of Members | 7 | ||||||
Section 2.7 |
Member List | 7 | ||||||
ARTICLE 3 COMPANY CAPITAL AND INTERESTS |
7 | |||||||
Section 3.1 |
Capital Commitments | 7 | ||||||
Section 3.2 |
Temporary Advances | 8 | ||||||
Section 3.3 |
Defaulting Members. | 8 | ||||||
Section 3.4 |
Interest or Withdrawals | 9 | ||||||
Section 3.5 |
Admission of Additional Members | 9 | ||||||
Section 3.6 |
Alternative Investment Vehicle | 10 | ||||||
ARTICLE 4 ALLOCATIONS |
10 | |||||||
Section 4.1 |
Capital Accounts | 10 | ||||||
Section 4.2 |
General and Special Allocations | 11 | ||||||
Section 4.3 |
Changes of Interests | 11 | ||||||
Section 4.4 |
Income Taxes and Tax Capital Accounts | 11 | ||||||
ARTICLE 5 DISTRIBUTIONS |
11 | |||||||
Section 5.1 |
General | 11 | ||||||
Section 5.2 |
Tax Distributions | 12 | ||||||
Section 5.3 |
Withholding. | 12 | ||||||
Section 5.4 |
Reserves; Certain Limitations; Distributions in Kind | 12 | ||||||
ARTICLE 6 MANAGEMENT OF COMPANY |
13 | |||||||
Section 6.1 |
Management Generally | 13 | ||||||
Section 6.2 |
Board | 14 | ||||||
Section 6.3 |
Meetings of the Board | 14 | ||||||
Section 6.4 |
Quorum; Acts of the Board | 14 | ||||||
Section 6.5 |
Electronic Communications | 14 | ||||||
Section 6.6 |
Committees of Board Members | 15 | ||||||
Section 6.7 |
Compensation of Board Members; Expenses | 15 | ||||||
Section 6.8 | Removal of Board Members | 15 | ||||||
Section 6.9 | Board as Agent | 15 | ||||||
Section 6.10 | Officers | 15 | ||||||
Section 6.11 | Officers as Agents | 15 | ||||||
Section 6.12 | Duties of Board, Board Members and Officers | 15 | ||||||
Section 6.13 | Reliance by Third Parties | 16 | ||||||
Section 6.14 | Members Outside Transactions; Investment Opportunities; Time and Attention | 16 | ||||||
Section 6.15 | Indemnification | 16 | ||||||
Section 6.16 | Tax Matters Member | 17 |
Page | ||||||||
ARTICLE 7 TRANSFERS OF COMPANY INTERESTS; WITHDRAWALS |
18 | |||||||
Section 7.1 | Transfers by Members. | 18 | ||||||
Section 7.2 | Withdrawal by Members. | 19 | ||||||
ARTICLE 8 TERM, DISSOLUTION AND LIQUIDATION OF COMPANY |
20 | |||||||
Section 8.1 | Term | 20 | ||||||
Section 8.2 | Dissolution | 20 | ||||||
Section 8.3 | Wind-down. | 21 | ||||||
ARTICLE 9 ACCOUNTING, REPORTING AND VALUATION PROVISIONS |
23 | |||||||
Section 9.1 | Books and Accounts. | 23 | ||||||
Section 9.2 | Financial Reports; Tax Return. | 23 | ||||||
Section 9.3 | Tax Elections | 24 | ||||||
Section 9.4 | Confidentiality. | 24 | ||||||
Section 9.5 | Valuation | 26 | ||||||
ARTICLE 10 MISCELLANEOUS PROVISIONS |
27 | |||||||
Section 10.1 | Power of Attorney | 27 | ||||||
Section 10.2 | Determination of Disputes | 28 | ||||||
Section 10.3 | Certificate of Formation; Other Documents | 28 | ||||||
Section 10.4 | Force Majeure | 28 | ||||||
Section 10.5 | Applicable Law | 28 | ||||||
Section 10.6 | Waivers | 28 | ||||||
Section 10.7 | Notices | 28 | ||||||
Section 10.8 | Construction | 29 | ||||||
Section 10.9 | Amendments. | 29 | ||||||
Section 10.10 | Legal Counsel | 30 | ||||||
Section 10.11 | Execution | 30 | ||||||
Section 10.12 | Binding Effect | 30 | ||||||
Section 10.13 | Severability | 30 | ||||||
Section 10.14 | Computation of Time | 30 | ||||||
Section 10.15 | Entire Agreement | 30 | ||||||
Section 10.16 | Investments in Tobacco Companies | 31 | ||||||
Section 10.17 | Publicity | 31 | ||||||
Section 10.18 | Sovereign Immunity | 31 | ||||||
Section 10.19 | Opinions of Counsel | 31 | ||||||
Section 10.20 | Agreement to Keep Terms Confidential | 31 |
- ii -
SENIOR CREDIT FUND, LLC
LIMITED LIABILITY COMPANY AGREEMENT
This Limited Liability Company Agreement, dated as of July 18, 2014, is entered into by and between Goldman Sachs BDC, Inc. and Regents of the University of California (collectively, the Members ).
WHEREAS, the Members desire to form a co-managed limited liability company under the Act (as defined below) for the purposes and pursuant to the terms set forth herein;
NOW THEREFORE, in consideration of the mutual agreements set forth below, and intending to be legally bound, the Members hereby agree as follows:
ARTICLE 1
DEFINITIONS
For purposes of this Agreement, the following terms shall have the following meanings:
Act : the Delaware Limited Liability Company Act, as from time to time in effect.
Administrative Agent : Goldman Sachs Asset Management, L.P. or an Affiliate thereof retained by the Company with Board Approval to perform administrative services for the Company.
Administrative Services Agreement : the Administrative Services Agreement between the Company and the Administrative Agent, as amended from time to time with Board Approval.
Affiliate : with respect to a Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such Person.
Agreement : this Limited Liability Company Agreement, as it may from time to time be amended.
Allocation Requirements : the meaning set forth in Section 6.14(b).
Alternative Investment Vehicle : the meaning set forth in Section 3.6.
Board : the Board of the Company.
Board Approval : as to any matter requiring Board approval hereunder, the approval or subsequent ratification by the Board.
Board Member : each Person elected, designated or appointed to serve as a member of the Board in accordance with this Agreement.
Broadly Syndicated Loans : syndicated loans that are not primarily underwritten or co-underwritten by GSBDCs investment adviser or an Affiliate thereof.
Capital Account : as to each Member, the capital account maintained on the books of the Company for such Member in accordance with Section 4.1.
Capital Commitment : as to each Member, the total amount set forth in such Members Subscription Agreement delivered herewith and on the Member List, which is contributed and agreed to be contributed to the Company by such Member as a Capital Contribution.
Capital Contribution : as to each Member, the aggregate amount of cash actually contributed to the equity capital of the Company by such Member as set forth in Section 3.1. The Capital Contribution of a Member that is an assignee of all or a portion of an equity interest in the Company shall include the Capital Contribution
of the assignor (or a pro rata portion thereof in the case of an assignment of less than the entire interest of the assignor). Notwithstanding the foregoing, and subject to Board Approval, each Member shall be permitted to make a Capital Contribution to the Company in the form of interests in Investments currently owned by the Member. These contributed interests shall be valued in accordance with this Agreement.
Cause Event : (i) the bankruptcy, insolvency, dissolution or liquidation of a Member, or the making of an assignment for the benefit of creditors by a Member, or a default under Section 3.3 by a Member which remains uncured or unwaived after the expiration of the cure period set forth in Section 3.3; (ii) the institution of any lawsuits or legal proceedings against a Member or, solely with respect to GSBDC, the investment adviser of GSBDC if such lawsuit or legal proceeding is likely to have a material adverse effect on such Members ability to perform its obligations under this Agreement; provided, that the institution of any lawsuit or legal proceeding against a Member by the other Member shall not be a Cause Event; (iii) the commencement of any formal enforcement investigation of a Member or, solely with respect to GSBDC, the investment adviser of GSBDC by the SEC or any other U.S. or foreign federal regulatory or administrative body that involves an allegation of a violation of law by any such person and that is likely to have a material adverse effect on such Members ability to perform its obligations under this Agreement; or (iv) any other act or omission by a Member or, solely with respect to GSBDC, the investment adviser of GSBDC that, in the reasonable judgment of the other Member, (A) causes or is likely to cause such other Member or its Affiliates to receive materially adverse publicity or (B) otherwise materially adversely affects or may materially adversely affect the reputation of such other Member or its Affiliates.
Certificate of Formation : the certificate of formation for the Company filed under the Act, as from time to time amended.
Code : the Internal Revenue Code of 1986, as from time to time amended.
Company : the limited liability company created and existing pursuant to the Certificate of Formation and this Agreement.
Company Counsel : the meaning set forth in Section 10.10.
CPRA : the meaning set forth in Section 9.4(d).
Default Date : the meaning set forth in Section 3.3(a).
Default Loan : the meaning set forth in Section 3.3(b)(iii).
Defaulting Member : the meaning set forth in Section 3.3(a).
Disclosure Laws : the meaning set forth in Section 9.4(d)(ii).
ERISA : the Employee Retirement Income Security Act of 1974, as from time to time amended.
ERISA Plan : a Person that is an employee benefit plan within the meaning of, and subject to the provisions of, ERISA.
Expenses : all costs and expenses, of whatever nature, directly or indirectly borne by the Company, including, without limitation, those borne under the Administrative Services Agreement, any sub-administrative services agreement or borne with respect to any Financing Subsidiary.
Facility : the meaning set forth in Section 2.4(b)(iv).
Financing Subsidiary shall mean a direct or indirect subsidiary of the Company, including without limitation a bankruptcy remote special purpose entity that will enter into a credit facility or issue debt.
GAAP : United States generally accepted accounting principles.
- 2 -
GAAP Profit or GAAP Loss : as to any transaction or fiscal period, the net income or loss of the Company under GAAP.
GSBDC : Goldman Sachs BDC, Inc., or any Person substituted for Goldman Sachs BDC, Inc. as a Member pursuant to the terms of this Agreement.
Harm : the meaning set forth in Section 6.15(a).
Illiquid Security : any security other than one which is marketable. For purposes of this definition, a security is marketable only if it (i) is traded on or through a national or other established securities exchange or the National Association of Securities Dealers, Inc. Automated Quotation System, (ii) can be sold, with or without volume limitations, to the general public by a Member receiving a distribution of such security, and (iii) is not subject to contractual restrictions on transfer.
Initial Closing Date : means August 1, 2014 or such other date as the Members may agree.
Investment : an investment of any type held, directly or indirectly, by the Company from time to time. By way of example, Investments may include loans, notes and other debt instruments, total return swaps and other derivative instruments, participation interests, warrants, equity securities including common stock, preferred stock and structured equity products, portfolios of any of the foregoing and derivative instruments related to any of the foregoing. Investments do not include interests in Subsidiaries.
Investment Period means the thirty six-month period commencing on the Initial Closing Date unless sooner terminated as provided in Section 3.1(d).
Investor Laws : the meaning set forth in Section 7.2.
LIBOR Rate : the three-month London InterBank Offered Rate, which for purposes hereof shall be deemed to equal for each day of a calendar quarter such rate as of the first day of such quarter.
Member : each Person identified as a Member in the first sentence hereof, and any Person that is or becomes a Member of the Company.
Member List : the meaning set forth in Section 2.7.
Organization Costs : all out-of-pocket costs and expenses reasonably incurred directly by the Company or indirectly for the Company by a Member or its Affiliates in connection with the formation, capitalization and financing of the Company, the initial offering of Company interests to GSBDC and the Regents, and the preparation by the Company to commence its business operations, including, without limitation, reasonable and documented (i) fees and disbursements of legal counsel to the Company or its Affiliates and to GSBDC and the Regents, (ii) accountant fees and other fees for professional services, (iii) travel costs and other out-of-pocket expenses, and (iv) costs incurred in connection with the establishment of any Facility. The Company shall also pay, or the Board may cause the Company to make capital contributions or advances to any Financing Subsidiary relating to, the organizational costs and expenses of any Financing Subsidiary, including costs associated with borrowing money and entering into credit facilities.
Person : shall include an individual, corporation, partnership, association, joint venture, company, limited liability company, trust, governmental authority or other entity.
Portfolio Company : with respect to any Investment, any Person that is the issuer of any equity securities, equity-related securities or obligations, debt instruments or debt-related securities or obligations (including senior debt instruments, including investments in senior loans, senior debt securities and any notes or other evidences of indebtedness, preferred equity, warrants, options, subordinated debt, mezzanine securities or similar securities or instruments) that are the subject of such Investment. Portfolio Companies do not include Subsidiaries.
- 3 -
Prior Board Approval : as to any matter requiring prior Board Approval hereunder, the prior approval of the Board.
Proceeding has the meaning set forth in Section 6.15(a).
Profit or Loss : as to any transaction or fiscal period, the GAAP Profit or GAAP Loss with respect to such transaction or period, with such adjustments thereto as may be required by this Agreement; provided that in the event that the Value of any Company asset is adjusted under Section 9.5, the amount of such adjustment shall in all events be taken into account in the same manner as gain or loss from the disposition of such asset for purposes of computing Profit or Loss, and the gain or loss from any disposition of such asset shall be calculated by reference to such adjusted Value; and provided further, that GAAP Profit or GAAP Loss may be adjusted with Board Approval to amortize Organization Costs over four years.
Proportionate Share : as to any Member, the percentage that its Capital Contribution represents of all Capital Contributions.
Regents : The Regents of the University of California, or any Person substituted for the Regents as a Member pursuant to the terms of this Agreement.
Reserved Amount : the meaning set forth in Section 5.4(a).
Revolving Credit Loan : any revolving credit facility or similar credit facility provided by the Company or any Financing Subsidiary, directly or indirectly, to a borrower or acquired from another Person; provided that in the case of any such credit facility provided or acquired indirectly through another entity which is not wholly owned by the Company, the Revolving Credit Loan shall be the Companys proportionate share thereof.
SEC : the U.S. Securities and Exchange Commission.
Senior Secured Loans : senior secured loans that are secured by a first lien on some or all of the obligors assets, including, without limitation, traditional senior secured loans and any related Revolving Credit Loan or delayed draw loan.
Subscription Agreement : the subscription agreement entered into by each Member in respect of its Capital Commitment.
Subscription Facility : a Facility with respect to which the Company has pledged the Capital Commitments and the power and authority to call the Capital Commitments.
Tax Liability : as to any Member and any fiscal period, the amount of Profit (and each item thereof) allocated to such Member for U.S. federal income tax purposes in the Company income tax return filed or to be filed by the Company with respect to such period, multiplied by the highest combined marginal U.S. federal, state and local income tax rates for individuals in New York, New York on each type of taxable income and gain included in such Profit, taking into account (i) the non-deductibility of any item for state or local income tax purposes that is deductible for federal income tax purposes, (ii) the deductibility for federal income tax purposes of state or local income taxes, and (iii) the deductibility of any item for state income tax purposes that is not deductible for federal income tax purposes. The Tax Liability for any fiscal period in which such Member was allocated net loss for federal income tax purposes shall be deemed to equal zero.
Tax Matters Member : the meaning set forth in Section 6.16.
Temporary Advance : the meaning set forth in Section 3.2.
Temporary Advance Rate : with respect to any period, the rate equal to (i) the sum of the average LIBOR Rate during such period (expressed as an annual rate) plus three percent (3.0%) per annum, multiplied by (ii) a fraction,
- 4 -
the numerator of which is the number of days in such period and the denominator of which is 365; provided that the Temporary Advance Rate for any Temporary Advance outstanding for less than four days shall equal zero.
Treasury Regulations : all final and temporary federal income tax regulations, as amended from time to time, issued under the Code by the United States Treasury Department.
Valid Company Purposes : shall include the purposes set forth in clauses (i) through (vi) during the Investment Period and shall include the purposes set forth in clauses (ii) through (vi) during any suspension of the Investment Period and any time after the expiration or earlier termination of the Investment Period: (i) prior to the end of the Investment Period, making Investments or acquiring assets (other than temporary investments), (ii) making Investments which the Company was committed to make in whole or in part (as evidenced by a commitment letter, term sheet or letter of intent, or definitive legal documents under which less than all advances have been made) on or before the suspension or termination of the Investment Period and satisfying funding or other obligations with respect to all Investments including any ongoing funding obligations relating to all Revolving Credit Loans that are revolving loans and delayed draw term loans at any time during or after the Investment Period, (iii) funding Reserved Amounts, (iv) making protective investments (including making protective advances and/or exchanges), which may require capital commitments and ongoing obligations of the Company or any Financing Subsidiary, (v) making, at the Boards election, capital contributions to avoid or cure any borrowing base deficiency, default, event of default, potential termination event or termination event relating to any indebtedness incurred by the Company or a Financing Subsidiary and repaying such indebtedness, or (vi) repaying Temporary Advances and paying Company Expenses, Organizational Costs, and such other costs and expenses as set forth herein.
Value : as of the date of computation with respect to some or all of the assets of the Company or any assets acquired by the Company, the value of such assets determined in accordance with Section 9.5.
ARTICLE 2
GENERAL PROVISIONS
Section 2.1 Formation of the Limited Liability Company . The Company was formed under and pursuant to the Act upon the filing of the Certificate of Formation in the office of the Secretary of State of the State of Delaware, and the Members hereby agree to continue the Company under and pursuant to the Act. The Members agree that the rights, duties and liabilities of the Members shall be as provided in the Act, except as otherwise provided herein. Each Person being admitted as a Member as of the date hereof shall be admitted as a Member at the time such Person has executed this Agreement or a counterpart of this Agreement.
Section 2.2 Company Name . The name of the Company shall be Senior Credit Fund, LLC, or such other name as approved by Board Approval.
Section 2.3 Place of Business; Agent for Service of Process .
(a) The registered office of the Company in the State of Delaware shall be c/o Goldman Sachs Asset Management, L.P, or such other place as the Members may designate. The principal business office of the Company shall be at 1 American Lane, Greenwich, CT 06831, or such other place as may be approved by Board Approval. The Company may also maintain additional offices at such place or places as may be approved by Board Approval.
(b) The agent for service of process on the Company pursuant to the Act shall be The Corporation Trust Company at Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801, or such other Person as the Members may designate with Board Approval.
Section 2.4 Principal Purpose and Powers of the Company .
- 5 -
(a) The principal purpose of the Company is to make Investments, either directly or indirectly through Subsidiaries or other Persons, primarily in Senior Secured Loans that are made to middle market companies or in Broadly Syndicated Loans.
(b) In furtherance of such purpose, the Company, either directly or indirectly, shall have the following powers:
(i) To originate or otherwise acquire and finance Senior Secured Loans and to acquire and finance Broadly Syndicated Loans;
(ii) to form, invest in or through, transfer, dispose of or otherwise deal in the interests of, and exercise all rights, powers, privileges and other incidents of ownership with respect to, investment and financing vehicles (formed in the United States or otherwise), including Financing Subsidiaries which hold one or more Investments, including, without limitation, investment and financing vehicles that are wholly or partially controlled, managed or administered by the Company, by a Member or by any Affiliate of any thereof, and investment and financing vehicles that are partially owned by Persons other than the Company (including but not limited to Persons that may be controlled, managed or administered by a Member or any of its Affiliates), and investment vehicles formed for the purpose of making and administering Investments and allocating related Profit or Loss;
(iii) to originate, purchase or otherwise acquire, transfer, finance, dispose of or otherwise deal in, and exercise all rights, powers, privileges and other incidents of ownership or possession with respect to, Investments without regard to whether such Investments are publicly traded, readily marketable or restricted as to transfer;
(iv) to incur indebtedness for borrowed money (which may be on a joint and several basis with Alternative Investment Vehicles), and to pledge, hypothecate, mortgage, collaterally assign, or otherwise grant security interests or liens on any assets owned directly or indirectly by the Company, including without limitation, the Capital Commitments and the power and authority to call the Capital Commitments (any credit facility secured by any such assets, a Facility );
(v) to guarantee, or otherwise become liable for, the obligations of other Persons, including, without limitation, Portfolio Companies, Alternative Investment Vehicles and Financing Subsidiaries;
(vi) to act as manager and/or collateral manager of a Financing Subsidiary;
(vii) to engage personnel and do such other acts and things as may be necessary or advisable in connection therewith;
(viii) to engage and compensate attorneys, accountants, administrative agents, investment advisors, technical advisors, consultants, custodians, contractors and agents;
(ix) to pay and incur other expenses and obligations incident to the operation of the Company and/or Financing Subsidiaries and to make capital contributions to Financing Subsidiaries;
(x) to establish, maintain, and close bank accounts and draw checks or other orders for the payment of money;
(xi) to establish, maintain, and close accounts with brokers;
(xii) to enter into, make and perform all such contracts, agreements and other undertakings, and to take any and all actions and engage in any and all activities, as may be incidental to, or necessary, advisable or appropriate to, the carrying out of the foregoing purpose; and
(xiii) to take any other action permitted to be taken by a limited liability company under the Act.
- 6 -
(c) The Company may enter into and perform Subscription Agreements among the Company and each Member, without any further act, vote or approval of any Member notwithstanding any other provision of this Agreement, the Act or any other applicable law, rule or regulation.
Section 2.5 Fiscal Year . The fiscal year of the Company shall be the period ending on December 31 of each year.
Section 2.6 Liability of Members . Except as expressly provided in this Agreement, a Member shall have such liability for the repayment, satisfaction and discharge of the debts, liabilities and obligations of the Company only as is provided by the Act. A Member that receives a distribution made in violation of the Act shall be liable to the Company for the amount of such distribution to the extent, and only to the extent, required by the Act. The Members shall not otherwise be liable for the repayment, satisfaction or discharge of the Companys debts, liabilities and obligations, except that each Member shall be required to make Capital Contributions in accordance with the terms of this Agreement and shall be required to repay any distributions which are not made in accordance with this Agreement.
Section 2.7 Member List . The Administrative Agent shall cause to be maintained in the principal office of the Company a list (the Member List ) setting forth, with respect to each Member, such Members name, address, Capital Commitment, Capital Contributions and such other information as the Administrative Agent may deem necessary or desirable or as required by the Act. The Administrative Agent shall from time to time update the Member List as necessary to reflect accurately the information therein. Any reference in this Agreement to the Member List shall be deemed to be a reference to the Member List as in effect from time to time. No action of the Members shall be required to supplement or amend the Member List. Revisions to the Member List made by the Administrative Agent as a result of changes to the information set forth therein made in accordance with this Agreement shall not constitute an amendment of this Agreement.
ARTICLE 3
COMPANY CAPITAL AND INTERESTS
Section 3.1 Capital Commitments .
(a) Each Members Capital Commitment shall be set forth on the Member List and in such Members Subscription Agreement and shall be payable in cash in U.S. dollars or, with Board Approval, in in-kind contributions of Investments. Each such payment shall be made from time to time within ten (10) business days after notice from the Administrative Agent (or any other Person with the power and authority to call the Capital Commitments) specifying the amount then to be paid, or such later date as may be specified in such notice; provided that any such amount to be used for a purpose requiring Prior Board Approval or Board Approval shall be subject to such Prior Board Approval or Board Approval, as applicable. Capital Contributions shall be made by all Members pro rata based on their respective Capital Commitments.
(b) Capital Contributions which are not used for their intended purpose shall be returned to the Members within ninety (90) days in the same proportion in which made, in which case such amount shall be added back to the unfunded Capital Commitments of the Members and may be recalled by the Company as set forth in this Article 3. Capital Contributions which have been returned to Members also may be recalled to the extent provided by Section 5.4.
(c) Following the end of the Investment Period, the Company shall not issue capital calls pursuant to Section 3.1 except for Valid Company Purposes.
(d) A Member may suspend the Investment Period (and thus the Members unfunded Capital Commitment with respect thereto) (i) for any reason upon fifteen (15) days prior written notice to the other Member or (ii) immediately upon notice to the other Member following a Cause Event with respect to such other Member. Notwithstanding the foregoing, each Member shall remain liable for such Members unfunded Capital Commitment for Valid Company Purposes set forth in clauses (ii) through (vi) during any suspension of the Investment Period.
- 7 -
Section 3.2 Temporary Advances . A Member or its Affiliates, with Prior Board Approval, may make loans ( Temporary Advances ) to temporarily fund obligations for Valid Company Purposes until Capital Contributions are made by the Members as set forth in Section 3.1. Such Temporary Advances plus interest at the Temporary Advance Rate shall be returned from any Capital Contributions by the Members under Section 3.1, with any unreturned Temporary Advances plus interest at the Temporary Advance Rate paid as set forth in Section 5.1.
Section 3.3 Defaulting Members .
(a) Upon the failure of any Member (a Defaulting Member ) to pay in full any portion of such Members Capital Commitment within ten (10) days after written notice from the other Member (the Default Date) that such payment is overdue, the other Member, in its sole discretion, shall have the right to pursue one or more of the following remedies on behalf of the Company if such failure has not been cured in full within such ten-day period:
(i) collect such unpaid portion (and all attorneys fees and other costs incident thereto) by exercising and/or pursuing any legal remedy the Company may have;
(ii) upon thirty (30) days written notice (which period may commence during the ten-day notice period provided above), and provided that the overdue payment has not been made, dissolve and wind down the Company in accordance with Article 8 as long as such action is not prohibited by Section 8.2(b); and
(iii) upon thirty (30) days written notice (which period may commence during the ten-day notice period provided above) and if such failure has not been cured in full within such thirty-day period, compel the Defaulting Member to sell or transfer all or a portion of its interest in whole or in part subject to the following:
(A) If the other Member notifies the Defaulting Member to sell or transfer all or a part of its interest, such Defaulting Member shall do so within sixty (60) days after the expiration of such thirty-day period.
(B) Upon any failure of the Defaulting Member, under any circumstances, to sell or transfer all of its interests that are required to be sold within such sixty (60) day period, the other Member may purchase such interest or sell or transfer such interest to a third party or, subject to applicable law, to an Affiliate of a Member or the Company. The price for such sale or transfer shall be not less than the minimum cash purchase price for the Defaulting Members interest in the Company as determined by any of Duff & Phelps Corporation, Houlihan Lokey, Inc. or Lincoln International, selected by the other Member for a hypothetical sale of such interest to an unaffiliated third party willing to purchase such interest within a ninety (90) day time period; provided, however, that if no such buyer is found within such ninety (90) day period to purchase the Defaulting Members interest at such minimum price or a higher price, then the other Member may direct the sale or transfer of the Defaulting Members interest at a price and subject to such terms and conditions as it deems commercially reasonable in its good faith judgment and sole discretion, which terms and conditions may include the acceptance by the Defaulting Member of a promissory note issued by the purchaser thereof.
(C) To the extent any amounts are owed by a Defaulting Member to a non-Defaulting Member with respect to a Default Loan, any purchase price that would otherwise be payable to the Defaulting Member under this Section 3.3(a)(iii) shall instead first be paid to the non-Defaulting Member pursuant to the terms of Section 3.3(b)(iii) hereof until each such Default Loan (and accrued interest thereon) has been repaid in full with the remainder of such purchase price, if any, payable to the Defaulting Member.
- 8 -
Except as set forth below, the non-defaulting Members election to pursue any one of such remedies shall not be deemed to preclude such Member from pursuing any other such remedy, or any other available remedy, simultaneously or subsequently.
(b) Notwithstanding any provision of this Agreement to the contrary,
(i) a Defaulting Member shall not be entitled to distributions made after the Default Date until the default is cured and any such distributions to which such Defaulting Member would otherwise have been entitled if such default had not occurred shall be debited against the Capital Account of the Defaulting Member so as to reduce the remaining amount of the default;
(ii) the Company shall not make new Investments after the Default Date until the default is cured except as permitted pursuant to clauses (ii) through (vii) of Valid Company Purposes; and
(iii) the non-Defaulting Member(s), in its or their sole discretion, may fund all or any portion of the defaulted amount on behalf of the Defaulting Member(s) with notice to the Board and to the other Members. The Members agree and acknowledge that any amount so funded by the non-Defaulting Member(s) shall be treated as a loan from the non-Defaulting Member(s) to the Defaulting Member(s) (a Default Loan ), the proceeds of which are used by the Defaulting Member(s) to make a Capital Contribution to the Company which, if in a sufficient amount, may cure a related default by such Defaulting Member. A Default Loan shall (A) bear interest from the date of such funding until repaid by the Defaulting Member(s) at a rate equal to the lower of 15% per annum or the maximum rate permitted by applicable law, (B) be pre-payable by the Defaulting Member(s) at any time and (C) be fully recourse to the Defaulting Member(s). Until such time that any Default Loan (including any accrued interest thereon) has been fully repaid, (x) any amounts that would otherwise be distributable to the Defaulting Member(s) under Section 5.1(b)(iii) or Section 5.2 hereof shall instead be distributed to the non-Defaulting Member(s) and (y) any purchase price payable to the Defaulting Member(s) in connection with any sale of its or their respective interests in the Company shall first be payable to the non-Defaulting Members until the repayment in full of the Default Loan(s) (including any accrued interest thereon) proportionate to the amount of Default Loan(s) so extended by the non-Defaulting Member(s) to such Defaulting Member(s). Any amounts distributed to the non-Defaulting Member(s) pursuant to the previous sentence shall be treated as for all purposes of this Agreement and for U.S. federal, state and local income tax purposes as having been made by the Company to the Defaulting Member notwithstanding the Companys distribution of such amounts to the non-Defaulting Member(s) and any amounts distributed or payable to the non-Defaulting Member(s) pursuant to the previous sentence shall reduce the amounts owed to the non-Defaulting Member(s) under the related Default Loan, first as to interest and then as to principal.
(c) If any Member fails to pay in full any portion of such Members Capital Commitment when due in connection with a capital call pursuant to the terms of a Subscription Facility, the other Members shall be obligated to fund any subsequent call for Capital Contributions made in accordance with Section 3.1 in connection with a capital call pursuant to the terms of a Subscription Facility to make up for such shortfall (regardless of the last sentence of Section 3.1(a)), provided that in no event shall a Member be obligated to fund more than its Capital Commitment.
Section 3.4 Interest or Withdrawals . No Member shall be entitled to receive any interest on any Capital Contribution to the Company. Except as otherwise specifically provided herein, no Member shall be entitled to withdraw any part of its Capital Contributions or Capital Account balance.
Section 3.5 Admission of Additional Members .
(a) The Members may, with Prior Board Approval, (i) admit additional Members upon terms approved by Board Approval, or (ii) permit existing Members to subscribe for additional interests in the Company;
- 9 -
provided, however, that GSBDC shall at all times retain a Proportionate Share of at least 50%; and provided, further, that the admission of Substituted Members shall be governed by Section 7.1.
(b) Each additional Member shall execute and deliver a written instrument satisfactory to the existing Members and the Board whereby such Member becomes a party to this Agreement, as well as a subscription agreement and any other documents required by the existing Members. Each such additional Member shall thereafter be entitled to all the rights and subject to all the obligations of Members as set forth herein. Upon the admission of or the increase in the interest of any Member as herein provided, the Administrative Agent is hereby authorized to update the Member List, as required, to reflect such admission or increase.
Section 3.6 Alternative Investment Vehicle . Based on legal, tax, regulatory and other similar structuring considerations, in connection with particular Investments, the Company may, with Board Approval, create one or more partnerships, corporations or other entities ( Alternative Investment Vehicles ) for purposes of making, holding and disposing of one or more Investments. One or more of the Members shall be required to provide capital directly to each such Alternative Investment Vehicle to the same extent, for the same purposes and on the same terms and conditions as the Members are required to provide capital to the Company and such capital shall reduce the unfunded Capital Commitment to the same extent as if made to the Company. The terms of any Alternative Investment Vehicle, including, without limitation, the terms with respect to management and control of the Alternative Investment Vehicle, shall be substantially similar in all material respects to those of the Company; provided, that, such terms may vary based on the structure of the relevant transaction, legal, tax and regulatory considerations. Any such Alternative Investment Vehicle will be structured in a manner whereby the Members participating in such Alternative Investment Vehicle shall bear the incremental costs of the alternative arrangement (including, without limitation, taxes). The governing documents of any Alternative Investment Vehicle shall provide for the limited liability of the Members to the same extent in all material respects as is provided to the Members under this Agreement. If a Member fails to provide all or a portion of its required capital to an Alternative Investment Vehicle on the applicable drawdown date (unless such Member is excused from providing such capital by the governing documents of such Alternative Investment Vehicle), the other Member shall be entitled to pursue any and all remedies set forth in Section 3.3 in addition to any applicable provisions of the governing documents of the Alternative Investment Vehicle.
ARTICLE 4
ALLOCATIONS
Section 4.1 Capital Accounts .
(a) An individual capital account (a Capital Account ) shall be maintained for each Member consisting of such Members Capital Contributions, increased or decreased by Profit or Loss allocated to such Member, decreased by the cash or Value of property distributed to such Member (giving net effect to any liabilities the property is subject to, or which the Member assumes), and otherwise maintained consistent with this Agreement. In the event that the Administrative Agent determines that it is prudent to modify the manner in which Capital Accounts, including all debits and credits thereto, are computed in order to be maintained consistent with this Agreement, the Administrative Agent is authorized to make such modifications to the extent that they do not result in a material adverse effect to any Member. Capital Accounts shall be maintained in a manner consistent with applicable Treasury Regulations.
(b) Profit or Loss shall be allocated among Members as of the end of each month of the Company; provided that Profit or Loss shall also be allocated at the end of (i) each period terminating on the date of any withdrawal by any Member, (ii) each period terminating immediately before the date of any admission or increase in Capital Commitment of any Member, (iii) each period terminating immediately before the date of any change in the relative Capital Account balances of the Members, (iv) the liquidation of the Company, or (v) any period which is determined by Board Approval to be appropriate. Organization Costs may be amortized over four (4) years or such other period deemed appropriate by Board Approval.
- 10 -
Section 4.2 General and Special Allocations .
(a) Profit or Loss shall be allocated among the Members as provided by this Section 4.2. Loss (after taking into account any interest expense incurred on Temporary Advances and repayment of the amount advanced with respect thereto) shall be allocated among the Members pro rata in accordance with their Capital Account balances. Profit shall be allocated among the Members (i) first, pro rata until the cumulative amount of Profit allocated to a Member equals the cumulative amount of Loss previously allocated to such Member and thereafter (ii) pro rata in accordance with the Members Capital Account balances.
(b) Notwithstanding Section 4.2(a), if the loan origination and structuring fees earned by the Company during a period exceed Expenses and all other Company obligations (excluding financing costs), such excess shall be allocated to the Member(s) responsible for the origination of the loan pro rata in accordance with the total loan origination and structuring fees earned by the Company with respect to the loans originated by each Member; it being expressly understood that any original issue discount with respect to an Investment in lieu of an origination or structuring fee with respect to such Investment shall be treated as a loan origination and structuring fee earned by the Company in the amount of such original issue discount subject to Prior Board Approval of the amount treated as an origination or structuring fee. All amounts allocated to a Member as loan origination and structuring fees pursuant to this Section 4.2(b) shall be excluded from the calculation of a Members Capital Account balance for purposes of Section 4.2(a) and Section 5.1(b)(iii).
Section 4.3 Changes of Interests . For purposes of allocating Profit or Loss for any fiscal year or other fiscal period between any permitted transferor and transferee of a Company interest, or between any Members whose relative Company interests have changed during such period, or to any withdrawing Member that is no longer a Member in the Company, the Company shall allocate according to any method allowed by the Code and selected by the Members. Distributions with respect to an interest in the Company shall be payable to the owner of such interest on the date of distribution subject to the provisions of this Agreement. For purposes of determining the Profit or Loss allocable to or the distributions payable to a permitted transferee of an interest in the Company or to a Member whose interest has otherwise increased or decreased, Profit or Loss allocations and distributions made to predecessor owners with respect to such transferred interest or increase of interest shall be deemed allocated and made to the permitted transferee or other holder.
Section 4.4 Income Taxes and Tax Capital Accounts .
(a) Each item of income, gain, loss, deduction or credit shall be allocated in the same manner as such item is allocated pursuant to Section 4.2.
(b) In the event of any variation between the adjusted tax basis and value of any Company property reflected in the Members capital accounts maintained for federal income tax purposes, such variation shall be taken into account in allocating taxable income or loss for income tax purposes in accordance with, and to the extent consistent with, the principles under Section 704(c) of the Code and applicable Treasury Regulations.
ARTICLE 5
DISTRIBUTIONS
Section 5.1 General .
(a) To the extent of available cash and cash equivalents, the Company shall make distributions quarterly in an amount equal to the investment company taxable income and net capital gains (each as computed under Sub-chapter M of the Code) earned in the preceding quarter, shared among the Members as set forth below; provided that the amount of any such distribution may be reduced as provided by Section 5.3 and Section 5.4, including, without limitation, for the purpose of reinvesting proceeds received from Investments as set forth in Section 5.4. Available cash and cash equivalents shall exclude Reserved Amounts and amounts that are likely to be used for Valid Company Purposes.
- 11 -
(b) Except as otherwise provided in this Article 5 or Section 8.3, distributions shall be shared among the Members as set forth in this Section 5.1(b). The Members, with Prior Board Approval, may determine to make a distribution in addition to that required by Section 5.1(a) hereof from available cash or cash equivalents received from one or more Investments (whether from principal repayment or otherwise and after reduction as provided by Section 5.3 and Section 5.4). Any distribution shall be shared among the Members as follows:
(i) First, to pay any outstanding Temporary Advances and any interest accrued thereon;
(ii) Second, to the Members as distributions of amounts allocated pursuant to Section 4.2(b) that have not previously been distributed to the Members in proportion to the respective amounts allocated to such Members pursuant to Section 4.2(b) that have not previously been distributed to the Members; and
(iii) Third, to the Members as distributions in respect of their interests in the Company in proportion to their respective Capital Account balances; provided, however, that to the extent any amounts are owed by a Defaulting Member to a non-Defaulting Member with respect to a Default Loan, any amounts that would otherwise be distributable to the Defaulting Member under this section shall instead be distributed to the non-Defaulting Member pursuant to the terms of Section 3.3(b)(iii) hereof.
Section 5.2 Tax Distributions . Prior to the dissolution and winding up of the Company, if and to the extent that the Tax Liability of any Member with respect to any fiscal year, but for this Section 5.2, would have exceeded the distributions otherwise made to such Member under Section 5.1(b)(iii) with respect to such fiscal year, then the Members, with Prior Board Approval, may cause the Company to distribute to all Members, in proportion to their respective Capital Accounts, an amount sufficient so that, together with distributions under Section 5.1(b)(iii) with respect to such fiscal year, each Member has received distributions with respect to such fiscal year no less than the largest Tax Liability of a Member with respect to such fiscal year. For the avoidance of doubt, if distributed, each Member shall receive its proportionate amount of a distribution regardless of whether or not the Member is subject to tax and any distribution to a Member with respect to which a Default Loan is outstanding that such Member has not repaid in full shall be subject to Section 3.3(b)(iii).
Section 5.3 Withholding .
(a) The Company may withhold from any distribution to any Member any amount which the Company has paid or is obligated to pay in respect of any withholding or other tax, including, without limitation, any interest, penalties or additions with respect thereto, imposed on any interest or income of or distributions to such Member, and such withheld amount shall be considered an interest payment or a distribution, as the case may be, to such Member for purposes hereof. If no payment is then being made to such Member in an amount sufficient to pay the Companys withholding obligation, any amount which the Company is obligated to pay shall be deemed an interest-free advance from the Company to such Member, payable by such Member by withholding from subsequent distributions or within ten (10) days after receiving written request for payment from the Company.
(b) If a Member delivers to the Company a properly executed withholding tax exemption certificate (or such other form as the Internal Revenue Service or the applicable foreign or state taxing authority may require) providing for a complete exemption from withholding tax, the Company shall not withhold from distributions (or respect to such allocations) covered by such exemption certificate.
Section 5.4 Reserves; Certain Limitations; Distributions in Kind . Notwithstanding the foregoing provisions:
(a) The Company may withhold from any distribution a reasonable reserve which the Members, with Prior Board Approval, determine to be appropriate for working capital of the Company or to discharge costs,
- 12 -
Expenses and liabilities of the Company (whether or not accrued or contingent), or otherwise to be in the best interests of the Company for any Valid Company Purpose. Any part or all of such reserved amount ( Reserved Amount ) that is released from reserve (other than to make payments on account of a purpose for which the reserve was established) shall be distributed to the Members in accordance with Section 5.1 through Section 5.3. To the extent such distributed amount to a Member represents a distribution other than from cumulative undistributed Profit, net of cumulative Loss, allocated to such Member, such amount shall be added to the unfunded Capital Commitment of such Member and may be recalled by the Company under Article 3.
(b) During the Investment Period, amounts received by the Company with respect to the payment of principal or return of capital may be retained and used, or reserved to be used, to make any Investment. Alternatively, the Members, with Prior Board Approval, may cause the Company to distribute, in accordance with Section 5.1 through Section 5.3, any amount that could be retained as set forth in the preceding sentence and the amount of such distribution that represents a distribution other than from cumulative undistributed Profit, net of cumulative Loss, allocated to such Member, shall be added to the unfunded Capital Commitment of such Member and may be recalled by the Company under Article 3.
(c) Notwithstanding Sections 5.4(a) and 5.4(b), during the Investment Period, the Members shall elect on an annual basis whether to permit the reinvestment of capital during the subsequent year for purposes of making additional Investments.
(d) In no event shall the Company be required to make a distribution to the extent that it would (i) render the Company insolvent, or (ii) violate Section 18-607(a) of the Act.
(e) No part of any distribution shall be paid to any Member from which there is due and owing to the Company, at the time of such distribution, any amount required to be paid to the Company pursuant to Article 3. Any such withheld distribution shall (i) be paid to such Member, without interest, when all past due installments of such Members Capital Commitment have been paid in full by such Member or (ii) be applied against the past due amounts under such Members Capital Commitment has been paid in full.
(f) The Company shall not distribute Illiquid Securities other than with Board Approval. Distributions of securities and of other non-cash assets of the Company other than upon the dissolution and liquidation of the Company shall only be made pro rata to all Members (in proportion to their respective shares of the total distribution) with respect to each security or other such asset distributed. Securities listed on a national securities exchange that are not restricted as to transferability and unlisted securities for which an active trading market exists and that are not restricted as to transferability shall be valued in the manner contemplated by Section 9.5 as of the close of business on the day preceding the distribution, and all other securities and non-cash assets shall be valued as determined in the last valuation made pursuant to Section 9.5.
ARTICLE 6
MANAGEMENT OF COMPANY
Section 6.1 Management Generally .
(a) The management of the Company and its affairs shall be vested in the Board, which shall act as the manager of the Company for the purposes of the Act. Unless otherwise provided herein, all consents, approvals, votes, waivers or other decisions to be made collectively by the Members shall require Board Approval. Matters requiring Prior Board Approval or Board Approval are set forth in further detail in Schedule A hereto, which is incorporated by reference herein. Notwithstanding the foregoing or any other provision of this Agreement, with respect to any Investment sold or contributed by GSBDC to the Company or any Financing Subsidiary thereof, neither GSBDC nor any Board Member appointed by GSBDC shall have any right to veto or otherwise block any decision made by the other Members of the Company or Board Members appointed by other Members of the Company to sell, transfer or otherwise dispose of any such Investment.
- 13 -
(b) The Company is entering into the Administrative Services Agreement with the Administrative Agent, pursuant to which certain administrative functions are delegated to the Administrative Agent, which Administrative Agent may further delegate any such functions to a sub-administrator with Prior Board Approval. The Administrative Services Agreement is hereby approved by Prior Board Approval, provided that material amendments thereto are subject to Prior Board Approval. The function of the Administrative Agent shall be non-discretionary and administrative only. The Company shall provide the Board with copies of all notices to the Company from the Administrative Agent.
Section 6.2 Board .
(a) Subject to matters requiring Board Approval and Prior Board Approval, the business and affairs of the Company shall be managed by or under the direction of the Board designated by the Members. The Members may determine at any time by mutual agreement the number of Board Members to constitute the Board and the authorized number of Board Members may be increased or decreased by the Members at any time by mutual agreement, upon notice to all Board Members. The initial number of Board Members shall be six (6), and each Member shall have the right to elect, designate or appoint three (3) Board Members and their respective successors. Each Board Member elected, designated or appointed by a Member shall hold office until a successor is elected and qualified or until such Board Members earlier death, resignation, expulsion or removal. A Board Member need not be a Member.
(b) Subject to matters requiring Board Approval and Prior Board Approval, the Board shall have the power to do any and all acts necessary, convenient or incidental to or for the furtherance of the purposes described herein, including all powers, statutory or otherwise. The Board has the authority to bind the Company.
Section 6.3 Meetings of the Board . The Board may hold meetings, both regular and special, within or outside the State of Delaware. Regular meetings of the Board may be held without notice at such time and at such place as shall from time to time be determined by the Board. Special meetings of the Board may be called by a Board Member on not less than one days notice to each Board Member by telephone, facsimile, mail, telegram, email or any other means of communication, and special meetings shall be called by a Board Member in like manner and with like notice upon the written request of any one or more of the Board Members.
Section 6.4 Quorum; Acts of the Board . At all meetings of the Board, a quorum requires at least four (4) Board Members as long as either (i) in the case of four (4) Board Members, two (2) Board Members are present that were elected, designated or appointed by each Member or (ii) in the case of five (5) Board Members, two (2) Board Members are present that were elected, designated or appointed by GSBDC and three (3) Board Members are present that were elected, designated or appointed by the Regents. The act of a majority of the Board Members present at any meeting at which there is a quorum shall be the act of the Board; provided, however, that unanimous approval of all the Board Members present at any meeting at which there is a quorum shall be required to approve any item set forth in Section 1 of Schedule A hereto (as such schedule may be amended from time to time by the Board). If a quorum shall not be present at any meeting of the Board, the Board Members present at such meeting may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing (including, without limitation, by e-mail), and the writing or writings are filed with the minutes of proceedings of the Board or committee, as the case may be.
Section 6.5 Electronic Communications . Members of the Board, or any committee designated by the Board, may participate in meetings of the Board, or any committee, by means of telephone conference or similar communications equipment that allows all persons participating in the meeting to hear each other, and such participation in a meeting shall constitute presence in person at the meeting. If all the participants are participating by telephone conference or similar communications equipment, the meeting shall be deemed to be held at the principal place of business of the Company.
- 14 -
Section 6.6 Committees of Board Members .
(a) The Board may, by resolution passed by the whole Board, designate one or more committees, each committee to consist of one or more of the Board Members of the Company. The Board may designate one or more Board Members as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee.
(b) In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such members constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member.
(c) Any such committee, to the extent provided in the resolution of the Board, and subject to, in all cases, matters requiring Board Approval and Prior Board Approval, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Company. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board. Each committee shall keep regular minutes of its meetings and report the same to the Board when required.
Section 6.7 Compensation of Board Members; Expenses . The Board shall have the authority to fix the compensation of Board Members, although initially it is not expected that the Board Members will receive any compensation. The Board Members may be paid their expenses, if any, of attendance at meetings of the Board, which may be a fixed sum for attendance at each meeting of the Board or a stated salary as Board Member. No such payment shall preclude any Board Member from serving the Company in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation and payment of expenses for attending committee meetings.
Section 6.8 Removal of Board Members . Unless otherwise restricted by law, any Board Member may be removed or expelled, with or without cause, at any time by the Member that elected, designated or appointed such Board Member, and any vacancy caused by any such removal or expulsion may be filled by action of such Member.
Section 6.9 Board as Agent . To the extent of its powers set forth in this Agreement, the Board is the manager of the Company for the purpose of the Companys business, and the actions of the Board taken in accordance with such powers set forth in this Agreement shall bind the Company. Notwithstanding the last sentence of Section 18-402 of the Act, except as provided in this Agreement or in a resolution of the Board, neither a Member nor a Board Member may bind the Company.
Section 6.10 Officers . The initial officers of the Company shall be designated by the Board. The additional or successor officers of the Company shall be chosen by the Board and shall consist of at least a President, a Secretary and a Treasurer. The Board may also choose other officers in its sole discretion. Any number of offices may be held by the same person. The salaries, if any, of all Officers shall be fixed by or in the manner prescribed by the Board. The officers of the Company shall hold office until their successors are chosen and qualified. Any officer may be removed at any time, with or without cause, by the affirmative vote of a majority of the Board. Any vacancy occurring in any office of the Company shall be filled by the Board.
Section 6.11 Officers as Agents . The officers, to the extent of their powers set forth in this Agreement or otherwise vested in them by action of the Board, not inconsistent with this Agreement, are agents of the Company for the purpose of the Companys business and, the actions of the officers taken in accordance with such powers shall bind the Company.
Section 6.12 Duties of Board, Board Members and Officers . To the extent that, at law or in equity, the Board, a Board Member or an officer of the Company has duties (including fiduciary duties) and
- 15 -
liabilities relating thereto to the Company or to any Member, the Board or such Board Member or officer acting in good faith pursuant to the terms of this Agreement shall not be liable to the Company or to any Member for its good faith reliance on the provisions of this Agreement. The provisions of this Agreement, to the extent that they restrict the duties and liabilities of the Board, a Board Member or an officer otherwise existing at law or in equity, are agreed by the parties hereto to replace such other duties and liabilities of the Board or such Board Member or officer.
Section 6.13 Reliance by Third Parties . Notwithstanding any other provision of this Agreement, any contract, instrument or act on behalf of the Company by a Member, a Board Member, an officer or any other Person delegated by Board Approval, shall be conclusive evidence in favor of any third party dealing with the Company that such Person has the authority, power and right to execute and deliver such contract or instrument and to take such act on behalf of the Company. This Section shall not be deemed to limit the liabilities and obligations of such Person to seek Board Approval as set forth in this Agreement.
Section 6.14 Members Outside Transactions; Investment Opportunities; Time and Attention .
(a) Each Board Member and officer shall devote such time and effort as is reasonably necessary to diligently administer the activities and affairs of the Company, but shall not be obligated to spend full time or any specific portion of their time to the activities and affairs of the Company.
(b) The investment adviser of GSBDC and its Affiliates may manage or administer other investment funds and other accounts with similar or dissimilar mandates, and may be subject to the provisions of the Investment Company Act of 1940, as amended, including, without limitation, Section 57 thereof, and the Investment Advisers Act of 1940, as amended, and the rules, regulations and interpretations thereof, with respect to the allocation of investment opportunities among such other investment funds and other accounts (the Allocation Requirements ). Except for any Allocation Requirement that may be applicable to the Company, a Member shall not be obligated to offer any investment opportunity, or portion thereof, to the Company.
(c) Subject to the foregoing provisions of this Section 6.14 and other provisions of this Agreement, each of the Members, Board Members, officers and each of their respective Affiliates and their respective owners, principals, shareholders, members, directors, officers, employees and agents may engage in, invest in, participate in or otherwise enter into other business ventures of any kind, nature and description, individually and with others, including, without limitation, the formation and management of other investment funds with or without the same or similar purposes as the Company, and the ownership of and investment in assets, and neither the Company nor any other Member shall have any right in or to any such activities or the income or profits derived therefrom. For the avoidance of doubt and notwithstanding anything contained herein to the contrary, the Members acknowledge the fact that each Member and its respective Affiliates invest directly and indirectly with third parties from time to time in all manner of investments and transactions, some of which may be considered competitive with the Company and which investments require time and effort of the staff of the Member and its Affiliates. In connection therewith, it is expressly agreed that in no event shall it be considered a violation of this Agreement (whether under Section 6.14(a) with respect to time devotion or under any other section herein with respect to investment allocations or otherwise) for a Member or any of its Affiliates or their respective owners, principals, shareholders, members, directors, officers, employees and agents to continue to engage in such investments and transactions nor shall the provisions of this Agreement in any way limit or prohibit any future investments or transactions by a Member or any of its Affiliates (or any of their investment managers or sponsors) or their respective owners, principals, shareholders, members, directors, officers, employees and agents directly or with third parties or in any way constrain the ability of a Member or any of its Affiliates (or any of their investment managers or sponsors) or their respective owners, principals, shareholders, members, directors, officers, employees and agents to manage and invest their assets.
Section 6.15 Indemnification .
- 16 -
(a) Subject to the limitations and conditions as provided in this Section 6.15, each Board Member and each Member and its employees, directors, officers, owners, principals, shareholders, members, and partners who was or is made a party or is threatened to be made a party to or is involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, investigative or arbitrative or in the nature of an alternative dispute resolution in lieu of any of the foregoing (other than any of the foregoing between the two Members, hereinafter a Proceeding ), or any appeal in such a Proceeding or any inquiry or investigation that could lead to such a Proceeding, by reason of the fact that such Person, is or was a Board Member, an officer or representative or agent of the Company, a Member or an employee, director, officer, owner, principal, shareholder, member, or partner of a Member, shall be indemnified by the Company to the fullest extent permitted by applicable law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Company to provide broader indemnification rights than said law permitted the Company to provide prior to such amendment) against all liabilities and expenses (including, without limitation, judgments, penalties (including, without limitation, excise and similar taxes and punitive damages), losses, fines, settlements and reasonable expenses (including, without limitation, reasonable attorneys and experts fees)) actually incurred by such Person in connection with such Proceeding, appeal, inquiry or investigation (each a Harm ), unless such Harm shall have been primarily the result of gross negligence, fraud or intentional misconduct by the Person seeking indemnification hereunder, in which case such indemnification shall not cover such Harm to the extent resulting from such gross negligence, fraud or intentional misconduct. Indemnification under this Section 6.15 shall continue as to a Person who has ceased to serve in the capacity which initially entitled such Person to indemnity hereunder. The rights granted pursuant to this Section 6.15 shall be deemed contract rights, and no amendment, modification or repeal of this Section 6.15 shall have the effect of limiting or denying any such rights with respect to actions taken or Proceedings, appeals, inquiries or investigations arising prior to any amendment, modification or repeal. To the fullest extent permitted by law, no individual entitled to indemnification under this Section 6.15 shall be liable to the Company or any Member for any act or omission performed or omitted by or on behalf of the Company; provided that such act or omission has not been fully adjudicated to constitute fraud, willful misconduct or gross negligence. In addition, any Person entitled to indemnification under this Section 6.15 may consult with legal counsel selected with reasonable care and shall incur no liability to the Company or any Member to the extent that such Person acted or refrained from acting in good faith in reliance upon the opinion or advice of such counsel and such Person provided such counsel all material facts.
(b) The right to indemnification conferred in Section 6.15(a) shall include the right to be paid or reimbursed by the Company for the reasonable expenses incurred by a Person entitled to be indemnified under Section 6.15(a) who was, is or is threatened to be made a named defendant or respondent in a Proceeding in advance of the final disposition of the Proceeding and without any determination as to the Persons ultimate entitlement to indemnification; provided, however, that the payment of such expenses incurred by any such Person in advance of the final disposition of a Proceeding shall be made only upon delivery to the Company of a written undertaking by such Person to repay all amounts so advanced if it shall be finally adjudicated that such indemnified Person is not entitled to be indemnified under this Section 6.15 or otherwise.
(c) The right to indemnification and the advancement and payment of expenses conferred in this Section 6.15 shall not be exclusive of any other right that a Member or other Person indemnified pursuant to this Section 6.15 may have or hereafter acquire under any law (common or statutory) or provision of this Agreement.
(d) The indemnification rights provided by this Section 6.15 shall inure to the benefit of the heirs, executors, administrators, successors, and assigns of each Person indemnified pursuant to this Section 6.15.
Section 6.16 Tax Matters Member . GSBDC shall be the tax matters partner of the Company within the meaning of Section 6231(a)(7) of the Code (in such capacity, the Tax Matters Member ). The provisions of Section 6.15 shall apply to all actions taken on behalf of the Members by the Tax Matters Member in its capacity as such. The Tax Matters Member shall have the right and obligation to take all actions authorized and required, respectively, by the Code for the tax matters partner of the Company. The Tax Matters Member
- 17 -
shall have the right to retain professional assistance in respect of any audit of the Company and all reasonable, documented out-of-pocket expenses and fees incurred by the Tax Matters Member on behalf of the Company as Tax Matters Member shall be reimbursed by the Company. In the event the Tax Matters Member receives notice of a final Company adjustment under Section 6223(a) of the Code, it shall either (i) file a court petition for judicial review of such final adjustment within the period provided under Section 6226(a) of the Code, a copy of which petition shall be mailed to all Members on the date such petition is filed, or (ii) mail a written notice to all Members within such period that describes its reasons for determining not to file such a petition. Each Member shall be a notice partner within the meaning of Section 6231(a)(8) of the Code.
ARTICLE 7
TRANSFERS OF COMPANY INTERESTS; WITHDRAWALS
Section 7.1 Transfers by Members.
(a) Other than with respect to the sale and transfer of the interest of a Defaulting Member in accordance with Section 3.3, the interest of a Member may not be transferred or assigned without Prior Board Approval and may not be pledged or otherwise hypothecated without Prior Board Approval; provided , however , that GSBDC may pledge and/or assign its interest to the senior credit facility provider(s) for GSBDC with notice to each other Member within a reasonable time thereafter. In addition, other than in accordance with the preceding sentence, the interest of a Member may not be assigned without first offering the other Member a right of first refusal to purchase the interest as set forth in Section 7.1(f). Notwithstanding the foregoing, without Board Approval or the offering of such right of first refusal, any Member may assign its entire interest to an Affiliate of such Member, if the assignor remains liable for its Capital Commitment. No assignment by a Member shall be binding upon the Company until the Company receives an executed copy of such assignment, which shall be in form and substance satisfactory to the other Member, and any assignment pursuant to this Section 7.1(a) shall be subject to satisfaction of the conditions set forth in Section 7.1(e).
(b) Any Person which acquires a Company interest by assignment in accordance with the provisions of this Agreement shall be admitted as a substitute Member only upon approval of the non-transferring Member. The admission of an assignee as a substitute Member shall be conditioned upon the assignees written assumption, in form and substance satisfactory to the other Member, of all obligations of the assignor in respect of the assigned interest and execution of an instrument satisfactory to the other Member whereby such assignee becomes a party to this Agreement.
(c) In the event any Member shall be adjudicated as bankrupt, or in the event of the winding up or liquidation of a Member, the legal representative of such Member shall, upon written notice to the other Member of the happening of any of such events and satisfaction of the conditions set forth in Section 7.1(e), become an assignee of such Members interest, subject to all of the terms of this Agreement as then in effect.
(d) Any assignee of the interest of a Member, irrespective of whether such assignee has accepted and adopted in writing the terms and provisions of this Agreement, shall be deemed by the acceptance of such assignment to have agreed to be subject to the terms and provisions of this Agreement in the same manner as its assignor.
(e) As additional conditions to the validity of any assignment of a Members interest, such assignment shall not:
(i) cause the securities issued by the Company to be required to be registered under the registration provisions of the Securities Act of 1933, as amended, or the securities laws of any applicable jurisdiction,
(ii) cause the Company to cease to be entitled to the exemption from the definition of an investment company pursuant to Section 3(c)(7) of the Investment Company Act of 1940, as amended, and the rules and regulations of the SEC thereunder,
- 18 -
(iii) result in the termination of the Company under the Code or in the Company being classified as a publicly traded partnership under the Code,
(iv) unless the other Member waives in writing the application of this clause (iv) with respect to such assignment (which the other Member may refuse to do in its absolute discretion), be to a Person which is an ERISA Plan, or
(v) cause the Company or the other Member to be in violation of, or effect an assignment to a Person that is in violation of, applicable Investor Laws.
The non-assigning Member may require reasonable evidence as to the foregoing, including, without limitation, an opinion of counsel reasonably acceptable to the non-assigning member. Any purported assignment as to which the conditions set forth in the foregoing clauses (i) through (v) are not satisfied shall be void ab initio. An assigning Member shall be responsible for all costs and expenses incurred by the Company, including, without limitation, reasonable legal fees and expenses, in connection with any assignment or proposed assignment.
(f) Except for assignments under the third sentence or the proviso of the first sentence of Section 7.1(a) or with respect to sales or transfers pursuant to Section 3.3, each Member hereby unconditionally and irrevocably grants to the other Member or its designee a right of first refusal to purchase all, but not less than all, of any interest in the Company that such assigning Member may propose to assign to another Person, at the same price and on the same terms and conditions as those offered to the prospective assignee. Each Member proposing to make an assignment that is subject to this Section 7.1(f) must deliver a notice to the other Member not later than thirty (30) days prior to the proposed closing date of such assignment. Such notice shall contain the material terms and conditions (including, without limitation, price and form of consideration) of the proposed assignment and the identity of the prospective assignee. To exercise its right of first refusal under this Section 7.1(f), the other Member must deliver a notice to the selling Member within forty-five (45) days of receipt of such notice, stating that it elects to exercise its right of first refusal and, if applicable, providing the identity of any Person that the non-assigning Member designates as the purchaser.
(g) Notwithstanding anything in this Agreement or its Subscription Agreement to the contrary, each Member acknowledges and agrees that in the event such Member is entitled to transfer its interest from the Company, prior to the effectiveness of such transfer, such Member shall be obligated to fund such Capital Contributions as may be required under the terms of the Facility as a result of such transfer; provided, that in no event shall any amounts funded by such Member exceed its uncalled Capital Commitment.
(h) In addition to and without any limitation to the transfers permitted hereunder, each Member hereby consents to the transfer by the Regents of its interest in the Company to an Affiliate, consents to the admission to the Company of such Affiliate as a substituted Member, and waives any requirement to deliver an opinion in connection with such transfer; provided, (i) that such Affiliate executes an agreement with the Company that it agrees to be bound by all of the terms, conditions and obligations of, and to make all of the representations of, a Member of the Company as set forth in this Agreement with respect to the transferred interest, (ii) the Affiliate is able to satisfy its financial obligations under this Agreement, as reasonably determined by the Company and (iii) the transfer is approved by the lenders under the terms of any applicable Facility.
Section 7.2 Withdrawal by Members.
Members may withdraw from the Company only as provided by this Agreement.
(i) Notwithstanding any provision contained herein to the contrary, if a Member shall obtain an opinion of counsel to the effect that, as a result of the other Members ownership of an interest in the Company, the Company would be required to register as an investment company under the Investment
- 19 -
Company Act of 1940, as amended, such other Member shall, upon written notice from such first Member, withdraw from or reduce (in accordance with the provisions of clause (iii) below) its interest in the Company (including its Capital Commitment) to the extent such first Member has determined, based upon such opinion of counsel, to be necessary in order for the Company not to be required to so register. Each Member shall, upon written request from the other Member, promptly furnish to the other Member such information as the other Member may reasonably request from time to time in order to make a determination pursuant to this Section 7.2(i), but in no event later than ten (10) business days after such request.
(ii) Notwithstanding any provision herein to the contrary, if a Member shall breach such Members obligation under the immediately following sentence, or if the other Member shall obtain an opinion of counsel to the effect that any contribution or payment by a Member to the Company would cause the Company or the other Member to be in violation of, or to the effect that such Member is in violation of, the United States Bank Secrecy Act, the United States Money Laundering Act of 1986, the United States International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001, the USA Patriot Act or any other law or regulation to which the Company, a Member, or such Members investment in the Company may be subject from time to time (collectively, I nvestor Laws ), such Member shall, upon written notice from the other Member, withdraw from the Company in accordance with the provisions of clause (iii) below. Each Member shall, upon written request from the other Member, promptly furnish to the other Member such information as the other Member may reasonably request from time to time in order to make a determination pursuant to this Section 7.2(ii), but in no event later than ten (10) business days after such request.
(iii) If a Member partially withdraws its interest in the Company pursuant to this Section 7.2, it shall receive, in full payment for such withdrawn interest from first cash and cash equivalents available for distribution pursuant to Article 5 (and subject to the proviso in Section 5.1(b)(iii) if then applicable to such Member is the obligor with respect to an outstanding Default Loan), the sum of the portion of the Capital Account attributable to such withdrawn interest (adjusted to reflect the Value of the Company as determined as of the date of the last valuation pursuant to Section 9.5 and taking into account all Capital Contributions contributed by such Member to the Company with respect to a Subscription Facility pursuant to Section 7.2(iv)). If a Member withdraws its entire interest in the Company pursuant to this Section 7.2, then, subject to Section 8.2(b), the Company shall dissolve as provided by Article 8.
(iv) Notwithstanding anything in this Agreement or its Subscription Agreement to the contrary, each Member acknowledges and agrees that in the event such Member is entitled to withdraw its interest from the Company, prior to the effectiveness of such withdrawal, such Member shall be obligated to fund such Capital Contributions as may be required under the terms of a Subscription Facility as a result of such withdrawal (taking into account all Capital Contributions already contributed by such Member to the Company with respect to the Subscription Facility); provided, that in no event shall any amounts funded by such Member exceed its uncalled Capital Commitment.
ARTICLE 8
TERM, DISSOLUTION AND LIQUIDATION OF COMPANY
Section 8.1 Term . Except as provided in Section 8.2, the Company shall continue in full force and effect for the later of (i) ten years and (ii) the redemption of all equity interests in or dissolution of all Financing Subsidiaries, unless the Company is dissolved earlier or (if the Company is not dissolved earlier) the term is extended for successive one-year periods upon the determination by the Members.
Section 8.2 Dissolution.
- 20 -
(a) The Company shall be dissolved and its affairs wound up upon the occurrence of any of the following events:
(i) the expiration of the term of the Company determined pursuant to Section 8.1;
(ii) distribution of all assets of the Company;
(iii) the full withdrawal of a Member of the Company pursuant to Section 7.2, or a bankruptcy, insolvency, dissolution or liquidation of a Member, or the making of an assignment for the benefit of creditors by a Member, or a default under Section 3.3 by a Member which remains uncured or unwaived after the expiration of the cure period set forth in Section 3.3, in each case at the election of the other Member by providing written notice of such election;
(iv) a failure by GSBDC to obtain the approval of the SEC of GSBDCs interest in the Company, or a determination by the SEC to subject GSBDCs participation in the Company to an accounting or reporting treatment or other consequence which GSBDC, in its sole discretion, determines to be materially adverse to it, or a change by the SEC of its approval of GSBDCs interest in the Company or the terms of such approval or its conclusions regarding the accounting or reporting treatment or other consequence which GCGDC, in its sole discretion, determines to be materially adverse to it, in each case at the election of GSBDC by providing written notice of such election to the other Member; or
(v) the entry of a decree of judicial dissolution pursuant to the Act, in which event the provisions of Section 8.3, as modified by said decree, shall govern the winding up of the Companys affairs.
(b) Notwithstanding Section 8.2(a), and subject to applicable law, the Company shall not be required to wind up, dissolve or terminate if any such action would cause the Company or any wholly-owned Financing Subsidiary to violate any law or contract applicable to any such Person.
Section 8.3 Wind-down .
(a) Upon the dissolution of the Company, the Company shall be liquidated in accordance with this Article and the Act. The liquidation shall be conducted and supervised by the Board in the same manner provided by Article 6 with respect to the operation of the Company during its term; provided that in the case of a dissolution and winding up of the Company pursuant to Section 8.2(a)(iii) or Section 8.2(a)(iv), the Member that elects such dissolution and winding up may elect further (subject to all of the provisions of this Agreement), by written notice to the other Member, to exercise as liquidating agent all of the rights, powers and authority with respect to the assets and liabilities of the Company in connection with the liquidation of the Company, to the same extent as the Members would have during the term of the Company.
(b) From and after the date on which an event set forth in Section 8.2(a) becomes effective, the Company shall cease to make Investments after that date, except for Investments permitted pursuant to clauses (ii) through (vii) of Valid Company Purposes. Capital calls against the Capital Commitment of the Members shall cease from and after such effective date; provided that capital calls against the Capital Commitment of the Members may continue to fund all items in clauses (ii) through (vii) of Valid Company Purposes. Subject to the foregoing, the Members shall continue to bear an allocable share of Expenses and other obligations of the Company until all Investments in which the Company participates (including through any applicable Financing Subsidiaries) are repaid or otherwise disposed of in the normal course of the Companys activities.
(c) Distributions to the Members during the winding down of the Company shall be made no less frequently than quarterly to the extent consisting of a Members allocable share of cash and cash equivalents,
- 21 -
after taking into account reasonable reserves deemed appropriate by Board Approval (or in the event of a dissolution and winding up of the Company pursuant to Section 8.2(a)(iii) or Section 8.2(a)(iv), by a Member that has elected to act as liquidating agent pursuant to Section 8.3(a)), to fund Investments in which the Company continues to participate, Expenses and all other obligations (including without limitation contingent obligations) of the Company (each as set forth in the immediately preceding paragraph). Unless waived by Board Approval, the Company also shall withhold ten percent (10%) of distributions in any calendar year, which withheld amount shall be distributed within sixty (60) days after the completion of the annual audit covering such year. Except as otherwise provided herein, a Member shall remain a member of the Company until all Investments in which the Company participates are repaid or otherwise disposed of, all equity interests of the Company in each Financing Subsidiary are redeemed or such Financing Subsidiary is dissolved, the Members allocable share of all Expenses and all other obligations (including without limitation contingent obligations) of the Company are paid, and all distributions are made hereunder, at which time the Member shall have no further rights under this Agreement. Notwithstanding the foregoing, in case of the dissolution and winding up of the Company, and subject to this Section 8.3, distributions may be made in-kind, or a combination of cash and assets (including any debt or equity held by the Company in any Financing Subsidiary), as the Board or liquidating agent may select in its sole and absolute discretion provided that any distribution-in-kind shall not cause a breach by the Company or any Financing Subsidiary of any applicable law or contract. In the event of any distributions in-kind, the assets to be distributed will be valued pursuant to the valuation procedures set forth herein.
(d) Upon dissolution of the Company, final allocations of all items of Company Profit and Loss shall be made in accordance with Section 4.2. Upon dissolution of the Company, the assets of the Company shall be applied in the following order of priority:
(i) To creditors (other than Members) in satisfaction of liabilities of the Company (whether by payment or by the making of reasonable provision for payment thereof), including, without limitation, to establish any reasonable reserves which the Board may, in its reasonable judgment, deem necessary or advisable for any contingent, conditional or unmatured liability of the Company and to establish any reasonable reserves with respect to amounts the Company may pay or contribute in connection with Financing Subsidiaries;
(ii) To establish any reserves which the Board may, in its reasonable judgment, deem necessary or advisable for any contingent, conditional or unmatured liability of the Company to Members; and
(iii) The balance, if any, to the Members in accordance with Section 5.1(b).
(e) Notwithstanding the foregoing, upon the occurrence of an event described in Section 8.2(a)(iii) or Section 8.2(a)(iv), the Member that may elect a dissolution and winding up may elect alternatively, by written notice to the other Member, to purchase all of the other Members interest in the Company. Other than in connection with a sale or transfer of the interest of a Defaulting Member pursuant to Section 3.3, the purchase price for such interest shall be payable in cash within ninety (90) days after the election to purchase is delivered to the other Member, and shall be equal to the Capital Account of the other Member adjusted to reflect the Value of the Company as determined as of the date of the last valuation pursuant to Section 9.5; provided, however, that to the extent any amounts are owed by the other Member to a non-Defaulting Member with respect to a Default Loan, any purchase price that would otherwise be payable to such other Member under this section shall instead first be paid to the non-Defaulting Member pursuant to the terms of Section 3.3(b)(iii) hereof until each such Default Loan (and any interest thereon) has been repaid in full with the remainder thereof, if any, payable to such other Member . After such purchase, the other Member shall no longer be a member of the Company, and the Member that has elected to purchase the other Members interest may dissolve or continue the Company as it may determine.
(f) In the event that an audit or reconciliation relating to the fiscal year in which a Member receives a distribution under this Section 8.3 reveals that such Member received a distribution in excess of that to which
- 22 -
such Member was entitled, the Company or the other Member may, in its discretion, seek repayment of such distribution to the extent that such distribution exceeded what was due to such Member.
(g) Each Member shall be furnished with a statement prepared by the Companys accountant, which shall set forth the assets and liabilities of the Company as at the date of complete liquidation, and each Members share thereof. Upon compliance with the distribution plan set forth in this Section 8.3, the Members shall cease to be such, and either Member may execute, acknowledge and cause to be filed a certificate of cancellation of the Company.
ARTICLE 9
ACCOUNTING, REPORTING AND VALUATION PROVISIONS
Section 9.1 Books and Accounts .
(a) Complete and accurate books and accounts shall be kept and maintained for the Company at its principal office. Such books and accounts shall be kept on the accrual basis method of accounting and shall include separate Capital Accounts for each Member. Capital Accounts for financial reporting purposes and for purposes of this Agreement shall be maintained in accordance with Section 4.1, and for U.S. federal income tax purposes the Members shall cause the Administrative Agent to maintain the Members Capital Accounts in accordance with the Code and applicable Treasury Regulations and subject to instructions from the Tax Matters Member. Each Member or its duly authorized representative, at its own expense, shall at all reasonable times and upon reasonable prior written notice to the Administrative Agent have access to, and may inspect, such books and accounts and any other records of the Company for any purpose reasonably related to its interest in the Company.
(b) All funds received by the Company shall be deposited in the name of the Company in such bank account or accounts or with such custodian, and assets owned by the Company may be deposited with such custodian, as may be designated by Board Approval from time to time and withdrawals therefrom shall be made upon such signature or signatures on behalf of the Company as may be designated by Board Approval from time to time.
Section 9.2 Financial Reports; Tax Return .
(a) The Company shall engage an independent certified public accountant selected and approved by Board Approval to act as the accountant for the Company and to audit the Companys books and accounts as of the end of each fiscal year, commencing for the 2014 fiscal year. As soon as practicable, but no later than one hundred twenty (120) days, after the end of such fiscal year, the Board shall cause the Administrative Agent to deliver, by any of the methods described in Section 10.7, to each Member and to each former Member who withdrew during such fiscal year:
(i) audited financial statements of the Company as at the end of and for such fiscal year, including a balance sheet and statement of income, together with the report thereon of the Companys independent certified public accountant, which annual financial statements shall be approved by Prior Board Approval;
(ii) a statement of holdings of assets of the Company, including both the cost and the valuation of such assets as determined pursuant to Section 9.5, and a statement of such Members Capital Account;
(iii) to the extent that the requisite information is then available, a Schedule K-1 for such Member with respect to such fiscal year, prepared in accordance with the Code, together with corresponding forms for state income tax purposes, setting forth such Members distributive share of Company items of Profit or Loss for such fiscal year and the amount of such Members Capital Account at the end of such fiscal year; and
- 23 -
(iv) such other financial information and documents respecting the Company and its business as the Administrative Agent deems appropriate, or as a Member may reasonably require and request, to enable such Member to monitor and evaluate its interest in the Company, to comply with regulatory requirements applicable to it or to prepare its federal and state income tax returns.
(b) The Members shall cause the Administrative Agent to prepare and timely file after the end of each fiscal year of the Company all federal and state income tax returns of the Company for such fiscal year.
(c) As soon as practicable, but in no event later than sixty (60) days, after the end of each of the first three fiscal quarters of a fiscal year, the Members shall cause the Administrative Agent to prepare and deliver, by any of the methods described in Section 10.7, to each Member (i) unaudited financial information with respect to such Members allocable share of Profit or Loss and changes to its Capital Account as of the end of such fiscal quarter and for the portion of the fiscal year then ended, (ii) a statement of holdings of assets of the Company as to which such Member participates, including both the cost and the valuation of such assets as determined pursuant to Section 9.5, (iii) unaudited primary financial statements, including a balance sheet and statement of income but excluding notes to financials and related disclosures, and (iv) such other financial information as the Administrative Agent deems appropriate, or as a Member may reasonably require and request, to enable such Member to monitor and evaluate its interest in the Company or to comply with regulatory requirements applicable to it.
Section 9.3 Tax Elections . The Company may, by Board Approval, but shall not be required to, make any election pursuant to the provisions of Section 754 or 1045 of the Code, or any other election required or permitted to be made by the Company under the Code.
Section 9.4 Confidentiality .
(a) Each Member agrees to maintain the confidentiality of the Companys records, reports and affairs, and all information and materials furnished to such Member by the Company, any Financing Subsidiary, any other Member, GSBDCs investment adviser, the Administrative Agent or their Affiliates with respect to their respective businesses and activities; each Member agrees not to provide to any other Person copies of any financial statements, tax returns or other records or reports, or other information or materials, provided or made available to such Member; and each Member agrees not to disclose to any other Person any information contained therein (including any information respecting Portfolio Companies), without the express prior written consent of the disclosing party; provided, that each Member may disclose (x) any such information as may be required by law in connection with the filing of its Registration Statement on Form N-2 and any periodic reports under the Securities Exchange Act of 1934, as amended, and (y) the names of borrowers of loans made by the Company and summaries of such loan transactions in any marketing materials (including tombstone ads) in connection with the public offering of such Members common shares; provided, further that any Member may provide financial statements, tax returns and other information contained therein (i) to such Members accountants, internal and external auditors, legal counsel, financial advisors and other fiduciaries and representatives (who may be Affiliates of such Member) as long as such Member instructs such Persons to maintain the confidentiality thereof and not to disclose to any other Person any information contained therein, (ii) to potential transferees of such Members Company interest that agree in writing, for the benefit of the Company, to maintain the confidentiality thereof, but only after reasonable advance notice to the Company, (iii) if and to the extent required by law (including judicial or administrative order); provided that, to the extent legally permissible, the Company is given prior notice to enable it to seek a protective order or similar relief, (iv) to representatives of any governmental regulatory agency or authority with jurisdiction over such Member, or as otherwise may be necessary to comply with regulatory requirements applicable to such Member; (v) as required or advisable to obtain financing directly by the Company or by a Financing Subsidiary or as required or permitted to be disclosed under any related offering or transaction documents; and (vi) in order to enforce rights under this Agreement. Notwithstanding the foregoing, the following shall not be considered confidential information for purposes of this Agreement: (a) information generally known to the public; (b) information
- 24 -
obtained by a Member from a third party who is not prohibited from disclosing the information; (c) information in the possession of a Member prior to its disclosure by the Company, a Financing Subsidiary, another Member, GSBDCs investment adviser, the Administrative Agent or their Affiliates; or (d) information which a Member can show by written documentation was developed independently of disclosure by the Company, a Financing Subsidiary, another Member, GSBDCs investment adviser, the Administrative Agent or their Affiliates. Without limitation to the foregoing, no Member shall engage in the purchase, sale or other trading of securities or derivatives thereof based upon confidential information received from the Company, a Financing Subsidiary, another Member, GSBDCs investment adviser, the Administrative Agent or their Affiliates.
(b) To the extent permitted by applicable law, and notwithstanding the provisions of this Article 9 other than Section 9.4(d), each of the Company, a Financing Subsidiary, a Member, GSBDCs investment adviser, the Administrative Agent or any of their Affiliates may, in its reasonable discretion, keep confidential from any Member information to the extent such Person reasonably determines that: (i) disclosure of such information to such Member likely would have a material adverse effect upon the Company, a Financing Subsidiary or a Portfolio Company due to an actual or likely conflict of business interests between such Member and one or more other parties or an actual or likely imposition of additional statutory or regulatory constraints upon the Company, a Financing Subsidiary, a Member, GSBDCs investment adviser, the Administrative Agent, any of its Affiliates or a Portfolio Company; or (ii) such Member cannot or will not adequately protect against the improper disclosure of confidential information, the disclosure of which likely would have a material adverse effect upon the Company, a Financing Subsidiary, a Member, GSBDCs investment adviser, the Administrative Agent, any of its Affiliates or a Portfolio Company. Notwithstanding the foregoing, each of the Company, a Member, the Administrative Agent or any of their Affiliates shall promptly provide to each Member all relevant information and documents related to any notice or request (whether written or oral) received from any governmental or regulatory agency involving any pending or threatened Proceeding in connection with the activities or operations of the Company.
(c) Each Member: (i) acknowledges that the Company, another Member, GSBDCs investment adviser, the Administrative Agent, its Affiliates, and their respective direct or indirect members, members, managers, officers, directors and employees are expected to acquire confidential third-party information (e. g. , through Portfolio Company directorships held by such Persons or otherwise) that, pursuant to fiduciary, contractual, legal or similar obligations, cannot be disclosed to the Company or the Member; and (ii) agree that none of such Persons shall be in breach of any duty under this Agreement or the Act as a result of acquiring, holding or failing to disclose such information to the Company or the Member.
(d) Regents hereby gives notice to the Company and the other Members that the Regents are subject to the California Public Records Act (Cal. Govt. Code §6250 et seq. (the CPRA)), which provides generally that all records relating to a public agencys business are open to public inspection and copying unless exempted under such Act. The Company and the Members agree that, notwithstanding the provisions of Section 9.4 or the Regents Subscription Agreement:
(i) the Regents may disclose: (i) the name, address, and vintage year of the Company; (ii) the dollar amount of the Regents Capital Commitment to the Company since inception of the Company; (iii) the dollar amount of Capital Contributions made by the Regents to the Company since inception of the Company; (iv) the dollar amount of cash distributions received by the Regents from the Company; (v) the dollar amount of cash distributions received by the Regents plus the remaining value of Company assets attributable to the Regents in the Company; (vi) the net internal rate of return of the Company since its inception (as calculated by the Regents); (vii) the investment multiple of the Company since inception (as calculated by the Regents); (viii) the dollar amount of fees and other costs paid by the Regents to the Company and (ix) the dollar amount of cash profit (as such term is defined under applicable law with respect to which such disclosure is made) received by the Regents from the Company on a fiscal year-end basis (as calculated by the Regents);
- 25 -
(ii) The disclosure of items set forth in Section 9.4(d)(i) above and disclosure of any other information pursuant to the requirements of the Freedom of Information Act, CPRA, or similar laws ( Disclosure Laws ) will not be considered a breach under this Agreement or the Regents Subscription Agreement. Notwithstanding anything in his Agreement or the Regents Subscription Agreement to the contrary, none of the Company, a Member, GSBDCs investment adviser, the Administrative Agent or their Affiliates shall make any claim against the Regents if the Regents makes available to the public (i) any of the information set forth in Section 9.4(d)(i) or (ii) any report, notice or other information the Regents receives from the Company, a Member, GSBDCs investment adviser, the Administrative Agent or their Affiliates that is required to be made public pursuant to Disclosure Laws or court order. With respect to any disclosure or anticipated disclosure of information in response to a disclosure request made pursuant to the Disclosure Laws, the Regents sole obligation under this Agreement and the Regents Subscription Agreement shall be to satisfy its legal requirements and obligations under the Disclosure Laws, and the Regents shall not be required to cooperate with the Company to the extent contemplated by this Agreement or the Regents Subscription Agreement; provided, that, in response to a request under the Disclosure Laws for the disclosure of any information concerning a Financing Subsidiary or a Portfolio Company, the Regents agree to promptly notify the Company prior to the disclosure of such information;
(iii) Notwithstanding Section 9.4(b) or any other provision of this Agreement or the Regents Subscription Agreement, none of the Company, a Member, GSBDCs investment adviser, the Administrative Agent or their Affiliates shall in any event withhold from the Regents: (i) any information relating to the items under Section 9.4(d)(i) above (if similar information is provided to other Members) and (ii) any information made available or delivered to the Members pursuant to Section 9.2 (including, without limitation, unredacted financial statements and the Regents fair market value Capital Account information), which information will be delivered to the Regents in paper format (or downloadable, printable electronic format);
(iv) Each Member does not acknowledge that all information with respect to the Company and its Portfolio Companies provided by the Company, a Financing Subsidiary, a Member, GSBDCs investment adviser, the Administrative Agent or their Affiliates are trade secrets or has independent economic value;
(v) a Member shall be required to return any copies of information provided to it by the Company, a Financing Subsidiary, a Member, GSBDCs investment adviser, the Administrative Agent or their Affiliates only to the extent allowed under applicable law; and
(vi) Any confidentiality agreement that a Member may be required to agree to in order to access any website maintained by the Company for the purpose of making certain documents available or delivering notices to the Members under this Agreement shall be subject to the confidentiality provisions of this Agreement.
Section 9.5 Valuation .
(a) Valuations shall be made as of the end of each fiscal quarter and upon liquidation of the Company in accordance with the following provisions and the Companys valuation guidelines then in effect (which shall be consistent with GSBDCs valuation guidelines then in effect):
(i) Within forty-five (45) days after the date as of which a valuation is to be made, the Administrative Agent shall deliver to the Board a report as to the recommended valuation as of such date, and provide such Persons with a reasonable opportunity to request information and to provide comments with respect to the report.
(ii) If the recommended valuation as of such date is approved by Prior Board Approval, then the valuation that has been approved shall be final.
- 26 -
(iii) If there is an objection to the recommended valuation by the Board, then the Administrative Agent shall cause a valuation of the asset(s) subject to unresolved objection to be made as of such date by an approved valuation expert, and shall determine a valuation of such asset(s) consistent with the valuation as of such date by the approved valuation expert, and such valuation shall be final. For this purpose, a valuation of an asset as of such date shall be considered consistent with a valuation of an approved valuation expert if it is equal to the recommended value determined by the approved valuation expert as of such date. An approved valuation expert shall mean an independent valuation consultant that has been approved by Board Approval.
(iv) Liabilities of the Company shall be taken into account at the amounts at which they are carried on the books of the Company, and provision shall be made in accordance with GAAP for contingent or other liabilities not reflected on such books and, in the case of the liquidation of the Company, for the expenses (to be borne by the Company) of the liquidation and winding up of the Companys affairs.
(v) No value shall be assigned to the Company name and goodwill or to the office records, files, statistical data, or any similar intangible assets of the Company not normally reflected in the Companys accounting records.
(b) All valuations shall be made in accordance with the foregoing shall be final and binding on all Members, absent actual and apparent error. Valuations of the Companys assets by independent valuation consultants shall be at the Companys expense.
ARTICLE 10
MISCELLANEOUS PROVISIONS
Section 10.1 Power of Attorney .
(a) Each Member irrevocably constitutes and appoints GSBDC the true and lawful attorney-in-fact of such Member to execute, acknowledge, swear to and file any of the following:
(i) Any certificate or other instrument which may be required to be filed by the Company under the laws of the United States, the State of Delaware, or any other jurisdiction; provided that no such certificate or instrument shall have the effect of amending this Agreement other than as permitted hereby; and
(ii) Any amendment or modification of any certificate or other instrument referred to in this Section 10.1.
It is expressly acknowledged by each Member that the foregoing power of attorney is coupled with an interest and shall survive death, legal incapacity and assignment by such Member of its interest in the Company; provided, however, that if a Member shall assign all of its interest in the Company and the assignee shall, in accordance with the provisions of this Agreement, become a substitute Member, such power of attorney shall survive such assignment only for the purpose of enabling each attorney-in-fact to execute, acknowledge, swear to and file any and all instruments necessary to effect such substitution and provided further that such power of attorney shall terminate upon the bankruptcy of the Member.
(b) Each Member irrevocably constitutes and appoints the other Member the true and lawful attorney-in-fact of such Member to execute, acknowledge, swear to and file any agreement, document, certificate or other instrument in connection with the sale and transfer of such Members interest in the Company pursuant to Section 3.3 by the other Member.
It is expressly acknowledged by each Member that the foregoing power of attorney is coupled with an interest and shall survive death, legal incapacity, bankruptcy, termination and dissolution by such Member of its
- 27 -
interest in the Company and shall survive the delivery of an assignment by the Member of the whole or any portion of such Members interest in the Company, except that where the assignee thereof has been approved as a substituted Member of the Company.
Section 10.2 Determination of Disputes . Any dispute or controversy among the Members (other than a suit brought against a Defaulting Member) arising in connection with (i) this Agreement or any amendment hereof, (ii) the breach or alleged breach hereof, (iii) the actions of any of the Members, or (iv) the formation, operation or dissolution and liquidation of the Company, shall be determined and settled by arbitration in New York, New York, by a panel of three members who shall be selected, and such arbitration shall be conducted, in accordance with the commercial rules of the American Arbitration Association. Any award rendered therein shall be final and binding upon the Members and the Company and judgment upon any such award rendered by said arbitrators may be entered in any court having jurisdiction thereof. The party or parties against which an award is made shall bear its or their own expenses and those of the prevailing party or parties, including, without limitation, fees and disbursements of attorneys, accountants, and financial experts, and shall bear all arbitration fees and expenses of the arbitrators.
Section 10.3 Certificate of Formation; Other Documents . The Members hereby approve and ratify the filing of the Certificate of Formation on behalf of the Company. The Members agree to execute such other instruments and documents as may be required by law or which a Member or the Board deems necessary or appropriate to carry out the intent of this Agreement; provided that a Member shall not be required to execute any instrument or document that is adverse to such Member. Each Member further agrees to deliver, if requested by the Company for provision to a third-party lender, (i) its most recent financials; (ii) a certificate confirming the remaining amount of its uncalled Capital Commitment; (iii) an investor letter and authority documentation relating to its entry into its Subscription Agreement and this Agreement, and such other instruments as the Company or such lender may reasonably require in order to effect any such borrowings by the Company or any of its Affiliates; provided that any such letter, document or instrument is reasonably acceptable to such Member.
Section 10.4 Force Majeure . Whenever any act or thing is required of the Company or a Member hereunder to be done within any specified period of time, the Company and the Member shall be entitled to such additional period of time to do such act or thing as shall equal any period of delay resulting from causes beyond the reasonable control of the Company or the Member, including, without limitation, bank holidays, and actions of governmental agencies, and excluding, without limitation, economic hardship; provided that this provision shall not have the effect of relieving the Company or the Member from the obligation to perform any such act or thing.
Section 10.5 Applicable Law This Agreement shall be governed by, and construed in accordance with, the internal law of the State of Delaware, without regard to the principles of conflicts of laws thereof.
Section 10.6 Waivers .
(a) No waiver of the provisions hereof shall be valid unless in writing and then only to the extent therein set forth. Any right or remedy of the Members hereunder may be waived by Board Approval, and any such waiver shall be binding on all Members. Except as specifically herein provided, no failure or delay by any party in exercising any right or remedy hereunder shall operate as a waiver thereof, and a waiver of a particular right or remedy on one occasion shall not be deemed a waiver of any other right or remedy or a waiver on any subsequent occasion.
(b) Except as otherwise provided in this Agreement, any approval or consent of the Members may be given by Board Approval, and any such approval or consent shall be binding on all Members.
Section 10.7 Notices . All notices, demands, solicitations of consent or approval, and other communications hereunder shall be in writing or by electronic mail (with or without attached PDFs), and shall be
- 28 -
sufficiently given if personally delivered or sent by postage prepaid, registered or certified mail, return receipt requested, or sent by electronic mail, overnight courier or facsimile transmission, addressed as follows: if intended for the Company, to the Companys principal office determined pursuant to Section 2.3; and if intended for any Member, to the address of such Member set forth on the Companys records, or to such other address as any Member may designate by written notice. Notices shall be deemed to have been given (i) when personally delivered, (ii) if sent by registered or certified mail, on the earlier of (A) three days after the date on which deposited in the mails or (B) the date on which received, (iii) if sent by overnight courier or facsimile transmission, on the date on which received or (iv) if sent by electronic mail, on the date on which received or on the next business day if the date received is either not a business day or the electronic mail was received after 5:00pm local time at the address of the recipient; provided that notices of a change of address shall not be deemed given until the actual receipt thereof. The provisions of this Section shall not prohibit the giving of written notice in any other manner; any such written notice shall be deemed given only when actually received.
Section 10.8 Construction .
(a) The captions used herein are intended for convenience of reference only and shall not modify or affect in any manner the meaning or interpretation of any of the provisions of this Agreement.
(b) As used herein, the singular shall include the plural (and vice versa), the masculine gender shall include the feminine and neuter, and the neuter gender shall include the masculine and feminine, unless the context otherwise requires.
(c) The words hereof, herein, and hereunder, and words of similar import, when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement.
(d) References in this Agreement to Articles, Sections and Schedules are intended to refer to Articles, Sections and Schedules of this Agreement unless otherwise specifically stated.
(e) Nothing in this Agreement shall be deemed to create any right in or benefit for any creditor of the Company that is not a party hereto, and this Agreement shall not be construed in any respect to be for the benefit of any creditor of the Company that is not a party hereto. Notwithstanding the foregoing, the lenders under a Facility are express, intended third-party beneficiaries hereof, entitled to enforce the provisions of Section 3.1 in their own name in accordance with the terms governing such Facility.
(f) References to any Person includes such Persons successors (including any successor by merger, consolidation, conversion or acquisition of all or substantially all of such Persons assets) and assigns provided that, if restricted by this Agreement, only if such successors and assigns are permitted hereunder.
(g) Reference to day or days without further qualification means calendar days.
(h) References to any agreement, document or instrument means such agreement, document or instrument, together with all schedules, exhibits and annexes thereto, in each case as amended, modified, waived, supplemented, restated or replaced and in effect from time to time in accordance with the terms thereof.
(i) References to any applicable law means such applicable law as amended, modified, codified, replaced or reenacted, in whole or in part, and in effect from time to time, including rules and regulations promulgated thereunder, and reference to any section or other provision of any applicable law means that provision of such applicable law from time to time in effect including those constituting the substantive amendment, modification, codification, replacement or reenactment of such section or other provision.
(j) The term including shall mean including without limitation.
Section 10.9 Amendments .
- 29 -
(a) This Agreement may be amended at any time and from time to time by Prior Board Approval and approval of each Member.
(b) Notwithstanding the foregoing, a Member may amend this Agreement and the Member List at any time and from time to time to reflect the admission or withdrawal of any Member or the change in any Members Capital Commitment, as contemplated by this Agreement. Each Member shall promptly receive notice of any amendments to the Member List.
Section 10.10 Legal Counsel . GSBDC has engaged Dechert LLP ( Company Counsel ), as legal counsel to the Company and GSBDC. Moreover, Company Counsel has previously represented and/or concurrently represents the interests of the Company, GSBDC and/or parties related thereto in connection with matters other than the preparation of this Agreement and may represent such Persons in the future. Each Member: (i) approves Company Counsels representation of the Company and GSBDC in the preparation of this Agreement; and (ii) acknowledges that Company Counsel has not been engaged by any other Member to protect or represent the interests of such Member vis-à-vis the Company or the preparation of this Agreement, and that actual or potential conflicts of interest may exist among the Members in connection with the preparation of this Agreement. In addition, each Member: (i) acknowledges the possibility of a future conflict or dispute among Members or between any Member or Members and the Company; and (ii) acknowledges the possibility that, under the laws and ethical rules governing the conduct of attorneys, Company Counsel may be precluded from representing the Company and/or GSBDC (or any equity holder thereof) in connection with any such conflict or dispute. Nothing in this Section 10.10 shall preclude the Company from selecting different legal counsel to represent it at any time in the future and no Member shall be deemed by virtue of this Section 10.10 to have waived its right to object to any conflict of interest relating to matters other than this Agreement or the transactions contemplated herein provided that any Member may otherwise waive such right.
Section 10.11 Execution . This Agreement may be executed in any number of counterparts and all such counterparts together shall constitute one agreement binding on all Members.
Section 10.12 Binding Effect . This Agreement shall be binding upon and shall inure to the benefit of the respective heirs, executors, administrators, legal representatives, successors and assigns of the parties hereto; provided that this provision shall not be construed to permit any assignment or transfer which is otherwise prohibited hereby.
Section 10.13 Severability . If any one or more of the provisions contained in this Agreement, or any application thereof, shall be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and all other applications thereof shall not in any way be affected or impaired thereby.
Section 10.14 Computation of Time . In computing any period of time under this Agreement, the day of the act, event, or default from which the designated period of time begins to run shall not be included. The last day of the period so computed shall be included, unless it is a Saturday, Sunday or legal holiday on which banks in New York are closed, in which event the period shall run until the end of the next day which is not a Saturday, Sunday or such a legal holiday. Any reference to business day shall refer to any day which is not a Saturday, Sunday or such a legal holiday. Any references to time of day shall refer to New York time.
Section 10.15 Entire Agreement . This Agreement, the Subscription Agreements entered into between the Company and each Member in connection with the Members subscription of interests in the Company and any other agreements that may be entered into in connection with a Facility set forth the entire understanding among the parties relating to the subject matter hereof, any and all prior correspondence, conversations, memoranda or other writings being merged herein and replaced and being without effect hereon. No promises, covenants or representations of any character or nature other than those expressly stated herein, in such Subscription Agreements, or in any such other agreement have been made to induce any party to enter into this Agreement.
- 30 -
Section 10.16 Investments in Tobacco Companies . The Regents has represented to the Company, and the Company understands, that the Regents is a public entity recognized under article IX, section 9 of the Constitution of the State of California. The Regents has advised the Company that, pursuant to a formal, written policy adopted by its governing board, it is prohibited from investing in tobacco companies. For purposes hereof, a tobacco company means any entity that derives more than 50% of its annual consolidated sales revenues from the manufacture, sale, and distribution of tobacco products. The parties hereto agree and acknowledge that nothing in this Section 10.16 shall prohibit, restrict or otherwise limit the Company from making any investment, except as expressly provided in the immediately succeeding sentence. The Company shall not make an investment in a company that it knows to be a tobacco company, or that, as of the date immediately following the completion of such investment, will be a tobacco company. In the event that the Company has made an investment in a company that later becomes a tobacco company, the Company shall provide the Regents with written notice thereof, and if the Regents so request, the Company shall use commercially reasonable efforts to either (i) dispose of its interest in the tobacco company or (ii) assist the Regents in finding a purchaser to acquire all of the Regents interest in the Company. The Company will not distribute the securities of any tobacco company to the Regents but, instead, shall sell such securities on behalf of, and remit the proceeds thereof to, the Regents.
Section 10.17 Publicity . Except as required by law, none of the Company, any Member or their respective Affiliates, shall disclose any relationship with the Regents to persons or entities that are not Members, prospective Members, agents or representatives of the Company (including, without limitation, attorneys or accountants thereof). The Person making such disclosure to any such attorney shall instruct such attorney not to use any non-public or confidential information about the Regents obtained in connection with this Agreement or the operation of the Company on behalf of such attorneys clients.
Section 10.18 Sovereign Immunity . The Company and each Member acknowledges that the Regents are entitled to certain immunities, defenses, rights and actions with respect to tort claims arising out of the Regents status as a sovereign state or entity and that the Regents reserves all such immunities, defenses, rights or actions. No waiver of such immunities, defenses, rights or actions shall be implied or otherwise deemed to exist by the Regents entering into this Agreement or the Subscription Agreement, by any express or implied provision thereof, or by any actions or omissions to act by the Regents or any of its representatives or agents, whether taken or omitted to be taken pursuant to the this Agreement or the Subscription Agreement or prior to the Regents execution thereof; provided, however, that the Regents agree that, to the maximum extent permitted by law, the Regents shall not assert any such immunities, defenses, rights or actions, and none of such immunities, defenses, rights or actions shall apply, with respect to the Regents representations under this Agreement or the Subscription Agreement, and the Regents obligation to make Capital Contributions to the Company or to comply with any other contractual obligation under this Agreement or the Subscription Agreement and any amendments to this Agreement or the Subscription Agreement.
Section 10.19 Opinions of Counsel . In any event in which this Agreement requires or permits a Member to deliver an opinion of legal counsel, the Company and each Member will accept an opinion from internal legal counsel of the Member.
Section 10.20 Agreement to Keep Terms Confidential . Each of the parties hereto agrees that it will not, and that it will cause its respective agents and Affiliates to not, discuss the terms agreed to by the parties in connection with their respective investment in the Company, whether contained in this Agreement, the Subscription Agreement, or any other documents or conversations, with any person other than its officers, directors, affiliates, or attorneys, unless (a) required by applicable law or (b) the other parties hereto give their express written consent.
[Remainder of page left blank]
- 31 -
IN WITNESS WHEREOF, the Members have caused this Agreement to be executed and delivered as of July 18, 2014.
[Signature Page to Senior Credit Fund, LLC Limited Liability Company Agreement]
Schedule A
Management Decisions
1. Prior Board Approval shall be required for the Company or any Financing Subsidiary that is wholly-owned or otherwise controlled by the Company to do any of the following:
(i) Take any action or decision which results in the investment of any amount (including any additional amount) in an Investment (other than an amount invested pursuant to a binding obligation previously entered into with Prior Board Approval) or the sale, transfer or other disposition of any Investment (other than an amount sold, transferred or other disposed of pursuant to a binding obligation previously entered into with Prior Board Approval);
(ii) Materially modify or waive the terms of any Investment which results in any of the following: (1) an extension of additional capital or commitments; (2) an amendment or waiver of a financial covenant; (3) an approval of an acquisition which is expected to represent more than 20% of the earnings before interest, taxes, depreciation and amortization of the obligor or issuer; (4) an approval of a sale of assets which represents more than 20% of the earnings before interest, taxes, depreciation and amortization of the obligor or issuer; (5) the incurrence of additional senior debt by the obligor or issuer equal to or greater than 20% of the existing senior commitments or which results in leverage increasing by more than 0.5 times; or (6) an amendment or waiver of any payment term, including mandatory prepayments; provided that if the Board cannot agree as to any such material modification or waiver of an Investment, the Board shall vote in a manner consistent with a majority in interest of the other participants in such Investment (excluding other participants that are Affiliates of a Member);
(iii) Enter into any transaction with a Member or an Affiliate of a Member (except as permitted by this Agreement);
(iv) Make short sales of assets or engage in hedging or other derivative or commodities transactions;
(v) Enter into any credit facility, including in particular enter into a senior credit facility to leverage the Companys Investments, or materially modify or waive the terms thereof or make a voluntary prepayment; provided that Prior Board Approval shall separately be required to utilize any leverage greater than 2:1 leverage;
(vi) Guarantee, or otherwise become liable for, the obligations of other Persons, including, without limitation, Portfolio Companies and Alternative Investment Vehicles;
(vii) Replace the Administrative Agent for the Company, or materially modify or waive the terms of the Administrative Services Agreement;
(viii) Approve a sub-administration agreement, or materially modify or waive the terms of a sub-administration agreement;
(ix) Approve a transfer or pledge of an interest in the Company in accordance with Article 7, except as provided otherwise herein, including pursuant to Section 3.3;
(x) File for bankruptcy;
(xi) Commence or settle any material claims or litigation;
(xii) Distribute Illiquid Securities;
(xiii) Take any action or decision which pursuant to any provision of this Agreement requires Prior Board Approval; and
(xiv) Modify or waive any material provision of this Agreement.
2. Subject to Section 1 of this Schedule A for matters requiring Prior Board Approval, Board Approval shall be required for the Company or any Financing Subsidiary that is wholly-owned or otherwise controlled by the Company to do any of the following:
(i) Change the name or principal office, or open additional offices;
(ii) Form, acquire an interest in, or transfer or otherwise dispose of an interest in, any Financing Subsidiary, Alternative Investment Vehicle, or any other subsidiary owned by it, or materially modify or waive the terms thereof;
(iii) Retain a custodian of its assets and open bank accounts on its behalf; and (iv) Take any action or decision which pursuant to any provision of this Agreement requires Board Approval.
EX-99.(l)
March 3, 2015
Goldman Sachs BDC, Inc.
200 West Street
New York, NY 10282
RE: Registration | Statement on Form N-2, File No. 333-187642 |
Ladies and Gentlemen:
We have acted as counsel to Goldman Sachs BDC, Inc., a Delaware corporation (the Company), in connection with the Companys Registration Statement on Form N-2 (Registration No. 333-187642) filed with the Securities and Exchange Commission (the Commission) under the Securities Act of 1933, as amended (the Securities Act), and as subsequently amended (the Registration Statement), relating to the registration of shares (the Shares) of the Companys common stock, par value $0.001 per share (the Common Stock), including Shares which may be offered and sold upon the exercise of the over-allotment option granted to the underwriters. The Shares are proposed to be sold pursuant to an underwriting agreement (the Underwriting Agreement) to be entered into among the Company and Goldman Sachs Asset Management, L.P., a Delaware limited partnership, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Goldman Sachs & Co. and Morgan Stanley & Co. LLC as representatives of the several underwriters named therein. With your permission, all assumptions and statements of reliance herein have been made without any independent investigation or verification on our part, except to the extent otherwise expressly stated, and we express no opinion with respect to the subject matter or accuracy of such assumptions or items relied upon.
In connection with this opinion, we have (i) investigated such questions of law, (ii) examined the originals or certified, conformed, facsimile, electronic or reproduction copies of such agreements, instruments, documents and records of the Company, such certificates of public officials and such other documents and (iii) received such information from officers and representatives of the Company and others as we have deemed necessary or appropriate for the purposes of this opinion.
In all such examinations, we have assumed the legal capacity of all natural persons, the genuineness of all signatures, the authenticity of original and certified documents and the conformity to original or certified documents of all copies submitted to us as conformed, facsimile, electronic or reproduction copies. As to various questions of fact relevant to the opinion expressed herein, we have relied upon, and assume the accuracy of, certificates and oral or written statements and other information of or from public officials and officers and representatives of the Company.
Based upon the foregoing and subject to the limitations, qualifications and assumptions set forth herein, we are of the opinion that the Shares have been duly authorized and, when issued and delivered pursuant to the Underwriting Agreement against payment of the consideration set forth therein, will be validly issued, fully paid and nonassessable.
The opinion expressed herein is limited to the applicable provisions of the General Corporation Law of the State of Delaware (the DGCL) and the Constitution of the State of Delaware, in each case as currently in effect, and reported judicial decisions interpreting such provisions of the DGCL and the Constitution of the State of Delaware, and no opinion is expressed with respect to any other laws or any effect that such other laws may have on the opinion expressed herein. The opinion expressed herein is limited to the matters stated herein and no opinion is implied or may be inferred beyond the matters expressly stated herein. We undertake no responsibility to update or supplement this letter after the effectiveness of the Registration Statement.
We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to this firm under the caption Legal Matters in the prospectus included therein. In giving this consent, we do not hereby admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations of the Commission.
Very truly yours,
/s/ FRIED, FRANK, HARRIS, SHRIVER & JACOBSON LLP
EX.99.(n)(1)
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Goldman Sachs BDC, Inc.:
We have audited the financial statements of Goldman Sachs BDC, Inc. (the Company) as of December 31, 2014 and 2013 and for the years ended December 31, 2014 and 2013 and for the period from November 15, 2012 (commencement of operations) through December 31, 2012 referred to in our report dated February 17, 2015 appearing in the accompanying registration statement on Form N-2. We expressed an unqualified opinion on those financial statements. In our opinion, the senior securities table of Goldman Sachs BDC, Inc. for the year ended December 31, 2014 appearing on page 95 of this form N-2 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related financial statements.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 17, 2015
EX.99.(n)(2)
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the use in this Registration Statement on Form N-2 of Goldman Sachs BDC, Inc. of our report dated February 17, 2015, relating to the financial statements of Goldman Sachs BDC, Inc., which appear in such Registration Statement. We also consent to the use of our report dated February 17, 2015 relating to the senior securities table, which appears in the Registration Statement. We also consent to the references to us under the headings Selected Financial and Other Information, Senior Securities and Independent Registered Public Accounting Firm in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Boston, MA
March 3, 2015
EX-99.(r)(1)
GOLDMAN SACHS BDC, INC.
CODE OF ETHICS
For: GSAM GST II BDC
Effective Date: March 2013
Revision History
While affirming its confidence in the integrity and good faith of all of its officers and directors, Goldman Sachs BDC, Inc. (the Corporation) recognizes that the knowledge of present or future portfolio transactions and, in certain instances, the power to influence portfolio transactions which may be possessed by certain of its officers and directors could place such individuals, if they engage in personal securities transactions, in a position where their personal interest may conflict with that of the Corporation. In view of the foregoing and of the provisions of Rule 17j-1(b)(1) under the Investment Company Act of 1940, as amended (the Investment Company Act), the Corporation has adopted this Code of Ethics to specify and prohibit certain types of personal securities transactions deemed to create conflicts of interest and to establish reporting requirements and enforcement procedures.
This Code is divided into five parts. The first part contains provisions applicable to Access Persons (as defined below) of the Corporation who are also Access Persons of Goldman, Sachs & Co. (GS&Co.), Goldman Sachs Asset Management, L.P. (GSAM) or Goldman Sachs Asset Management International (GSAMI) (each of GSAM and GSAMI referred to herein as the Adviser); the second contains certain general provisions; the third pertains to directors who are not interested persons of an Adviser or the Corporation; the fourth pertains to interested directors who are Access Persons of the Corporation but not Access Persons of an Adviser; and the fifth contains record-keeping and other provisions. Each Adviser imposes stringent reporting requirements and restrictions on the personal securities transactions of its Access Persons. The Corporation has determined that the high standards of ethics in the area of personal investing which have been established by each Adviser may, without change, be appropriately applied by the Corporation to those Access Persons of the Corporation who are also Access Persons of the Advisers. Such persons may have frequent opportunities for knowledge of and, in some cases, influence over, Corporation portfolio transactions. In the experience of the Corporation, interested directors who are not Access Persons of an Adviser and directors who are not interested persons have comparatively less current knowledge and considerably less influence over specific purchases and sales of securities by the Corporation. Therefore, this Code contains separate provisions applicable to such directors.
Definitions.
As used herein, the following terms shall have the following meanings:
(1) | Access Person with respect to the Corporation means any director and officer of the Corporation. Access Person with respect to GS&Co. means (because GS&Co. serves as distributor of the Corporation and is primarily engaged in a business other than advising registered investment companies or other advisory clients) only those directors, officers and general partners of GS&Co. who, in the ordinary course of business, make, participate in or obtain information regarding the purchase or sale of Covered Securities (as defined below) by the Corporation or whose functions or duties in the ordinary course of business relate to the making of any recommendations to the Corporation regarding the purchase or sale of Covered Securities. Access Person with respect to GSAM and GSAMI means any director, officer, general partner or Advisory Person of GSAM and GSAMI. |
(2) |
Advisory Person means: (i) any employee of GSAM or GSAMI (and any director, officer, general partner or employee of any company in a control relationship to the Corporation, GSAM or GSAMI) who, in connection with his or her regular functions or duties, makes, participates in, or obtains information regarding, the purchase or sale of a Covered Security by |
the Corporation, or whose functions relate to the making of any recommendations with respect to such purchases or sales; and (ii) any natural person in a control relationship to the Corporation, GSAM or GSAMI who obtains information concerning recommendations made on behalf of the Corporation with regard to the purchase or sale of a Covered Security. |
(3) | Automatic Investment Plan means a program in which regular periodic purchases (or withdrawals) are made automatically in (or from) investment accounts in accordance with a predetermined schedule and allocation. An Automatic Investment Plan includes a dividend reinvestment plan. |
(4) | Beneficial ownership of a security shall be interpreted in the same manner as it would be under Rule 16a-1(a)(2) of the Securities Exchange Act of 1934, as amended (Exchange Act), in determining whether a person is the beneficial owner of a security for purposes of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. |
(5) | Control has the same meaning as that set forth in Section 2(a)(9) of the Investment Company Act. Section 2(a)(9) generally provides that control means the power to exercise a controlling influence over the management or policies of a company, unless such power is solely the result of an official position with such company. |
(6) | Covered Security has the meaning set forth in the Advisers Code of Ethics for the Access Persons covered by that Code of Ethics. Otherwise, Covered Security means a security as defined in Section 2(a) (36) of the Investment Company Act, except that it does not include: |
(i) direct obligations of the Government of the United States; (ii) bankers acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments (any instrument having a maturity at issuance of less than 366 days and that is in one of the two highest rating categories of a nationally recognized statistical rating organization), including repurchase agreements; and (iii) shares of registered open-end investment companies.
(7) | Disinterested Director means a director of the Corporation who is not an interested person of the Corporation within the meaning of Section 2(a)(19) of the Investment Company Act. |
(8) | Purchase or sale of a Covered Security includes, among other things, the writing of an option to purchase or sell a Covered Security or any security that is exchangeable for or convertible into another security. |
(9) | Review Officer means the officer of the Corporation or an Adviser designated from time to time to receive and review reports of purchases and sales by Access Persons. The term Alternative Review Officer means the officer of the Corporation or an Adviser designated from time to time to receive and review reports of purchases and sales by the Review Officer, and who shall act in all respects in the manner prescribed herein for the Review Officer. It is recognized that a different Review Officer and Alternative Review Officer may be designated with respect to the Corporation and each of the Advisers. |
(10) | A security is being considered for purchase or sale by the Corporation when a recommendation to purchase or sell a security has been made and communicated and, with respect to the person making the recommendation, when such person seriously considers making such a recommendation. |
(11) | A security is held or to be acquired if within the most recent 15 days it (i) is or has been held by the Corporation, or (ii) is being or has been considered by an Adviser for purchase by the Corporation, and (iii) includes any option to purchase or sell and any security convertible into or exchangeable for a security described in (i) or (ii). |
- 2 -
I. | RULES APPLICABLE TO ACCESS PERSONS OF THE CORPORATION WHO ARE ALSO ACCESS PERSONS OF THE ADVISERS |
A. | Incorporation of Advisers Codes of Ethics . |
(1) | The provisions of the Advisers Code of Ethics, which is attached as Appendix A hereto, are hereby incorporated herein by reference as the Corporations Code of Ethics applicable to Access Persons of the Corporation who are also Access Persons of an Adviser, except as provided in Section I-B hereof. |
(2) | A violation of the Advisers Code of Ethics shall constitute a violation of this Code. |
B. | Reports . |
(1) | Access Persons of the Advisers shall file the initial holdings report, annual holdings report and quarterly transaction reports required under the Advisers Code of Ethics with the Review Officer, and the Review Officer shall submit his or her initial holdings report, annual holdings report and quarterly transaction reports with respect to his/her personal securities holdings and transactions to the Alternative Review Officer. |
(2) | With respect to Access Persons of an Adviser, to the extent provided in the Advisers Code of Ethics, quarterly transaction reports shall be deemed made with respect to any account where that person has made provision for transmittal of daily trading information regarding the account to be delivered to the designated Review Officer for his or her review. |
(3) | A report filed with the Review Officer (or, in the case of a report of the Review Officer, with the Alternative Review Officer) shall be deemed to be filed with the Corporation. |
II. | GENERAL |
A. | Legal Requirements . Section 17(j) of the Investment Company Act provides, among other things, that it is unlawful for any affiliated person of the Corporation, including interested and Disinterested Directors, among others, to engage in any act, practice or course of business in connection with the purchase or sale, directly or indirectly, by such affiliated person of any security held or to be acquired by the Corporation in contravention of such rules and regulations as the Securities and Exchange Commission (the Commission) may adopt to define and prescribe means reasonably necessary to prevent such acts, practices or courses of business as are fraudulent, deceptive or manipulative. Pursuant to Section 17(j), the Commission has adopted Rule 17j-1 which provides, among other things, that it is unlawful for any affiliated person of the Corporation in connection with the purchase or sale, directly or indirectly, by such person of a Covered Security held or to be acquired by the Corporation: |
(1) | To employ any device, scheme or artifice to defraud the Corporation; |
(2) | To make any untrue statement of a material fact to the Corporation or omit to state a material fact necessary in order to make the statement made to the Corporation, in light of the circumstances under which they were made, not misleading; |
(3) | To engage in any act, practice or course of business that operates or would operate as a fraud or deceit upon the Corporation; or |
(4) | To engage in any manipulative practice with respect to the Corporation. |
- 3 -
B. | Statement of Policy . It is the policy of the Corporation that no Access Person shall engage in any act, practice or course of conduct that would violate the provisions of Rule 17j-1. The fundamental position of the Corporation is, and has been, that each Access Person shall place at all times the interests of the Corporation and its shareholders first in conducting personal securities transactions. Accordingly, personal securities transactions by Access Persons of the Corporation must be conducted in a manner consistent with this Code and so as to avoid any actual or potential conflict of interest or any abuse of an Access Persons position of trust and responsibility. Further, Access Persons should not take inappropriate advantage of their positions with or relationship to the Corporation. |
Without limiting in any manner the fiduciary duty owed by Access Persons to the Corporation or the provisions of this Code, it should be noted that the Corporation considers it proper that purchases and sales be made by its Access Persons in the marketplace of securities owned by the Corporation; provided, however, that such personal securities transactions comply with the spirit of, and the specific restrictions and limitations set forth in, this Code. In making personal investment decisions with respect to any security, however, extreme care must be exercised by Access Persons to ensure that the prohibitions of this Code are not violated. It bears emphasis that technical compliance with the procedures, prohibitions and limitations of this Code will not automatically insulate from scrutiny personal securities transactions which show a pattern of abuse by an Access Person of his or her fiduciary duty to the Corporation.
C. | Exempted Transactions . |
The Statement of Policy set forth above shall be deemed not to be violated by and the prohibitions of Section III-A or IV-A of this Code shall not apply to:
(1) | Purchases or sales of securities effected for, or held in, any account over which the Access Person has no direct or indirect influence or control; |
(2) | Purchases or sales of securities which are not eligible for purchase or sale by the Corporation; |
(3) | Purchases or sales of securities which are non-volitional on the part of either the Access Person or the Corporation; |
(4) | Purchases or sales of securities which are part of an Automatic Investment Plan provided that no adjustment is made by the Access Person to the rate at which securities are purchased or sold, as the case may be, under such a plan during any period in which the security is being considered for purchase or sale by the Corporation; |
(5) | Purchases of securities effected upon the exercise of rights issued by an issuer pro rata to all holders of a class of its securities, to the extent such rights were acquired from such issuer, and sales of such rights so acquired; |
(6) | Tenders of securities pursuant to tender offers which are expressly conditioned on the tender offers acquisition of all of the securities of the same class; |
(7) | Purchases or sales of publicly-traded shares of companies that have a market capitalization in excess of $5 billion; |
- 4 -
(8) | Chief Investment Officer (CIO) signature approved de minimis per day purchases or sales ($50,000 or less) of publicly traded shares of companies that have a 10-day average daily trading volume of at least $1 million, subject to the following additional parameters: |
(a) | Access Persons must submit a current (same day) printout of a Yahoo Finance, Bridge or Bloomberg (or similar service) screen with the minimum 10-day average daily trading volume information indicated; |
(b) | No Access Person (together with related accounts) may own more than 1 ⁄ 2 of 1% of the outstanding securities of an issuer; |
(c) | Multiple trades of up to $50,000 on different days are permitted so long as each day the trade is approved; and |
(d) | A security purchased pursuant to this exemption must be held for a minimum of 360 days prior to sale unless it appears on the Advisers $5 billion Self Pre-Clearance Securities List or normal pre-clearance pursuant to Article VI of the Advisers Code of Ethics is obtained, in which case the security must be held for at least 30 days prior to sale. |
(9) | Purchases or sales of securities with respect to which neither an Access Person, nor any member of his or her immediate family as defined in Rule 16a-1(c) under the Exchange Act, has any direct or indirect influence, control or prior knowledge, which purchases or sales are effected for, or held in, a blind account. For this purpose, a blind account is an account over which an investment adviser exercises full investment discretion (subject to account guidelines) and does not consult with or seek the approval of the Access Person, or any member of his or her immediate family, with respect to such purchases and sales. |
(10) | Other purchases or sales which only remotely potentially impact the interest of the Corporation because the securities transaction involves a small number of shares of an issuer with a large market capitalization and high average daily trading volume or would otherwise be very unlikely to affect a highly institutional market; and |
(11) | Purchases or sales of securities previously approved by an individual appointed from time to time by the President for this purpose, which approval shall be confirmed in writing and shall be based upon a determination that such transaction did not violate the purpose or spirit of this Code. |
III. | RULES APPLICABLE TO DISINTERESTED DIRECTORS |
A. | Prohibited Purchases and Sales . While the scope of actions which may violate the Statement of Policy set forth in Section II-B cannot be exactly defined, such actions would always include at least the following prohibited activities. No Disinterested Director shall purchase or sell, directly or indirectly, any Covered Security in which he or she has, or by reason of such transaction acquires, any direct or indirect beneficial ownership if such director, at the time of the transaction, knows or, in the ordinary course of fulfilling his official duties as a director of the Corporation, should known that, during the 15-day period immediately preceding or after the date of the contemplated transaction by the director: |
(1) | the Covered Security is being considered for purchase or sale by the Corporation; or |
(2) | the Covered Security is being purchased or sold by the Corporation. |
B. | Reporting |
(1) |
Every Disinterested Director shall file with the Review Officer or his or her designee a report containing the information described below in Section III-B(2) of this Code with respect to |
- 5 -
transactions in any Covered Security in which such Disinterested Director has, or by reason of such transaction acquires or disposes of, any direct or indirect beneficial ownership, whether or not one of the exemptions listed in Section II-C applies; provided , however , that a Disinterested Director shall not be required to file a report: (a) unless such director, at the time of the transaction, knew or, in the ordinary course of fulfilling his official duties as a director of the Corporation, should have known that, during the 15-day period immediately preceding or after the date of the transaction by the director: (i) such Covered Security is or was purchased or sold by the Corporation; or (ii) such Covered Security was being considered for purchase or sale by the Corporation or an Adviser for a portfolio of the Corporation; or (b) with respect to transactions effected for any account over which such person does not have any direct or indirect influence or control. Notwithstanding the preceding sentence, any Disinterested Director may, at his option, report the information described in Section III-B(2) with respect to any one or more transactions in any Covered Security in which such person has, or by reason of the transaction acquires or disposes of, any direct or indirect beneficial ownership. |
(2) | Quarterly Transaction and New Account Reports . Every report shall be made not later than 30 days after the end of the calendar quarter in which the transaction to which the report related was effected, and shall contain the following information: |
(a) | The date of the transaction, the title, the interest rate and maturity date (if applicable), the class and number of shares, and the principal amount of each Covered Security involved; |
(b) | The nature of the transaction ( i.e. , purchase, sale or any other type of acquisition or disposition); |
(c) | The price of the Covered Security at which the transaction was effected; |
(d) | The name of the broker, dealer or bank with or through whom the transaction was effected; |
(e) | The date that the report is submitted; and |
(f) | With respect to any account established by a Disinterested Director in which any securities were held during the quarter for the direct or indirect benefit of the Disinterested Director: |
(i) | The name of the broker, dealer or bank with whom the Disinterested Director established the account; |
(ii) | The date the account was established; and |
(iii) | The date that the report was submitted by the Disinterested Director. |
(3) | Every report concerning a purchase or sale prohibited under Section III-A hereof with respect to which the reporting person relies upon one of the exemptions provided in Section II-C shall contain a brief statement of the exemption relied upon and the circumstances of the transaction. |
(4) | Any such report may contain a statement that the report shall not be construed as an admission by the person making such report that (a) he or she has any direct or indirect beneficial ownership in the Covered Security to which the report relates (a Subject Security) or (b) he or she knew or should have known that, within the 15-day time period described in Section III-B(1) above, a Subject Security was being purchased or sold, or considered for purchase or sale, by the Corporation. |
- 6 -
IV. | RULES APPLICABLE TO INTERESTED DIRECTORS WHO ARE NOT ACCESS PERSONS OF THE ADVISERS |
A. | Prohibited Purchases and Sales . |
While the scope of actions which may violate the Statement of Policy set forth in Section II-B cannot be exactly defined, such actions would always include at least the following prohibited activities.
(1) | No interested director who is not an Access Person of the Adviser (Section IV Reporting Person) shall purchase or sell, directly or indirectly, any Covered Security in which he or she has, or by reason of such transaction acquires, any direct or indirect beneficial ownership and which to his or her actual knowledge at the time of such purchase or sale the Covered Security: |
(a) | is being considered for purchase or sale by an investment company; or |
(b) | is being purchased or sold by an investment company. |
(2) | No Section IV Reporting Person shall reveal to any other person (except in the normal course of his or her duties on behalf of an investment company) any information regarding securities transactions by an investment company or consideration by an investment company or the Adviser of any such securities transaction. |
(3) | No Section IV Reporting Person shall engage in, or permit anyone within his or her control to engage in, any act, practice or course of conduct which would operate as a fraud or deceit upon, or constitute a manipulative practice with respect to, an investment company or any issuer of any Covered Security owned by an investment company. |
B. | Reporting . |
(1) | Every Section IV Reporting Person shall report to the Review Officer the information (a) described in Section IV-B(3) of this Code with respect to transactions in any Covered Security in which such Section IV Reporting Person has, or by reason of such transaction acquires or disposes of, any direct or indirect beneficial ownership in the Covered Security or (b) described in Section IV-B(4) and IV-B(5) of the Code with respect to securities holdings beneficially owned by each Section IV Reporting Person. |
(2) | Notwithstanding Section IV-B(1) of this Code, Section IV Reporting Persons need not make a quarterly transaction report where the report would duplicate information contained in broker trade confirmations or account statements received by the Corporation or an Adviser in the time period prescribed in Section IV-B(3). |
(3) | Quarterly Transaction Reports. Unless quarterly transaction reports are deemed to have been made under Section IV-B(2) of this Code, every quarterly transaction report shall be made not later than 30 days after the end of the calendar quarter in which the transaction to which the report relates was effected, and shall contain the following information: |
(a) | The date of the transaction, the title, the interest rate and maturity date (if applicable), the class and number of shares, and the principal amount of each Covered Security involved; |
(b) | The nature of the transaction (i.e., purchase, sale or any other type of acquisition or disposition); |
- 7 -
(c) | The price of the Covered Security at which the transaction was effected; |
(d) | The name of the broker, dealer or bank with or through whom the transaction was effected; |
(e) | The date that the report was submitted by a Section IV Reporting Person; and |
(f) | With respect to any account established by the Section IV Reporting Person in which any securities were held during the quarter for the direct or indirect benefit of the Section IV Reporting Person: |
(i) | The name of the broker, dealer or bank with whom the Section IV Reporting Person established the account; |
(ii) | The date the account was established; and |
(iii) | The date that the report was submitted by the Section IV Reporting Person. |
(4) | Initial Holdings Reports. No later than 10 days after becoming a Section IV Reporting Person, each Section IV Reporting Person must submit a report containing the following information (which information must be current as of a date no more than 45 days before becoming a Section IV Reporting Person): |
(a) | The title, number of shares and principal amount of each Covered Security in which the Section IV Reporting Person had any direct or indirect beneficial ownership when the person became a Section IV Reporting Person; |
(b) | The name of any broker, dealer or bank with whom the Section IV Reporting Person maintained an account in which any securities were held for the direct or indirect benefit of the Section IV Reporting Person as of the date the person became a Section IV Reporting Person; and |
(c) | The date that the report is submitted by the Section IV Reporting Person. |
(5) | Annual Holdings Reports. Between January 1 st and January 30 th of each calendar year, every Section IV Reporting Person shall submit the following information (which information must be current as of a date no more than 45 days before the report is submitted): |
(a) | The title, number of shares and principal amount of each Covered Security in which the Section IV Reporting Person had any direct or indirect beneficial ownership; |
(b) | The name of any broker, dealer or bank with whom the Section IV Reporting Person maintains an account in which any Covered Securities are held for the direct or indirect benefit of the Section IV Reporting Person; and |
(c) | The date that the report is submitted by the Section IV Reporting Person. |
(6) | These reporting requirements shall apply whether or not one of the exemptions listed in Section II-C applies except that an Section IV Reporting Person shall not be required to make a report with respect to securities transactions effected for, and any Covered Securities held in, any account over which such Section IV Reporting Person does not have any direct or indirect influence or control. Every report concerning a securities transaction with respect to which the reporting person relies upon one of the exemptions provided in Section II-C shall contain a brief statement of the exemption relied upon and the circumstances of the transaction. |
- 8 -
(7) | Any such report may contain a statement that the report shall not be construed as an admission by the person making such report that (a) he or she has or had any direct or indirect beneficial ownership in the Covered Security to which the report relates (a Subject Security) or (b) he or she knew or should have known that the Subject Security was being purchased or sold, or considered for purchase or sale, by an investment company on the same day. |
V. | MISCELLANEOUS |
A. | Approval of Code of Ethics and Amendments to the Code of Ethics . The board of directors, including a majority of the Disinterested Directors, shall approve this Code of Ethics, and any material amendments to this Code of Ethics. Such approval must be based on a determination that the Code of Ethics contains provisions reasonably necessary to prevent Access Persons of the Corporation from engaging in any conduct prohibited under this Code of Ethics and under Rule 17j-1 under the Investment Company Act. |
B. | Annual Certification of Compliance . Each Access Person shall certify to the Review Officer annually on the form annexed hereto as Form A that he or she (i) has read and understands this Code of Ethics and any procedures that are adopted by the Corporation related to this Code and recognizes that he or she is subject thereto, (ii) has complied with the requirements of this Code of Ethics and such procedures and (iii) has disclosed or reported all personal securities transactions and beneficial holdings in Covered Securities required to be disclosed or reported pursuant to the requirements of this Code of Ethics and any related procedures. |
C. | Review of Reports . |
(1) | The Review Officer or his or her designee shall compare the reported personal securities transactions of each Access Person with completed and contemplated portfolio transactions of the Corporation to determine whether any transactions that violate this Code may have occurred (a Reviewable Transaction). In the case of reports of personal securities transactions of the Review Officer, the Alternative Review Officer shall perform such comparison. Before making any determination that a violation has been committed by any Access Person, the Review Officer (or Alternative Review Officer, as the case may be) shall provide such Access Person an opportunity to supply additional explanatory material for the purposes of demonstrating that such transactions did not violate this Code. |
(2) | With respect to Disinterested Directors, if the Review Officer determines that a Reviewable Transaction may have occurred, he or she shall submit the report and pertinent information concerning completed or contemplated portfolio transactions of the Corporation to counsel for the Disinterested Directors. Such counsel shall determine whether a violation of this Code may have occurred, taking into account all the exemptions provided under Section II-C. Before making any determination that a violation has been committed by a Disinterested Director, such counsel shall give the Disinterested Director an opportunity to supply additional information regarding the transaction in question. |
(3) | With respect to Access Persons who are not Disinterested Directors, if the Review Officer determines that a Reviewable Transaction may have occurred, he or she shall submit his written determination, together with the confidential quarterly report and any additional explanatory material provided by the Access Person, to the President of the Corporation (or any Vice President of the Corporation if the actions of the President are at issue), who shall make an independent determination of whether a violation of this Code has occurred. |
- 9 -
D. | Board Reports . On an annual basis, the Review Officer shall prepare for the board of directors and the board of directors shall consider: |
(1) | A report which describes any issues arising under this Code or any related procedures adopted by the Corporation, including without limitation information about material violations of the Code or any related procedures and sanctions imposed in response to material violations. An Alternative Review Officer shall prepare reports with respect to compliance by the Review Officer. |
(2) | A report identifying any recommended changes to existing restrictions or procedures based upon the Corporations experience under this Code, evolving industry practices and developments in applicable laws or regulations; and |
(3) | A report certifying to the board of directors that the Corporation has adopted procedures that are reasonably necessary to prevent Access Persons from violating this Code of Ethics. |
E. | Sanctions . |
(1) | With respect to Disinterested Directors, if counsel for the Disinterested Directors determines that a violation of the Code has occurred, counsel shall so advise the President of the Corporation and a committee consisting of the Disinterested Directors, other than the Disinterested Director whose transaction is under consideration, and shall provide the committee with the report, the record of pertinent actual or contemplated portfolio transactions of the Corporation and any additional material supplied by such Disinterested Director. The committee, at its option, shall either impose such sanction(s) as it deems appropriate or refer the matter to the board of directors, which shall impose such sanction(s) as are deemed appropriate. |
(2) | With respect to Access Persons who are not Disinterested Directors, if the President (or a Vice President, as the case may be) finds that a violation of this Code has occurred, he or she shall impose such sanctions as he or she deems appropriate and shall report the violation and the sanction(s) imposed to the Board of Directors of the Corporation. |
(3) | Sanctions for violation of this Code include, but are not limited to, one or more of the following: removal or suspension from office, termination of employment, a letter of censure and/or restitution to the Corporation of an amount equal to the advantage that the offending person gained by reason of such violation. In addition, as part of any sanction, the Access Person may be required to reverse the trade(s) at issue and forfeit any profit or absorb any loss from the trade. It is noted that violations of this Code by an Access Person may also result in criminal prosecution or civil action. |
F. | Amendments to Advisers Codes of Ethics . Any material amendment to the Code of Ethics of any of the Advisers shall be deemed an amendment to Section I-A of this Code and must be approved by the board of directors no later than six months after the adoption of the material change. Before approving any material amendments to the Advisers Code of Ethics, the board must receive a certification from the Advisers that they have adopted procedures reasonably necessary to prevent Access Persons from violating the Advisers Code of Ethics. |
G. | Records . The Corporation shall maintain records in the manner and to the extent set forth below, which records may be maintained on microfilm under the conditions described in Rule 31a-2(f)(1) and Rule 17j-1 under the Investment Company Act and shall be available for examination by representatives of the Commission. |
(1) | A copy of this Code and any other code which is, or at any time within the past five years has been, in effect shall be preserved for a period of not less than five years in an easily accessible place; |
- 10 -
(2) | A record of any violation of this Code and of any action taken as a result of such violation shall be preserved in an easily accessible place for a period of not less than five years following the end of the fiscal year in which the violation occurs; |
(3) | A copy of each initial holdings report, annual holdings report and quarterly transaction report made by an Access Person pursuant to this Code (including any information provided under Section IV-B(2)) shall be preserved for a period of not less than five years from the end of the fiscal year in which it is made, the first two years in an easily accessible place; |
(4) | A list of all persons who are, or within the past five years have been, required to make initial holdings, annual holdings or quarterly transaction reports pursuant to this Code shall be maintained in an easily accessible place; |
(5) | A list of all persons, currently or within the past five years who are or were responsible for reviewing initial holdings, annual holdings or quarterly transaction reports shall be maintained in an easily accessible place; and |
(6) | A copy of each report required by Section V-D of this Code must be maintained for at least five years after the end of the fiscal year in which it was made, the first two years in an easily accessible plan. |
H. | Confidentiality . All reports of securities transactions, holdings reports and any other information filed with the Corporation pursuant to this Code shall be treated as confidential, except that reports of securities transactions hereunder will be made available to the Commission or any other regulatory or self-regulatory organization to the extent required by law or regulation or to the extent the Corporation considers necessary or advisable in cooperating with an investigation or inquiry by the Commission or any other regulatory or self-regulatory organization. |
I. | Interpretation of Provisions . The board of directors may from time to time adopt such interpretations of this Code as it deems appropriate. |
J. | Exceptions to the Code . Although exceptions to the Code will rarely, if ever, be granted, a designated officer of the Corporation, after consultation with the Review Officer, may make exceptions on a case by case basis, from any of the provisions of this Code upon a determination that the conduct at issue involves a negligible opportunity for abuse or otherwise merits an exception from the Code. All such exceptions must be received in writing by the person requesting the exception before becoming effective. The Review Officer shall report any exception to the board of directors of the Corporation at the next regularly scheduled board meeting. |
K. | Identification of Access Persons . The Review Officer shall identify all persons who are considered to be Access Persons and shall inform such persons of their respective duties and provide them with copies of this Code and any related procedures adopted by the Corporation. |
Revision History
| March 13, 2013 (Initial Approval) |
- 11 -