UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM  10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2014
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 0-54251
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
(Exact Name of Registrant as Specified in its Charter)

Maryland
 
27-2614444
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
405 Park Avenue, 3rd Floor
New York, New York
 
10022
(Address of Principal Executive Office)
 
(Zip Code)

(212) 415-6500
(Registrant’s Telephone Number, Including Area Code)

Not applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes o
No x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (check one):
Large accelerated filer o
 
Accelerated filer o
 
 
 
Non-accelerated filer x
 
Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  
 Yes o No x
The number of shares of the registrant's common stock, $0.001 par value, outstanding as of May 15, 2014 was 113,463,363.


BUSINESS DEVELOPMENT CORPORATION OF AMERICA
FORM  10-Q FOR THE THREE MONTHS ENDED MARCH 31, 2014
TABLE OF CONTENTS
 
 
 
 
Page
PART I
  
Notes to Consolidated Financial Statements  as of March 31, 2014 (Unaudited)
Item 2. Management's Discussion and Analysis  of Financial Condition and Results of Operations
PART II
 


PART I
Item 1. Consolidated Financial Statements.

BUSINESS DEVELOPMENT CORPORATION OF AMERICA
  CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(in thousands except share and per share data)
 
March 31,
 
December 31,
 
2014
 
2013
ASSETS
(Unaudited)
 
 
Investments, at fair value:
 
 
 
Control Investments, at fair value (amortized cost of $57,840 and $34,132, respectively)
$
57,761

 
$
34,132

Affiliate Investments, at fair value (amortized cost of $240,165 and $150,729, respectively)
241,153

 
154,209

Non-affiliate Investments, at fair value (amortized cost of $645,732 and $501,416, respectively)
650,751

 
507,435

Investments, at fair value (amortized cost of $943,737 and $686,277, respectively)
949,665

 
695,776

Cash and cash equivalents
56,552

 
12,995

Cash collateral on deposit with custodian
78,995

 
76,874

Interest receivable
9,216

 
7,527

Dividend receivable
844

 
738

Receivable for unsettled trades
15,938

 
36,158

Receivable due on total return swap
3,394

 
4,053

Unrealized gain on total return swap
3,278

 
3,180

Deferred credit facility financing costs, net
2,969

 
2,278

Prepaid expenses and other assets
1,186

 
1,003

Due from affiliate
—

 
1,059

Total assets
$
1,122,037

 
$
841,641

 
 
 
 
LIABILITIES
 

 
 

Revolving credit facility
$
154,687

 
$
132,687

Interest and credit facility fees payable
1,047

 
715

Payable for unsettled trades
20,363

 
67,003

Stockholder distributions payable
6,695

 
4,578

Management fees payable
3,426

 
2,689

Accrued capital gains incentive fees
2,645

 
2,802

Subordinated income incentive fees payable
778

 
2,577

Payable for common stock repurchases
1,102

 
88

Accounts payable and accrued expenses
614

 
599

Due to affiliate
264

 
—

Total liabilities
$
191,621

 
$
213,738

 
 
 
 
Commitments and contingencies (Note 7)
 
 
 
 
 
 
 
NET ASSETS
 
 
 
Preferred stock, $.001 par value, 50,000,000 shares authorized, none issued and outstanding
$
—

 
$
—

Common stock, $.001 par value, 450,000,000 shares authorized, 94,132,120 and 63,671,644 shares issued and outstanding, respectively
94

 
64

Capital in excess of par value
914,009

 
611,703

Accumulated over distributed net investment income
(1,348
)
 
(509
)
Accumulated under distributed realized gains
8,455

 
3,966

Net unrealized appreciation on investments and total return swap
9,206

 
12,679

Net assets
930,416

 
627,903

 
 
 
 
Total liabilities and net assets
$
1,122,037

 
$
841,641

 
 
 
 
Net asset value per share
$
9.88

 
$
9.86

The accompanying notes are an integral part of these statements.

1


BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands except per share data)
(Unaudited)
 
 
For the three months ended March 31,
 
 
2014
 
2013
Investment income:
 
 
 
 
Interest from investments
 
 
 
 
Control investments
 
$
966

 
$
—

Affiliate investments
 
4,289

 
—

Non-control/non-affiliate investments
 
11,521

 
4,235

Total interest from investments
 
16,776

 
4,235

Interest from cash and cash equivalents
 
5

 
1

Total interest income
 
16,781

 
4,236

Other income
 
1,709

 
119

Total investment income
 
18,490

 
4,355

 
 
 
 
 
Operating expenses:
 
 

 
 

Interest and credit facility financing expenses
 
1,294

 
302

Management fees
 
3,631

 
827

Subordinated income incentive fees
 
778

 
729

Capital gains incentive fees
 
(19
)
 
330

Professional fees
 
743

 
238

Insurance
 
58

 
54

Directors fees
 
17

 
16

Other administrative
 
42

 
58

Expenses before expense waivers and reimbursements from Adviser
 
6,544

 
2,554

Waiver of management and incentive fees
 
—

 
(406
)
Total expenses net of expense waivers and reimbursements from Adviser
 
6,544

 
2,148

 
 
 
 
 
Net investment income
 
11,946

 
2,207

 
 
 
 
 
Realized and unrealized gain on investments and total return swap:
 
 
 
 
Net realized gain from investments
 
3,476

 
996

Net realized gain from total return swap
 
5,451

 
1,796

Net change in unrealized appreciation (depreciation) on investments
 
(3,571
)
 
658

Net change in unrealized appreciation on total return swap
 
98

 
2,283

Net realized and unrealized gain on investments and total return swap
 
5,454

 
5,733

 
 
 
 
 
Net increase in net assets resulting from operations
 
$
17,400

 
$
7,940

 
 
 
 
 
Per share information - basic and diluted
 
 
 
 
Net investment income
 
$
0.15

 
$
0.12

Net increase in net assets resulting from operations
 
$
0.22

 
$
0.42

Weighted average shares outstanding
 
78,450

 
18,939



The accompanying notes are an integral part of these statements.

2

BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
(dollars in thousands except share and per share data)
(Unaudited)

 
For the Three Months Ended March 31,
 
2014
 
2013
Operations:
 
 
 
Net investment income
$
11,946

 
$
2,207

Net realized gain from investments
3,476

 
996

Net realized gain from total return swap
5,451

 
1,796

Net change in unrealized appreciation (depreciation) on investments
(3,571
)
 
658

Net change in unrealized appreciation on total return swap
98

 
2,283

Net increase in net assets from operations
17,400

 
7,940

Stockholder distributions:
 

 
 

Distributions from net investment income
(11,946
)
 
(2,207
)
Distributions from net realized gain from investments and total return swap
(4,933
)
 
(1,713
)
Net decrease in net assets from stockholder distributions
(16,879
)
 
(3,920
)
Capital share transactions:
 

 
 

Issuance of common stock, net of issuance costs
296,166

 
69,176

Reinvestment of stockholder distributions
6,789

 
1,143

Repurchases of common stock
(963
)
 
(156
)
Net increase in net assets from capital share transactions
301,992

 
70,163

 
 
 
 
Total increase in net assets
302,513

 
74,183

Net assets at beginning of period
627,903

 
140,685

Net assets at end of period
$
930,416

 
$
214,868

 
 
 
 
Net asset value per common share
$
9.88

 
$
9.63

Common shares outstanding at end of period
94,132,120

 
22,323,260

 
 
 
 
Accumulated under/ (over) distributed net investment income
$
(1,348
)
 
$
1,775

Accumulated under distributed realized gains
$
8,455

 
$
—




The accompanying notes are an integral part of these statements.

3
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(Unaudited)

 
For the Three Months Ended March 31,
 
2014
 
2013
Operating activities:
 
 
 
Net increase in net assets from operations
$
17,400

 
$
7,940

Adjustments to reconcile net increase (decrease) in net assets from operations to net cash used in operating activities:
 
 
 
Paid-in-kind interest income
(774
)
 
(90
)
Net accretion of discount on investments
(374
)
 
(118
)
Amortization of deferred financing costs
159

 
51

Sales and repayments of investments
153,490

 
70,702

Purchase of investments
(406,327
)
 
(113,787
)
Net realized gain from investments
(3,476
)
 
(996
)
Net unrealized (appreciation) depreciation on investments
3,571

 
(658
)
Net unrealized appreciation on total return swap
(98
)
 
(2,283
)
(Increase) decrease in operating assets:
 
 
 
Cash collateral on deposit with custodian
(2,122
)
 
(19,758
)
Interest receivable
(1,689
)
 
(1,340
)
Dividend receivable
(106
)
 
—

Receivable due on total return swap
659

 
(117
)
Prepaid expenses and other assets
(183
)
 
(106
)
Receivable for unsettled trades
20,220

 
(645
)
Increase (decrease) in operating liabilities:
 
 
 
Payable for unsettled trades
(46,640
)
 
472

Management and incentive fees payable
(1,218
)
 
934

Interest and credit facility fees payable
332

 
39

Accounts payable and accrued expenses
15

 
10

Payable for common stock repurchases
1,014

 
—

Net cash used in operating activities
(266,147
)
 
(59,750
)
 
 
 
 
Financing activities:
 

 
 

Proceeds from issuance of shares of common stock, net
296,166

 
69,176

Repurchases of common stock
(963
)
 
(282
)
Decrease (increase) in deferred offering costs receivable
909

 
268

Proceeds from revolving credit facility
22,000

 
2,000

Payments on revolving credit facility
(850
)
 
(4,720
)
Payments of financing cost
414

 
—

Payments to (proceeds from) affiliate
—

 
232

Stockholder distributions
(7,972
)
 
(2,266
)
Net cash provided by financing activities
309,704

 
64,408

 
 
 
 
Net increase (decrease) in cash and cash equivalents
43,557

 
4,658

Cash and cash equivalents, beginning of period
12,995

 
14,180

Cash and cash equivalents, end of period
$
56,552

 
$
18,838

 
 
 
 

4
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(Unaudited)

 
For the Three Months Ended March 31,
 
2014
 
2013
Supplemental information:
 

 
 

Interest paid during the period
$
609

 
$
210

Supplemental non-cash information:
 
 
 
Payable for common stock repurchases
$
1,102

 
$
50

DRIP distribution payable
$
3,196

 
$
1,008

Cash distribution payable
$
3,499

 
$
525

DRIP distribution paid
$
6,789

 
$
1,143


The accompanying notes are an integral part of these statements.

5
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED SCHEDULE OF INVESTMENTS
(dollars in thousands)


March 31, 2014
(Unaudited)
Portfolio Company (a) (q)
 
Industry
 
Investment Coupon Rate/Maturity
 
Principal / Number of Shares
 
Amortized Cost
 
Fair Value (c)
 
% of Net Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
Senior Secured First Lien Debt - 49.4% (b)
 
 
 
 
 
 
 
 
 
 
 
 
ABRA, Inc. (j)
 
Automotive
 
L+6.00% (7.25%), 5/10/2018
 
$
10,652

 
$
10,547

 
$
10,546

 
1.1
%
Adventure Interactive Corp.
 
Media
 
L+6.75% (8.00%), 3/22/2018
 
19,873

 
19,607

 
19,571

 
2.1
%
American Importing Company, Inc.
 
Food Products
 
L+5.75% (7.00%), 5/23/2018
 
10,918

 
10,827

 
10,906

 
1.2
%
Answers.com
 
Internet Software & Services
 
L+5.50% (6.50%), 12/20/2018
 
14,813

 
14,670

 
14,757

 
1.6
%
AP Gaming I, LLC
 
Hotels, Restaurants & Leisure
 
L+8.25% (9.25%), 12/20/2020
 
9,975

 
9,686

 
9,900

 
1.1
%
Avaya, Inc.
 
Communications Equipment
 
L+5.50% (6.50%), 3/31/2018
 
3,921

 
3,623

 
3,925

 
0.4
%
BBTS Borrower LP
 
Oil, Gas & Consumable Fuels
 
L+6.50% (7.75%), 6/4/2019
 
5,940

 
5,887

 
5,990

 
0.6
%
Chicken Soup for the Soul Publishing, LLC
 
Publishing
 
L+6.00% (7.25%), 1/8/2019
 
30,000

 
29,641

 
29,624

 
3.2
%
Collision Holding Company, LLC
 
Automotive
 
L+6.00% (7.25%), 5/10/2018
 
2,352

 
2,329

 
2,329

 
0.3
%
Creative Circle, LLC
 
Professional Services
 
L+5.25% (6.50%), 9/28/2017
 
7,079

 
6,971

 
7,114

 
0.8
%
ECI Acquisition Holdings, Inc. (k)
 
Technology - Enterprise Solutions
 
L+5.25% (8.50%), 3/11/2019
 
12,413

 
12,352

 
12,351

 
1.3
%
Epic Health Services, Inc.
 
Health Care Providers & Services
 
L+5.25% (6.50%), 10/16/2018
 
13,825

 
13,699

 
13,725

 
1.5
%
Excelitas Technologies Corp.
 
Electronic Equipment, Instruments & Components
L+5.00% (6.00%), 11/2/2020
 
7,383

 
7,314

 
7,411

 
0.8
%
Expera Specialty Solutions, LLC
 
Paper & Forest Products
 
L+6.25% (7.50%), 12/26/2018
 
7,940

 
7,800

 
7,999

 
0.9
%
EZE Trucking, Inc. (d) (n)
 
Road & Rail
 
L+11.75% (12.00%), 7/31/2018
 
12,443

 
12,390

 
12,053

 
1.3
%
Flexera Software LLC
 
Electronic Equipment, Instruments & Components
L+3.50% (4.50%), 4/2/2020
 
2,000

 
1,990

 
1,990

 
0.2
%
Global Telecom & Technology, Inc.
 
Internet Software & Services
 
L+5.50% (6.50%), 3/31/2016
 
7,400

 
7,326

 
7,395

 
0.8
%
HIG Integrity Nutraceuticals
 
Food Products
 
L+8.75% (9.75%), 12/17/2018
 
26,000

 
25,631

 
25,665

 
2.8
%
ILC Dover LP
 
Aerospace & Defense
 
L+5.50% (6.50%), 3/19/2020
 
15,000

 
14,925

 
14,925

 
1.6
%
InMotion Entertainment Group, LLC
 
Retailers (except food & drug)
 
L+7.75% (9.00%), 3/12/2019
 
10,000

 
9,827

 
9,825

 
1.0
%
Jackson Hewitt, Inc.
 
Diversified Consumer Services
 
L+8.50% (10.00%), 10/16/2017
 
12,407

 
12,365

 
12,314

 
1.3
%
K2 Pure Solutions NoCal, L.P.
 
Chemicals
 
L+6.00% (7.00%), 8/19/2019
 
10,000

 
9,820

 
9,794

 
1.1
%
Kahala US OpCo LLC (d) (o)
 
Aerospace & Defense
 
L+8.00% (13.00%), 12/23/2028
 
19,543

 
19,543

 
19,543

 
2.1
%
Med-Data Incorporated
 
Health Care Providers & Services
 
L+7.25% (8.25%), 11/22/2018
 
14,906

 
14,684

 
14,683

 
1.6
%
Medpace Holdings, Inc
 
Health Care Providers & Services
 
L+4.00% (5.00%), 3/31/2021
 
5,000

 
4,975

 
4,975

 
0.5
%
Miller Heiman, Inc.
 
Media
 
L+5.75% (6.75%), 9/30/2019
 
15,155

 
14,736

 
14,599

 
1.6
%
National Technical Systems, Inc. (v)
 
Professional Services
 
L+5.50% (6.75%), 11/22/2018
 
18,750

 
18,603

 
18,615

 
2.0
%

6
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED SCHEDULE OF INVESTMENTS
(dollars in thousands)


March 31, 2014
(Unaudited)
Portfolio Company (a) (q)
 
Industry
 
Investment Coupon Rate/Maturity
 
Principal / Number of Shares
 
Amortized Cost
 
Fair Value (c)
 
% of Net Assets
NextCare, Inc. (m)
 
Health Care Providers & Services
 
L+5.50% (6.75%), 10/10/2017
 
$
16,853

 
$
16,629

 
$
16,649

 
1.8
%
North Atlantic Trading Company, Inc.
 
Food Products
 
L+6.50% (7.75%), 1/13/2020
 
11,971

 
11,855

 
12,061

 
1.3
%
NXT Capital, LLC
 
Commercial Banks
 
L+5.25% (6.25%), 9/4/2018
 
9,950

 
9,861

 
10,000

 
1.1
%
Park Ave RE Holdings, LLC (d) (o)
 
Real Estate Management & Development
 
L+8.00% (13.00%), 12/31/2017
 
24,088

 
24,088

 
24,088

 
2.6
%
PeopLease Holdings, LLC
 
Commercial Services & Supplies
 
L+10.00% (11.00%), 12/26/2018
 
10,000

 
9,810

 
9,779

 
1.1
%
Premier Dental Services, Inc.
 
Health Care Providers & Services
 
L+7.00% (8.25%), 11/1/2018
 
14,992

 
14,845

 
15,011

 
1.6
%
Pre-Paid Legal Services, Inc.
 
Diversified Consumer Services
 
L+5.00% (6.25%), 7/1/2019
 
6,791

 
6,732

 
6,850

 
0.7
%
Seaton Acquisition Corp.
 
Business Equipment & Services
 
L+5.75% (6.75%), 1/29/2019
 
5,000

 
4,951

 
4,950

 
0.5
%
The Tennis Channel Holdings, Inc. (d)
 
Media
 
L+8.50% (8.81%), 5/29/2017
 
15,366

 
14,996

 
14,955

 
1.6
%
Trimark USA, LLC
 
Food Products
 
L+6.25% (7.25%), 5/11/2019
 
13,500

 
13,367

 
13,365

 
1.4
%
United Central Industrial Supply Company, LLC
 
Commercial Services & Supplies
 
L+6.25% (7.50%), 10/9/2018
 
3,950

 
3,823

 
3,891

 
0.4
%
WBL SPE I., LLC (l)
 
Consumer Finance
 
15.00%, 9/30/2016
 
4,500

 
4,455

 
4,500

 
0.5
%
Sub Total Senior Secured First Lien Debt
 
 
 
 
 
 
 
$
457,180

 
$
458,623

 
49.4
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Senior Secured Second Lien Debt - 13.5% (b)
 
 
 
 
 
 
 
 
 
 
 
 
Boston Market Corporation
 
Hotels, Restaurants & Leisure
 
L+7.75% (8.75%), 12/16/2018
 
$
25,000

 
$
24,647

 
$
24,597

 
2.6
%
CPX Interactive Holdings, LP
 
Publishing
 
L+10.00% (11.00%), 3/26/2018
 
20,000

 
18,668

 
18,663

 
2.0
%
CREDITCORP
 
Consumer Finance
 
12.00%, 7/15/2018
 
13,250

 
13,172

 
13,714

 
1.5
%
Flexera Software LLC
 
Electronic Equipment, Instruments & Components
L+7.00% (8.00%), 4/2/2021
 
2,000

 
1,990

 
1,990

 
0.2
%
H.D. Vest, Inc.
 
Diversified Consumer Services
 
L+8.00% (9.25%), 6/18/2019
 
8,750

 
8,655

 
8,641

 
0.9
%
Interblock USA L.C.
 
Electronic Equipment, Instruments & Components
L+8.75% (9.75%), 3/28/2018
 
23,000

 
22,541

 
22,540

 
2.4
%
Linc Energy Finance USA, Inc.
 
Oil, Gas & Consumable Fuels
 
12.50%, 10/31/2017
 
9,000

 
8,873

 
9,837

 
1.1
%
MBLOX Inc.
 
Internet Software & Services
 
10.75%, 9/28/2016
 
7,000

 
6,972

 
7,038

 
0.8
%
NCP Finance Limited Partnership
 
Consumer Finance
 
L+9.75% (11.00%), 10/1/2018
 
7,960

 
7,815

 
7,920

 
0.9
%
SkyCross, Inc.
 
Electronic Equipment, Instruments & Components
11.85%, 4/1/2017
 
5,000

 
4,978

 
4,835

 
0.5
%
Zimbra, Inc.
 
Software
 
10.75%, 7/1/2016
 
6,000

 
5,975

 
6,140

 
0.6

Sub Total Senior Secured Second Lien Debt
 
 
 
 
 
 
 
$
124,286

 
$
125,915

 
13.5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Subordinated Debt - 6.2% (b)
 
 
 
 
 
 
 
 
 
 
 
 
Gold, Inc. (d)
 
Textiles, Apparel & Luxury Goods
 
15.00%, 12/31/2017
 
$
12,163

 
$
11,945

 
$
11,974

 
1.3
%

7
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED SCHEDULE OF INVESTMENTS
(dollars in thousands)


March 31, 2014
(Unaudited)
Portfolio Company (a) (q)
 
Industry
 
Investment Coupon Rate/Maturity
 
Principal / Number of Shares
 
Amortized Cost
 
Fair Value (c)
 
% of Net Assets
S.B. Restaurant Co., Inc. - Senior Subordinated Debt (e) (t)
 
Hotels, Restaurants & Leisure
 
1/10/2018
 
$
134

 
$
88

 
$
—

 
—
%
S.B. Restaurant Co., Inc. (d) (e) (t)
 
Hotels, Restaurants & Leisure
 
14.00%, 1/10/2018
 
4,050

 
3,974

 
—

 
—
%
The SAVO Group, Ltd.
 
Internet Software & Services
 
10.95%, 4/1/2017
 
5,000

 
4,979

 
5,014

 
0.5
%
Varel International Energy Mezzanine Funding Corp. (d)
 
Oil, Gas & Consumable Fuels
 
14.00%, 1/15/2018
 
10,499

 
10,420

 
11,390

 
1.2
%
Vestcom Acquisition, Inc.
 
Media
 
12.00%, 6/26/2019
 
7,500

 
7,436

 
7,573

 
0.8
%
Visionary Integration Professionals, LLC
 
IT Services
 
13.00%, 12/3/2018
 
11,072

 
9,943

 
9,962

 
1.1
%
Xplornet Communications, Inc.
 
Diversified Telecommunication Services
 
13.00%, 10/25/2020
 
10,000

 
10,000

 
9,962

 
1.1
%
Zimbra, Inc.
 
Software
 
12.00%, 7/10/2018
 
2,000

 
2,000

 
2,000

 
0.2
%
Sub Total Subordinated Debt
 
 
 
 
 
 
 
$
60,785

 
$
57,875

 
6.2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Collateralized Securities - 16.5% (b)
 
 
 
 
 
 
 
 
 
 
 
 
Apidos XVI CLO, LTD. Subordinated Notes (p)
 
Diversified Investment Vehicles
 
1/19/2025
 
$
15,000

 
$
13,650

 
$
13,584

 
1.5
%
CVP Cascade CLO, LTD. Subordinated Notes (p)
 
Diversified Investment Vehicles
 
12/20/2020
 
31,000

 
24,843

 
24,843

 
2.7
%
Garrison Funding 2013 - 1 Ltd. Subordinated Notes (e) (p)
 
Diversified Investment Vehicles
 
9/30/2023
 
15,000

 
15,000

 
15,000

 
1.6
%
MidOcean Credit Fund Management LP (p)
 
Diversified Investment Vehicles
 
1/15/2024
 
37,600

 
34,058

 
34,058

 
3.7
%
OFSI Fund VI, Ltd. Subordinated Notes (p)
 
Diversified Investment Vehicles
 
3/20/2025
 
38,000

 
32,895

 
32,895

 
3.5
%
Related Fee Agreements (s)
 
Diversified Investment Vehicles
 
 
 
—

 
6,684

 
6,797

 
0.7
%
Shackleton 2014-V CLO, LTD. Subordinated Notes (p)
 
Diversified Investment Vehicles
 
1/30/2015
 
26,250

 
26,250

 
26,250

 
2.8
%
Sub Total Collateralized Securities
 
 
 
 
 
 
 
$
153,380

 
$
153,427

 
16.5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity/Other - 16.4% (b)
 
 
 
 
 
 
 
 
 
 
 
 
Carlyle GMS Finance, Inc. (i)
 
Diversified Investment Vehicles
 
 
 
$
2,371

 
$
2,371

 
$
2,371

 
0.3
%
CPX Interactive Holdings, LP - Warrants (e) (u)
 
Publishing
 
 
 
317

 
1,087

 
1,087

 
0.1
%
CPX Interactive Holdings, LP - Series A Convertible Preferred Stock (d) (e) (u)
 
Publishing
 
8.00%
 
6

 
6,000

 
6,000

 
0.6
%
Crowley Holdings, Inc. - Series A Preferred Stock (d)
 
Marine
 
12.00%
 
25

 
25,137

 
25,228

 
2.7
%
Fifth Street Senior Loan Fund I, LLC (e) (p)
 
Diversified Investment Vehicles
 
 
 
$
14,455

 
14,455

 
14,455

 
1.6
%
HIG Integrity Neutraceuticals (e)
 
Food Products
 
 
 
$
850

 
850

 
895

 
0.1
%
Kahala Aviation Holdings, LLC - Preferred Stock (e) (o) (x)
 
Aerospace & Defense
 
13.00%
 
$
6,321

 
6,321

 
6,321

 
0.7

Kahala Aviation Holdings, LLC (e) (o) (r) (x)
 
Aerospace & Defense
 
 
 
—

 
—

 
—

 
—
%
MBLOX Inc. - Warrants (e)
 
Internet Software & Services
 
 
 
1,531

 
—

 
777

 
0.1
%
NewStar Arlington Fund LLC (p)
 
Diversified Investment Vehicles
 
 
 
$
30,000

 
30,000

 
30,000

 
3.2
%

8
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED SCHEDULE OF INVESTMENTS
(dollars in thousands)


March 31, 2014
(Unaudited)
Portfolio Company (a) (q)
 
Industry
 
Investment Coupon Rate/Maturity
 
Principal / Number of Shares
 
Amortized Cost
 
Fair Value (c)
 
% of Net Assets
Park Ave RE, Inc. (e) (o) (w)
 
Real Estate Management & Development
 
 
 
$
79

 
$
79

 
$
—

 
—
%
Park Ave RE, Inc. - Preferred Stock (e) (o) (w)
 
Real Estate Management & Development
 
8.00%
 
$
7,809

 
7,809

 
7,809

 
0.8
%
PennantPark Credit Opportunity Fund, LP (g) (p)
 
Diversified Investment Vehicles
 
 
 
$
10,000

 
10,000

 
10,791

 
1.2
%
Precision Dermatology, Inc. - Warrants (e)
 
Pharmaceuticals
 
 
 
218

 
—

 
—

 
—
%
S.B. Restaurant Co., Inc. - Warrants (e)
 
Hotels, Restaurants & Leisure
 
 
 
—

 
—

 
—

 
—
%
SkyCross Inc. - Warrants (e)
 
Electronic Equipment, Instruments & Components
 
 
2,254

 
—

 
450

 
—
%
South Grand MM CLO I, LLC (p)
 
Diversified Investment Vehicles
 
 
 
$
22,209

 
21,903

 
22,209

 
2.4
%
Tennenbaum Waterman Fund, L.P. (e) (f)
 
Diversified Investment Vehicles
 
 
 
$
5,535

 
5,535

 
5,935

 
0.6
%
The SAVO Group, Ltd. - Warrants (e)
 
Internet Software & Services
 
 
 
138

 
—

 
1,301

 
0.1
%
THL Credit Greenway Fund II LLC (h) (p)
 
Diversified Investment Vehicles
 
 
 
$
11,899

 
11,899

 
11,938

 
1.3
%
Visionary Integration Professionals, LLC - Warrants (e) (u)
 
IT Services
 
 
 
657

 
910

 
921

 
0.1
%
World Business Lenders, LLC (e)
 
Consumer Finance
 
 
 
$
3,750

 
3,750

 
3,750

 
0.4
%
Xplornet Communications Inc. - Warrants (e)
 
Diversified Telecommunication Services
 
 
 
10

 
—

 
—

 
—
%
Zimbra, Inc. - Warrants (Second Lien Debt) (e)
 
Software
 
 
 
535

 
—

 
255

 
—
%
Zimbra, Inc. - Warrants (Third Lien Bridge Note) (e)
 
Software
 
 
 
1,000

 
—

 
1,332

 
0.1
%
Sub Total Equity/Other
 
 
 
 
 
 
 
$
148,106

 
$
153,825

 
16.4
%
 
 
 
 
 
 
 
 
 
 
 
 
 
TOTAL INVESTMENTS - 102.0% (b)
 
 
 
 
 
 
 
$
943,737

 
$
949,665

 
102.0
%

9
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED SCHEDULE OF INVESTMENTS
(dollars in thousands)



______________

(a)
All of the Company's investments are issued by eligible portfolio companies, as defined in the Investment Company Act of 1940, except Apidos XVI CLO, LTD. Subordinated Notes, Carlyle GMS Finance, Inc., CVP Cascade CLO, LTD. Subordinated Notes, Fifth Street Senior Loan Fund I, LLC, Garrison Funding 2013-1 Ltd. Subordinated Notes, MidOcean Credit Fund Management LP, NewStar Arlington Fund, LLC, NXT Capital LLC, OFSI Fund VI, Ltd. Subordinated Notes, PennantPark Credit Opportunity Fund LP, Related Fee Agreements, Shackleton 2014-V CLO, LTD. Subordinated Notes, South Grand MM CLO I, LLC, Tennenbaum Waterman Fund, L.P., THL Credit Greenway Fund II LLC, and Xplornet Communications, Inc.
(b)
Percentages are based on net assets of $ 930,416 thousand as of March 31, 2014 .
(c)
Because there is no readily available market value for these investments, the fair value of these investments is determined in good faith by the Company's board of directors as required by the 1940 Act. (See Note 3 to the financial statements).
(d)
Terms of loan include PIK interest.
(e)
Non-income producing at March 31, 2014 .
(f)
The Company has committed to fund $10.0 million in Tennenbaum Waterman Fund, L.P. over a period ending no later than September 2015. The remaining commitment as of March 31, 2014 was $4.5 million.
(g)
The investment is subject to a three year lock-up restriction on withdrawals in year 4.
(h)
The Company has committed to fund $20.0 million in THL Credit Greenway II LLC over a period ending no later than March 2015. The remaining commitment as of March 31, 2014 was $8.1 million.
(i)
The Company has committed to fund $10.0 million in Carlyle GMS Finance, Inc. The remaining commitment as of March 31, 2014 was $7.6 million.
(j)
The Company has committed to fund a delayed draw term loan of $2.4 million in ABRA, Inc. The remaining commitment as of March 31, 2014 was $0.3 million.
(k)
The Company has committed to fund a delayed draw term loan of $2.6 million in ECI Acquisition Holdings, Inc. The remaining commitment as of March 31, 2014 was $2.6 million.
(l)
The Company has committed to fund a delayed draw term loan of $15.0 million in WBL SPE I, LLC. The remaining commitment as of March 31, 2014 was $10.5 million.
(m)
The Company has committed to fund a delayed draw term loan of $7.8 million in NextCare, Inc. The remaining commitment as of March 31, 2014 was $7.7 million.
(n)
The Company has committed to fund a delayed draw term loan of $2.0 million in EZE Trucking, Inc. The remaining commitment as of March 31, 2014 was $2.0 million.
(o)
The Company's investments are classified in accordance with the requirements of the Investment Company Act of 1940. Under the Investment Company Act of 1940, “Control Investments” are defined as investments in companies in which the Company owns more than 25% of the voting securities, maintains greater than 50% of the board representation or has the power to exercise control over the management or policies of such portfolio company.
(p)
The Company's investments are classified in accordance with the requirements of the Investment Company Act of 1940. Under the Investment Company Act of 1940, “Affiliated Investments” are defined as those non-control investments in companies in which the Company owns between 5% and 25% of the voting securities.
(q)
The Company's investments are classified in accordance with the requirements of the Investment Company Act of 1940. Under the Investment Company Act of 1940, "Non-affiliated Investments" are defined as investments that are neither Control Investments nor Affiliated Investments: The Company classifies all investments within the Consolidated Schedule of Investments which are not classified as Control Investments or Affiliated Investments as Non-affiliated Investments.
(r)
In accordance with subscription agreement executed with Kahala Aviation Holdings, LLC, dated December 23, 2013, the Company owns 84 common units of shares.
(s)
Related Fee Agreements consists of one investment with a fair value of $1,667 thousand that is classified as a "Non-affiliated Investment" and two investments with a total fair value of $5,130 thousand that are classified as "Affiliated Investments".
(t)
The investment is on non-accrual status as of March 31, 2014.
(u)
Investments are held in the taxable wholly-owned, consolidated subsidiary, 54 th Street Equity Holdings, Inc.
(v)
T he Company has committed to fund a delayed draw term loan of $7.5 million in National Technical Systems, Inc. The remaining commitment as of March 31, 2014 was $1.3 million.
(w)
Park Ave RE, Inc. owns 100% of the equity of an operating company, Park Ave RE Holdings, LLC.
(x)
Through a taxable entity, Kahala Aviation Holdings, LLC owns 100% of the equity in an operating company, Kahala US OpCo LLC.






10
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED SCHEDULE OF INVESTMENTS
(dollars in thousands)


The following table shows the portfolio composition by industry grouping based on fair value at March 31, 2014 (dollars in thousands):

 
At March 31, 2014
 
Investments at
Fair Value
 
Percentage of
Total Portfolio
Diversified Investment Vehicles
$
251,126

 
26.5
%
Health Care Providers & Services
65,043

 
6.9
%
Food Products
62,892

 
6.7
%
Media
56,698

 
6.0
%
Publishing
55,374

 
5.8
%
Aerospace & Defense
40,789

 
4.3
%
Electronic Equipment, Instruments & Components
39,216

 
4.1
%
Internet Software & Services
36,282

 
3.8
%
Hotels, Restaurants & Leisure
34,497

 
3.6
%
Real Estate Management & Development
31,897

 
3.4
%
Consumer Finance
29,884

 
3.1
%
Diversified Consumer Services
27,805

 
2.9
%
Oil, Gas & Consumable Fuels
27,217

 
2.9
%
Professional Services
25,729

 
2.7
%
Marine
25,228

 
2.7
%
Commercial Services & Supplies
13,670

 
1.4
%
Automotive
12,875

 
1.4
%
Technology - Enterprise Solutions
12,351

 
1.3
%
Road & Rail
12,053

 
1.3
%
Textiles, Apparel & Luxury Goods
11,974

 
1.3
%
IT Services
10,883

 
1.1
%
Commercial Banks
10,000

 
1.1
%
Diversified Telecommunication Services
9,962

 
1.0
%
Retailers (except food & drug)
9,825

 
1.0
%
Chemicals
9,794

 
1.0
%
Software
9,727

 
1.0
%
Paper & Forest Products
7,999

 
0.8
%
Business Equipment & Services
4,950

 
0.5
%
Communications Equipment
3,925

 
0.4
%
Pharmaceuticals
—

 
—
%
Total
$
949,665

 
100.0
%
















11
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED SCHEDULE OF INVESTMENTS
(dollars in thousands)


December 31, 2013
Portfolio Company (a) (q)
 
Industry
 
Investment Coupon Rate/Maturity
 
Principal / Number of Shares
 
Amortized Cost
 
Fair Value (c)
 
% of Net Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
Senior Secured First Lien Debt - 53.2% (b)
 
 
 
 
 
 
 
 
 
 
 
 
Adventure Interactive Corp.
 
Media
 
L+6.75% (8.00%), 3/22/2018
 
$
19,873

 
$
19,590

 
$
19,575

 
3.1
%
American Dental Partners, Inc.
 
Health Care Providers & Services
 
L+5.00% (6.00%), 2/9/2018
 
3,895

 
3,836

 
3,817

 
0.6
%
American Importing Company, Inc.
 
Food Products
 
L+5.75% (7.00%), 5/23/2018
 
10,945

 
10,849

 
10,933

 
1.7
%
Answers.com
 
Internet Software & Services
 
L+5.50% (6.50%), 12/20/2018
 
15,000

 
14,850

 
14,850

 
2.4
%
AP Gaming I, LLC
 
Hotels, Restaurants & Leisure
 
L+8.25% (9.25%), 12/18/2020
 
10,000

 
9,700

 
9,700

 
1.5
%
Avaya, Inc.
 
Communications Equipment
 
L+4.50% (4.79%), 10/26/2017
 
3,933

 
3,616

 
3,842

 
0.6
%
BBTS Borrower LP
 
Oil, Gas & Consumable Fuels
 
L+6.50% (7.75%), 6/4/2019
 
5,955

 
5,900

 
5,985

 
1.0
%
Creative Circle, LLC
 
Professional Services
 
L+5.25% (6.50%), 9/28/2017
 
7,697

 
7,573

 
7,735

 
1.2
%
CST Industries, Inc.
 
Machinery
 
L+6.25% (7.75%), 5/23/2017
 
3,700

 
3,667

 
3,608

 
0.6
%
Epic Health Services
 
Health Care Providers & Services
 
L+5.25% (6.50%), 10/16/2018
 
14,000

 
13,865

 
13,899

 
2.2
%
Excelitas Technologies Corp.
 
Electronic Equipment, Instruments & Components
 
L+5.00% (6.00%), 10/25/2020
 
7,402

 
7,329

 
7,433

 
1.2
%
Expera Specialty Solutions, LLC
 
Paper & Forest Products
 
L+6.25% (7.50%), 7/28/2018
 
7,960

 
7,812

 
8,040

 
1.3
%
EZE Trucking, Inc. (d) (n)
 
Road & Rail
 
L+11.75% (12.00%), 7/31/2018
 
12,411

 
12,354

 
12,147

 
1.9
%
FairPay Solutions Inc. Term Loan A
 
Health Care Providers & Services
 
L+5.75% (7.00%), 1/16/2015
 
2,350

 
2,337

 
2,350

 
0.4
%
FairPay Solutions Inc. Term Loan B
 
Health Care Providers & Services
 
L+6.50% (8.00%), 1/16/2015
 
7,500

 
7,459

 
7,500

 
1.2
%
Global Telecom & Technology, Inc.
 
Internet Software & Services
 
L+5.50% (6.50%), 3/31/2016
 
7,600

 
7,524

 
7,559

 
1.2
%
HIG Integrity Neutraceuticals
 
Food Products
 
L+8.75% (9.75%), 12/17/2018
 
23,000

 
22,658

 
22,655

 
3.6
%
Ikaria Acquisitions, Inc.
 
Biotechnology
 
L+6.00% (7.25%), 7/31/2018
 
5,850

 
5,769

 
5,876

 
0.9
%
Jackson Hewitt, Inc.
 
Diversified Consumer Services
 
L+8.50% (10.00%), 10/16/2017
 
13,328

 
13,254

 
13,195

 
2.1
%
K2 Pure Solutions NoCal, L.P.
 
Chemicals
 
L+6.00% (7.00%), 8/19/2019
 
10,000

 
9,812

 
9,728

 
1.5
%
Kahala US OpCo LLC (o)
 
Aerospace & Defense
 
L+8.00% (13.00%), 12/23/2028
 
15,860

 
15,860

 
15,860

 
2.5
%
Miller Heiman
 
Media
 
L+5.75% (6.75%), 9/30/2018
 
15,250

 
14,810

 
15,174

 
2.4
%
Mitel Networks Corp.
 
Communications Equipment
 
L+5.75% (7.00%), 2/27/2019
 
3,570

 
3,538

 
3,570

 
0.6
%
National Technical Systems, Inc.
 
Professional Services
 
L+5.50% (6.75%), 11/22/2018
 
12,500

 
12,378

 
12,375

 
2.0
%
NextCare, Inc. (m)
 
Health Care Providers & Services
 
L+5.50% (6.75%), 10/10/2017
 
17,492

 
17,246

 
17,272

 
2.8
%
NXT Capital LLC
 
Commercial Banks
 
L+5.25% (6.25%), 9/4/2018
 
9,975

 
9,881

 
9,875

 
1.6
%
Park Ave RE Holdings, LLC (o)
 
Real Estate Management & Development
 
L+8.00% (13.00%), 12/31/2017
 
9,750

 
9,750

 
9,750

 
1.6
%

12
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED SCHEDULE OF INVESTMENTS
(dollars in thousands)


December 31, 2013
Portfolio Company (a) (q)
 
Industry
 
Investment Coupon Rate/Maturity
 
Principal / Number of Shares
 
Amortized Cost
 
Fair Value (c)
 
% of Net Assets
PeopLease Holdings, LLC
 
Commercial Services & Supplies
 
L+10.00% (11.00%), 12/26/2018
 
$
10,000

 
$
9,801

 
$
9,800

 
1.6
%
Premier Dental Services Inc.
 
Health Care Providers & Services
 
L+7.00% (8.25%), 11/1/2018
 
3,960

 
3,861

 
3,985

 
0.6
%
Pre-Paid Legal Services, Inc.
 
Diversified Consumer Services
 
L+5.00% (6.25%), 7/1/2019
 
7,313

 
7,247

 
7,354

 
1.2
%
Riverboat Corp. of Mississippi
 
Hotels, Restaurants & Leisure
 
L+8.75% (10.00%), 11/29/2016
 
10,000

 
9,846

 
10,025

 
1.6
%
Source Refrigeration & HVAC, Inc.
 
Commercial Services & Supplies
 
L+5.25% (6.75%), 4/30/2017
 
2,783

 
2,752

 
2,735

 
0.4
%
The Tennis Channel Holdings, Inc. (d)
 
Media
 
L+8.50% (8.81%), 5/23/2017
 
15,209

 
14,814

 
14,787

 
2.4
%
Trinity Consultants Holdings, Inc.
 
Commercial Services & Supplies
 
L+5.00% (6.25%), 4/15/2018
 
3,082

 
3,062

 
3,079

 
0.5
%
United Central Industrial Supply Company, LLC
 
Commercial Services & Supplies
 
L+6.25% (7.50%), 10/12/2018
 
3,960

 
3,827

 
3,762

 
0.6
%
WBL SPE I., LLC (l)
 
Consumer Finance
 
15.00%, 9/30/2016
 
3,750

 
3,713

 
3,750

 
0.6
%
Sub Total Senior Secured First Lien Debt
 
 
 
 
 
 
 
$
332,140

 
$
333,580

 
53.2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Senior Secured Second Lien Debt - 14.5% (b)
 
 
 
 
 
 
 
 
 
 
 
 
Boston Market
 
Hotels, Restaurants & Leisure
 
L+7.75% (8.75%), 12/13/2018
 
$
25,000

 
$
24,628

 
$
24,625

 
3.9
%
CREDITCORP
 
Consumer Finance
 
12.00%, 7/15/2018
 
13,250

 
13,168

 
13,250

 
2.1
%
Eureka Hunter Holdings, LLC
 
Oil, Gas & Consumable Fuels
 
12.50%, 8/16/2018
 
5,000

 
5,000

 
4,969

 
0.8
%
H.D. Vest, Inc.
 
Diversified Consumer Services
 
L+8.00% (9.25%), 6/18/2019
 
8,750

 
8,650

 
8,641

 
1.4
%
Linc Energy Finance USA, Inc.
 
Oil, Gas & Consumable Fuels
 
12.50%, 10/31/2017
 
9,000

 
8,866

 
9,853

 
1.6
%
MBLOX Inc.
 
Internet Software & Services
 
10.75%, 9/28/2016
 
7,000

 
6,970

 
7,011

 
1.1
%
NCP Finance Limited Partnership
 
Consumer Finance
 
L+9.75% (11.00%), 9/25/2015
 
7,980

 
7,827

 
7,940

 
1.3
%
SkyCross, Inc.
 
Electronic Equipment, Instruments & Components
 
11.85%, 4/1/2017
 
5,000

 
4,976

 
4,979

 
0.8
%
Teleflex Marine, Inc. (d)
 
Marine
 
13.50%, 8/24/2017
 
3,332

 
3,272

 
3,399

 
0.5
%
Zimbra, Inc.
 
Software
 
10.75%, 7/11/2016
 
6,000

 
5,974

 
6,137

 
1.0
%
Sub Total Senior Secured Second Lien Debt
 
 
 
 
 
 
 
$
89,331

 
$
90,804

 
14.5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Subordinated Debt - 9.5% (b)
 
 
 
 
 
 
 
 
 
 
 
 
Gold, Inc. (d)
 
Textiles, Apparel & Luxury Goods
 
15.00%, 12/31/2017
 
$
12,163

 
$
11,938

 
$
11,977

 
1.9
%
S.B. Restaurant Co., Inc. - Senior Subordinated Debt (d) (e)
 
Hotels, Restaurants & Leisure
 
1/10/2018
 
134

 
88

 
88

 
—
%
S.B. Restaurant Co., Inc. (d) (e) (r)
 
Hotels, Restaurants & Leisure
 
14.00%, 1/10/2018
 
4,050

 
3,974

 
2,024

 
0.3
%
The SAVO Group, Ltd.
 
Internet Software & Services
 
10.95%, 3/28/2017
 
5,000

 
4,978

 
5,005

 
0.8
%
Varel International Energy Mezzanine Funding Corp. (d)
 
Oil, Gas & Consumable Fuels
 
14.00%, 1/15/2018
 
10,395

 
10,311

 
11,251

 
1.8
%

13
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED SCHEDULE OF INVESTMENTS
(dollars in thousands)


December 31, 2013
Portfolio Company (a) (q)
 
Industry
 
Investment Coupon Rate/Maturity
 
Principal / Number of Shares
 
Amortized Cost
 
Fair Value (c)
 
% of Net Assets
Vestcom Acquisition, Inc.
 
Media
 
12.00%, 6/26/2019
 
$
7,500

 
$
7,434

 
$
7,525

 
1.2
%
Visionary Integration Professionals, LLC
 
IT Services
 
13.00%, 12/3/2018
 
11,017

 
9,844

 
9,831

 
1.6
%
Xplornet Communications, Inc.
 
Diversified Telecommunication Services
 
13.00%, 12/25/2020
 
10,000

 
10,000

 
10,000

 
1.6
%
Zimbra, Inc.
 
Software
 
12.00%, 7/10/2018
 
2,000

 
2,000

 
2,000

 
0.3
%
Sub Total Subordinated Debt
 
 
 
 
 
 
 
$
60,567

 
$
59,701

 
9.5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Collateralized Securities - 16.9% (b)
 
 
 
 
 
 
 
 
 
 
 
 
Apidos XVI CLO, LTD. Subordinated Notes (e) (p)
 
Diversified Investment Vehicles
 
1/19/2025
 
$
15,000

 
$
13,650

 
$
13,650

 
2.2
%
Catamaran CLO 2013-1 Ltd. Subordinated Notes (p)
 
Diversified Investment Vehicles
 
1/27/2025
 
19,500

 
17,940

 
20,404

 
3.2
%
CVP Cascade CLO-1, LTD. Subordinated Notes (e) (p)
 
Diversified Investment Vehicles
 
12/20/2020
 
31,000

 
28,086

 
28,086

 
4.5
%
Garrison Funding 2013 - 1 Ltd. Subordinated Notes (e) (p)
 
Diversified Investment Vehicles
 
9/30/2023
 
15,000

 
15,000

 
15,000

 
2.4
%
JMP Credit Advisors CLO II Ltd. Subordinated Notes (p)
 
Diversified Investment Vehicles
 
4/30/2023
 
6,000

 
5,700

 
6,099

 
1.0
%
MC Funding Ltd. Preferred Shares
 
Diversified Investment Vehicles
 
12/20/2020
 
4,000

 
3,366

 
2,163

 
0.3
%
MidOcean Credit CLO II, Ltd. Subordinated Notes (e) (p)
 
Diversified Investment Vehicles
 
1/15/2024
 
20,543

 
20,543

 
20,543

 
3.3
%
Sub Total Collateralized Securities
 
 
 
 
 
 
 
$
104,285

 
$
105,945

 
16.9
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity/Other - 16.7% (b)
 
 
 
 
 
 
 
 
 
 
 
 
Carlyle GMS Finance, Inc. (e) (i)
 
Diversified Investment Vehicles
 
 
 
$
2,221

 
$
2,221

 
$
2,173

 
0.3
%
Crowley Holdings Preferred, LLC - Series A Preferred Shares (d)
 
Marine
 
12.00%
 
25

 
25,000

 
25,000

 
4.0
%
HIG Integrity Neutraceuticals
 
Food Products
 
 
 
$
850

 
850

 
850

 
0.1
%
Kahala Aviation Holdings, LLC (e) (o) (j) (t)
 
Aerospace & Defense
 
 
 
—

 
—

 
—

 
—
%
Kahala Aviation Holdings, LLC - Preferred Shares (e) (o) (t)
 
Aerospace & Defense
 
13.00%
 
$
5,271

 
5,271

 
5,271

 
0.8
%
MBLOX Inc. - Warrants (e)
 
Internet Software & Services
 
 
 
1,531

 
—

 
705

 
0.1
%
NewStar Arlington Fund LLC (p)
 
Diversified Investment Vehicles
 
 
 
$
30,000

 
30,000

 
30,000

 
4.8
%
Park Ave RE, Inc. (e) (o) (s)
 
Real Estate Management & Development
 
 
 
$
33

 
33

 
33

 
—
%
Park Ave RE, Inc. - Preferred Shares (e) (o) (s)
 
Real Estate Management & Development
 
8.00%
 
$
3,218

 
3,218

 
3,218

 
0.5
%
PennantPark Credit Opportunities Fund, LP (g) (p)
 
Diversified Investment Vehicles
 
 
 
$
10,000

 
10,000

 
10,550

 
1.7
%

14
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED SCHEDULE OF INVESTMENTS
(dollars in thousands)


December 31, 2013
Portfolio Company (a) (q)
 
Industry
 
Investment Coupon Rate/Maturity
 
Principal / Number of Shares
 
Amortized Cost
 
Fair Value (c)
 
% of Net Assets
Precision Dermatology, Inc. - Warrants (e)
 
Pharmaceuticals
 
 
 
$
218

 
$
—

 
$
—

 
—
%
S.B. Restaurant Co., Inc. - Warrants (e)
 
Hotels, Restaurants & Leisure
 
 
 
—

 
—

 
—

 
—
%
SkyCross, Inc. - Warrants (e)
 
Electronic Equipment, Instruments & Components
 
 
 
1,127

 
—

 
450

 
0.1
%
South Grand MM CLO I, LLC (e) (p)
 
Diversified Investment Vehicles
 
 
 
$
872

 
872

 
872

 
0.1
%
Tennenbaum Waterman Fund, L.P. (e) (f)
 
Diversified Investment Vehicles
 
 
 
$
8,891

 
8,891

 
9,611

 
1.5
%
The SAVO Group, Ltd. - Warrants (e)
 
Internet Software & Services
 
 
 
138

 
—

 
1,302

 
0.2
%
THL Credit Greenway Fund II LLC (h) (p)
 
Diversified Investment Vehicles
 
 
 
$
8,938

 
8,938

 
9,005

 
1.4
%
Visionary Integration Professionals, LLC - Warrants (e)
 
IT Services
 
 
 
657

 
910

 
910

 
0.1
%
World Business Lenders, LLC (e)
 
Consumer Finance
 
 
 
$
3,750

 
3,750

 
3,751

 
0.6
%
Xplornet Communications Inc. - Warrants (e)
 
Diversified Telecommunication Services
 
 
 
10

 
—

 
—

 
—
%
Zimbra, Inc. - Warrants (Second Lien Debt) (e)
 
Software
 
 
 
535

 
—

 
447

 
0.1
%
Zimbra, Inc. - Warrants (Third Lien Bridge Note) (e)
 
Software
 
 
 
1,000

 
—

 
1,598

 
0.3
%
Sub Total Equity/Other
 
 
 
 
 
 
 
$
99,954

 
$
105,746

 
16.7
%
 
 
 
 
 
 
 
 
 
 
 
 
 
TOTAL INVESTMENTS - 110.8% (b)
 
 
 
 
 
 
 
$
686,277

 
$
695,776

 
110.8
%
     

15
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED SCHEDULE OF INVESTMENTS
(dollars in thousands)


______________

(a)
All of the Company's investments are issued by eligible portfolio companies, as defined in the Investment Company Act of 1940, except Apidos XVI CLO, LTD. Subordinated Notes, Carlyle GMS Finance, Inc., Catamaran CLO 2013-1 Ltd. Subordinated Notes, CVP Cascade CLO-1, LTD. Subordinated notes, Garrison Funding 2013-1 Ltd. Subordinated Notes, JMP Credit Advisors CLO II Ltd. Subordinated Notes, MC Funding Ltd. Preferred Shares, MidOcean Credit CLO II, Ltd., Mitel Networks Corp., NewStar Arlington Fund, LLC, NXT Capital LLC, PennantPark Credit Opportunities Fund LP, South Grand MM CLO I, LLC, Tennenbaum Waterman Fund, L.P., THL Credit Greenway Fund II LLC, and Xplornet Communications, Inc.
(b)
Percentages are based on net assets of $ 627,903 thousand as of December 31, 2013 .
(c)
Because there is no readily available market value for these investments, the fair value of these investments is determined in good faith by the Company's board of directors as required by the Investment Company Act of 1940. (See Note 3 to the financial statements).
(d)
Terms of loan include PIK interest.
(e)
Non-income producing at December 31, 2013.
(f)
The Company has committed to fund $10.0 million in Tennenbaum Waterman Fund, L.P. over a period ending no later than September 2015. The remaining commitment as of December 31, 2013 was $1.1 million.
(g)
The investment is subject to a three year lock-up restriction on withdrawals in year 4.
(h)
The Company has committed to fund $20.0 million in THL Credit Greenway II LLC over a period ending no later than March 2015. The remaining commitment as of December 31, 2013 was $11.1 million.
(i)
The Company has committed to fund $10.0 million in Carlyle GMS Finance, Inc. The remaining commitment as of December 31, 2013 was $7.8 million.
(j)
In accordance with subscription agreement executed with Kahala Aviation Holdings, LLC, dated December 23, 2013, the Company owns 84 common units of shares.
(k)
The Company has committed to fund a delayed draw term loan of $7.5 million in National Technical Systems, Inc. The remaining commitment as of December 31, 2013 was $7.5 million.
(l)
The Company has committed to fund a delayed draw term loan of $15.0 million in WBL SPE I, LLC. The remaining commitment as of December 31, 2013 was $11.3 million.
(m)
The Company has committed to fund a delayed draw term loan of $10.9 million in NextCare, Inc. The remaining commitment as of December 31, 2013 was $4.8 million.
(n)
The Company has committed to fund a delayed draw term loan of $2.0 million in EZE Trucking, Inc. The remaining commitment as of December 31, 2013 was $2.0 million.
(o)
The Company's investments are classified in accordance with the requirements of the 1940 Act. Under the 1940 Act, “Control Investments” are defined as investments in companies in which the Company owns more than 25% of the voting securities, maintains greater than 50% of the board representation or has the power to exercise control over the management or policies of such portfolio company.
(p)
The Company's investments are classified in accordance with the requirements of the 1940 Act. Under the 1940 Act, “Affiliated Investments” are defined as those non-control investments in companies in which the Company owns between 5% and 25% of the voting securities.
(q)
The Company's investments are classified in accordance with the requirements of the 1940 Act. Under the 1940 Act, "Non-affiliated Investments" are defined as investments that are neither Control Investments nor Affiliated Investments. The Company classifies all investments within the Consolidated Schedule of Investments which are not classified as Control Investments or Affiliated Investments as Non-affiliated Investments.
(r)
The investment is on non-accrual status as of December 31, 2013.
(s)
Park Ave RE, Inc. owns 100% of the equity of an operating company, Park Ave RE Holdings, LLC.
(t)
Through a taxable entity, Kahala Aviation Holdings, LLC owns 100% of the equity in an operating company, Kahala US OpCo LLC.




    

16
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
CONSOLIDATED SCHEDULE OF INVESTMENTS
(dollars in thousands)


The following table shows the portfolio composition by industry grouping based on fair value at December 31, 2013 (dollars in thousands):

 
At December 31, 2013
 
Investments at
Fair Value
 
Percentage of
Total Portfolio
Diversified Investment Vehicles
$
168,156

 
24.2
%
Media
57,061

 
8.2

Health Care Providers & Services
48,823

 
7.0

Hotels, Restaurants & Leisure
46,462

 
6.7

Internet Software & Services
36,432

 
5.2

Food Products
34,438

 
4.9

Oil, Gas & Consumable Fuels
32,058

 
4.6

Diversified Consumer Services
29,190

 
4.2

Consumer Finance
28,691

 
4.1

Marine
28,399

 
4.1

Aerospace & Defense
21,131

 
3.0

Professional Services
20,110

 
2.9

Commercial Services & Supplies
19,376

 
2.8

Real Estate Management & Development
13,001

 
1.9

Electronic Equipment, Instruments & Components
12,862

 
1.9

Road & Rail
12,147

 
1.8

Textiles, Apparel & Luxury Goods
11,977

 
1.7

IT Services
10,741

 
1.5

Software
10,182

 
1.5

Diversified Telecommunication Services
10,000

 
1.4

Commercial Banks
9,875

 
1.4

Chemicals
9,728

 
1.4

Paper & Forest Products
8,040

 
1.2

Communications Equipment
7,412

 
1.1

Biotechnology
5,876

 
0.8

Machinery
3,608

 
0.5

Total
$
695,776

 
100.0
%
























17
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)


Note 1 — Organization and Basis of Presentation

Business Development Corporation of America (the “Company”), incorporated in Maryland on May 5, 2010, is an externally managed, non-diversified closed-end investment company that elected to be treated as a regulated investment company (“RIC”) for U.S. federal income tax purposes beginning with the taxable year ended December 31, 2011 and that has elected to be treated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). The Company is, therefore, required to comply with certain regulatory requirements as promulgated under the 1940 Act. The Company is managed by BDCA Adviser, LLC (the “Adviser”) pursuant to the terms of the Investment Advisory and Management Services Agreement, as amended (the “Investment Advisory Agreement”). The Adviser was formed in Delaware as a private investment management firm and is registered as an investment adviser under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). The Adviser oversees the management of the Company's activities and is responsible for making investment decisions for its portfolio.

On January 25, 2011, the Company commenced its initial public offering (the “IPO”) on a “reasonable best efforts basis” of up to 150.0 million shares of common stock, $0.001 par value per share, at an initial offering price of $10.00 per share, subject to certain volume and other discounts, pursuant to a registration statement on Form N-2 (File No. 333-166636) (the “Registration Statement”) filed with the U.S. Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended. The Company sold 22,222 shares of common stock to its Adviser, an entity wholly owned by AR Capital, LLC (formerly known as American Realty Capital II, LLC) (the “Sponsor”) on July 8, 2010 at $9.00 per share, which represents the initial public offering price of $10.00 per share minus selling commissions of $0.70 per share and dealer manager fees of $0.30 per share.  On August 25, 2011, the Company had raised sufficient funds to break escrow on its IPO and commenced operations as of that date. As of March 31, 2014 , the Company had issued 94.1 million shares of common stock for gross proceeds of $1.0 billion including the shares purchased by the Sponsor and shares issued under the Company's distribution reinvestment plan ("DRIP"). As of March 31, 2014 , the Company had repurchased 0.3 million shares of common stock for payments of $ 2.6 million.
    
On July 13, 2012, the Company, through a wholly-owned, consolidated subsidiary, 405 TRS I, LLC (“405 Sub”), entered into a total return swap agreement (“TRS”) with Citibank, N.A. (“Citi”), which was subsequently amended on October 17, 2012, December 7, 2012, May 10, 2013, July 18, 2013 and October 15, 2013 increasing the maximum possible exposure under the TRS to $350.0 million. The 405 Sub is included within the Company's consolidated financial statements. The consolidated financial statements include both the Company's account and the account of 405 Sub. All significant intercompany transactions have been eliminated in consolidation.

On July 24, 2012, the Company, through a wholly-owned, consolidated special purpose financing subsidiary, BDCA Funding I, LLC (“Funding I”), entered into a revolving credit facility (the “Wells Fargo Credit Facility”) with Wells Fargo Bank, National Association, as lender, Wells Fargo Securities, as administrative agent (together, “Wells Fargo”) and U.S. Bank National Association, as collateral agent, account bank and collateral custodian. The Wells Fargo Credit Facility, which was subsequently amended on April 26, 2013 and September 9, 2013, provides for borrowings in an aggregate principal amount of up to $200.0 million on a committed basis, with a term of 60 months.

On February 21, 2014, the Company, through a newly-formed, wholly-owned, consolidated special purpose financing subsidiary, BDCA 2L Funding I, LLC ("2L Funding I"), entered into a revolving credit facility with Deutsche Bank AG, New York Branch as administrative agent and U.S. Bank National Association as collateral agent and collateral custodian (the "Deutsche Bank Credit Facility"). The Deutsche Bank Credit Facility provides for borrowings in an aggregate principal amount of up to $60.0 million on a committed basis, with a 36 month term.

The Company has formed and expects to continue to form taxable wholly-owned, consolidated subsidiaries (the “Taxable Consolidated Subsidiaries”). These Taxable Consolidated Subsidiaries are taxed as corporations for federal income tax purposes and allow the Company to hold equity securities of portfolio companies organized as pass-through entities while continuing to satisfy the requirements of a RIC under the Code.

18
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)

The Company's investment objective is to generate both current income and to a lesser extent long-term capital appreciation through debt and equity investments. The Company anticipates that during its offering period it will invest largely in first and second lien senior secured loans and mezzanine debt issued by middle market companies. The Company may also purchase, directly or through the TRS, interests in loans through secondary market transactions in the "over-the-counter" market for institutional loans. First and second lien secured loans generally are senior debt instruments that rank ahead of subordinated debt and equity in bankruptcy priority and are generally secured by liens on the operating assets of a borrower which may include inventory, receivables, plant, property and equipment. Mezzanine debt is subordinated to senior loans and is generally unsecured. The Company defines middle market companies as those with annual revenues between $10 million and $1 billion. The Company may also invest in the equity and junior debt tranches of collateralized loan obligation investment vehicles (“Collateralized Securities”). Structurally, Collateralized Securities are entities that are formed to manage a portfolio of senior secured loans made to companies whose debt is rated below investment grade or, in limited circumstances, unrated. The senior secured loans within these Collateralized Securities are limited to senior secured loans which meet specified credit and diversity criteria and are subject to concentration limitations in order to create a diverse investment portfolio. The Company expects that each investment will range between approximately $1 million and $25 million, although this investment size will vary proportionately with the size of its capital base. As the Company increases its capital base during the offering period, it intends to have a substantial portion of its assets invested in customized direct loans to and equity securities of middle market companies. In most cases, companies to whom the Company provides customized financing solutions will be privately held at the time the Company invests in them.
 
The Company has entered into a fund administration servicing agreement and a fund accounting servicing agreement with U.S. Bancorp Fund Services, LLC (the “Administrator”). The Administrator provides services, such as accounting, financial reporting, legal and compliance support and investor relations support, necessary for the Company to operate. On August 13, 2012, the Company entered into a custody agreement with U.S. Bank National Association (“U.S. Bank”). Under the custody agreement, U.S. Bank holds all of the portfolio securities and cash of the Company for certain of its subsidiaries, and transfers such securities or cash pursuant to the Company’s instructions. The custody agreement is terminable by either party, without penalty, on not less than ninety days prior notice to the other party.

Realty Capital Securities, LLC (the “Dealer Manager”), an entity under common ownership with the Sponsor, serves as the dealer manager of the Company’s IPO. The Adviser and the Dealer Manager are related parties and receive compensation and fees for services related to the IPO and for the investment and management of the Company’s assets. The Adviser receives fees during the offering, operational and liquidation stages, and the Dealer Manager receives fees during the offering stage.

Note 2 — Summary of Significant Accounting Policies

Basis of Presentation

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, ("U.S. GAAP").

The Company consolidates its wholly-owned subsidiaries, Funding I, 2L Funding I, Taxable Consolidated Subsidiaries, and 405 Sub. All significant intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.


19
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)

Valuation of Portfolio Investments

Portfolio investments are reported on the balance sheet at fair value. On a quarterly basis, the Company performs an analysis of each investment to determine fair value as follows:

Securities for which market quotations are readily available on an exchange are valued at the reported closing price on the valuation date. The Company may also obtain quotes with respect to certain of the Company's investments from pricing services or brokers or dealers in order to value assets. When doing so, the Company determines whether the quote obtained is sufficient according to U.S. GAAP to determine the fair value of the security. If determined adequate, the Company uses the quote obtained.

Investments without a readily determined market value are primarily valued using a market approach, an income approach, or both approaches, as appropriate. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). The income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that the Company may take into account in fair value pricing the Company's investments include, as relevant: available current market data, including relevant and applicable market trading and transaction comparables, applicable market yields and multiples, security covenants, call protection provisions, information rights, the nature and realizable value of any collateral, the portfolio company's ability to make payments, its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, M&A comparables, and enterprise values, among other factors. When available, broker quotations and/or quotations provided by pricing services are considered as an input in the valuation process.

For an investment in an investment fund that does not have a readily determinable fair value, the Company measures the fair value of the investment predominately based on the net asset value per share of the investment fund if the net asset value of the investment fund is calculated in a manner consistent with the measurement principles of Financial Accounting Standards Board, ("FASB"), Accounting Standards Codification, ("ASC"), Topic 946, Financial Services-Investment Companies, as of the Company's measurement date. However, in determining the fair value of the Company's investment, the Company may make adjustments to the net asset value per share in certain circumstances, based on the Company's analysis of any restrictions on redemption of the shares of the investment as of the measurement date.
    
The value of our TRS is primarily based on the increase or decrease in the value of the loans underlying the TRS, as determined by Citi based upon indicative pricing by an independent third-party pricing service.

For investments in Collateralized Securities, the Company models both the assets and liabilities of each Collateralized Securities' capital structure. The model uses a waterfall engine to store the collateral data, generate collateral cash flows from the assets, and distribute the cash flows to the liability structure based on the priority of payments. The waterfall cash flows are discounted using rates that incorporate risk factors such as default risk, interest rate risk, downgrade risk, and credit spread risk, among others. In addition, the Company considers broker quotations and/or quotations provided by pricing services as an input to determining fair value when available. 

As part of the Company's quarterly valuation process the Adviser may be assisted by an independent valuation firm engaged by the Company's board of directors. The audit committee of the Company's board of directors reviews each preliminary valuation and the Adviser and an independent valuation firm (if applicable) will supplement the preliminary valuation to reflect any comments provided by the audit committee. The board of directors then discusses the valuations and determines the fair value of each investment, in good faith, based on the input of the Adviser, the independent valuation firm (to the extent applicable) and the audit committee of the board of directors.


20
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)

Because there is not a readily available market value for most of the investments in its portfolio, the Company values substantially all of its portfolio investments at fair value as determined in good faith by its board of directors, as described herein. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Company's investments may fluctuate from period to period. Additionally, the fair value of the Company's investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that the Company may ultimately realize. Further, such investments are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities. If the Company was required to liquidate a portfolio investment in a forced or liquidation sale, the Company could realize significantly less than the value at which the Company has recorded it.
    
Investment Classification

The Company classifies its investments in accordance with the requirements of the 1940 Act. Under the 1940 Act, "control" is defined as 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. In addition, any person "who owns beneficially, either directly or through one or more controlled companies, more than 25 per centum of the voting securities of a company shall be presumed to control such company. Any person who does not so own more than 25 per centum of the voting securities of any company shall be presumed not to control such company". Using this definition, the Company has determined to treat “Control Investments” as investments in companies in which the Company owns more than 25% of the voting securities, maintains greater than 50% of the board representation or has the power to exercise control over the management or policies of such portfolio company. Consistent with the 1940 Act, “Affiliated Investments” are defined as those non-control investments in companies in which the Company owns between 5% and 25% of the voting securities. Consistent with the 1940 Act, “Non-affiliated Investments” are defined as investments that are neither Control Investments nor Affiliated Investments.

Where appropriate, prior period financial statements have been reclassified to disclose the Company's Control Investments and Affiliate Investments as defined above. In addition, prior period financial statements have been reclassified to present investment industry classifications in a consistent manner with the current year.

Cash and Cash Equivalents

Cash and cash equivalents include short-term, liquid investments in a money market fund. Cash and cash equivalents are carried at cost which approximates fair value. Per Section 12(d)(1)(A) of the 1940 Act, the Company may not invest in another registered investment company, including a money market fund, if any of the following occur:

•
the Company owns more than 3% of the money market fund;

•
the Company holds securities in the money market fund having an aggregate value in excess of 5% of the value of the total assets of the Company; or

•
the Company holds securities in money market funds and other registered investment companies having an aggregate value in excess of 10% of the value of the total assets of the Company.

Offering Costs

The Company has incurred certain costs in connection with the registration of shares of its common stock. These costs principally relate to professional fees, printing fees, fees paid to the SEC and fees paid to the Financial Industry Regulatory Authority. Offering costs are recorded as a reduction to contributed capital.

Pursuant to the Investment Advisory Agreement, the Company and the Adviser have agreed that the Company will not be liable for offering costs to the extent that together with all prior offering costs the amounts exceed 1.5% of the aggregate gross proceeds from the Company’s on-going offering.


21
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)

Deferred Financing Costs

Financing costs incurred in connection with the Company’s revolving credit facilities with Wells Fargo and Deutsche Bank are capitalized and amortized into expense using the straight-line method over the life of the respective facility. See Note 5 - Borrowings - for details on the credit facilities.

Distributions

The Company has declared and paid cash distributions to stockholders on a monthly basis since it commenced operations. The amount of each such distribution will be subject to the discretion of the board of directors and applicable legal restrictions related to the payment of distributions. The Company will calculate each stockholder’s specific distribution amount for the month using record and declaration dates and accrue distributions on the date the Company accepts a subscription for shares of the Company’s common stock. From time to time, the Company may also pay interim distributions, including capital gains distributions, at the discretion of the Company’s board of directors. The Company’s distributions may exceed earnings, especially during the period before it has substantially invested the proceeds from the offering. As a result, a portion of the distributions made by the Company may represent a return of capital for U.S. federal income tax purposes. A return of capital is a return of each stockholder’s investment rather than earnings or gains derived from the Company’s investment activities.

The Company may fund cash distributions to stockholders from any sources of funds available to the Company, including expense payments from the Adviser that are subject to reimbursement, as well as offering proceeds and borrowings. The Company has not established limits on the amount of funds it may use from available sources to make distributions.

Distribution Reinvestment Program

The Company has adopted an “opt in” DRIP pursuant to which investors may elect to have the full amount of their cash distributions reinvested in additional shares of the Company’s common stock. Participants in the Company’s DRIP are free to elect or revoke reinstatement in the DRIP within a reasonable time as specified in the plan. If an investor does not elect to participate in the plan, the investor will automatically receive any distributions the Company declares in cash. The Company expects to coordinate distribution payment dates so that the same price that is used for the closing date immediately following such distribution payment date will be used to calculate the purchase price for purchasers under the DRIP. The investors’ reinvested distributions will purchase shares at a price equal to 90% of the price that shares are sold in the offering at the closing immediately following the distribution payment date.

Revenue Recognition

Interest Income

Investment transactions are accounted for on the trade date. Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis. Discounts and premiums on investments purchased are accreted/amortized over the expected life of the respective investment using the effective yield method. The amortized cost of investments represents the original cost adjusted for the accretion of discounts and amortizations of premium on investments.

The Company has a number of investments in Collateralized Securities. Interest income from investments in the "equity" class of these Collateralized Securities (in the Company's case, preferred shares or subordinated notes) is recorded based upon an estimation of an effective yield to expected maturity utilizing assumed cash flows in accordance with ASC Topic 325-40-35, Beneficial Interests in Securitized Financial Assets. The Company monitors the expected cash inflows from its equity investments in Collateralized Securities, including the expected principal repayments. The effective yield is determined and updated quarterly.
Payment-in-Kind Interest

The Company holds debt investments in its portfolio that contain a payment-in-kind (“PIK”) interest provision. The PIK interest, which represents contractually deferred interest added to the investment balance that is generally due at maturity, is generally recorded on the accrual basis.


22
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)

Non-accrual income

Investments are placed on non-accrual status when principal or interest/dividend payments are past due 30 days or more and/or when there is reasonable doubt that principal or interest will be collected. Accrued cash and un-capitalized PIK interest is generally reversed when an investment is placed on non-accrual status. Previously capitalized PIK interest is not reversed when an investment is placed on non-accrual status. Interest payments received on non-accrual investments may be recognized as income or applied to principal depending upon management's judgment of the ultimate outcome. Non-accrual investments are restored to accrual status when past due principal and interest is paid and, in management's judgment, are likely to remain current.

Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation

Gains or losses on the sale of investments are calculated using the specific identification method. The Company measures realized gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized, but considering unamortized upfront fees and prepayment penalties. Net change in unrealized appreciation or depreciation will reflect the change in portfolio investment values during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation, when gains or losses are realized.

Income Taxes

The Company has elected to be treated for federal income tax purposes as a RIC under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). Generally, a RIC is exempt from federal income taxes if it distributes to stockholders at least 90% of ‘‘Investment Company Taxable Income,’’ as defined in the Code, each year. Distributions paid up to one year after the current tax year can be carried back to the prior tax year for determining the distributions paid in such tax year. The Company intends to make sufficient distributions to maintain its RIC status each year. The Company is also subject to nondeductible federal excise taxes if it does not distribute at least 98% of net ordinary income each calendar year, 98.2% of capital gain net income for the one year period ending on October 31 of such calendar year, if any, and any recognized and undistributed income from prior years for which it paid no federal income taxes. The Company will generally endeavor each year to avoid any federal excise taxes.

Share Repurchase Program

The Company’s board of directors has adopted a Share Repurchase Program (“SRP”) that enables the Company’s stockholders to sell their shares to the Company in limited circumstances. On September 12, 2012, the Company commenced its first quarterly tender offer pursuant to the SRP. The Company intends to conduct tender offers on a quarterly basis on such terms as may be determined by its board of directors in its complete and absolute discretion unless, in the judgment of the independent directors of its board of directors, such repurchases would not be in the Company’s best interests or would violate applicable law.

The Company currently intends to limit the number of shares to be repurchased during any calendar year to the number of shares it can repurchase with the proceeds it receives from the sale of shares under its DRIP. At the discretion of the Company’s board of directors, the Company may also use cash on hand, cash available from borrowings and cash from liquidation of investments as of the end of the applicable period to repurchase shares. In addition, as of the date of this filing, the Company will limit the number of shares to be repurchased in any calendar year to 10% of the weighted average number of shares outstanding in the prior calendar year, or 2.5% in each quarter, though the actual number of shares that the Company offers to repurchase may be less in light of the limitations noted above. The Company will offer to repurchase such shares on each date of repurchase at a price equal to 92.5% of the share price in effect on each date of repurchase, which will be determined in the same manner that the Company determined the offering price per share for purposes of its continuous public offering. The Company’s board of directors may amend, suspend or terminate the repurchase program at any time upon 30 days’ notice.

As of March 31, 2014 , the Company had repurchased 0.3 million shares of common stock for payments of $ 2.6 million. As of March 31, 2013 , the Company had repurchased 0.04 million shares of common stock for payments of $0.4 million.

23
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)


New Accounting Pronouncements

In June 2013, the FASB issued Accounting Standards Update (“ASU”) 2013-08, Financial Services – Investment Companies (ASC Topic 946), which affects the scope, measurement and disclosure requirements for investment companies under U.S. GAAP. The amendments: (i) change the approach to the investment company assessment in ASC Topic 946, clarify the characteristics of an investment company, and provide comprehensive guidance for assessing whether an entity is an investment company; (ii) require an investment company to measure non-controlling ownership interests in other investment companies at fair value rather than the equity method of accounting; and (iii) require the following additional disclosures (a) the fact that the entity is an investment company and is applying the guidance in ASC Topic 946, (b) information about changes, if any, in an entity’s status as an investment company, and (c) information about financial support provided or contractually required to be provided by an investment company to any of its investees. This guidance is effective for interim an annual reporting periods beginning on or after December 15, 2013. Management has reviewed the impact of this accounting pronouncement but does not believe it has a material impact on the Company.

  Note 3 — Fair Value of Financial Instruments

Accounting guidance establishes a hierarchal disclosure framework which prioritizes and ranks the level of market price observability of inputs used in measuring investments at fair value. Market price observability is affected by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

The Company determines fair value based on quoted prices when available or through the use of alternative approaches, such as discounting the expected cash flows using market interest rates commensurate with the credit quality and duration of the investment. This alternative approach also reflects the contractual terms of the derivatives, if any, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The guidance defines three levels of inputs that may be used to measure fair value:

•
Level 1—Quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date.

•
Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset and liability or can be corroborated with observable market data for substantially the entire contractual term of the asset or liability.

•
Level 3—Unobservable inputs that reflect the entity’s own assumptions about the assumptions that market participants would use in the pricing of the asset or liability and are consequently not based on market activity, but rather through particular valuation techniques.

The determination of where an asset or liability falls in the above hierarchy requires significant judgment and factors specific to the asset or liability. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company evaluates its hierarchy disclosures each quarter and depending on various factors, it is possible that an asset or liability may be classified differently from quarter to quarter.

All of the Company’s investment portfolio at March 31, 2014 was comprised of debt and equity instruments for which Level 1 inputs, such as quoted prices, were not available. Therefore, at March 31, 2014 , the investments were valued at fair value as determined in good faith using the valuation policy approved by the board of directors using Level 2 and Level 3 inputs. The Company evaluates the source of inputs, including any markets in which the Company's investments are trading, in determining fair value. Due to the inherent uncertainty in the valuation process, the estimate of fair value of the Company’s investment portfolio at March 31, 2014 may differ materially from values that would have been used had a ready market for the securities existed.


24
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)

In addition to using the above inputs in investment valuations, the Company continues to employ the valuation policy approved by the board of directors. Portfolio investments are reported on the balance sheet at fair value. On a quarterly basis the Company performs an analysis of each investment to determine fair value as described below.

Securities for which market quotations are readily available on an exchange are valued at the reported closing price on the valuation date. The Company may also obtain quotes with respect to certain of the Company's investments from pricing services or brokers or dealers in order to value assets. When doing so, the Company determines whether the quote obtained is sufficient according to U.S. GAAP to determine the fair value of the security. If determined adequate, the Company uses the quote obtained.

Investments without a readily determined market value are primarily valued using a market approach, an income approach, or both approaches, as appropriate. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). The income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that the Company may take into account in fair value pricing the Company's investments include, as relevant: available current market data, including relevant and applicable market trading and transaction comparables, applicable market yields and multiples, security covenants, call protection provisions, information rights, the nature and realizable value of any collateral, the portfolio company's ability to make payments, its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, M&A comparables, and enterprise values, among other factors. When available, broker quotations and/or quotations provided by pricing services are considered as an input in the valuation process.

For an investment in an investment fund that does not have a readily determinable fair value, the Company measures the fair value of the investment predominately based on the net asset value per share of the investment fund if the net asset value of the investment fund is calculated in a manner consistent with the measurement principles of ASC Topic 946, Financial Services-Investment Companies, as of the Company's measurement date. However, in determining the fair value of the Company's investment, the Company may make adjustments to the net asset value per share in certain circumstances, based on the Company's analysis of any restrictions on redemption of the shares of the investment as of the measurement date. The value of our TRS is primarily based on the increase or decrease in the value of the loans underlying the TRS, as determined by Citi based upon indicative pricing by an independent third-party pricing service.

For investments in Collateralized Securities, the Company models both the assets and liabilities of each Collateralized Securities' capital structure. The model uses a waterfall engine to store the collateral data, generate collateral cash flows from the assets, and distribute the cash flows to the liability structure based on priority of payments. The waterfall cash flows are discounted using rates that incorporate risk factors such as default risk, interest rate risk, downgrade risk, and credit spread risk, among others. In addition, the Company considers broker quotations and/or quotations provided by pricing services as an input to determining fair value when available. 

As part of the Company's quarterly valuation process, the Adviser may be assisted by an independent valuation firm engaged by the Company's board of directors. The audit committee of the board of directors reviews each preliminary valuation and the Adviser and an independent valuation firm (if applicable) will supplement the preliminary valuation to reflect any comments provided by the audit committee. The board of directors then discusses the valuations and determines the fair value of each investment, in good faith, based on the input of the Adviser, the independent valuation firm (to the extent applicable) and the audit committee of the board of directors.

Determination of fair values involves subjective judgments and estimates. Accordingly, the notes to the consolidated financial statements refer to the uncertainty with respect to the possible effect of such valuations, and any change in such valuations on the consolidated financial statements.


25
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)

As of March 31, 2014 , the Company had one portfolio company, which represented two portfolio investments, on non-accrual status with a total principal amount of $4.2 million, amortized cost of $4.1 million, and no fair value which represented 0.4% and 0.4% of the investment portfolio total principal and amortized cost, respectively. The Company did not have any portfolio investments on non-accrual status as of March 31, 2013. Refer to Note 2 - Summary of Significant Accounting Policies - in the consolidated financial statements included in this report for additional details regarding the Company’s non-accrual policy.

For discussion of the fair value measurement of the Company's borrowings, refer to Note 5 - Borrowings - in the consolidated financial statements included in this report.

The following table presents fair value measurements of investments, by major class, as of March 31, 2014 , according to the fair value hierarchy (dollars in thousands) :
 
Fair Value Measurements
 
Level 1
 
Level 2
 
Level 3
 
Total
Senior Secured First Lien Debt
$
—

 
$
157,102

 
$
301,521

 
$
458,623

Senior Secured Second Lien Debt
—

 
42,102

 
83,813

 
125,915

Subordinated Debt
—

 
—

 
57,875

 
57,875

Collateralized Securities
—

 
—

 
153,427

 
153,427

Equity/Other
—

 
—

 
153,825

 
153,825

Total Return Swap
—

 
3,278

 
—

 
3,278

Total
$
—

 
$
202,482

 
$
750,461

 
$
952,943


The following table presents fair value measurements of investments, by major class, as of December 31, 2013, according to the fair value hierarchy (dollars in thousands) :

 
Fair Value Measurements
 
Level 1
 
Level 2
 
Level 3
 
Total
Senior Secured First Lien Debt
$
—

 
$
137,825

 
$
195,755

 
$
333,580

Senior Secured Second Lien Debt
—

 
39,684

 
51,120

 
90,804

Subordinated Debt
—

 
—

 
59,701

 
59,701

Collateralized Securities
—

 
—

 
105,945

 
105,945

Equity/Other
—

 
—

 
105,746

 
105,746

Total Return Swap
—

 
3,180

 
—

 
3,180

Total
$
—

 
$
180,689

 
$
518,267

 
$
698,956


    

26
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)

The following table provides a reconciliation of the beginning and ending balances for investments that use Level 3 inputs for the year ended March 31, 2014 (dollars in thousands):

 
Senior Secured First Lien Debt
 
Senior Secured Second Lien Debt
 
Subordinated Debt
 
Collateralized Securities
 
Equity/Other
 
Total
Balance as of December 31, 2013
$
195,755

 
$
51,120

 
$
59,701

 
$
105,945

 
$
105,746

 
$
518,267

Net unrealized gains
(139
)
 
(268
)
 
(2,044
)
 
(1,613
)
 
(75
)
 
(4,139
)
Purchases and other adjustments to cost
147,286

 
41,233

 
218

 
95,741

 
52,461

 
336,939

Sales and redemptions
(41,479
)
 
(8,332
)
 
—

 
(49,283
)
 
(4,503
)
 
(103,597
)
Net realized gain
98

 
60

 
—

 
2,637

 
196

 
2,991

Net transfers in and/or out
—

 
—

 
—

 
—

 
—

 
—

Balance as of March 31, 2014
$
301,521

 
$
83,813

 
$
57,875

 
$
153,427

 
$
153,825

 
$
750,461

Unrealized gains (losses) for the
     period relating to those Level 3
     assets that were still held by
     the Company at the end of the
     period:
 
 
 
 
 
 
 
 
 
 
 
          Net change in unrealized
             gain:
$
(58
)
 
$
(170
)
 
$
(2,044
)
 
$
1,249

 
$
(75
)
 
$
(1,098
)

Purchases represent the acquisition of new investments at cost. Redemptions represent principal payments received during the period.

For the three months ended March 31, 2014, there were no transfers out of Level 1, Level 2, or Level 3.

Transfers between levels, if any, are recognized at the beginning of the period in which transfers occur.


27
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)


The following table provides a reconciliation of the beginning and ending balances for investments that use Level 3 inputs for the year ended December 31, 2013 (dollars in thousands):

 
Senior Secured First Lien Debt
 
Senior Secured Second Lien Debt
 
Subordinated Debt
 
Collateralized Securities
 
Equity/Other
 
Total
Balance as of December 31, 2012
$
25,190

 
$
8,258

 
$
3,939

 
$
8,533

 
$
6,112

 
$
52,032

Net unrealized gains (losses)
(236
)
 
300

 
(880
)
 
1,637

 
5,434

 
6,255

Purchases and other adjustments to cost
215,368

 
42,562

 
56,642

 
135,289

 
97,293

 
547,154

Sales and redemptions
(35,197
)
 
—

 
—

 
(41,066
)
 
(3,093
)
 
(79,356
)
Net realized gain
418

 
—

 
—

 
1,552

 
—

 
1,970

Net transfers in and/or out
(9,788
)
 
—

 
—

 
—

 
—

 
(9,788
)
Balance as of December 31, 2013
$
195,755

 
$
51,120

 
$
59,701

 
$
105,945

 
$
105,746

 
$
518,267

Unrealized gains (losses) for the
     period relating to those Level 3
     assets that were still held by
     the Company at the end of the
     period:
 
 
 
 
 
 
 
 
 
 

          Net change in unrealized
             gain (loss):
$
(110
)
 
$
300

 
$
(880
)
 
$
1,899

 
$
5,434

 
$
6,643


Purchases represent the acquisition of new investments at cost. Redemptions represent principal payments received during the period.

For the year ended December 31, 2013, there were no transfers out of Level 1 to Level 2 or out of Level 2 to Level 3.

For the year ended December 31, 2013, an investment in 1 portfolio company was transferred from Level 3 to Level 2 as the number and/or reliability of market quotes became available for this investment and has been subsequently used for valuation purposes.

Transfers between levels, if any, are recognized at the beginning of the period in which transfers occur.

The composition of the Company’s investments as of March 31, 2014 , at amortized cost and fair value, were as follows (dollars in thousands):

 
Investments at
Amortized Cost
 
Investments at
Fair Value
 
Fair Value
Percentage of
Total Portfolio
Senior Secured First Lien Debt
$
457,180

 
$
458,623

 
48.3
%
Senior Secured Second Lien Debt
124,286

 
125,915

 
13.3
%
Subordinated Debt
60,785

 
57,875

 
6.1
%
Collateralized Securities
153,380

 
153,427

 
16.1
%
Equity/Other
148,106

 
153,825

 
16.2
%
Total
$
943,737

 
$
949,665

 
100.0
%

28
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)

The composition of the Company’s investments as of December 31, 2013, at amortized cost and fair value, were as follows (dollars in thousands):

 
Investments at
Amortized Cost
 
Investments at
Fair Value
 
Fair Value
Percentage of
Total Portfolio
Senior Secured First Lien Debt
$
332,140

 
$
333,580

 
47.9
%
Senior Secured Second Lien Debt
89,331

 
90,804

 
13.1

Subordinated Debt
60,567

 
59,701

 
8.6

Collateralized Securities
104,285

 
105,945

 
15.2

Equity/Other
99,954

 
105,746

 
15.2

Total
$
686,277

 
$
695,776

 
100.0
%

Significant Unobservable Inputs

The following table summarizes the significant unobservable inputs used to value the majority of the Level 3 investments as of March 31, 2014 (dollars in thousands). The table is not intended to be all-inclusive, but instead identifies the significant unobservable inputs relevant to the determination of fair values.
 
 
 
 
Range
 
 
Asset Category
 
Fair Value
 
Primary Valuation Technique
 
Unobservable Inputs
 
Minimum
 
Maximum
 
Weighted Average  (a)
Senior Secured First Lien Debt (b)
 
$
207,241

 
Yield Analysis
 
Market Yield
 
6.50
%
 
15.00
%
 
10.60
%
Senior Secured Second Lien Debt (c)
 
42,611

 
Yield Analysis
 
Market Yield
 
9.25
%
 
15.25
%
 
10.64
%
Subordinated Debt
 
57,875

 
Yield Analysis
 
Market Yield
 
11.50
%
 
17.00
%
 
13.68
%
Collateralized Securities (d)
 
69,439

 
Discounted Cash Flow
 
Market Yield
 
10.81
%
 
15.22
%
 
14.35
%
Equity/Other (e)
 
49,039

 
Market Multiple Analysis
 
EBITDA Multiple
 
0.8x

 
6.9x

 
4.4x

Equity/Other (e)
 
52,209

 
Discounted Cash Flow
 
Market Yield
 
12.58
%
 
14.46
%
 
13.38
%
 
 
$
478,414

 
 
 
 
 
 
 
 
 
 
______________
    
(a)
Weighted averages are calculated based on fair value of investments.

(b)  
The remaining $94.3 million of senior secured first lien debt were valued at their respective acquisition prices as the investments closed near the period ending March 31, 2014.

(c)  
The remaining $41.2 million of senior secured second lien debt were valued at their respective acquisition prices as the investments closed near the period ending March 31, 2014.

(d)  
The remaining $84.0 million of collateralized securities were valued based on recent transactions close to the period ending March 31, 2014.

(e)  
The remaining $52.6 million of equity/other investments consisted of $7.1 million which were valued at their respective acquisition prices as the investments closed near the period ending March 31, 2014 and $45.5 million which were valued based on the net asset values published by the respective fund.

29
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)

The following table summarizes the significant unobservable inputs used to value the majority of the Level 3 investments as of December 31, 2013 (dollars in thousands). The table is not intended to be all-inclusive, but instead identifies the significant unobservable inputs relevant to the determination of fair values.

 
 
 
 
Range
 
 
Asset Category
 
Fair Value
 
Primary Valuation Technique
 
Unobservable Inputs
 
Minimum
 
Maximum
 
Weighted Average  (a)
Senior Secured First Lien Debt (b)
 
$
105,740

 
Yield Analysis
 
Market Yield
 
6.25
%
 
15.00
%
 
8.46
%
Senior Secured Second Lien Debt (c)
 
26,495

 
Yield Analysis
 
Market Yield
 
10.75
%
 
13.50
%
 
12.23
%
Subordinated Debt (d)
 
39,870

 
Yield Analysis
 
Market Yield
 
11.50
%
 
14.00
%
 
12.47
%
Collateralized Securities (e)
 
6,099

 
Discounted Cash Flow
 
Market Yield
 
11.00
%
 
11.00
%
 
11.00
%
Equity/Other (f)
 
7,803

 
Market Multiple Analysis
 
EBITDA Multiple
 
1.2x

 
6.9x

 
1.8x

Equity/Other (f)
 
30,000

 
Discounted Cash Flow
 
Market Yield
 
12.58
%
 
12.58
%
 
12.58
%
 
 
$
216,007

 
 
 
 
 
 
 
 
 
 
______________
    
(a)  
Weighted averages are calculated based on fair value of investments.

(b)  
The remaining $90.0 million of senior secured first lien debt were valued at their respective acquisition prices as the investments closed near year end.

(c)  
The remaining $24.6 million of senior secured second lien debt were valued at their respective acquisition prices as the investments closed near year end.

(d)  
The remaining $19.8 million of subordinated debt were valued at their respective acquisition prices as the investments closed near year end.

(e)  
The remaining $99.8 million of collateralized securities were valued based on recent transactions close to year end.

(f)  
The remaining $68.0 million of equity/other investments consisted of $36.6 million which were valued at their respective acquisition prices as the investments closed near year end and $31.4 million which were valued based on the net asset values published by the respective fund.

Significant increases or decreases in any of the above unobservable inputs in isolation would result in a significantly lower or higher fair value measurement for such assets.
    
    

Note 4 — Related Party Transactions and Arrangements

The Sponsor, including its wholly owned subsidiary, the Adviser, owns 0.16 million shares of the Company’s outstanding common stock as of March 31, 2014 .


30
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)

Management and Incentive Fee Compensation to the Adviser
 
The Adviser and its affiliates receive fees for services relating to the investment and management of the Company’s assets. The Adviser is entitled to an annual base management fee calculated at an annual rate of 1.5% of the Company’s average gross assets. The management fee is payable quarterly in arrears, and shall be calculated based on the average value of the Company’s gross assets at the end of the two most recently completed calendar quarters. All or any part of the management fee not taken as to any quarter shall be deferred without interest and may be taken in such other quarter as the Adviser will determine. The management fee for any partial month or quarter will be appropriately prorated. In addition, any management fees waived by the Adviser are not subject to recoupment at a later date.
 
The incentive fee consists of two parts. The first part, which is referred to as the subordinated incentive fee on income, is calculated and payable quarterly in arrears based on 20% of “pre-incentive fee net investment income” but only after the payment of a certain preferred return rate to investors, as defined in the Investment Advisory Agreement, for the immediately preceding quarter of 1.75%  per quarter, or an annualized rate of 7.0% , subject to a "catch-up" feature. The second part of the incentive fee, which is referred to as the incentive fee on capital gains, is an incentive fee on capital gains earned on liquidated investments from the Company’s portfolio and is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement). This fee equals 20.0% of the Company’s incentive fee capital gains, which equals the Company’s realized capital gains on a cumulative basis from inception, 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 previously paid capital gain incentive fees. Incentive fees waived by the Adviser are not subject to recoupment at a later date.

For the three months ended March 31, 2014, the Company incurred $3.6 million of management fees, $0.8 million of subordinated incentive fees on income, and $(0.02) million of capital gains incentive fees under the Investment Advisory Agreement, of which the Adviser did not waive any portion of such fees.
    
For the three months ended March 31, 2013, the Company incurred $0.8 million of management fees, $0.7 million of subordinated incentive fees on income, and $0.3 million of capital gains incentive fees under the Investment Advisory Agreement, of which the Adviser waived $0.4 million of such fees.
    
For accounting purposes only, the Company is required under U.S. GAAP to also accrue a theoretical capital gains incentive fee based upon unrealized capital appreciation on investments held at the end of each period. The accrual of this theoretical capital gains incentive fee assumes all unrealized capital appreciation and depreciation is realized in order to reflect a capital gains incentive fee that would theoretically be payable to the Adviser. For the three months ended March 31, 2014 and March 31, 2013 , the Company incurred $(0.4) million and $0.2 million of theoretical capital gains incentive fees, respectively. The amounts actually paid to the Adviser will be consistent with the Advisers Act and formula reflected in the Investment Advisory Agreement which specifically excludes consideration of unrealized capital appreciation.

As a result of discussions with the SEC staff, the Company has determined to no longer include TRS earnings in the computation of subordinated incentive fees on a prospective basis effective January 1, 2014.

Expense Support Agreement

The Adviser and its affiliates may incur and pay costs and fees on behalf of the Company. The Company and its Adviser have entered into the Expense Support Agreement, whereby the Adviser may pay the Company up to 100% of all operating expenses (“Expense Support Payment”) for any period beginning on the effective date of the Registration Statement, until the Adviser and the Company mutually agree otherwise. The Expense Support Payment for any month shall be paid by the Adviser to the Company in any combination of cash or other immediately available funds and/or offsets against amounts due from the Company to the Adviser.

Operating expenses subject to this agreement include expenses as defined by U.S. GAAP, including, without limitation, advisory fees payable and interest on indebtedness for such period, if any.


31
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)

Pursuant to the Expense Support Agreement, the Company will reimburse the Adviser for Expense Support Payments within three years of the date that the expense support payment obligation was incurred by the Adviser, subject to the conditions described below. The amount of any reimbursement during any calendar quarter will be limited to an amount that does not cause the Company's other operating expenses to exceed 1.5% of its net assets attributable to common shares after taking such reimbursement payment into account.
     
In addition, the Company will only make reimbursement payments if its “operating expense ratio” (as described in footnote 1 to the table below) is equal to or less than its operating expense ratio at the time the corresponding expense payment was incurred and if the annualized rate of the Company's regular cash distributions to stockholders is equal to or greater than the annualized rate of its regular cash distributions to stockholders at the time the corresponding expense payment was incurred.

Below is a table that provides information regarding expense support payment obligations incurred by the Adviser pursuant to the Expense Support Agreement as well as other information relating to the Company's ability to reimburse the Adviser for such payments. The amounts presented in the first column below are subject to reimbursement to the Adviser pursuant to the terms of the Expense Support Agreement (dollars in thousands):

Quarter Ended
 
Amount of Expense Payment Obligation
 
Operating Expense Ratio as of the Date Expense Payment Obligation Incurred (1)
 
Annualized Distribution Rate as of the Date Expense Payment Obligation Incurred (2)
 
Eligible for Reimbursement Through
March 31, 2011
 
$
—

 
—
%
 
—
%
 
N/A
June 30, 2011
 
—

 
—

 
—

 
N/A
September 30, 2011
 
571

 
2.88

 
8.11

 
September 30, 2014
December 31, 2011
 
131

 
1.97

 
7.90

 
December 31, 2014
March 31, 2012
 
78

 
0.90

 
7.88

 
March 31, 2015
June 30, 2012
 
189

 
0.30

 
7.75

 
June 30, 2015
______________

(1)
"Operating Expense Ratio" is expressed as a percentage of net assets and includes all expenses borne by the Company, except for organizational and offering expenses, base management and incentive fees owed to our Adviser and interest expense.

(2)  
"Annualized Distribution Rate" equals the annualized rate of distributions paid to stockholders based on the amount of the regular cash distribution paid immediately prior to the date the expense support payment obligation was incurred by our Adviser. "Annualized Distribution Rate" does not include special cash or stock distributions paid to stockholders.

(3)  
"N/A"- Not Applicable

If an Expense Support Payment has not been reimbursed within three years of the date such Expense Support Payment was incurred, the Company’s obligation to pay such Expense Support Payment shall automatically terminate and be of no further effect.
 
The Company has recorded $1.1 million as due from affiliate and $0.3 million as due to affiliate on the consolidated statements of assets and liabilities as of March 31, 2014 and December 31, 2013 , respectively, which reflect the netting of amounts due from the Adviser and affiliates and amounts due from the Company. On August 24, 2012, the Adviser made a payment to the Company in the amount of $0.8 million for $1.0 million of operating expenses pursuant to the Expense Support Agreement netted against $0.2 million due from the Company to the Adviser as reimbursement for payments made by the Adviser on behalf of the Company. As of March 31, 2014 , the Adviser had assumed on a cumulative basis, $1.0 million of operating expenses pursuant to the Expense Support Agreement.


32
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)

Offering Costs

Pursuant to the Investment Advisory Agreement, the Company and the Adviser have agreed that the Company will not be liable for offering expenses to the extent that, together with all prior offering expenses, the amounts exceed 1.5% of the aggregate gross proceeds from the Company’s on-going offering. As of March 31, 2014 , offering costs in the amount of $0.8 million have been incurred in excess of the 1.5% limit and are the responsibility of the Adviser; however, the Company may, but is not obligated to, pay certain amounts back to the Adviser over time. As of December 31, 2013, offering costs in the amount of $1.6 million have been incurred in excess of the 1.5% limit and are the responsibility of the Adviser.

Other Affiliates

The Company's transfer agent, American National Stock Transfer, LLC, is an entity under common ownership with the Sponsor. The business was formed on November 2, 2012 and began providing certain transfer agency services for the Company on March 15, 2013.

The Dealer Manager, an entity under common ownership with the Sponsor, serves as the dealer manager of the Company's IPO. The Dealer Manager receives fees for services related to the IPO during the offering stage. The investment banking and capital markets division of the Dealer Manager provides strategic advisory services and earns fees for these services.

The following table reflects the fees incurred and payable to our Dealer Manager, the Adviser and transfer agent as of and for the three months ended March 31, 2014 (dollars in thousands):

 
 
Incurred for the Three Months Ended
 
Payable as of
 
 
March 31, 2014
 
March 31, 2014
Selling commissions and dealer manager fees (1)
 
$
28,237

 
$
—

Offering costs
 
3,328

 
428

Management and incentive fees
 
4,391

 
6,850

Investment banking advisory fees (2)
 
164

 
—

Total related party fees
 
$
36,120

 
$
7,278


The following table reflects the fees incurred and unpaid to our Dealer Manager, the Adviser and transfer agent as of and for the year ended December 31, 2013 (dollars in thousands):

 
 
Incurred for the Year Ended
 
Payable as of
 
 
December 31, 2013
 
December 31, 2013
Selling commissions and dealer manager fees (1)
 
$
45,000

 
$
—

Offering costs
 
4,198

 
198

Management and incentive fees
 
13,549

 
8,068

Investment banking advisory fees (2)
 
548

 
—

Total related party fees
 
$
63,295

 
$
8,266

______________

(1)
Selling commissions and dealer manager fees are not reflected in the Company's financial statements

(2)  
Investment banking advisory fees were paid to the Dealer Manager for strategic advisory services provided to the Company


33
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)

Note 5 — Borrowings

On July 24, 2012, the Company, through a wholly-owned, consolidated special purpose financing subsidiary, Funding I, entered into a revolving credit facility with Wells Fargo and U.S. Bank, as collateral agent, account bank and collateral custodian. The Wells Fargo Credit Facility provides for borrowings in an aggregate principal amount of up to $200.0 million on a committed basis, with a term of 60 months.

The Company may contribute cash or loans to Funding I from time to time to retain a residual interest in any assets contributed through its ownership of Funding I or will receive fair market value for any loans sold to Funding I. Funding I may purchase additional loans from various sources. Funding I has appointed the Company as servicer to manage its portfolio of loans. Funding I's obligations under the Wells Fargo Credit Facility are secured by a first priority security interest in substantially all of the assets of Funding I, including its portfolio of loans. The obligations of Funding I under the Wells Fargo Credit Facility are non-recourse to the Company.

The Wells Fargo Credit Facility will be priced at the one month maturity London Interbank Offered Rate ("LIBOR"), with no LIBOR floor, plus a spread ranging between 1.75% and 2.50% per annum, depending on the composition of the portfolio of loans owned by Funding I for the relevant period. Interest is payable quarterly in arrears. Funding I will be subject to a non-usage fee to the extent the aggregate principal amount available under the Wells Fargo Credit Facility has not been borrowed. The non-usage fee per annum for the first six months is 0.50%; thereafter, the non-usage fee per annum is 0.50% for the first 20% of the unused balance and 2.0% for the portion of the unused balance that exceeds 20%. For the three months ended March 31, 2014 and March 31, 2013 , the Company incurred $0.1 million, and $0.05 million, respectively, of non-usage fees. Any amounts borrowed under the Wells Fargo Credit Facility will mature, and all accrued and unpaid interest thereunder will be due and payable in April 2018.

Borrowings under the Wells Fargo Credit Facility are subject to compliance with a borrowing base, pursuant to which the amount of funds advanced to Funding I varies depending upon the types of loans in Funding I's portfolio. As of March 31, 2014 , the Company was in compliance with regards to the Wells Fargo Credit Facility covenants. The Wells Fargo Credit Facility may be prepaid in whole or in part, subject to customary breakage costs. In the event that the Wells Fargo Credit Facility is terminated prior to the first anniversary, an additional amount is payable to Wells Fargo equal to 2.00% of the maximum amount of the Wells Fargo Credit Facility.

The Wells Fargo Credit Facility contains customary default provisions for facilities of this type pursuant to which Wells Fargo may terminate the rights, obligations, power and authority of the Company, in its capacity as servicer of the portfolio assets under the Wells Fargo Credit Facility, including, but not limited to, non-performance of Wells Fargo Credit Facility obligations, insolvency, defaults of certain financial covenants and other events with respect to the Company that may be adverse to Wells Fargo and the secured parties under the Wells Fargo Credit Facility.

In connection with the Wells Fargo Credit Facility, Funding I has made certain representations and warranties, is required to comply with various covenants, reporting requirements and other customary requirements for similar facilities and is subject to certain customary events of default. Upon the occurrence and during the continuation of an event of default, Wells Fargo may declare the outstanding advances and all other obligations under the Wells Fargo Credit Facility immediately due and payable. During the continuation of an event of default, Funding I must pay interest at a default rate.

Borrowings of Funding I will be considered borrowings of the Company for purposes of complying with the asset coverage requirements under the 1940 Act, applicable to BDCs.

On February 21, 2014, the Company, through 2L Funding I, entered into the Deutsche Bank Credit Facility with Deutsche Bank, as lender and as administrative agent and U.S. Bank, as collateral agent and collateral custodian.

34
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)


The Deutsche Bank Credit Facility provides for borrowings in an aggregate principal amount of up to $60.0 million with a term of 36 months. The Deutsche Bank Credit Facility will be priced at LIBOR plus 4.25%, with no LIBOR floor. The undrawn rate is 0.75%. 2L Funding Sub I will be subject to a minimum utilization of 50% of the loan amount in the first 12-months and 65% of the loan amount thereafter, measured quarterly. If the utilized portion of the loan amount is less than the foregoing thresholds, such shortfalls shall bear interest at LIBOR plus 4.25%. For the three months ended March 31, 2014, the Company incurred $0.1 million of non-usage fees. The Company did not incur any non-usage fees for the three months ended March 31, 2013 as the Company had not entered into the Deutsche Bank Credit Facility as of March 31, 2013. The Deutsche Bank Credit Facility provides for monthly interest payments for each drawn loan. Any amounts borrowed under the Deutsche Bank Credit Facility will mature, and all accrued and unpaid interest thereunder will be due and payable, in January 2017. 2L Funding I paid a structuring fee and incurred certain other customary costs and expenses in connection with obtaining the Deutsche Bank Credit Facility.

Borrowings under the Deutsche Bank Credit Facility are subject to compliance with a borrowing base. The Deutsche Bank Credit Facility may be prepaid in whole or in part, subject to a prepayment fee. The Deutsche Bank Credit Facility contains customary default provisions including, but not limited to, non-payment of principal, interest or other obligations under the Deutsche Bank Credit Facility, insolvency, defaults of certain financial covenants and other events with respect to us that may be adverse to Deutsche Bank and the secured parties under the facility.

In connection with the Deutsche Bank Credit Facility, 2L Funding I has made certain representations and warranties and is required to comply with various covenants, reporting requirements and other customary requirements for similar facilities. Upon the occurrence and during the continuation of an event of default, subject, in certain instances, to applicable cure periods, Deutsche Bank may declare the outstanding advances and all other obligations under the Deutsche Bank Credit Facility immediately due and payable. During the continuation of an event of default, 2L Funding I must pay interest at a default rate.

Borrowings of 2L Funding I will be considered borrowings of the Company for purposes of complying with the asset coverage requirements under the 1940 Act applicable to business development companies.
    
As of March 31, 2014 , the Company had gross deferred financing costs of $2.7 million, net of accumulated amortization of $0.6 million in connection with the Wells Fargo Credit Facility and $0.9 million, net of accumulated amortization of $0.03 million in connection with the Deutsche Bank Credit Facility. As of December 31, 2013, the Company had gross deferred financing costs of $2.3 million, net of accumulated amortization of $0.4 million in connection with the Wells Fargo Credit Facility. At March 31, 2014 , $ 154.7 million was drawn on the Wells Fargo Credit Facility and no funds were drawn on the Deutsche Bank Credit Facility. At December 31, 2013, $132.7 million was drawn on the Wells Fargo Credit Facility. For the three months ended March 31, 2014 , the Company incurred interest expense related to the outstanding borrowings on the Wells Fargo Credit Facility in the amount of $0.9 million. For the year ended December 31, 2013, the Company incurred interest expense related to the outstanding borrowings on the Wells Fargo Credit Facility in the amount of $1.2 million.

The weighted average annualized interest cost for all borrowings for the three months ended March 31, 2014 and March 31, 2013 was 2.42% and 2.61%, respectively. The average debt outstanding for the three months ended March 31, 2014 and March 31, 2013 was $152.1 million and $30.0 million, respectively. The maximum debt outstanding for the three months ended March 31, 2014 and March 31, 2013 was $154.7 million and $33.9 million, respectively.


35
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)

The Company is required to disclose the fair value of financial instruments for which it is practicable to estimate that value. The fair value of short-term financial instruments such as cash and cash equivalents, due to affiliates and accounts payable approximate their carrying value on the accompanying statements of assets and liabilities due to their short-term nature. The fair values of the Company’s remaining financial instruments that are not reported at fair value on the accompanying statements of assets and liabilities are reported below (amounts in thousands):

 
Level
 
Carrying Amount at March 31, 2014
 
Fair Value at March 31, 2014
Wells Fargo Credit Facility
3
 
$
154,687

 
$
154,687

Deutsche Bank Credit Facility
3
 
$
—

 
$
—


 
Level
 
Carrying Amount at December 31, 2013
 
Fair Value at December 31, 2013
Wells Fargo Credit Facility
3
 
$
132,687

 
$
132,687


Note 6 — Total Return Swap

On July 13, 2012, the Company, through its wholly-owned subsidiary, 405 Sub, entered into a TRS with Citi, which was most recently amended on October 15, 2013, to increase the aggregate market value of the portfolio of loans selected by 405 Sub.
 
A total return swap is a contract in which one party agrees to make periodic payments to another party based on the change in the market value of the assets underlying the TRS, which may include a specified security, basket of securities or securities indices during the specified period, in return for periodic payments based on a fixed or variable interest rate. The TRS effectively adds leverage to the Company's portfolio by providing investment exposure to a security or market without owning or taking physical custody of such security or investing directly in such market. The TRS enables the Company, through its ownership of 405 Sub, to obtain the economic benefit of owning the loans subject to the TRS, without actually owning them, in return for an interest-type payment to Citi.

The obligations of 405 Sub under the TRS are non-recourse to the Company and the Company's exposure to the TRS is limited to the amount that it contributes to 405 Sub in connection with the TRS. Generally, that amount will be the amount that 405 Sub is required to post as cash collateral for each loan (which in most instances is approximately 25% of the market value of a loan at the time that such loan is purchased). The cash collateral on deposit as of March 31, 2014 was $ 79.0 million. The cash collateral on deposit as of December 31, 2013 was $ 76.9 million. As amended, the TRS provides that 405 Sub may select a portfolio of loans with a maximum aggregate market value (determined at the time such loans become subject to the TRS) of $350.0 million.

405 Sub pays interest to Citi for each loan at a rate equal to one-month LIBOR plus 1.20% per annum. Upon the termination or repayment of any loan selected by 405 Sub under the Agreement, 405 Sub may deduct the appreciation of such loan's value from any interest owed to Citi or pay the depreciation amount to Citi in addition to remaining interest payments.

Citi may terminate any individual loan on or after July 13, 2015. However, if at any time, any particular loan fails to meet certain criteria set forth in the TRS, and such failure continues for 30 days, Citi will have the right to terminate that loan or the entire agreement with at least 10 days' notice and 405 Sub would be required to pay certain breakage costs to Citi. 405 Sub may terminate the TRS prior to July 13, 2015 but would be required to pay certain termination fees.
    

36
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)

At March 31, 2014 , the receivable and realized gain on the total return swap on the consolidated statements of assets and liabilities and consolidated statements of operations consisted of the following (dollars in thousands):

 
Net Receivable
 
Net Realized Gains
Interest and other income from TRS portfolio
$
4,117

 
$
5,467

TRS interest expense
(801
)
 
(1,029
)
Gains on TRS asset sales
78

 
1,013

Net realized gain from TRS
$
3,394

 
$
5,451


At March 31, 2013 , the receivable and realized gain on the total return swap on the consolidated statements of assets and liabilities and consolidated statements of operations consisted of the following (dollars in thousands):

 
Net Receivable
 
Net Realized Gains
Interest and other income from TRS portfolio
$
1,696

 
$
2,127

TRS interest expense
(300
)
 
(375
)
Gains on TRS asset sales
7

 
44

Net realized gain from TRS
$
1,403

 
$
1,796

    
The Company valued its TRS in accordance with the agreements between 405 Sub and Citi, which collectively established the TRS and are collectively referred to herein as the TRS Agreement. Pursuant to the TRS Agreement, the value of the TRS is based on the increase or decrease in the value of the loans underlying the TRS, together with accrued interest income, interest expense and certain other expenses incurred under the TRS. The loans underlying the TRS are valued by Citi. Citi bases its valuation primarily on the indicative bid prices provided by an independent third-party pricing service. Bid prices reflect the highest price that market participants may be willing to pay. These valuations are sent to the Company for review and testing. The Company's management reviews and approves the value of the TRS, as well as the value of the loans underlying the TRS, on a quarterly basis as part of their quarterly valuation process. To the extent the Company's management has any questions or concerns regarding the valuation of the loans underlying the TRS, such valuations will be discussed or challenged pursuant to the terms of the TRS.

The fair value of the TRS is reflected as an unrealized gain or loss on the total return swap on the consolidated statements of assets and liabilities. The change in value of the TRS is reflected in the consolidated statements of operations as net unrealized appreciation (depreciation) on the total return swap.

As of March 31, 2014 and December 31, 2013, the fair value of the TRS was $3.3 million and $3.2 million, respectively.

As of March 31, 2014 , 405 Sub had exposure to 29 underlying loans with a total notional amount of $305.9 million and posted $ 79.0 million in cash collateral held by Citi, which is reflected in cash collateral on deposit with custodian on the consolidated statements of assets and liabilities. As of December 31, 2013, 405 Sub had exposure to 32 underlying loans with a total notional amount of $293.0 million and posted $ 76.9 million in cash collateral held by Citibank, which is reflected in cash collateral on deposit with custodian on the consolidated statements of assets and liabilities.
    
For purposes of the asset coverage ratio test applicable to the Company as a BDC, the Company has agreed with the staff of the SEC to treat the outstanding notional amount of the TRS, less the initial amount of any cash collateral posted by 405 Sub under the TRS, as a senior security for the life of that instrument. The Company may, however, accord different treatment to the TRS in the future in accordance with any applicable new rules or interpretations adopted by the staff of the SEC.

Further, for purposes of Section 55(a) under the 1940 Act, the Company has agreed with the staff of the SEC to treat each loan underlying the TRS as a qualifying asset if the obligor on such loan is an eligible portfolio company and as a non-qualifying asset if the obligor is not an eligible portfolio company. The Company may, however, accord different treatment to the TRS in the future in accordance with any applicable new rules or interpretations adopted by the staff of the SEC.

37
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)

The following is a summary of the underlying loans subject to the TRS as of March 31, 2014 (dollars in thousands):
Underlying Loan (a)
 
Industry
 
Investment Coupon Rate/Maturity Date
 
Principal
 
Notional Amount
 
Market Value
 
Unrealized Appreciation (Depreciation)
Senior Secured First Lien Debt
 
 
 
 
 
 
 
 
 
 
 
 
AM General LLC
 
Aerospace & Defense
 
L+9.00%, 3/22/2018
 
$
6,475

 
$
6,281

 
$
5,730

 
$
(551
)
Amneal Pharmaceuticals LLC
 
Biotechnology
 
L+4.75%, 11/1/2019
 
11,940

 
11,821

 
11,985

 
164

Avaya Inc.
 
Communications Equipment
 
L+5.50%, 3/31/2018
 
14,956

 
14,881

 
14,972

 
91

BBTS Borrower LP
 
Oil, Gas & Consumable Fuels
 
L+6.50%, 6/4/2019
 
18,810

 
18,686

 
18,969

 
283

Caesar's Entertainment Resort Properties, LLC
 
Hotels, Restaurants & Leisure
 
L+6.00%, 10/11/2020
 
11,970

 
11,731

 
12,115

 
384

Clover Technologies Group, LLC (aka 4L Holdings)
 
Commercial Services & Supplies
 
L+5.50%, 5/7/2018
 
11,182

 
11,125

 
11,155

 
30

Corner Investment Propco, LLC
 
Hotels, Restaurants & Leisure
 
L+9.75%, 11/2/2019
 
9,000

 
8,932

 
9,225

 
293

Excelitas Technologies Corp.
 
Electronic Equipment, Instruments & Components
 
L+5.00%, 11/2/2020
 
17,228

 
17,056

 
17,292

 
236

Expera Specialty Solutions, LLC
 
Paper & Forest Products
 
L+6.25%, 12/16/2018
 
6,948

 
6,809

 
7,000

 
191

Hearthside Food Solutions, LLC
 
Food Products
 
L+5.25%, 6/7/2018
 
5,360

 
5,335

 
5,360

 
25

Ikaria Inc.
 
Biotechnology
 
L+6.00%, 7/31/2018
 
17,500

 
17,413

 
17,603

 
190

Jackson Hewitt Inc.
 
Diversified Consumer Services
 
L+8.50%, 10/16/2017
 
8,625

 
8,386

 
8,560

 
174

Liquidnet Holdings, Inc
 
Capital Markets
 
L+8.00%, 5/8/2017
 
8,075

 
7,994

 
8,065

 
71

MCS AMS Sub-Holdings LLC
 
Real Estate Management & Development
 
L+6.00%, 10/15/2019
 
15,000

 
14,550

 
14,550

 
—

Miller Heiman, Inc.
 
Media
 
L+5.75%, 9/30/2019
 
13,664

 
13,254

 
13,163

 
(91
)
North Atlantic Trading Company Inc
 
Food Products
 
L+6.50%, 1/13/2020
 
7,981

 
7,901

 
8,040

 
139

NXT Capital, LLC
 
Commercial Banks
 
L+5.25%, 9/4/2018
 
9,950

 
9,851

 
10,000

 
149

Premier Dental Services, Inc.
 
Health Care Providers & Services
 
L+7.00%, 11/1/2018
 
9,975

 
9,925

 
9,987

 
62

Pre-Paid Legal Services, Inc.
 
Diversified Consumer Services
 
L+5.00%, 7/1/2019
 
11,784

 
11,669

 
11,887

 
218

RedPrairie Corp.
 
Software
 
L+10.00%, 12/21/2018
 
17,456

 
17,456

 
17,383

 
(73
)
St. George's University Scholastic Services LLC
 
Diversified Consumer Services
 
L+7.00%, 12/20/2017
 
5,977

 
5,857

 
6,022

 
165

STG-Fairway Acquisitions, Inc.
 
Professional Services
 
L+5.00%, 2/28/2019
 
11,905

 
11,786

 
11,935

 
149

SunGard Availability Services Capital, Inc.
 
Business Equipment & Services
 
L+5.00%, 3/31/2019
 
10,000

 
9,950

 
10,013

 
63

Therakos, Inc.
 
Biotechnology
 
L+6.25%, 12/27/2017
 
7,462

 
7,425

 
7,506

 
81

United Central Industrial Supply Company, LLC
 
Commercial Services & Supplies
 
L+6.25%, 10/9/2018
 
4,938

 
4,740

 
4,863

 
123

US Shipping LLC
 
Marine
 
L+7.75%, 4/30/2018
 
11,910

 
11,828

 
12,148

 
320

Varel International Ind., LP
 
Oil, Gas & Consumable Fuels
 
L+7.75%, 7/17/2017
 
4,781

 
4,686

 
4,817

 
131

Vestcom International, Inc.
 
Media
 
L+5.75%, 12/26/2018
 
8,925

 
8,806

 
8,925

 
119

Sub Total Senior Secured First Lien Debt
 
 
 
 
 
 
 
$
296,134

 
$
299,270

 
$
3,136

 
 
 
 
 
 
 
 
 
 
 
 
 
Senior Secured Second Lien Debt
 
 
 
 
 
 
 
 
 
 
 
 
NCP Finance Limited Partnership
 
Consumer Finance
 
L+9.75%, 10/1/2018
 
$
9,950

 
$
9,751

 
$
9,900

 
$
149

Sub Total Senior Secured Second Lien Debt
 
 
 
 
 
 
 
$
9,751

 
$
9,900

 
$
149

Total
 
 
 
 
 
 
 
$
305,885

 
$
309,170

 
$
3,285


38
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)

______________

(a)
All of the companies that issued the underlying loans that are subject to the TRS are eligible portfolio companies, as defined in the Investment Company Act of 1940, except Caesar's Entertainment Resort Properties, LLC, NXT Capital LLC, and St. George's University Scholastic Services LLC.

The following is a summary of the underlying loans subject to the TRS as of December 31, 2013 (dollars in thousands):
Underlying Loan (a)
 
Industry
 
Investment Coupon Rate/Maturity Date
 
Principal
 
Notional Amount
 
Market Value
 
Unrealized Appreciation (Depreciation)
Senior Secured First Lien Debt
 
 
 
 
 
 
 
 
 
 
 
 
AM General LLC
 
Aerospace & Defense
 
L+9.00%, 3/22/2018
 
$
6,650

 
$
6,451

 
$
5,752

 
$
(699
)
American Dental Partners, Inc.
 
Health Care Providers & Services
 
L+5.00%, 2/9/2018
 
3,388

 
3,184

 
3,320

 
136

Amneal Pharmaceuticals LLC
 
Biotechnology
 
L+4.75%, 11/1/2019
 
11,970

 
11,850

 
12,030

 
180

BBTS Borrower LP
 
Oil, Gas & Consumable Fuels
 
L+6.50%, 6/4/2019
 
18,858

 
18,733

 
18,952

 
219

Caesar's Entertainment Resort Properties, LLC
 
Hotels, Restaurants & Leisure
 
L+6.00%, 10/11/2020
 
12,000

 
11,760

 
11,925

 
165

Clover Technologies Group, LLC (aka 4L Holdings)
 
Commercial Services & Supplies
 
L+5.50%, 5/7/2018
 
11,330

 
11,272

 
11,273

 
1

Corner Investment Propco, LLC
 
Hotels, Restaurants & Leisure
 
L+9.75%, 11/2/2019
 
9,000

 
8,932

 
9,135

 
203

Excelitas Technologies Corp.
 
Electronic Equipment, Instruments & Components
 
L+5.00%, 11/2/2020
 
17,271

 
17,098

 
17,343

 
245

Expera Specialty Solutions, LLC
 
Paper & Forest Products
 
L+6.25%, 12/21/2018
 
6,965

 
6,826

 
7,035

 
209

Hearthside Food Solutions, LLC
 
Food Products
 
L+5.25%, 6/7/2018
 
5,444

 
5,418

 
5,444

 
26

Ikaria Acquisitions, Inc.
 
Biotechnology
 
L+6.00%, 7/3/2018
 
13,650

 
13,445

 
13,710

 
265

Jackson Hewitt, Inc.
 
Diversified Consumer Services
 
L+8.50%, 10/16/2017
 
9,266

 
9,008

 
9,173

 
165

Jacobs Entertainment, Inc.
 
Hotels, Restaurants & Leisure
 
L+5.00%, 10/29/2018
 
3,950

 
3,891

 
3,930

 
39

Keystone Automotive Operations Inc
 
Distributors
 
L+5.75%, 8/8/2019
 
9,975

 
9,825

 
10,000

 
175

Liquidnet Holdings, Inc.
 
Capital Markets
 
L+8.00%, 5/8/2017
 
8,181

 
8,100

 
8,058

 
(42
)
MCS AMS Sub-Holdings LLC
 
Real Estate Management & Development
 
L+6.00%, 10/15/2019
 
15,000

 
14,550

 
14,475

 
(75
)
Miller Heiman
 
Media
 
L+5.75%, 9/30/2018
 
13,750

 
13,338

 
13,681

 
343

Mitel Networks Corp.
 
Communications Equipment
 
L+5.75%, 2/27/2019
 
5,355

 
5,301

 
5,355

 
54

NXT Capital LLC
 
Commercial Banks
 
L+5.25%, 9/4/2018
 
10,000

 
9,900

 
9,900

 
—

Plato Learning, Inc.
 
Diversified Consumer Services
 
L+4.75%, 5/17/2018
 
2,400

 
2,392

 
2,392

 
—

Premier Dental Services Inc.
 
Health Care Providers & Services
 
L+7.00%, 11/1/2018
 
4,950

 
4,802

 
4,981

 
179

Pre-Paid Legal Services, Inc.
 
Diversified Consumer Services
 
L+5.00%, 7/1/2019
 
12,690

 
12,567

 
12,762

 
195

RedPrairie Corp.
 
Software
 
L+10.00%, 12/21/2018
 
17,500

 
17,500

 
17,549

 
49

St. George's University Scholastic Services LLC
 
Diversified Consumer Services
 
L+7.00%, 12/20/2017
 
6,517

 
6,387

 
6,550

 
163

STG-Fairway Acquisitions, Inc.
 
Professional Services
 
L+5.00%, 2/28/2019
 
11,965

 
11,845

 
11,943

 
98


39
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)

Underlying Loan (a)
 
Industry
 
Investment Coupon Rate/Maturity Date
 
Principal
 
Notional Amount
 
Market Value
 
Unrealized Appreciation (Depreciation)
Therakos, Inc.
 
Biotechnology
 
L+6.25%, 12/27/2017
 
$
7,481

 
$
7,444

 
$
7,487

 
43

United Central Industrial Supply Company, LLC
 
Commercial Services & Supplies
 
L+6.25%, 10/9/2018
 
4,950

 
4,752

 
4,702

 
$
(50
)
US Shipping LLC
 
Marine
 
L+7.75%, 4/30/2018
 
11,940

 
11,858

 
12,209

 
351

Varel International Ind., LP
 
Oil, Gas & Consumable Fuels
 
L+7.75%, 7/17/2017
 
4,850

 
4,753

 
4,923

 
170

Vestcom International, Inc.
 
Media
 
L+5.75%, 12/26/2018
 
7,444

 
7,332

 
7,453

 
121

Sub Total Senior Secured First Lien Debt
 
 
 
 
 
 
 
$
280,514

 
$
283,442

 
$
2,928

 
 
 
 
 
 
 
 
 
 
 
 
 
Senior Secured Second Lien Debt
 
 
 
 
 
 
 
 
 
 
 
 
NCP Finance Limited Partnership
 
Consumer Finance
 
L+9.75%, 10/1/2018
 
$
9,975

 
$
9,776

 
$
9,925

 
$
149

RedPrairie Corp.
 
Software
 
L+10.00%, 12/14/2019
 
3,000

 
2,690

 
2,793

 
103

Sub Total Senior Secured Second Lien Debt
 
 
 
 
 
 
 
$
12,466


$
12,718


$
252

Total
 
 
 
 
 
 
 
$
292,980


$
296,160


$
3,180

______________

(a)  
All of the companies that issued the underlying loans that are subject to the TRS are eligible portfolio companies, as defined in the Investment Company Act of 1940, except Caesar's Entertainment Resort Properties, LLC, Mitel Networks Corp., NXT Capital LLC, and St. George's University Scholastic Services LLC.

Note 7 — Commitments and Contingencies

Commitments

In the ordinary course of business, the Company may enter into future funding commitments. As of March 31, 2014 , the Company had unfunded commitments on delayed draw term loans o f $24.4 million and unfunded equity commitments of $20.2 million. As of December 31, 2013, the Co mpany had unfunded commitments on delayed draw term loans of $25.6 million and unfunded equity commitments of $20.0 million. The unfunded commitments are disclosed in the Company's Consolidated Schedule of Investments.

Litigation
 
In the ordinary course of business, the Company may become subject to litigation or claims. There are no material legal proceedings pending or known to be contemplated against the Company.
 
Indemnifications

In the ordinary course of its business, the Company may enter into contracts or agreements that contain indemnifications or warranties. Future events could occur that lead to the execution of these provisions against the Company. Based on its history and experience, management feels that the likelihood of such an event is remote.

Note 8 — Economic Dependency
 
Under various agreements, the Company has engaged or will engage the Adviser and its affiliates to provide certain services that are essential to the Company, including asset management services, asset acquisition and disposition decisions, the sale of shares of the Company’s common stock available for issuance, as well as other administrative responsibilities for the Company including accounting services and investor relations.
  

40
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)

As a result of these relationships, the Company is dependent upon the Adviser and its affiliates. In the event that these companies were unable to provide the Company with the respective services, the Company would be required to find alternative providers of these services.

Note 9 — Common Stock

On August 25, 2011, the Company had raised sufficient funds to break escrow on its IPO and through March 31, 2014 , the Company had sold 94.1 million shares of common stock for gross proceeds of $1.0 billion , including shares purchased by the Sponsor and shares issued under the DRIP. As of March 31, 2014 , the Company had repurchased 0.3 million shares of common stock for payments of $ 2.6 million.

The following table reflects the common stock activity for the three months ended March 31, 2014 (dollars in thousands except share amounts):

 
 
Shares
 
Value
Shares Sold
 
29,879,459

 
$
329,461

Shares Issued through DRIP
 
673,532

 
6,789

Share Repurchases
 
(92,514
)
 
(963
)
 
 
30,460,477

 
$
335,287


The following table reflects the common stock activity for the three months ended March 31, 2013 (dollars in thousands except share amounts):

 
 
Shares
 
Value
Shares Sold
 
7,277,096

 
$
77,543

Shares Issued through DRIP
 
118,354

 
1,143

Share Repurchases
 
(15,405
)
 
(156
)
 
 
7,380,045

 
$
78,530

    
Note 10 — Share Repurchase Program

The Company intends to conduct quarterly tender offers pursuant to its share repurchase program. The Company’s board of directors will consider the following factors, among others, in making its determination regarding whether to cause the Company to offer to repurchase shares and under what terms:

 
•
the effect of such repurchases on the Company's qualification as a RIC (including the consequences of any
 
 
necessary asset sales);
 
•
the liquidity of the Company's assets (including fees and costs associated with disposing of assets);
 
•
the Company's investment plans and working capital requirements;
 
•
the relative economies of scale with respect to the Company's size;
 
•
the Company's history in repurchasing shares or portions thereof; and
 
•
the condition of the securities markets.
    

41
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)

The Company currently intends to limit the number of shares to be repurchased during any calendar year to the number of shares it can repurchase with the proceeds it receives from the sale of shares under its DRIP. At the discretion of the Company’s board of directors, the Company may also use cash on hand, cash available from borrowings and cash from liquidation of securities investments as of the end of the applicable period to repurchase shares. In addition, as of September 30, 2013, the Company will limit the number of shares to be repurchased in any calendar year to 10% of the weighted average number of shares outstanding in the prior calendar year, or 2.5% in each quarter, though the actual number of shares that the Company offers to repurchase may be less in light of the limitations noted above. The Company will offer to repurchase such shares on each date of repurchase at a price equal to 92.5% of the public offering price in effect on each date of repurchase, which will be determined in the same manner that the Company determined the public offering price per share for purposes of its continuous public offering. The Company’s board of directors may amend, suspend or terminate the repurchase program at any time upon 30 days’ notice. The first quarterly tender offer commenced on September 12, 2012 and was completed on October 8, 2012. Upon completion of its first quarterly tender offer, on October 8, 2012, the Company repurchased 0 shares at the offered price of $9.7125 per share for aggregate consideration totaling $0. The second quarterly tender offer commenced on December 13, 2012 and was completed on January 15, 2013. Upon completion of this tender offer on January 15, 2013, the Company repurchased 10,732 shares at the offered price of $9.8975 per share for aggregate consideration totaling $0.1 million. The third quarterly tender offer commenced on March 27, 2013, which was completed on April 25, 2013. Upon completion of this tender offer, the Company repurchased 29,625 shares at the offered price of $10.18 per share for aggregate consideration totaling $0.3 million. The fourth quarterly tender offer commenced on July 15, 2013, which was completed on August 13, 2013. Upon completion of this tender offer, the Company repurchased 30,365 shares at the offered price of $10.18 per share for aggregate consideration totaling $0.3 million. The fifth quarterly tender offer commenced on October 22, 2013, and was completed on November 21, 2013. Upon completion of this tender offer, the Company repurchased 55,255 shares at the offer price of $10.36 per share for aggregate consideration totaling $0.6 million. The sixth quarterly tender offer commenced on February 4, 2013, and was completed on March 6, 2014. The consideration for the repurchased shares was $0.7 million based on the repurchase of 68,969 shares at $10.36 which is 92.5% of the current public offering price of $11.20.
    

Note 11 — Net Increase in Net Assets

Basic earnings per share is computed by dividing earnings available to common stockholders by the weighted average number of shares outstanding during the period. Other potentially dilutive shares, and the related impact to earnings, are considered when calculating earnings per share on a diluted basis. The Company had no potentially dilutive securities as of March 31, 2014 and 2013.

The following information sets forth the computation of the weighted average basic and diluted net increase in net assets per share from operations for the three months ended March 31, 2014 , and March 31, 2013 (dollars in thousands except share and per share amounts):

 
 
For the three months ended March 31,
 
For the three months ended March 31,
 
 
2014
 
2013
Basic and diluted
 
 
 
 
Net increase in net assets from operations
 
$
17,400

 
$
7,940

Weighted average common shares outstanding
 
78,450,124

 
18,939,009

Net increase in net assets resulting from operations per share - basic and diluted
 
$
0.22

 
$
0.42

    

42
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)

The table below shows changes in our offering price and distribution rates since the commencement of our public offering.
Announcement Date
 
New Public Offering Price
 
Effective Date
 
Daily Distribution Amount per share
 
Annualized Distribution Rate
November 14, 2011
 
$
10.26

 
November 16, 2011
 
0.002221920
 
7.90
%
May 1, 2012
 
$
10.44

 
June 1, 2012
 
0.002215850
 
7.75
%
August 14, 2012
 
$
10.50

 
September 4, 2012
 
0.002246575
 
7.81
%
September 24, 2012
 
$
10.60

 
October 16, 2012
 
0.002246575
 
7.74
%
October 15, 2012
 
$
10.70

 
November 1, 2012
 
0.002273973
 
7.76
%
February 5, 2013
 
$
10.80

 
February 18, 2013
 
0.002293151
 
7.75
%
February 25, 2013
 
$
10.90

 
March 1, 2013
 
0.002314384
 
7.75
%
April 3, 2013
 
$
11.00

 
April 16, 2013
 
0.002335616
 
7.75
%
August 15, 2013
 
$
11.10

 
August 16, 2013
 
0.002356849
 
7.75
%
October 29, 2013
 
$
11.20

 
November 1, 2013
 
0.002378082
 
7.75
%

Note 12 — Distributions

The Company has declared and paid cash distributions to stockholders on a monthly basis since it commenced operations. From time to time, the Company may also pay interim distributions at the discretion of its board of directors. The Company may fund its cash distributions to stockholders from any sources of funds available to it, including offering proceeds, borrowings, net investment income from operations, capital gains proceeds from the sale of assets and non-capital gains proceeds from the sale of assets. The Company’s distributions may exceed its earnings, especially during the period before the Company has substantially invested the proceeds from its IPO. As a result, a portion of the distributions the Company will make may represent a return of capital for tax purposes. As of March 31, 2014 , the Company had accrued $ 6.7 million in stockholder distributions that were unpaid. As of December 31, 2013, the Company had accrued $ 4.6 million in stockholder distributions that were unpaid.
    
The following table reflects the cash distributions per share that we have paid on our common stock to date (dollars in thousands except per share amounts):
Record Date
Payment Date
 
Per share
 
Distributions Paid in Cash
 
Distributions Paid Through the DRIP
 
Total Distributions Paid
2011:
 
 
 
 
 
 
 
 
 
September 30, 2011
October 3, 2011
 
$
0.07

 
$
13

 
$
13

 
$
26

October 31, 2011
November 1, 2011
 
0.07

 
20

 
14

 
34

November 30, 2011
December 1, 2011
 
0.06

 
25

 
17

 
42

December 31, 2011
January 3, 2012
 
0.06

 
35

 
21

 
56

 
 
 
 
 
$
93

 
$
65

 
$
158

2012:
 
 
 
 
 
 
 
 
 
January 31, 2012
February 1, 2012
 
$
0.06

 
$
47

 
$
26

 
$
73

February 29, 2012
March 1, 2012
 
0.06

 
80

 
34

 
114

March 31, 2012
April 2, 2012
 
0.06

 
118

 
48

 
166

April 30, 2012
May 1, 2012
 
0.06

 
157

 
65

 
222

May 31, 2012
June 1, 2012
 
0.07

 
289

 
91

 
380

June 30, 2012
July 2, 2012
 
0.06

 
313

 
113

 
426


43
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)

Record Date
Payment Date
 
Per share
 
Distributions Paid in Cash
 
Distributions Paid Through the DRIP
 
Total Distributions Paid
July 31, 2012
August 1, 2012
 
$
0.07

 
$
361

 
$
146

 
$
507

August 31, 2012
September 4, 2012
 
0.07

 
394

 
173

 
567

September 30, 2012
October 1, 2012
 
0.06

 
429

 
203

 
632

October 31, 2012
November 1, 2012
 
0.07

 
505

 
247

 
752

November 30, 2012
December 3, 2012
 
0.07

 
612

 
287

 
899

December 17, 2012
December 27, 2012
 
0.09

 
917

 
462

 
1,379

December 31, 2012
January 2, 2013
 
0.07

 
682

 
341

 
1,023

 
 
 
 
 
$
4,904

 
$
2,236

 
$
7,140

2013:
 
 
 
 
 
 
 
 
 
January 31, 2013
February 1, 2013
 
$
0.07

 
$
787

 
$
395

 
$
1,182

February 28, 2013
March 1, 2013
 
0.06

 
797

 
408

 
1,205

March 31, 2013
April 1, 2013
 
0.07

 
1,008

 
525

 
1,533

April 30, 2013
May 1, 2013
 
0.07

 
1,098

 
590

 
1,688

May 31, 2013
June 1, 2013
 
0.07

 
1,276

 
755

 
2,031

June 30, 2013
July 1, 2013
 
0.07

 
1,396

 
893

 
2,289

July 31, 2013
August 1, 2013
 
0.07

 
1,608

 
1,071

 
2,679

August 31, 2013
September 1, 2013
 
0.07

 
1,764

 
1,285

 
3,049

September 30, 2013
October 1, 2013
 
0.07

 
1,868

 
1,408

 
3,276

October 31, 2013
November 1, 2013
 
0.07

 
2,092

 
1,673

 
3,765

November 30, 2013
December 2, 2013
 
0.07

 
2,225

 
1,799

 
4,024

December 31, 2013
January 2, 2014
 
0.07

 
2,504

 
2,074

 
4,578

 
 
 
 
 
$
18,423

 
$
12,876

 
$
31,299

2014:
 
 
 
 
 
 
 
 
 
January 31, 2014
February 4, 2014
 
$
0.07

 
$
2,718

 
$
2,317

 
$
5,035

February 28, 2014
March 3, 2014
 
0.06

 
2,751

 
2,399

 
5,150

March 31, 2014
April 1, 2014
 
0.07

 
3,499

 
3,196

 
6,695

April 30, 2014
May 1, 2014
 
0.07

 
3,816

 
3,608

 
7,424

 
 
 
 
 
$
12,784

 
$
11,520

 
$
24,304

 
 
 
 
 
$
36,204

 
$
26,697

 
$
62,901

The following table reflects the stock distributions per share that the Company declared on its common stock to date:

Date Declared
 
Record Date
 
Payment Date
 
Per Share
 
Distribution Percentage
 
Shares Issued
March 29, 2012
 
May 1, 2012
 
May 2, 2012
 
$
0.05

 
0.49
%
 
25,709


The Company has not established any limit on the extent to which it may use borrowings, if any, or proceeds from its IPO to fund distributions (which may reduce the amount of capital it ultimately invests in assets). There can be no assurance that the Company will be able to sustain distributions at any particular level.

On March 1, 2012, the price for newly-issued shares under the DRIP issued to stockholders was changed from 95% to 90% of the stock price that the shares are sold in the offering as of the date the distribution is made.


44
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)

Note 13 — Financial Highlights

The following is a schedule of financial highlights for the three months ended March 31, 2014 and March 31, 2013:
 
For the Three Months Ended March 31,
 
For the Three Months Ended March 31,
 
2014
 
2013
Per share data:
 

 
 

Net asset value, beginning of period
$
9.86

 
$
9.41

 
 
 
 
Results of operations (1)
       Net investment income
0.15

 
0.12

Net realized and unrealized appreciation (depreciation) on investments
(0.01
)
 
0.08

Net realized and unrealized appreciation on total return swap
0.07

 
0.22

Net increase in net assets resulting from operations
0.21

 
0.42

 
 
 
 
Stockholder distributions (2)
       Distributions from net investment income
(0.16
)
 
(0.12
)
Distributions from net realized gain on investments and total return swap
(0.06
)
 
(0.09
)
Net decrease in net assets resulting from stockholder distributions
(0.22
)
 
(0.21
)
 
 
 
 
Capital share transactions
       Issuance of common stock (3)
0.09

 
0.09

Repurchases of common stock (4)
—

 
—

Offering costs
(0.06
)
 
(0.08
)
Net increase in net assets resulting from capital share transactions
0.03

 
0.01

Net asset value, end of period
$
9.88

 
$
9.63

Shares outstanding at end of period
94,132,120

 
22,323,260

Total return (6)
2.37
%
 
4.47
%
Ratio/Supplemental data:
 

 
 

Net assets, end of period (in thousands)
$
930,415

 
$
214,868

Ratio of net investment income to average net assets (5)(8)
6.22
%
 
5.03
%
Ratio of operating expenses to average net assets (5)(8)
3.41
%
 
4.90
%
Ratio of incentive fees to average net assets (8)
0.10
%
 
1.49
%
Ratio of credit facility related expenses to average net assets (8)
0.67
%
 
0.69
%
Portfolio turnover rate (7)
18.66
%
 
44.57
%
 
 
 
 
______________

45
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)


(1)  
The per share data was derived by using the weighted average shares outstanding during the period. Net investment income per share excluding the expense waiver and reimbursement equals $ 0.15 for the three months ended March 31, 2014 . Net investment income per share excluding the expense waiver and reimbursements equals $0.40 for the three months ended March 31, 2013 .

(2)  
The per share data for distributions reflects the actual amount of distributions declared per share during the period.

(3)  
The issuance of common stock on a per share basis reflects the incremental net asset value changes as a result of the issuance of shares of common stock in the Company’s continuous offering.

(4)  
The per share impact of the Company's repurchases of common stock is a reduction to net asset value of less than$0.01 per share during the three months ended March 31, 2014.

(5)  
For the three months ended March 31, 2014 , excluding the expense waiver and reimbursement, the ratio of net investment income, operating expenses, and incentive fees to average net assets is 6.22% , 3.41% , and 0.10% , respectively. For the three months ended March 31, 2013 , excluding the expense waiver and reimbursement, the ratio of net investment income, operating expenses and incentive fees to average net assets was 4.10% , 5.82% , and 2.41% , respectively.

(6)  
Total return is calculated assuming a purchase of shares of common stock at the current net asset value on the first day and a sale at the current net asset value on the last day of the periods reported. Distributions, if any, are assumed for purposes of this calculation to be reinvested at prices obtained under the DRIP. The total return based on net asset value for the three months ended March 31, 2014 , includes the effect of the expense waiver and reimbursement which equaled 0.00%. The total return based on net asset value for the three months ended March 31, 2013 , includes the effect of the expense waiver and reimbursement which equaled 0.23% .

(7)  
Portfolio turnover rate is calculated using the lesser of year-to-date purchases or sales over the average of the invested assets at fair value. Not annualized.

(8)  
Ratios are annualized.

Note 14 – Subsequent Events

The Company has evaluated subsequent events through the filing of this Form 10-Q and determined that there have been no events that have occurred that would require adjustments to the Company’s disclosures in the consolidated financial statements except for the following:

From April 1, 2014 to May 15, 2014, the Company has issued 19.3 million shares of common stock including shares issued pursuant to the DRIP. Total gross proceeds from these issuances including proceeds from shares issued pursuant to the DRIP were $214.4 million.

On May 6, 2014, the Company, through 405 Sub, amended and restated its total return swap agreement (the "Sixth Amended Agreement") with Citi. The Sixth Amended Agreement increases the maximum aggregate market value of the portfolio of loans that 405 Sub may elect from $350.0 million to $450.0 million.


46
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

SCHEDULE OF INVESTMENTS AND ADVANCES TO AFFILIATES
(dollars in thousands)
(Unaudited)




Schedule 12-14
Portfolio Company (1)
 
Type of Asset
 
Amount of dividends and interest included in income
 
Beginning Fair Value December 31, 2013
 
Gross additions
 
Gross reductions
 
Realized Gain/(Loss)
 
Change in Unrealized Gain (Loss)
 
Fair Value at March 31, 2014
Control Investments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Kahala US OpCo LLC
 
Senior Secured First Lien Debt
 
$
535

 
$
15,860

 
$
3,683

 
$
—

 
$
—

 
$
—

 
$
19,543

Kahala Aviation Holdings, LLC (2)
 
Equity/Other
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Kahala Aviation Holdings, LLC - Preferred Shares
 
Equity/Other
 
—

 
5,271

 
1,050

 
—

 
—

 
—

 
6,321

Park Ave RE Holdings, LLC
 
Senior Secured First Lien Debt
 
431

 
9,750

 
14,338

 
—

 
—

 
—

 
24,088

Park Ave RE, Inc.
 
Equity/Other
 
—

 
33

 
46

 
—

 
—

 
(79
)
 
—

Park Ave RE, Inc. - Preferred Shares
 
Equity/Other
 
—

 
3,218

 
4,591

 
—

 
—

 
—

 
7,809

  Total Control Investments
 
 
 
$
966

 
$
34,132

 
$
23,708

 
$
—

 
$
—

 
$
(79
)
 
$
57,761

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Affiliate Investments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Apidos XVI CLO, LTD. Subordinated Notes
 
Collateralized Securities
 
$
441

 
$
13,650

 
$
—

 
$
—

 
$
—

 
$
(66
)
 
$
13,584

Catamaran CLO 2013-1 Ltd. Subordinated Notes
 
Collateralized Securities
 
247

 
20,404

 
—

 
(21,176
)
 
3,236

 
(2,464
)
 
—

CVP Cascade CLO, LTD. Subordinated Notes
 
Collateralized Securities
 
1,069

 
28,086

 
—

 
(3,243
)
 
—

 
—

 
24,843

Fifth Street Senior Loan Fund I, LLC
 
Equity/Other
 
—

 
—

 
14,455

 
—

 
—

 
—

 
14,455

Garrison Funding 2013-1 Ltd. Subordinated Notes
 
Collateralized Securities
 
—

 
15,000

 
—

 
—

 
—

 
—

 
15,000

JMP Credit Advisors CLO II Ltd. Subordinated Notes
 
Collateralized Securities
 
27

 
6,099

 
—

 
(6,100
)
 
400

 
(399
)
 
—

MidOcean Credit CLO II, Ltd. Subordinated Notes
 
Collateralized Securities
 
184

 
20,543

 
—

 
(20,543
)
 
—

 
—

 
—

MidOcean Credit Fund Management LP
 
Collateralized Securities
 
823

 
—

 
34,058

 
—

 
—

 
—

 
34,058

NewStar Arlington Fund, LLC
 
Equity/Other
 
780

 
30,000

 
—

 
—

 
—

 
—

 
30,000

OFSI Fund VI, Ltd. Subordinated Notes
 
Collateralized Securities
 
177

 
—

 
32,895

 
—

 
—

 
—

 
32,895

OFSI Fund VI, Ltd. Warehouse
 
Collateralized Securities
 
123

 
—

 
17,000

 
(17,000
)
 
—

 
—

 
—

PennantPark Credit Opportunities Fund, LP
 
Equity/Other
 
158

 
10,550

 
—

 
—

 
—

 
241

 
10,791

Related Fee Agreements
 
Collateralized Securities
 
82

 
—

 
5,130

 
—

 
—

 
—

 
5,130

Shackleton 2014-V CLO, LTD. Subordinated Notes
 
Collateralized Securities
 
113

 
—

 
26,250

 
—

 
—

 
—

 
26,250

South Grand MM CLO I, LLC
 
Equity/Other
 
69

 
872

 
21,337

 
—

 
—

 
—

 
22,209

THL Credit Greenway Fund II LLC
 
Equity/Other
 
236

 
9,005

 
2,962

 
—

 
—

 
(29
)
 
11,938

  Total Affiliate Investments
 
 
 
$
4,529

 
$
154,209

 
$
154,087

 
$
(68,062
)
 
$
3,636

 
$
(2,717
)
 
$
241,153

  Total Control & Affiliate Investments
 
 
 
$
5,495

 
$
188,341

 
$
177,795

 
$
(68,062
)
 
$
3,636

 
$
(2,796
)
 
$
298,914

This schedule should be read in connection with the Company’s Consolidated Financial Statements, including the Consolidated Schedules of Investments and Notes to the Consolidated Financial Statements.
______________________________________________________
(1)
The principal amount and ownership detail are shown in the Consolidated Schedules of Investments.
(2)  
In accordance with the subscription agreement executed with Kahala Aviation Holdings, LLC dated December 23, 2013, the Company owns 84 common units of shares.

47
BUSINESS DEVELOPMENT CORPORATION OF AMERICA

SCHEDULE OF INVESTMENTS AND ADVANCES TO AFFILIATES
(dollars in thousands)
(Unaudited)




Schedule 12-14
Portfolio Company (1)
 
Type of Asset
 
Amount of dividends and interest included in income
 
Beginning Fair Value December 31, 2012
 
Gross additions
 
Gross reductions
 
Realized Gain/(Loss)
 
Change in Unrealized Gain (Loss)
 
Fair Value at December 31, 2013
Control Investments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
—

Kahala US OpCo LLC
 
Senior Secured First Lien Debt
 
$
51

 
$
—

 
$
15,860

 
$
—

 
$
—

 
$
—

 
$
15,860

Kahala Aviation Holdings, LLC (2)
 
Equity/Other
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Kahala Aviation Holdings, LLC - Preferred Shares
 
Equity/Other
 
—

 
—

 
5,271

 
—

 
—

 
—

 
5,271

Park Ave RE Holdings, LLC
 
Senior Secured First Lien Debt
 
4

 
—

 
9,750

 
—

 
—

 
—

 
9,750

Park Ave RE, Inc.
 
Equity/Other
 
—

 
—

 
33

 
—

 
—

 
—

 
33

Park Ave RE, Inc. - Preferred Shares
 
Equity/Other
 
—

 
—

 
3,218

 
—

 
—

 
—

 
3,218

Total Control Investments
 
 
 
$
55

 
$
—

 
$
34,132

 
$
—

 
$
—

 
$
—

 
$
34,132

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Affiliate Investments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Apidos XVI CLO, LTD. Subordinated Notes
 
Collateralized Securities
 
$
—

 
$
—

 
$
18,200

 
$
(4,675
)
 
$
125

 
$
—

 
$
13,650

Catamaran CLO 2013-1 Ltd. Subordinated Notes
 
Collateralized Securities
 
1,780

 
—

 
23,000

 
(5,790
)
 
730

 
2,464

 
20,404

CVP Cascade CLO, LTD. Subordinated Notes
 
Collateralized Securities
 
—

 
—

 
28,086

 
—

 
—

 
—

 
28,086

Garrison Funding 2013-1 Ltd. Subordinated Notes
 
Collateralized Securities
 
385

 
—

 
15,000

 
—

 
—

 
—

 
15,000

JMP Credit Advisors CLO II Ltd. Subordinated Notes
 
Collateralized Securities
 
513

 
—

 
5,700

 
—

 
—

 
399

 
6,099

MidOcean Credit CLO II, Ltd. Subordinated Notes
 
Collateralized Securities
 
—

 
—

 
20,543

 
—

 
—

 
—

 
20,543

NewStar Arlington Fund, LLC
 
Equity/Other
 
1,093

 
—

 
30,000

 
—

 
—

 
—

 
30,000

PennantPark Credit Opportunities Fund, LP
 
Equity/Other
 
438

 
5,137

 
5,000

 
—

 
—

 
413

 
10,550

Shackleton 2013-IV CLO, LTD. Subordinated Notes
 
Collateralized Securities
 
1,765

 
—

 
24,760

 
(24,760
)
 
—

 
—

 
—

South Grand MM CLO I, LLC
 
Equity/Other
 
—

 
—

 
872

 
—

 
—

 
—

 
872

THL Credit Greenway Fund II LLC
 
Equity/Other
 
606

 
—

 
11,630

 
(2,693
)
 
—

 
68

 
9,005

Total Affiliate Investments
 
 
 
$
6,580

 
$
5,137

 
$
182,791

 
$
(37,918
)
 
$
855

 
$
3,344

 
$
154,209

Total Control & Affiliate Investments
 
 
 
$
6,635

 
$
5,137

 
$
216,923

 
$
(37,918
)
 
$
855

 
$
3,344

 
$
188,341

This schedule should be read in connection with the Company’s Consolidated Financial Statements, including the Consolidated Schedules of Investments and Notes to the Consolidated Financial Statements.
_____________________________________________________
(1)  
The principal amount and ownership detail are shown in the Consolidated Schedules of Investments.
(2)  
In accordance with the subscription agreement executed with Kahala Aviation Holdings, LLC dated December 23, 2013, the Company owns 84 common units of shares.


48


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements of Business Development Corporation of America and the notes thereto, and other financial information included elsewhere in this Quarterly Report on Form 10-Q. We are externally managed by our adviser, BDCA Adviser, LLC (the "Adviser").

The forward-looking statements contained in this Quarterly Report on Form 10-Q may include statements as to:
•
our future operating results;
•
our business prospects and the prospects of our portfolio companies;
•
the impact of the investments that we expect to make;
•
the ability of our portfolio companies to achieve their objectives;
•
our expected financings and investments;
•
the adequacy of our cash resources and working capital;
•
the timing of cash flows, if any, from the operations of our portfolio companies;
•
our repurchase of shares;
•
actual and potential conflicts of interest with our Adviser and its affiliates;
•
the dependence of our future success on the general economy and its effect on the industries in which we invest;
•
the ability to qualify and maintain our qualification as a regulated investment company (“RIC”) and a business development company (“BDC”); and
•
the impact on our business of Dodd-Frank and the rules and regulations issued thereunder.

In addition, words such as “anticipate,” “believe,” “expect” and “intend” indicate a forward-looking statement, although not all forward-looking statements include these words. The forward-looking statements contained in this Quarterly Report on Form 10-Q involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors discussed in Part I, Item 1A "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2013. Other factors that could cause actual results to differ materially include:
•
changes in the economy;
•
risks associated with possible disruption in our operations or the economy generally due to terrorism or natural disasters; and
•
future changes in laws or regulations and conditions in our operating areas.

You should not place undue reliance on these forward-looking statements. The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q.

Overview

We are a specialty finance company incorporated in Maryland in May 2010. We are an externally managed, non-diversified closed-end investment company that has elected to be treated as a business development company ("BDC") under the Investment Company Act of 1940, as amended (the "1940 Act"). We are therefore required to comply with certain regulatory requirements. We have elected to be treated for U.S. federal income tax purposes, and intend to qualify annually hereafter, as a regulated investment company ("RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). We are managed by the Adviser, a private investment firm that is registered as an investment adviser under the Investment Advisers Act of 1940, as amended (the "Advisers Act"). The Adviser oversees the management of our activities and is responsible for making investment decisions with respect to our portfolio. Our Adviser is controlled by Nicholas S. Schorsch, our chairman and chief executive officer, and William M. Kahane, one of our directors, through their ownership of AR Capital, LLC (formerly known as American Realty Capital II, LLC) (the "Sponsor").


49


On January 25, 2011, we commenced our initial public offering (the "IPO") on a “reasonable best efforts basis” of up to 150.0 million shares of common stock, $0.001 par value per share, at an initial offering price of $10.00 per share, subject to certain volume and other discounts, pursuant to a registration statement on Form N-2 (File No. 333-166636) (the “Registration Statement”) filed with the U.S. Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended. We sold 22,222 shares of common stock to our Adviser on July 8, 2010 at $9.00 per share, which represents the initial public offering price of $10.00 per share minus selling commissions of $0.70 per share and dealer manager fees of $0.30 per share. On August 25, 2011, we raised sufficient funds to break escrow on our IPO and commenced operations as of that date. As of March 31, 2014 , we had issued 94.1 million shares of common stock for gross proceeds of $ 1.0 billion including the shares purchased by the Sponsor and shares issued under our distribution reinvestment plan ("DRIP"). As of March 31, 2014, we had repurchased 0.3 million shares of common stock for payments of $ 2.6 million.

On July 13, 2012, we, through a wholly-owned, consolidated subsidiary, 405 TRS I, LLC ("405 Sub"), entered into a total return swap agreement ("TRS") with Citibank, N.A. ("Citi"), which was subsequently amended on October 17, 2012, December 7, 2012, May 10, 2013, July 18, 2013, and October 15, 2013, to increase the aggregate market value of the portfolio of loans selected by 405 Sub to $350.0 million. 405 Sub is included within our consolidated financial statements. As amended, the TRS provides that 405 Sub may select a portfolio of loans with a maximum aggregate value (determined at the time such loans become subject to the TRS) of $350.0 million. The consolidated financial statements include both our accounts and the accounts of 405 Sub. All significant intercompany transactions have been eliminated in consolidation.

On July 24, 2012, we, through a wholly-owned, consolidated special purpose financing subsidiary, BDCA Funding I, LLC ("Funding I"), entered into a revolving credit facility (the "Wells Fargo Credit Facility") with Wells Fargo Bank, National Association, as lender, Wells Fargo Securities, as administrative agent (together, "Wells Fargo") and U.S. Bank National Association ("U.S. Bank"), as collateral agent, account bank and collateral custodian. The Wells Fargo Credit Facility, which was subsequently amended on April 26, 2013 and September 9, 2013, provides for borrowings in an aggregate principal amount of up to $200.0 million on a committed basis, with a term of 60 months. Funding I is included within our consolidated financial statements. The consolidated financial statements include both our accounts and the accounts of Funding I. All significant intercompany transactions have been eliminated in consolidation.

On February 21, 2014, the Company, through a newly-formed, wholly-owned, consolidated special purpose financing subsidiary, BDCA 2L Funding I, LLC ("2L Funding I"), entered into a revolving credit facility with Deutsche Bank AG, New York Branch as administrative agent and U.S. Bank as collateral agent and collateral custodian (the "Deutsche Bank Credit Facility"). The Deutsche Bank Credit Facility provides for borrowings in an aggregate principal amount of up to $60.0 million on a committed basis, with a 36 month term.

We have formed and expect to continue to form taxable wholly-owned, consolidated subsidiaries (the “Taxable Consolidated Subsidiaries”). These Taxable Consolidated Subsidiaries are taxed as corporations for federal income tax purposes and allow us to hold equity securities of portfolio companies organized as pass-through entities while continuing to satisfy the requirements of a RIC under the Code.
    
Our investment objective is to generate both current income and to a lesser extent long-term capital appreciation through debt and equity investments. We anticipate that during our offering period we will invest largely in first and second lien senior secured loans and mezzanine debt issued by middle market companies. We may also purchase, directly and through the TRS, interests in loans through secondary market transactions in the "over-the-counter" market for institutional loans. First and second lien secured loans generally are senior debt instruments that rank ahead of subordinated debt and equity in bankruptcy priority and are generally secured by liens on the operating assets of a borrower which may include inventory, receivables, plant, property and equipment. Mezzanine debt is subordinated to senior loans and is generally unsecured. We define middle market companies as those with annual revenues between $10 million and $1 billion. We may also invest in the equity and junior debt tranches of collateralized loan obligation investment vehicles ("Collateralized Securities"). Structurally, Collateralized Securities are entities that are formed to manage a portfolio of senior secured loans made to companies whose debt is rated below investment grade or, in limited circumstances, unrated. The senior secured loans within these Collateralized Securities are limited to senior secured loans which meet specified credit and diversity criteria and are subject to concentration limitations in order to create a diverse investment portfolio. We expect that our investments will generally range between approximately $1 million and $25 million, although this investment size will vary proportionately with the size of our capital base. As we increase our capital base during our offering period, we will invest in, and ultimately intend to have a substantial portion of our assets invested in, customized direct loans to and equity securities of middle market companies. In most cases, companies to whom we provide customized financing solutions will be privately held at the time we invest in them.


50


As a BDC, we are required to comply with certain regulatory requirements. For instance, we have to invest at least 70% of our total assets in “qualifying assets,” including securities of U.S. operating companies whose securities are not listed on a national securities exchange, U.S. operating companies with listed securities that have equity market capitalizations of less than $250 million, cash, cash equivalents, U.S. government securities and high-quality debt investments that mature in one year or less. In addition, we are only allowed to borrow money such that our asset coverage, which, as defined in the 1940 Act, measures the ratio of total assets less total liabilities (excluding borrowings) to total borrowings, equals at least 200% after such borrowing, with certain limited exceptions.

Investment Advisory and Administration Agreement

Pursuant to the Investment Advisory Agreement we have with the Adviser, we pay the Adviser a fee for its services consisting of two components - a management fee and an incentive fee. The management fee is calculated at an annual rate of 1.5% of our average gross assets and is payable quarterly in arrears.

The incentive fee consists of two parts. The first part, which we refer to as the subordinated incentive fee on income, is calculated and payable quarterly in arrears based on our pre-incentive fee net investment income for the immediately preceding quarter. The payment of the subordinated incentive fee on income is subject to payment of a preferred return to investors each quarter, expressed as a quarterly rate of return on adjusted capital at the beginning of the most recently completed calendar quarter, of 1.75% (7.00% annualized), subject to a “catch up” feature.

The second part of the incentive fee, referred to as the incentive fee on capital gains, is an incentive fee on capital gains earned on liquidated investments from the portfolio and is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement). This fee equals 20.0% of our incentive fee capital gains, which equals our realized capital gains on a cumulative basis from inception, 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 previously paid capital gain incentive fees. Realized gains received from loans underlying the total return swap we have with Citi will not be included for purposes of evaluating the incentive fee on capital gains.
 
We have entered into a fund administration servicing agreement and a fund accounting servicing agreement with U.S. Bancorp Fund Services, LLC (the “Administrator”). The Administrator provides services, such as accounting, financial reporting, legal and compliance support and investor relations support, necessary to operate. On August 13, 2012, we entered into a custody agreement with U.S. Bank. Under the custody agreement, U.S. Bank will hold all of our portfolio securities and cash for certain of our subsidiaries, and will transfer such securities or cash pursuant to our instructions. The custody agreement is terminable by either party, without penalty, on not less than ninety days prior notice to the other party. Realty Capital Securities, LLC (the “Dealer Manager”), an affiliate of the Sponsor, serves as the dealer manager of the IPO. The Adviser and the Dealer Manager are related parties and receive compensation and fees for services related to the IPO and for the investment and management of our assets. The Adviser receives fees during the offering, operational and liquidation stages while the Dealer Manager receives fees during the offering stage. The Adviser pays to the Administrator a portion of the fees payable to the Adviser for the performance of these support services.

Significant Accounting Estimates and Critical Accounting Policies
 
Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Critical accounting policies are those that require the application of management’s most difficult, subjective, or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and that may change in subsequent periods. In preparing the consolidated financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting periods. In preparing the consolidated financial statements, management has utilized available information, including our past history, industry standards and the current economic environment, among other factors, in forming its estimates and judgments, giving due consideration to materiality. Actual results may differ from these estimates. In addition, other companies may utilize different estimates, which may impact the comparability of our results of operations to those of companies in similar businesses. As our expected operating plans occur we will describe additional critical accounting policies in the notes to our consolidated financial statements in addition to those discussed below.


51


Set forth below is a summary of the significant accounting estimates and critical accounting policies that management believes are important to the preparation of our consolidated financial statements. Certain of our accounting estimates are particularly important for an understanding of our financial position and results of operations and require the application of significant judgment by our management. As a result, these estimates are subject to a degree of uncertainty. These significant accounting estimates include:

Valuation of Portfolio Investments

Portfolio investments are reported on the consolidated statements of assets and liabilities at fair value. On a quarterly basis, the Company performs an analysis of each investment to determine fair value as follows:

Securities for which market quotations are readily available on an exchange are valued at the reported closing price on the valuation date. The Company may also obtain quotes with respect to certain of the Company's investments from pricing services or brokers or dealers in order to value assets. When doing so, the Company determines whether the quote obtained is sufficient according to U.S. GAAP to determine the fair value of the security. If determined adequate, the Company uses the quote obtained.

Investments without a readily determined market value are primarily valued using a market approach, an income approach, or both approaches, as appropriate. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). The income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount discounted). The measurement is based on the value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that the Company may take into account in fair value pricing the Company's investments include, as relevant: available current market data, including relevant and applicable market trading and transaction comparables, applicable market yields and multiples, security covenants, call protection provisions, information rights, the nature and realizable value of any collateral, the portfolio company's ability to make payments, its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, M&A comparables, and enterprise values, among other factors. When available, broker quotations and/or quotations provided by pricing services are considered as an input in the valuation process.

For an investment in an investment fund that does not have a readily determinable fair value, the Company measures the fair value of the investment predominately based on the net asset value per share of the investment fund if the net asset value of the investment fund is calculated in a manner consistent with the measurement principles of Financial Accounting Standards Board, ("FASB"), Accounting Standards Codification, ("ASC"), Topic 946, Financial Services-Investment Companies, as of the Company's measurement date. However, in determining the fair value of the Company's investment, the Company may make adjustments to the net asset value per share in certain circumstances, based on the Company's analysis of any restrictions on redemption of the shares of the investment as of the measurement date.

The value of our TRS is primarily based on the increase or decrease in the value of the loans underlying the TRS, as determined by Citi based upon indicative pricing by an independent third-party pricing service.

For investments in Collateralized Securities, the Company models both the assets and liabilities of each Collateralized Securities' capital structure. The model uses a waterfall engine to store the collateral data, generate collateral cash flows from the assets, and distribute the cash flows to the liability structure based on the priority of payments. The waterfall cash flows are discounted using rates that incorporate risk factors such as default risk, interest rate risk, downgrade risk, and credit spread risk, among others. In addition, the Company considers broker quotations and/or quotations provided by pricing services as an input to determining fair value when available.

As part of the Company's quarterly valuation process, the Adviser may be assisted by an independent valuation firm engaged by the Company's board of directors. The audit committee of the Company's board of directors reviews each preliminary valuation and the Adviser and an independent valuation firm (if applicable) will supplement the preliminary valuation to reflect any comments provided by the audit committee. The board of directors then discusses the valuations and determines the fair value of each investment, in good faith, based on the input of the Adviser, the independent valuation firm (to the extent applicable) and the audit committee of the board of directors.


52


Because there is not a readily available market value for most of the investments in its portfolio, the Company values substantially all of its portfolio investments at fair value as determined in good faith by its board of directors, as described herein. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Company's investments may fluctuate from period to period. Additionally, the fair value of the Company's investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that the Company may ultimately realize. Further, such investments are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities. If the Company was required to liquidate a portfolio investment in a forced or liquidation sale, the Company could realize significantly less than the value at which the Company has recorded it.

Income Taxes

We have elected to be treated for federal income tax purposes, and intend to qualify thereafter, as a RIC under Subchapter M of the Code. Generally, a RIC is exempt from federal income taxes if it distributes at least 90% of its ‘‘investment company taxable income,’’ as defined in the Code, each year. Distributions paid up to one year after the current tax year can be carried back to the prior tax year for determining the distributions paid in such tax year. We intend to distribute sufficient distributions to maintain our RIC status each year. We are also subject to nondeductible federal excise taxes if we do not distribute at least 98% of net ordinary income each calendar year and 98.2% of capital gain net income for the one year period ending on October 31 of such calendar year, if any, and any recognized and undistributed income from prior years for which we paid no federal income taxes. We will generally endeavor each year to avoid any federal excise taxes.

New Accounting Pronouncements

In June 2013, the FASB issued Accounting Standards Update (“ASU”) 2013-08, Financial Services – Investment Companies (ASC Topic 946), which affects the scope, measurement and disclosure requirements for investment companies under U.S. GAAP. The amendments: (i) change the approach to the investment company assessment in ASC Topic 946, clarify the characteristics of an investment company, and provide comprehensive guidance for assessing whether an entity is an investment company; (ii) require an investment company to measure non-controlling ownership interests in other investment companies at fair value rather than the equity method of accounting; and (iii) require the following additional disclosures (a) the fact that the entity is an investment company and is applying the guidance in ASC Topic 946, (b) information about changes, if any, in an entity’s status as an investment company, and (c) information about financial support provided or contractually required to be provided by an investment company to any of its investees. This guidance is effective for interim an annual reporting periods beginning on or after December 15, 2013. Management has reviewed the impact of this accounting pronouncement but does not believe it has a material impact on the Company.

Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation

We measure realized gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized, but considering unamortized upfront fees and prepayment penalties. Net change in unrealized appreciation or depreciation reflects the change in portfolio investment values during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation, when gains or losses are realized.

Portfolio and Investment Activity

During the three months ended March 31, 2014 , we made $ 406.3 million of investments in new portfolio companies and had $ 153.5 million in aggregate amount of exits and repayments, resulting in net investment activity of $252.8 million for the period.

53



Our portfolio composition, based on fair value, including the value of the TRS underlying loans, at March 31, 2014 was as follows:
 
                                          At March 31, 2014
 
 
Percentage of
Total Portfolio (1)
 
Weighted Average Current Yield for Total Portfolio (1) (2)
 
Percentage of TRS Underlying Loans
 
Weighted Average Current Yield for TRS Underlying Loans
 
Percentage of Total Portfolio Including TRS Underlying Loans
 
Weighted Average Current Yield for Total Portfolio Including TRS Underlying Loans (2)
Senior Secured First Lien Debt
48.3
%
 
8.4
%
 
96.8
%
 
7.5
%
 
60.2
%
 
8.1
%
Senior Secured Second Lien Debt
13.3

 
10.5

 
3.2

 
11.1

 
10.8

 
10.5

Subordinated Debt
6.1

 
14.3

 
—

 
—

 
4.6

 
14.3

Collateralized Securities (3)
16.1

 
15.3

 
—

 
—

 
12.2

 
15.3

Equity/Other
16.2

 
N/A

 
—

 
N/A

 
12.2

 
N/A

Total
100.0
%
 
10.5
%
 
100.0
%
 
7.7
%
 
100.0
%
 
9.7
%
______________

(1) Does not include TRS underlying loans.

(2) Excludes the effect of the amortization or accretion of loan premiums or discounts.

(3) Weighted average current yield for Collateralized Securities is based on the estimation of effective yield to expected maturity for each security as calculated in accordance with ASC Topic 325-40-35, Beneficial Interests in Securitized Financial Assets (see Note 2 - Summary of Significant Accounting Policies).

During the year ended December 31, 2013, we made $815.9 million of investments in new portfolio companies and had $270.0 million in aggregate amount of exits and repayments, resulting in net investment activity of $545.9 million for the period.


54


Our portfolio composition, based on fair value, including the value of the TRS underlying loans, at December 31, 2013 was as follows:
 
                                           At December 31, 2013
 
 
Percentage of Total Portfolio (1)
 
Weighted Average Current Yield for Total Portfolio (1) (2)
 
Percentage of TRS Underlying Loans
 
Weighted Average Current Yield for TRS Underlying Loans
 
Percentage of Total Portfolio Including TRS Underlying Loans
 
Weighted Average Current Yield for Total Portfolio Including TRS Underlying Loans (2)
Senior Secured First Lien Debt
47.9
%
 
8.3
%
 
95.7
%
 
7.7
%
 
62.2
%
 
8.0
%
Senior Secured Second Lien Debt
13.1

 
10.7

 
4.3

 
11.3

 
10.4

 
11.3

Subordinated Debt
8.6

 
13.9

 
—

 
—

 
6.0

 
13.3

Collateralized Securities (3)
15.2

 
12.0

 
—

 
—

 
10.7

 
12.0

Equity/Other
15.2

 
N/A

 
—

 
N/A

 
10.7

 
N/A

Total
100.0
%
 
8.4
%
 
100.0
%
 
7.8
%
 
100.0
%
 
9.3
%
______________

(1) Does not include TRS underlying loans.

(2) Excludes the effect of the amortization or accretion of loan premiums or discounts.

(3) Weighted average current yield for Collateralized Securities is based on the estimation of effective yield to expected maturity for each security as calculated in accordance with ASC Topic 325-40-35, Beneficial Interests in Securitized Financial Assets (see Note 2 - Summary of Significant Accounting Policies).


55


The following table shows the portfolio composition by industry grouping, including the TRS underlying loans, based on fair value at March 31, 2014 (dollars in thousands):
 
At March 31, 2014
 
Investments at
Fair Value (1)
 
Percentage of Total Portfolio (1)
 
Value of TRS Underlying Loans (2)
 
Percentage of TRS Underlying Loans
 
Total Investments at Fair Value including the value of TRS Underlying Loans
 
Percentage of Total Portfolio Including the value of TRS Underlying Loans
Diversified Investment Vehicles (3)
$
251,126

 
26.5
%
 
$
—

 
—
%
 
$
251,126

 
19.8
%
Media
56,698

 
6.0

 
22,088

 
7.2

 
78,786

 
6.2

Food Products
62,892

 
6.7

 
13,400

 
4.3

 
76,292

 
6.0

Health Care Providers & Services
65,043

 
6.9

 
9,987

 
3.2

 
75,030

 
5.9

Electronic Equipment, Instruments & Components
39,216

 
4.1

 
17,292

 
5.6

 
56,508

 
4.5

Hotels, Restaurants & Leisure
34,497

 
3.6

 
21,340

 
6.9

 
55,837

 
4.4

Publishing
55,374

 
5.8

 
—

 
—

 
55,374

 
4.4

Diversified Consumer Services
27,805

 
2.9

 
26,469

 
8.6

 
54,274

 
4.3

Oil, Gas & Consumable Fuels
27,217

 
2.9

 
23,786

 
7.7

 
51,003

 
4.1

Aerospace & Defense
40,789

 
4.3

 
5,730

 
1.9

 
46,519

 
3.7

Real Estate Management & Development
31,897

 
3.4

 
14,550

 
4.7

 
46,447

 
3.7

Consumer Finance
29,884

 
3.1

 
9,900

 
3.2

 
39,784

 
3.2

Professional Services
25,729

 
2.7

 
11,935

 
3.9

 
37,664

 
3.0

Marine
25,228

 
2.7

 
12,148

 
3.9

 
37,376

 
3.0

Biotechnology
—

 
—

 
37,094

 
12.0

 
37,094

 
2.9

Internet Software & Services
36,282

 
3.8

 
—

 
—

 
36,282

 
2.9

Commercial Services & Supplies
13,670

 
1.4

 
16,018

 
5.2

 
29,688

 
2.4

Software
9,727

 
1.0

 
17,383

 
5.6

 
27,110

 
2.2

Commercial Banks
10,000

 
1.1

 
10,000

 
3.2

 
20,000

 
1.6

Communications Equipment
3,925

 
0.4

 
14,972

 
4.8

 
18,897

 
1.5

Paper & Forest Products
7,999

 
0.8

 
7,000

 
2.3

 
14,999

 
1.2

Business Equipment & Services
4,950

 
0.5

 
10,013

 
3.2

 
14,963

 
1.2

Automotive
12,875

 
1.4

 
—

 
—

 
12,875

 
1.0

Technology - Enterprise Solutions
12,351

 
1.3

 
—

 
—

 
12,351

 
1.0

Road & Rail
12,053

 
1.3

 
—

 
—

 
12,053

 
1.0

Textiles, Apparel & Luxury Goods
11,974

 
1.3

 
—

 
—

 
11,974

 
1.0

IT Services
10,883

 
1.1

 
—

 
—

 
10,883

 
0.9

Diversified Telecommunication Services
9,962

 
1.0

 
—

 
—

 
9,962

 
0.8

Retailers (except food & drug)
9,825

 
1.0

 
—

 
—

 
9,825

 
0.8

Chemicals
9,794

 
1.0

 
—

 
—

 
9,794

 
0.8

Capital Markets
—

 
—

 
8,065

 
2.6

 
8,065

 
0.6

Pharmaceuticals
—

 
—

 
—

 
—

 
—

 
—

Total
$
949,665

 
100.0
%
 
$
309,170

 
100.0
%
 
$
1,258,835

 
100.0
%
______________

(1) Does not include TRS underlying loans.
(2) The TRS underlying loans are held by our counterparty to the TRS, Citi. The values of the TRS underlying loans shown are based primarily on the indicative bid prices provided by an independent third-party pricing service to Citi.
(3) Diversified Investment Vehicles consists of Collateralized Securities and equity investments in funds.

56



The following table shows the portfolio composition by industry grouping, including the TRS underlying loans, based on fair value at December 31, 2013 (dollars in thousands):
 
At December 31, 2013
 
Investments at
Fair Value (1)
 
Percentage of Total Portfolio (1)
 
Value of TRS Underlying Loans (2)
 
Percentage of TRS Underlying Loans
 
Total Investments at Fair Value including the value of TRS Underlying Loans
 
Percentage of Total Portfolio Including the value of TRS Underlying Loans
Diversified Investment Vehicles (3)
$
168,156

 
24.2
%
 
$
—

 
—
%
 
$
168,156

 
16.9
%
Media
57,061

 
8.2

 
21,134

 
7.1

 
78,195

 
7.9

Hotels, Restaurants & Leisure
46,462

 
6.7

 
24,990

 
8.4

 
71,452

 
7.2

Diversified Consumer Services
29,190

 
4.2

 
30,876

 
10.4

 
60,066

 
6.1

Health Care Providers & Services
48,823

 
7.0

 
8,301

 
2.8

 
57,124

 
5.8

Oil, Gas & Consumable Fuels
32,058

 
4.6

 
23,875

 
8.1

 
55,933

 
5.6

Marine
28,399

 
4.1

 
12,209

 
4.1

 
40,608

 
4.1

Food Products
34,438

 
5.0

 
5,444

 
1.9

 
39,882

 
4.0

Biotechnology
5,876

 
0.8

 
33,227

 
11.2

 
39,103

 
3.9

Consumer Finance
28,691

 
4.1

 
9,925

 
3.4

 
38,616

 
3.9

Internet Software & Services
36,432

 
5.2

 
—

 
—

 
36,432

 
3.7

Commercial Services & Supplies
19,376

 
2.8

 
15,975

 
5.4

 
35,351

 
3.6

Professional Services
20,110

 
2.9

 
11,943

 
4.0

 
32,053

 
3.2

Software
10,182

 
1.5

 
20,342

 
6.9

 
30,524

 
3.1

Electronic Equipment, Instruments & Components
12,862

 
1.9

 
17,343

 
5.9

 
30,205

 
3.0

Real Estate Management & Development
13,001

 
1.9

 
14,475

 
4.9

 
27,476

 
2.8

Aerospace & Defense
21,131

 
3.0

 
5,752

 
1.9

 
26,883

 
2.7

Commercial Banks
9,875

 
1.4

 
9,900

 
3.3

 
19,775

 
2.0

Paper & Forest Products
8,040

 
1.2

 
7,035

 
2.4

 
15,075

 
1.5

Communications Equipment
7,412

 
1.1

 
5,355

 
1.8

 
12,767

 
1.3

Road & Rail
12,147

 
1.7

 
—

 
—

 
12,147

 
1.2

Textiles, Apparel & Luxury Goods
11,977

 
1.7

 
—

 
—

 
11,977

 
1.2

IT Services
10,741

 
1.5

 
—

 
—

 
10,741

 
1.1

Diversified Telecommunication Services
10,000

 
1.4

 
—

 
—

 
10,000

 
1.0

Distributors
—

 
—

 
10,000

 
3.4

 
10,000

 
1.0

Chemicals
9,728

 
1.4

 
—

 
—

 
9,728

 
1.0

Capital Markets
—

 
—

 
8,059

 
2.7

 
8,059

 
0.8

Machinery
3,608

 
0.5

 
—

 
—

 
3,608

 
0.4

Total
$
695,776

 
100.0
%
 
$
296,160

 
100.0
%
 
$
991,936

 
100.0
%
______________

(1) Does not include TRS underlying loans.
(2) The TRS underlying loans are held by our counterparty to the TRS, Citi. The values of the TRS underlying loans shown are based primarily on the indicative bid prices provided by an independent third-party pricing service to Citi.
(3) Diversified Investment Vehicles consists of Collateralized Securities and equity investments in funds.

    

57


The following table presents the fair value measurements at March 31, 2014 for Level 3 investments (dollars in thousands):
Portfolio Company
 
Type of Asset
 
Fair Value
 
Fair Value Percentage of Total Portfolio
ABRA Holding Co.
 
Senior Secured First Lien Debt
 
$
10,546

 
1.1
%
Adventure Interactive Corp.
 
Senior Secured First Lien Debt
 
19,571

 
2.2

American Importing Company, Inc.
 
Senior Secured First Lien Debt
 
10,906

 
1.1

Apidos XVI CLO, LTD. Subordinated Notes
 
Collateralized Securities
 
13,584

 
1.4

Boston Market Corporation
 
Senior Secured Second Lien Debt
 
24,597

 
2.7

Carlyle GMS Finance, Inc.
 
Equity/Other
 
2,371

 
0.2

Chicken Soup for the Soul Publishing, LLC
 
Senior Secured First Lien Debt
 
29,624

 
3.1

Collision Holding Company, LLC
 
Senior Secured First Lien Debt
 
2,329

 
0.2

CPX Interactive Holdings, LP
 
Senior Secured Second Lien Debt
 
18,663

 
2.0

CPX Interactive Holdings, LP - Series A Convertible Preferred Shares
 
Equity/Other
 
6,000

 
0.6

CPX Interactive Holdings, LP - Warrants
 
Equity/Other
 
1,087

 
0.1

Crowley Holdings, Inc.- Series A Preferred Stock
 
Equity/Other
 
25,228

 
2.7

CVP Cascade CLO, LTD. Subordinated Notes
 
Collateralized Securities
 
24,843

 
2.6

ECI Acquisition Holdings, Inc.
 
Senior Secured First Lien Debt
 
12,351

 
1.3

Epic Health Services, Inc.
 
Senior Secured First Lien Debt
 
13,725

 
1.4

EZE Trucking, Inc.
 
Senior Secured First Lien Debt
 
12,053

 
1.3

Fifth Street Senior Loan Fund I, LLC
 
Equity/Other
 
14,455

 
1.5

Garrison Funding 2013 - 1 Ltd. Subordinated Notes
 
Collateralized Securities
 
15,000

 
1.6

Global Telecom & Technology, Inc.
 
Senior Secured First Lien Debt
 
7,395

 
0.8

Gold, Inc.
 
Subordinated Debt
 
11,974

 
1.3

HIG Integrity Neutraceuticals
 
Senior Secured First Lien Debt
 
25,665

 
2.7

HIG Integrity Neutraceuticals
 
Equity/Other
 
895

 
0.1

ILC Dover LP
 
Senior Secured First Lien Debt
 
14,925

 
1.6

InMotion Entertainment Group, LLC
 
Senior Secured First Lien Debt
 
9,825

 
1.0

Interblock USA L.C.
 
Senior Secured Second Lien Debt
 
22,540

 
2.4

K2 Pure Solutions NoCal, L.P.
 
Senior Secured First Lien Debt
 
9,794

 
1.0

Kahala Aviation Holdings, LLC
 
Equity/Other
 
—

 
—

Kahala Aviation Holdings, LLC - Preferred Stock
 
Equity/Other
 
6,321

 
0.7

Kahala US OpCo LLC
 
Senior Secured First Lien Debt
 
19,543

 
2.1

MBLOX Inc.
 
Senior Secured Second Lien Debt
 
7,038

 
0.7

MBLOX Inc. - Warrants
 
Equity/Other
 
777

 
0.1

Med-Data Incorporated
 
Senior Secured First Lien Debt
 
14,683

 
1.5

MidOcean Credit Fund Management LP
 
Collateralized Securities
 
34,058

 
3.6

National Technical Systems, Inc.
 
Senior Secured First Lien Debt
 
18,615

 
2.0

NewStar Arlington Fund, LLC
 
Equity/Other
 
30,000

 
3.2

NextCare, Inc.
 
Senior Secured First Lien Debt
 
16,649

 
1.8

OFSI Fund VI, Ltd. Subordinated Notes
 
Collateralized Securities
 
32,895

 
3.5

Park Ave Re Holdings, LLC
 
Senior Secured First Lien Debt
 
24,088

 
2.5

Park Ave Re, Inc.
 
Equity/Other
 
—

 
—

Park Ave Re, Inc. - Preferred Stock
 
Equity/Other
 
7,809

 
0.8

PennantPark Credit Opportunity Fund, LP
 
Equity/Other
 
10,791

 
1.1

PeopLease Holdings, LLC
 
Senior Secured First Lien Debt
 
9,779

 
1.0

Precision Dermatology, Inc. - Warrants
 
Equity/Other
 
—

 
—

Related Fee Agreements
 
Collateralized Securities
 
6,797

 
0.7

S.B. Restaurant Co., Inc.
 
Subordinated Debt
 
—

 
—

S.B. Restaurant Co., Inc. - Warrants
 
Equity/Other
 
—

 
—

S.B. Restaurant Co., Inc. - Senior Subordinated Debt
 
Subordinated Debt
 
—

 
—

Shackleton 2014-V CLO, LTD. Subordinated Notes
 
Collateralized Securities
 
26,250

 
2.8

SkyCross, Inc.
 
Senior Secured Second Lien Debt
 
4,835

 
0.5


58


Portfolio Company
 
Type of Asset
 
Fair Value
 
Fair Value Percentage of Total Portfolio
SkyCross, Inc. - Warrants
 
Equity/Other
 
$
450

 
—
%
South Grand MM CLO I, LLC
 
Equity/Other
 
22,209

 
2.3

Tennenbaum Waterman Fund, L.P.
 
Equity/Other
 
5,935

 
0.6

The SAVO Group, Ltd.
 
Subordinated Debt
 
5,014

 
0.5

The SAVO Group, Ltd. - Warrants
 
Equity/Other
 
1,301

 
0.1

The Tennis Channel Holdings, Inc.
 
Senior Secured First Lien Debt
 
14,955

 
1.6

THL Credit Greenway Fund II LLC
 
Equity/Other
 
11,938

 
1.3

Varel International Energy Mezzanine Funding Corp.
 
Subordinated Debt
 
11,390

 
1.2

Vestcom Acquisition, Inc.
 
Subordinated Debt
 
7,573

 
0.9

Visionary Integration Professionals, LLC
 
Subordinated Debt
 
9,962

 
1.0

Visionary Integration Professionals, LLC - Warrants
 
Equity/Other
 
921

 
0.1

WBL SPE I., LLC
 
Senior Secured First Lien Debt
 
4,500

 
0.5

World Business Lenders, LLC
 
Equity/Other
 
3,750

 
0.4

Xplornet Communications, Inc.
 
Subordinated Debt
 
9,962

 
1.0

Xplornet Communications, Inc. - Warrants
 
Equity/Other
 
—

 
—

Zimbra, Inc.
 
Senior Secured Second Lien Debt
 
6,140

 
0.6

Zimbra, Inc.
 
Subordinated Debt
 
2,000

 
0.2

Zimbra, Inc. - Warrants (Second Lien Debt)
 
Equity/Other
 
255

 
—

Zimbra, Inc. - Warrants (Third Lien Bridge Note)
 
Equity/Other
 
1,332

 
0.1

Total Level 3 investments
 
 
 
$
750,461

 
79.0
%
Total Level 2 investments (1)
 
 
 
$
199,204

 
21.0
%
Total Investments
 
 
 
$
949,665

 
100.0
%
______________

(1) Does not include TRS underlying loans.

The following table presents the fair value measurements at December 31, 2013 for Level 3 investments (dollars in thousands):
Portfolio Company
 
Type of Asset
 
Fair Value
 
Fair Value Percentage of Total Portfolio
Adventure Interactive Corp.
 
Senior Secured First Lien Debt
 
$
19,575

 
2.9
%
American Importing Company, Inc.
 
Senior Secured First Lien Debt
 
10,933

 
1.6

Apidos XVI CLO, LTD. Subordinated Notes
 
Collateralized Securities
 
13,650

 
2.0

Boston Market
 
Senior Secured Second Lien Debt
 
24,625

 
3.5

Carlyle GMS Finance, Inc.
 
Equity/Other
 
2,173

 
0.3

Catamaran CLO 2013-1 Ltd. Subordinated Notes
 
Collateralized Securities
 
20,404

 
2.9

Crowley Holdings Preferred, LLC - Series A Preferred Shares
 
Equity/Other
 
25,000

 
3.6

CVP Cascade CLO-1, LTD. Subordinated Notes
 
Collateralized Securities
 
28,086

 
4.0

Epic Health Services
 
Senior Secured First Lien Debt
 
13,899

 
2.0

Eureka Hunter Holdings, LLC
 
Senior Secured Second Lien Debt
 
4,969

 
0.7

EZE Trucking, Inc.
 
Senior Secured First Lien Debt
 
12,147

 
1.7

FairPay Solutions Inc. Term Loan A
 
Senior Secured First Lien Debt
 
2,350

 
0.3

FairPay Solutions Inc. Term Loan B
 
Senior Secured First Lien Debt
 
7,500

 
1.1

Garrison Funding 2013 - 1 Ltd. Subordinated Notes
 
Collateralized Securities
 
15,000

 
2.2

Global Telecom & Technology, Inc.
 
Senior Secured First Lien Debt
 
7,559

 
1.1

Gold, Inc.
 
Subordinated Debt
 
11,977

 
1.7

HIG Integrity Neutraceuticals
 
Equity/Other
 
850

 
0.1

HIG Integrity Neutraceuticals
 
Senior Secured First Lien Debt
 
22,655

 
3.3

JMP Credit Advisors CLO II Ltd. Subordinated Notes
 
Collateralized Securities
 
6,099

 
0.9

K2 Pure Solutions NoCal, L.P.
 
Senior Secured First Lien Debt
 
9,728

 
1.4

Kahala Aviation Holdings, LLC
 
Equity/Other
 
—

 
—

Kahala Aviation Holdings, LLC Preferred Shares
 
Equity/Other
 
5,271

 
0.8


59


Portfolio Company
 
Type of Asset
 
Fair Value
 
Fair Value Percentage of Total Portfolio
Kahala US OpCo LLC
 
Senior Secured First Lien Debt
 
$
15,860

 
2.3
%
MBLOX Inc.
 
Senior Secured Second Lien Debt
 
7,011

 
1.0

MBLOX Inc. - Warrants
 
Equity/Other
 
705

 
0.1

MC Funding Ltd. Preferred Shares
 
Collateralized Securities
 
2,163

 
0.3

MidOcean Credit CLO II, Ltd. Subordinated Notes
 
Collateralized Securities
 
20,543

 
3.0

National Technical Systems, Inc.
 
Senior Secured First Lien Debt
 
12,375

 
1.8

NewStar Arlington Fund LLC
 
Equity/Other
 
30,000

 
4.3

NextCare, Inc.
 
Senior Secured First Lien Debt
 
17,272

 
2.5

Park Ave RE Holdings, LLC
 
Senior Secured First Lien Debt
 
9,750

 
1.4

Park Ave RE, Inc.
 
Equity/Other
 
33

 
—

Park Ave RE, Inc. - Preferred Shares
 
Equity/Other
 
3,218

 
0.5

PennantPark Credit Opportunities Fund, LP
 
Equity/Other
 
10,550

 
1.5

PeopLease Holdings, LLC
 
Senior Secured First Lien Debt
 
9,800

 
1.4

Precision Dermatology, Inc. - Warrants
 
Equity/Other
 
—

 
—

S.B. Restaurant Co., Inc. - Warrants
 
Equity/Other
 
—

 
—

S.B. Restaurant Co., Inc. - Senior Subordinated Debt
 
Subordinated Debt
 
88

 
—

S.B. Restaurant Co., Inc.
 
Subordinated Debt
 
2,025

 
0.3

SkyCross, Inc. - Warrants
 
Equity/Other
 
450

 
0.1

SkyCross, Inc.
 
Senior Secured Second Lien Debt
 
4,979

 
0.7

Source Refrigeration & HVAC, Inc.
 
Senior Secured First Lien Debt
 
2,735

 
0.4

South Grand MM CLO I, LLC
 
Equity/Other
 
872

 
0.1

Teleflex Marine, Inc.
 
Senior Secured Second Lien Debt
 
3,399

 
0.5

Tennenbaum Waterman Fund, L.P.
 
Equity/Other
 
9,611

 
1.4

The SAVO Group, Ltd.
 
Subordinated Debt
 
5,005

 
0.7

The SAVO Group, Ltd. - Warrants
 
Equity/Other
 
1,302

 
0.2

The Tennis Channel Holdings, Inc.
 
Senior Secured First Lien Debt
 
14,787

 
2.1

THL Credit Greenway Fund II LLC
 
Equity/Other
 
9,005

 
1.3

Trinity Consultants Holdings, Inc.
 
Senior Secured First Lien Debt
 
3,079

 
0.4

Varel International Energy Mezzanine Funding Corp.
 
Subordinated Debt
 
11,251

 
1.6

Vestcom Acquisition, Inc.
 
Subordinated Debt
 
7,525

 
1.1

Visionary Integration Professionals, LLC
 
Subordinated Debt
 
9,831

 
1.4

Visionary Integration Professionals, LLC - Warrants
 
Equity/Other
 
910

 
0.1

WBL SPE I., LLC
 
Senior Secured First Lien Debt
 
3,750

 
0.5

World Business Lenders, LLC
 
Equity/Other
 
3,751

 
0.5

Xplornet Communications, Inc.
 
Subordinated Debt
 
10,000

 
1.4

Xplornet Communications, Inc. - Warrants
 
Equity/Other
 
—

 
—

Zimbra, Inc.
 
Senior Secured Second Lien Debt
 
6,137

 
0.9

Zimbra, Inc.
 
Subordinated Debt
 
2,000

 
0.3

Zimbra, Inc. - Warrants (Second Lien Debt)
 
Equity/Other
 
447

 
0.1

Zimbra, Inc. - Warrants (Third Lien Bridge Note)
 
Equity/Other
 
1,598

 
0.2

Total Level 3 investments
 
 
 
$
518,267

 
74.5
%
Total Level 2 investments (1)
 
 
 
$
177,509

 
25.5
%
Total Investments
 
 
 
$
695,776

 
100.0
%
______________

(1) Does not include TRS underlying loans.


60


    
The following table presents the percentage of amortized cost by loan market for investments including the TRS underlying loans as of March 31, 2014 :
 
Amortized Cost as of March 31, 2014
 
Investments per Total Portfolio
 
TRS Underlying Loans
 
Total Portfolio including TRS Underlying Loans
Middle Market (1)
67.7
%
 
80.3
%
 
70.8
%
Large Corporate (2)
0.4

 
19.7

 
5.1

Other (3)
31.9

 
—

 
24.1

Total
100.0
%
 
100.0
%
 
100.0
%
______________

(1) Middle market represents companies whose annual revenues are between $10 million and $1 billion.

(2) Large corporate represents companies whose annual revenues are in excess of $1 billion.

(3) Other represents collateralized securities and equity investments.

The following table presents the percentage of amortized cost by loan market for investments including the TRS underlying loans as of December 31, 2013:
 
Amortized Cost as of December 31, 2013
 
Investments per Total Portfolio
 
TRS Underlying Loans
 
Total Portfolio including TRS Underlying Loans
Middle Market (1)
67.4
%
 
90.9
%
 
74.4
%
Large Corporate (2)
2.8

 
9.1

 
4.7

Other (3)
29.8

 
—

 
20.9

Total
100.0
%
 
100.0
%
 
100.0
%
______________

(1) Middle market represents companies whose annual revenues are between $10 million and $1 billion.

(2) Large corporate represents companies whose annual revenues are in excess of $1 billion.

(3) Other represents collateralized securities and equity investments.


61


The following table presents the percentage of fair value by loan market for investments including the TRS underlying loans as of March 31, 2014 :

 
Fair Value as of March 31, 2014
 
Investments per Total Portfolio
 
TRS Underlying Loans
 
Total Portfolio including TRS Underlying Loans
Middle Market (1)
67.2
%
 
80.5
%
 
70.5
%
Large Corporate (2)
0.4

 
19.5

 
5.1

Other (3)
32.4

 
—

 
24.4

Total
100.0
%
 
100.0
%
 
100.0
%
______________

(1) Middle market represents companies whose annual revenues are between $10 million and $1 billion.

(2) Large corporate represents companies whose annual revenues are in excess of $1 billion.

(3) Other represents collateralized securities and equity investments.

The following table presents the percentage of fair value by loan market for investments including the TRS underlying loans as of December 31, 2013:

 
Fair Value as of December 31, 2013
 
Investments per Total Portfolio
 
TRS Underlying Loans
 
Total Portfolio including TRS Underlying Loans
Middle Market (1)
66.7
%
 
91.2
%
 
74.0
%
Large Corporate (2)
2.8

 
8.8

 
4.6

Other (3)
30.5

 
—

 
21.4

Total
100.0
%
 
100.0
%
 
100.0
%
______________

(1) Middle market represents companies whose annual revenues are between $10 million and $1 billion.

(2) Large corporate represents companies whose annual revenues are in excess of $1 billion.

(3) Other represents collateralized securities and equity investments.

Portfolio Asset Quality

Our Adviser employs an investment rating system to categorize our investments. In addition to various risk management and monitoring tools, our Adviser grades the credit risk of all debt investments on a scale of 1 to 5 no less frequently than quarterly. This system is intended primarily to reflect the underlying risk of a portfolio debt investment relative to the inherent risk at the time the original debt investment was made (i.e., at the time of acquisition), although it may also take into account under certain circumstances the performance of the portfolio company's business, the collateral coverage of the investment and other relevant factors.

62


 Loan Rating
 
Summary Description
1
  
Debt investment exceeding fundamental performance expectations and/or capital gain expected. Trends and risk factors since the time of investment are favorable.
 
 
2
  
Performing consistent with expectations and a full return of principal and interest expected. Trends and risk factors are neutral to favorable. All investments are initially rated a “2”.
 
 
3
  
Performing debt investment requiring closer monitoring. Trends and risk factors show some deterioration.
 
 
4
  
Underperforming debt investment. Some loss of interest or dividend expected, but still expecting a positive return on investment. Trends and risk factors are negative.
 
 
5
  
Underperforming debt investment with expected loss of interest and some principal.

The weighted average risk ratings of our investments based on amortized cost were 2.01 as of March 31, 2014 and 2.03 as of December 31, 2013.
    
As of March 31, 2014 , we had one portfolio company, which represented two portfolio investments, on non-accrual status. These investments had a total principal of $4.2 million, which represented 0.4% of our portfolio and had no fair value as of March 31, 2014. We are currently evaluating potential value recovery alternatives for these investments. As of December 31, 2013, we had one portfolio investment on non-accrual status. This investment had a principal of $4.0 million and fair value of $2.0 million as of December 31, 2013, which represented 0.6% and 0.3%, respectively, of our portfolio.

RESULTS OF OPERATIONS

Operating results for the three months ended March 31, 2014 and March 31, 2013 were as follows (dollars in thousands):
 
For the Three Months Ended March 31,
 
2014
 
2013
Total investment income
$
18,490

 
$
4,355

Total expenses, net
6,544

 
2,148

Net investment income
$
11,946

 
$
2,207


  Investment Income

For the three months ended March 31, 2014 and March 31, 2013, total investment income was $ 18.5 million and $4.4 million, respectively, and was attributable to interest income from investments in portfolio companies. The increase in total investment income was due to the higher level of investments in portfolio companies during the period ended March 31, 2014 as compared to the period ended March 31, 2013. During the three months ended March 31, 2014, the average portfolio fair value was $822.7 million with a 10.5% weighted average current yield while the average portfolio fair value and weighted average current yield were $158.6 million and 10.8%, respectively for the same period in 2013.


63


Operating Expenses

The composition of our operating expenses for the three months ended March 31, 2014 and March 31, 2013 were as follows (dollars in thousands):

 
For the Three Months Ended March 31,
 
2014
 
2013
Management fees
$
3,631

 
$
827

Interest and credit facility financing expenses
1,294

 
302

Subordinated income incentive fees
778

 
729

Capital gains incentive fees
(19
)
 
330

Professional fees
743

 
238

Insurance
58

 
54

Other administrative
42

 
58

Directors fees
17

 
16

Operating expenses before expense waivers and reimbursements from Adviser
6,544

 
2,554

Waiver of management and incentive fees
—

 
(406
)
Total operating expenses net of expense waivers and reimbursements from Adviser
$
6,544

 
$
2,148


Interest and credit facility expenses for the three months ended March 31, 2014 were comprised of amortization of deferred financing costs and non-usage fees related to the Wells Fargo Credit Facility and the Deutsche Bank Credit Facility along with $0.9 million of interest expense on the balance drawn on the Wells Fargo Credit Facility. The interest expense on the balance drawn on the Wells Fargo Credit Facility was based on an average debt outstanding of $152.1 million at a weighted average annualized cost of 2.42% for the three months ended March 31, 2014. For the three months ended March 31, 2014 , we incurred $ 3.6 million of management fees, of which the Adviser did not waive any such fees. For the three months ended March 31, 2014 , we incurred $0.8 million of incentive fees, of which the Adviser waived $0.0 million.

Interest and credit facility expenses for the three months ended March 31, 2013 were comprised of amortization of deferred financing costs and non-usage fees related to our Wells Fargo Credit Facility along with $0.2 million of interest expense on the balance drawn on the Wells Fargo Credit Facility. The interest expense on the balance drawn on the Wells Fargo Credit Facility was based on an average debt outstanding of $30.0 million at a weighted average annualized cost of 2.61% for the three months ended March 31, 2013. For the three months ended March 31, 2013 , we incurred $0.8 million of management fees, of which the Adviser did not waive any such fees. For the three months ended March 31, 2013 , we incurred $1.0 million of incentive fees, of which the Adviser waived $0.4 million.

 
For the Three Months Ended March 31,
 
2014
 
2013
Net realized gain from investments
$
3,476

 
$
996

Net realized gain from total return swap
5,451

 
1,796

Net unrealized appreciation (depreciation) on investments
(3,571
)
 
658

Net unrealized appreciation on total return swap
98

 
2,283

Net realized and unrealized gain on investments and total return swap
$
5,454

 
$
5,733




64


Net Realized Gain and Net Change in Unrealized Appreciation (Depreciation) on Investments

Net realized gain and change in unrealized appreciation (depreciation) on investments resulted in a net loss of $(0.1) million for the three months ended March 31, 2014 compared to a net gain of $1.7 million for the same period in 2013. We look at net realized gains and change in unrealized appreciation (depreciation) together as movement in unrealized appreciation or depreciation can be the result of realizations. The net loss for the three months ended March 31, 2014 was primarily driven by the unrealized depreciation of $(2.1) million on the two portfolio investments in non-accrual status and was partially offset by the net short-term gain of $1.0 million on the sale of one investment along with smaller scale net realized gains and unrealized appreciation across the remainder of the portfolio. In total, we sold $153.5 million of assets during the three month period ended March 31, 2014. The net gain for the three months ended March 31, 2013 was primarily driven by the unrealized appreciation of $0.9 million on an investment that was exceeding performance expectations along with smaller scale net realized gains and unrealized appreciation across the remainder of the portfolio. Total asset sales for the three months ended March 31, 2014 were $70.7 million.

Net Realized Gain and Net Change in Unrealized Appreciation on Total Return Swap

Net realized gain and change in unrealized appreciation on the total return swap resulted in a net gain of $5.5 million for the three months ended March 31, 2014 compared to a net gain of $4.1 million for the same period in 2013. We look at net realized gains and change in unrealized appreciation (depreciation) together as movement in unrealized appreciation or depreciation can be the result of realizations. The net gain for the three months ended March 31, 2014 was primarily driven by interest income of $5.5 million earned on the loans held under the TRS which had an average total notional value of $299.4 million for the three month period. In addition, we had $(1.0) million of interest expense on the TRS and $1.0 million in realized gains on TRS asset sales. The net gain for the three months ended March 31, 2013 was primarily driven by a $2.3 million change in unrealized appreciation across our loans held under the TRS due to overall increases in market prices. In addition, we had $2.1 million in interest income earned on the loans held under the TRS which had an average total notional value of $103.3 million for the three month period. This was partially offset by $(0.4) million in interest expense. Please see Note 6 - Total Return Swap - for more information about the TRS.

At March 31, 2014 , the receivable and realized gain on the total return swap on the consolidated statements of assets and liabilities and consolidated statements of operations consisted of the following (dollars in thousands):
 
Net Receivable
 
Net Realized Gains
Interest and other income from TRS portfolio
$
4,117

 
$
5,467

TRS interest expense
(801
)
 
(1,029
)
Gains on TRS asset sales
78

 
1,013

Net realized gain from TRS
$
3,394

 
$
5,451

    
At March 31, 2013 , the receivable and realized gain on the total return swap on the consolidated statements of assets and liabilities and consolidated statements of operations consisted of the following (dollars in thousands):
 
Net Receivable
 
Net Realized Gains
Interest and other income from TRS portfolio
$
1,696

 
$
2,127

TRS interest expense
(300
)
 
(375
)
Gains on TRS asset sales
7

 
44

Net realized gain from TRS
$
1,403

 
$
1,796


Cash Flows for the Three Months Ended March 31, 2014

For the three months ended March 31, 2014 , net cash used in operating activities was $ 266.1 million. The level of cash flows used in or provided by operating activities is affected by the timing of purchases, redemptions and sales of portfolio
investments, among other factors. The increase in cash flows used in operating activities for the three months ended March 31, 2014 was primarily due to $ 406.3 million for purchases of investments and $ 20.2 million from a decrease in unsettled trades receivable partially offset by cash provided by operating activities of $ 153.5 million for sales and repayments of investments, $ 46.6 million from a decrease in unsettled trades payable, and $ 17.4 million from a net increase in net assets from operations. The purchase and sales activity is driven by the increase in investment activity resulting from the continuous equity capital raising and growing capital base.

65



Net cash provided by financing activities of $ 309.7 million during the three months ended March 31, 2014 was primarily related to net proceeds from the issuance of common stock of $ 296.2 million and proceeds from the Wells Fargo Credit Facility of $ 22.0 million. These inflows were partially offset by payments of stockholder distributions of $ 8.0 million. Consistent with the increase in investment activity, the proceeds from the issuance of common stock are the result of our increasing equity raise capabilities.

Cash Flows for the Three Months Ended March 31, 2013

For the three months ended March 31, 2013, net cash used in operating activities was $60.7 million. The level of cash flows used in or provided by operating activities is affected by the timing of purchases, redemptions and sales of portfolio investments, among other factors. The increase in cash flows used in operating activities for the three months ended March 31, 2013 was primarily due to $113.8 million for purchases of investments partially offset by $70.7 million for repayments of investments and $7.9 million from a net increase in net investment income. The purchase and sales activity is driven by the increase in investment activity resulting from the continuous equity capital raising and growing capital base.
Net cash provided by financing activities of $65.4 million during the three months ended March 31, 2013 was primarily related to net proceeds from the issuance of common stock of $69.2 million and proceeds from the Wells Fargo Credit Facility of $2.0 million. These inflows were partially offset by principal repayments on debt of $4.7 million and payments of stockholder distributions of $2.3 million. Consistent with the increase in investment activity, the proceeds from the issuance of common stock are the result of our increasing equity raise capabilities.

Liquidity and Capital Resources
 
We generate cash from the net proceeds of our ongoing continuous public offering and from cash flows from fees, interest and dividends earned from our investments, as well as proceeds from sales of our investments. The Registration Statement offering for sale up to $1.5 billion of shares of our common stock (150.0 million shares at an initial offering price of $10.00 per share) (the "Offering"), was declared effective on January 27, 2011. As of March 31, 2014 , we had issued 94.1 million shares of our common stock for gross proceeds of $ 1.0 billion including shares issued to the Sponsor and shares issued under the DRIP.
 
Our principal demands for funds in both the short-term and long-term are for portfolio investments, either directly or indirectly through investment interests, such as the TRS, for the payment of operating expenses, distributions to our investors, repurchases under our share repurchase program, and for the payment of principal and interest on our outstanding indebtedness. Generally, capital needs for investment activities will be met through net proceeds received from the sale of common stock through our public offering. We may also from time to time enter into other agreements with third parties whereby third parties will contribute to specific investment opportunities. Items other than investment acquisitions are expected to be met from a combination of the proceeds from the sale of common stock, cash flows from operations, and, during our IPO, reimbursements from the Adviser.

We have entered into the Expense Support Agreement with our Adviser, whereby the Adviser may pay the Expense Support Payment for any period beginning on the effective date of the Registration Statement, until we and the Adviser mutually agree otherwise. The purpose of the Expense Support Agreement was to reduce our offering and operating expenses until we had achieved economies of scale sufficient to ensure that we were able to bear a reasonable level of expense in relation to our investment income. The Expense Support Payment for any month shall be paid to us by the Adviser in cash and/or offsets against amounts due from us to the Adviser. Operating expenses subject to this agreement include expenses as defined by U.S. GAAP, including, without limitation, advisory fees payable and interest on indebtedness for such period, if any. As of March 31, 2014 , the Adviser had made cumulative payments to the Company for $1.0 million of expenses pursuant to the Expense Support Agreement. During the three months ended March 31, 2014 , the Adviser made no payments to the Company for expenses pursuant to the Expense Support Agreement. See Note 4 - Related Party Transactions and Arrangements - Expense Support Agreement - in our consolidated financial statements included in this report for additional information on this arrangement, including Expense Payments made by our Adviser pursuant to the terms of this agreement and the ability of the Adviser to be reimbursed for Expense Payments made to us.

Other potential future sources of capital include proceeds from secured or unsecured financings from banks or other lenders, proceeds from private offerings, proceeds from the sale of investments and undistributed funds from operations. However, our ability to incur additional debt will be dependent on a number of factors, including our degree of leverage, the value of our unencumbered assets and borrowing restrictions that may be imposed by lenders. Our ability to raise proceeds in our public offering will be dependent on a number of factors as well, including general market conditions for BDCs and market perceptions about us.

66



In January 2011, we entered into an agreement to obtain a revolving line of credit in the amount of $10.0 million with Main Street. The line of credit bore a variable interest rate based on the London Interbank Offered Rate ("LIBOR") plus 3.50%. On July 24, 2012, we used working capital and certain proceeds from the total return swap of our subsidiary, 405 Sub, to repay all of the obligations under our credit facility with Main Street. We were not required to pay any prepayment penalty in connection with such repayment.

Total Return Swap

On July 13, 2012, we, through a wholly-owned subsidiary, 405 Sub, entered into a TRS with Citi, which was subsequently amended on October 17, 2012, December 7, 2012, May 10, 2013, July 18, 2013, and October 15, 2013, to increase the aggregate market value of the portfolio of loans selected by 405 Sub.

A total return swap is a contract in which one party agrees to make periodic payments to another party based on the change in the market value of the assets underlying the total return swap, which may include a specified security, basket of securities or securities indices during the specified period, in return for periodic payments based on a fixed or variable interest rate. The TRS effectively adds leverage to our portfolio by providing investment exposure to a security or market without owning or taking physical custody of such security or investing directly in such market. The TRS enables us, through our ownership of 405 Sub, to obtain the economic benefit of owning the loans subject to the TRS, without actually owning them, in return for an interest type payment to Citi.

The obligations of 405 Sub under the TRS are non-recourse to us and our exposure to the TRS is limited to the amount that we contribute to 405 Sub in connection with the TRS. Generally, that amount will be the amount that 405 Sub is required to post as cash collateral for each loan (which in most instances is approximately 25% of the market value of a loan at the time that such loan is purchased). As amended, the TRS provides that 405 Sub may select a portfolio of loans with a maximum aggregate market value (determined at the time such loans become subject to the TRS) of $350.0 million.

405 Sub will pay interest to Citi for each loan at a rate equal to one-month or three-month LIBOR, depending on the terms of the underlying loan, plus 1.20% per annum. Upon the termination or repayment of any loan selected by 405 Sub under the Agreement, 405 Sub may deduct the appreciation of such loan's value from any interest owed to Citi or pay the depreciation amount to Citi in addition to remaining interest payments.

Citi may terminate any individual loan on or after July 13, 2015. However, if at any time, any particular loan fails to meet certain criteria set forth in the TRS, and such failure continues for 30 days, Citi will have the right to terminate that loan or the entire agreement with at least 10 days' notice and 405 Sub would be required to pay certain breakage costs to Citi. 405 Sub may terminate the TRS prior to July 13, 2015 but would be required to pay certain termination fees.

As of March 31, 2014 , we had $ 79.0 million in cash held as collateral by Citi under the terms of the TRS.

See Note 6 – Total Return Swap – in our consolidated financial statements included in this report for additional disclosure on the TRS with Citi.

Wells Fargo Credit Facility

On July 24, 2012, we, through a newly-formed, wholly-owned special purpose financing subsidiary, Funding I, entered into a revolving credit facility with Wells Fargo and U.S. Bank, as collateral agent, account bank and collateral custodian. The Wells Fargo Credit Facility, which was subsequently amended on April 26, 2013 and September 9, 2013, provides for borrowings in an aggregate principal amount of up to $200.0 million on a committed basis, with a term of 60 months.

We may contribute cash or loans to Funding I from time to time to retain a residual interest in any assets contributed through its ownership of Funding I or will receive fair market value for any loans sold to Funding I. Funding I may purchase additional loans from various sources. Funding I has appointed us as servicer to manage its portfolio of loans. Funding I's obligations under the Wells Fargo Credit Facility are secured by a first priority security interest in substantially all of the assets of Funding I, including its portfolio of loans. The obligations of Funding I under the Wells Fargo Credit Facility are non-recourse to us.


67


The Wells Fargo Credit Facility will be priced at one month maturity LIBOR, with no LIBOR floor, plus a spread ranging between 1.75% and 2.50% per annum, depending on the composition of the portfolio of loans owned by Funding I for the relevant period. Interest is payable quarterly in arrears. Funding I will be subject to a non-usage fee to the extent the aggregate principal amount available under the Wells Fargo Credit Facility has not been borrowed. The non-usage fee per annum for the first six months is 0.50%; thereafter, the non-usage fee per annum is 0.50% for the first 20% of the unused balance and 2.0% for the portion of the unused balance that exceeds 20%. Any amounts borrowed under the Wells Fargo Credit Facility will mature, and all accrued and unpaid interest thereunder will be due and payable in April 2018.

Borrowings under the Wells Fargo Credit Facility are subject to compliance with a borrowing base, pursuant to which the amount of funds advanced to Funding I varies depending upon the types of loans in Funding I's portfolio. As of December 31, 2013, we were in compliance with regards to the Wells Fargo Credit Facility covenants. The Wells Fargo Credit Facility may be prepaid in whole or in part, subject to customary breakage costs. In the event that the Wells Fargo Credit Facility is terminated prior to the first anniversary, an additional amount is payable to Wells Fargo equal to 2.00% of the maximum amount of the Wells Fargo Credit Facility.

The Wells Fargo Credit Facility contains customary default provisions for facilities of this type pursuant to which Wells Fargo may terminate our rights, obligations, power and authority, in our capacity as servicer of the portfolio assets under the Wells Fargo Credit Facility, including, but not limited to, non-performance of Wells Fargo Credit Facility obligations, insolvency, defaults of certain financial covenants and other events with respect to us that may be adverse to Wells Fargo and the secured parties under the Wells Fargo Credit Facility.

In connection with the Wells Fargo Credit Facility, Funding I has made certain representations and warranties, is required to comply with various covenants, reporting requirements and other customary requirements for similar facilities and is subject to certain customary events of default. Upon the occurrence and during the continuation of an event of default, Wells Fargo may declare the outstanding advances and all other obligations under the Wells Fargo Credit Facility immediately due and payable. During the continuation of an event of default, Funding I must pay interest at a default rate.

Borrowings of Funding I will be considered our borrowings for purposes of complying with the asset coverage requirements under the 1940 Act, applicable to BDCs.

Our cash is deposited in either commercial bank accounts or custody accounts and may be deposited in short-term, highly liquid investments that we believe provide appropriate safety of principal.

As of March 31, 2014 , we had $154.7 million outstanding under the Wells Fargo Credit Facility.

See Note 5 – Borrowings – in our consolidated financial statements included in this report for additional disclosure on the Wells Fargo Credit Facility.

Deutsche Bank Credit Facility

On February 21, 2014, we, through 2L Funding I, entered into the Deutsche Bank Credit Facility with Deutsche Bank, as lender and as administrative agent and U.S. Bank, as collateral agent and collateral custodian.

The Deutsche Bank Credit Facility provides for borrowings in an aggregate principal amount of up to $60.0 million with a term of 36 months. The Deutsche Bank Credit Facility will be priced at LIBOR plus 4.25%, with no LIBOR floor. The undrawn rate is 0.75%. 2L Funding Sub I will be subject to a minimum utilization of 50% of the loan amount in the first 12-months and 65% of the loan amount thereafter, measured quarterly. If the utilized portion of the loan amount is less than the foregoing thresholds, such shortfalls shall bear interest at LIBOR plus 4.25%. The Deutsche Bank Credit Facility provides for monthly interest payments for each drawn loan. Any amounts borrowed under the Deutsche Bank Credit Facility will mature, and all accrued and unpaid interest thereunder will be due and payable, in January 2017. 2L Funding I paid a structuring fee and incurred certain other customary costs and expenses in connection with obtaining the Deutsche Bank Credit Facility.

Borrowings under the Deutsche Bank Credit Facility are subject to compliance with a borrowing base. The Deutsche Bank Credit Facility may be prepaid in whole or in part, subject to a prepayment fee. The Deutsche Bank Credit Facility contains customary default provisions including, but not limited to, non-payment of principal, interest or other obligations under the Deutsche Bank Credit Facility, insolvency, defaults of certain financial covenants and other events with respect to us that may be adverse to Deutsche Bank and the secured parties under the facility.
    

68


In connection with the Deutsche Bank Credit Facility, 2L Funding I has made certain representations and warranties and is required to comply with various covenants, reporting requirements and other customary requirements for similar facilities. Upon the occurrence and during the continuation of an event of default, subject, in certain instances, to applicable cure periods, Deutsche Bank may declare the outstanding advances and all other obligations under the Deutsche Bank Credit Facility immediately due and payable. During the continuation of an event of default, 2L Funding I must pay interest at a default rate.

Borrowings of 2L Funding I will be considered our borrowings for purposes of complying with the asset coverage requirements under the 1940 Act applicable to business development companies.

As of March 31, 2014, we had no borrowings under the Deutsche Bank Credit Facility.

See Note 5 – Borrowings – in our consolidated financial statements included in this report for additional disclosure on the Deutsche Bank Credit Facility.

Distributions

We have declared and paid cash distributions to our stockholders on a monthly basis since we commenced operations. As of March 31, 2014 , the annualized yield for distributions declared was 7.75% based on our then current public offering price of $11.20 per share. From time to time, we may also pay interim distributions at the discretion of our board of directors. Our distributions may exceed our earnings, especially during the period before we have substantially invested the proceeds from our IPO. As a result, a portion of the distributions we make may represent a return of capital for tax purposes.

The table below shows the components of the distributions we have declared and/or paid during the three months ended March 31, 2014 and March 31, 2013 (dollars in thousands). As of March 31, 2014 , we had $ 6.7 million of distributions accrued and unpaid.

    
 
For the three months ended March 31,
 
2014
 
2013
Distributions declared
$
16,880

 
$
3,920

Distributions paid
$
14,763

 
$
3,410

Portion of distributions paid in cash
$
7,973

 
$
2,266

Portion of distributions paid in DRIP shares
$
6,790

 
$
1,144


On March 1, 2012, the price for newly-issued shares under the DRIP issued to stockholders was changed from 95% to 90% of the offering price that the shares are sold as of the date the distribution is made. The DRIP purchase price based on the current offering price of $11.20 per share is $10.08.

On March 29, 2012, we declared a special common stock distribution equal to $0.05 per share. The distribution was paid to stockholders of record on May 1, 2012.

On December 20, 2012, we announced that, pursuant to the authorization of our board of directors, we declared a special cash distribution equal to $0.0925 per share, to be paid to stockholders of record at the close of business on December 17, 2012, payable on December 27, 2012. This special cash distribution was paid exclusive of, and in addition to, our monthly distribution.


69


We may fund our cash distributions to stockholders from any sources of funds available to us including expense payments from our Adviser that are subject to reimbursement to it as well as offering proceeds and borrowings. We have not established limits on the amount of funds we may use from available sources to make distributions. Prior to June 30, 2012, a substantial portion of our distributions resulted from Expense Support Payments made by our Adviser that are subject to reimbursement by us within three years from the date such payment obligations were incurred. The purpose of this arrangement could be to avoid such distributions being characterized as returns of capital for GAAP or tax purposes. Despite this, we may still have distributions which could be characterized as a return of capital for tax purposes . However, during the year ended December 31, 2012, no portion of our distributions was characterized as a return of capital for tax purposes. You should understand that any such distributions were not based on our investment performance and can only be sustained if we achieve positive investment performance in future periods and/or our Adviser continues to make such reimbursements. You should also understand that our future reimbursements of such Expense Support Payments will reduce the distributions that you would otherwise receive. There can be no assurance that we will achieve the performance necessary to sustain our distributions or that we will be able to pay distributions at all. The Adviser has no obligation to make Expense Support Payments in future periods. For the fiscal year ended December 31, 2012, if Expense Support Payments of $0.3 million were not made by our Adviser, approximately 4% percent of the distribution rate would have been a return of capital. No Expense Support Payments were made by our Adviser during the fiscal year ended December 31, 2013 or the three months ended March 31, 2014 .

We consider our entire managed investment portfolio to include the investments in our portfolio included in our Consolidated Schedule of Investments as well as assets held in our TRS portfolio, which are considered off-balance sheet. Our Adviser selects and underwrites all of these investments and we measure our performance based on our entire managed portfolio. Our net investment income also does not include the interest income and expense related to the TRS portfolio. In accordance with U.S. GAAP, interest income and expense related to the TRS are accounted for as a component of “Net realized gain from total return swap.” The following table sets forth the computation of adjusted net investment income (loss) for our entire managed portfolio by adding the interest income from the TRS, the short-term realized gains, and the theoretical incentive fees on unrealized capital gains to the net investment income for the three months ended March 31, 2014 and 2013 (dollars in thousands):
 
For the Three Months Ended March 31,
 
2014
 
2013
Net investment income
$
11,946

 
$
2,207

TRS net investment income (1)
4,437

 
1,752

Operating gains (short-term) (2)
4,217

 
996

Incentive fees on unrealized gains (3)
(431
)
 
224

Adjusted net investment income
$
20,169

 
$
5,179

______________

(1)  
TRS net investment income includes the interest income and expense related to the TRS portfolio. See Note 6 - Total Return Swap - for more information about the TRS.

(2)  
Operating gains include short-term realized gains that result primarily from active portfolio management activities. As a RIC, short-term capital gains represent operating income available for distribution and are considered ordinary income.

(3)  
Incentive fees on unrealized gains are the U.S. GAAP-required theoretical incentive fees accrued based upon unrealized portfolio appreciation. These fees reduce net investment income but are not contractually due to the Adviser. See Note 4 - Related Party Transactions and Agreements - for additional details on the theoretical capital gains incentive fees.


70


The following table sets forth the distributions made during the three months ended March 31, 2014 and 2013 (dollars in thousands):
 
For the Three Months Ended
 
2014
 
2013
Monthly distributions
$
16,879

 
$
3,920

Special dividends
—

 
—

Stock dividends
—

 
—

Total distributions
$
16,879

 
$
3,920


Election as a RIC

We have elected to be treated as a RIC under Subchapter M of the Code commencing with our taxable year ended December, 31 2011, and intend to maintain our qualification as a RIC thereafter. As a RIC, we generally will not have to pay corporate-level U.S. federal income taxes on any income that we distribute to our stockholders from our tax earnings and profits. To maintain our qualification as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements. In addition, in order to maintain RIC tax treatment, we must distribute to our stockholders, for each taxable year, at least 90% of our “investment company taxable income,” which is generally our net ordinary income plus the excess, if any, of realized net short-term capital gain over realized net long-term capital loss, or the annual distribution requirement. Even if we qualify as a RIC, we generally will be subject to corporate-level U.S. federal income tax on our undistributed taxable income and could be subject to U.S federal excise, state, local and foreign taxes. We will be subject to a 4% nondeductible U.S. Federal excise tax on certain undistributed income of RICs unless we distribute in a timely manner an amount at least equal to 98% of net ordinary income each calendar year and 98.2% of capital gain net income for the one year period ending on October 31 of such calendar year, if any, and any recognized and undistributed income from prior years for which we paid no federal income taxes. We will generally endeavor each year to avoid any federal excise taxes.

Inflation

The impact of inflation on our portfolio depends on the type of securities we hold. When inflation occurs, the value of our equity securities may fall in the short term.  However in the long term, a company’s revenue and earnings and, therefore, the value of the equity investment, should at least increase at the same pace as inflation. The effect of inflation on debt securities is more immediate and direct as inflation may decrease the value of fixed rate debt securities. However, not all debt securities are affected equally, the longer the term of the debt security, the more volatile the value of the investment. The process through which we will value the investments in our portfolio on a quarterly basis, market quotations and our multi-step valuation process as described in our significant accounting policies, will take the effect of inflation into account.  

  Related-Party Transactions and Agreements
 
We have entered into agreements with affiliates of our Adviser, whereby we pay certain fees or reimbursements to our Adviser or its affiliates in connection with asset and service fees, reimbursement of operating costs and offering related costs. See Note 4 - Related Party Transactions and Arrangements - for a discussion of the various related-party transactions, agreements and fees.


71


Contractual Obligations

The following table shows our payment obligations for repayment of debt and other contractual obligations at March 31, 2014 (dollars in thousands):

 
 
 
Payment Due by Period
 
Total
 
Less than 1 year
 
1 - 3 years
 
3- 5 years
 
More than 5 years
Wells Fargo Credit Facility (1)
$
154,687

 
$
—

 
$
—

 
$
154,687

 
$
—

Deutsche Bank Credit Facility (2)
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Total contractual obligations
$
154,687

 
$
—

 
$
—

 
$
154,687

 
$
—

______________

(1)  
As of March 31, 2014, we had $45.3 million of unused borrowing capacity under the Wells Fargo Credit Facility, subject to borrowing base limits.

(2)  
As of March 31, 2014, we had $40.4 million of unused borrowing capacity under the Deutsche Bank Credit Facility, subject to borrowing base limits.


Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources other than the TRS as discussed in Note 6 – Total Return Swap.

72


ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The market risk associated with financial instruments and derivative financial instruments is the risk of loss from adverse changes in market prices or interest rates. Our market risk arises primarily from interest rate risk relating to interest rate fluctuations. Many factors including governmental monetary and tax policies, domestic and international economic and political considerations and other factors that are beyond our control contribute to interest rate risk. To meet our short and long-term liquidity requirements, we borrow funds at a combination of fixed and variable rates. Our interest rate risk management objectives are to limit the impact of interest rate changes in earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, from time to time, we may enter into interest rate hedge contracts such as swaps, collars and treasury lock agreements, subject to the requirements of the 1940 Act, in order to mitigate our interest rate risk with respect to various debt instruments. 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 report, we did not engage in interest rate hedging activities. We would not hold or issue these derivative contracts for trading or speculative purposes. We do not have any foreign operations and thus we are not exposed to foreign currency fluctuations.

As of March 31, 2014 , our debt included variable-rate debt, bearing a variable interest rate at the LIBOR plus 2.24% at March 31, 2014 with a carrying value of $154.7 million. The following table quantifies the potential changes in interest income net of interest expense should interest rates increase by 100 or 200 basis points or decrease by 25 basis points assuming that our current balance sheet was to remain constant and no actions were taken to alter our existing interest rate sensitivity.

Change in Interest Rates
 
Estimated Percentage Change in Interest Income net of Interest Expense
(-) 25 Basis Points
 
0.46
 %
Base Interest Rate
 
—
 %
(+) 100 Basis Points
 
(1.00
)%
(+) 200 Basis Points
 
2.69
 %

Because we may borrow money to make investments, our net investment income may be dependent on the difference between the rate at which we borrow funds and the rate at which we invest these funds. In periods of increasing interest rates, our cost of funds would increase, which may reduce our net investment income. 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.
    
ITEM 4.  CONTROLS AND PROCEDURES

Disclosure Controls and Procedures
 
In accordance with Rules 13a-15(b) and 15d-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q and determined that our disclosure controls and procedures are effective as of the end of the period covered by the Quarterly Report on Form 10-Q.

Change in Internal Control Over Financial Reporting
 
No change occurred in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the quarter ended March 31, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 






73


PART II

ITEM 1. LEGAL PROCEEDINGS

Neither we nor our Adviser are currently subject to any material legal proceedings.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I., “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013, which could materially affect our business, financial condition and/or operating results. The risks described in our Annual Report on Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. Other than the following, there have been no material changes from the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2013.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

74



ITEM 6. EXHIBITS
The following exhibits are included, or incorporated by reference, in this Quarterly Report on Form 10-Q for the three months ended March 31, 2014 (and are numbered in accordance with Item 601 of Regulation S-K).

Exhibit No.
Description
 
 
1.1
Dealer Manager Agreement with Realty Capital Securities, LLC, dated January 25, 2011 (previously filed as Exhibit 1.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 2012 filed on March 21, 2013 and herein incorporated by reference).
 
 
1.2
Form of Soliciting Dealer Agreement (previously filed as Exhibit (h)(2) to the Company's Pre-Effective Amendment No. 2 to its Registration Statement on Form N-2/A filed on January 14, 2011 and herein incorporated by reference).
 
 
3.1
Second Articles of Amendment and Restatement of the Registrant (previously filed as Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 filed on August 13, 2013 and herein incorporated by reference).
 
 
3.2
Bylaws (previously filed as Exhibit (b) to the Company’s Pre-Effective Amendment No. 1 to its Registration Statement on Form N-2/A filed on November 24, 2010 and herein incorporated by reference).
 
 
10.1
Second Amended and Restated Investment Advisory and Management Services Agreement dated June 5, 2013 by and between the Company and the Adviser (previously filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 filed on August 13, 2013 and herein incorporated by reference).
 
 
10.2
Loan and Security Agreement by and between the Company and Main Street Capital Corporation (previously filed as Exhibit (k)(2) to the Company's Pre-Effective Amendment No. 2 to its Registration Statement on Form N-2/A filed on January 14, 2011 and herein incorporated by reference).
 
 
10.3
Revolving Promissory Note (previously filed as Exhibit (k)(3) to the Company's Pre-Effective Amendment No. 2 to its Registration Statement on Form N-2/A filed on January 14, 2011 and herein incorporated by reference).
 
 
10.4
Amended and Restated Subscription Escrow Agreement with Wells Fargo Bank (previously filed as Exhibit (k)(1) to the Company's Post Effective Amendment No. 3 to its Registration Statement on Form N-2/A filed on November 4, 2011 and herein incorporated by reference).
 
 
10.5
Fund Administration Servicing Agreement by and between the Company and U.S. Bancorp Fund Services, LLC (previously filed as Exhibit 10.9 to the Company's Annual Report on Form 10-K for the year ended December 31, 2010 filed on March 31, 2011 and herein incorporated by reference).
 
 
10.6
Fund Accounting Servicing Agreement by and between the Company and U.S. Bancorp Fund Services, LLC (previously filed as Exhibit 10.10 to the Company's Annual Report on Form 10-K for the year ended December 31, 2010 filed on March 31, 2011 and herein incorporated by reference).
 
 
10.7
Distribution Reinvestment Plan (previously filed as Exhibit E to the Company's Pre-Effective Amendment No. 1 to its Registration Statement on Form N-2/A filed on November 24, 2010 and herein incorporated by reference).
 
 
10.8
Assignment and Assumption Agreement (previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 31, 2011 and herein incorporated by reference).
 
 
10.9
Custody Agreement dated August 13, 2012 by and between the Company and U.S. Bank National Association (previously filed as Exhibit 10.11 to the Company's Current Report on Form 8-K filed on August 17, 2012 and herein incorporated by reference).

 
 
10.10
Expense Support Agreement dated November 9, 2011 by and between the Company and Adviser (previously filed as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 filed on November 14, 2011 and herein incorporated by reference).
 
 
10.11
ISDA 2002 Master Agreement, together with the Schedule thereto and Credit Support Annex to such Schedule, by and between 405 TRS I, LLC and Citibank, N.A, each dated as of July 13, 2012 (previously filed as Exhibit 10.13 to the Company's Current Report on Form 8-K filed on August 7, 2012 and herein incorporated by reference).

 
 
10.12
Confirmation Letter Agreement by and between 405 TRS I, LLC and Citibank, N.A., amended and restated as of October 15, 2013 (previously filed as Exhibit 10.21 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2013 filed on November 13, 2013 and herein incorporated by reference).

 
 

75


10.13
Loan and Servicing Agreement, together with Exhibits thereto, among BDCA Funding I, LLC, the Company, Wells Fargo Securities, LLC, Wells Fargo Bank, National Association, Lenders and Lenders Agents from time to time party hereto and U.S. Bank National Association, each dated as of July 24, 2012 (previously filed as Exhibit 10.15 to the Company's Current Report on Form 8-K filed on August 7, 2012 and herein incorporated by reference).

 
 
10.14
Purchase and Sale Agreement by and between the Company and BDCA Funding I, LLC, dated as of July 24, 2012 (previously filed as Exhibit 10.16 to the Company's Current Report on Form 8-K filed on August 7, 2012 and herein incorporated by reference).

 
 
10.15
Collection Account Agreement by and among U.S. Bank National Association, Wells Fargo Securities, LLC, BDCA Funding I, LLC and the Company, dated as of July 24, 2012 (previously filed as Exhibit 10.17 to the Company's Current Report on Form 8-K filed on August 7, 2012 and herein incorporated by reference).

 
 
10.16
Amendment No. 1 to Loan and Servicing Agreement, among BDCA Funding I, LLC, the Company, Wells Fargo Securities, LLC and Wells Fargo Bank, National Association, dated as of January 14, 2013 (previously filed as Exhibit 10.16 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 filed on May 15, 2013 and herein incorporated by reference).

 
 
10.17
Amendment No. 2 to Loan and Servicing Agreement, among BDCA Funding I, LLC, the Company, Wells Fargo Securities, LLC and Wells Fargo Bank, National Association, dated as of April 26, 2013 (previously filed as Exhibit 10.17 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 filed on May 15, 2013 and herein incorporated by reference).

 
 
10.18
Amendment No. 1 to Purchase and Sale Agreement, entered into by and between BDCA Funding I, LLC, the Company, Wells Fargo Securities, LLC and Wells Fargo Bank, National Association and U.S. Bank National Association, dated as of April 26, 2013 (previously filed as Exhibit 10.18 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 filed on May 15, 2013 and herein incorporated by reference).

 
 
10.19
Confirmation Letter Agreement by and between 405 TRS I, LLC and Citibank, N.A., amended and restated as of July 18, 2013 (previously filed as Exhibit 10.19 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 filed on August 13, 2013 and herein incorporated by reference).
 
 
10.20
Amendment No. 3 to Loan and Servicing Agreement, among BDCA Funding I, LLC, the Company, Wells Fargo Securities, LLC and Wells Fargo Bank, National Association, dated as of September 9, 2013 (previously filed as Exhibit 10.20 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2013 filed on November 13, 2013 and herein incorporated by reference).
 
 
10.21
Confirmation Letter Agreement by and between 405 TRS I, LLC and Citibank, N.A., amended and restated as of October 15, 2013 (previously filed as Exhibit 10.21 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2013 filed on November 13, 2013 and herein incorporated by reference).
 
 
10.22
Loan financing and Servicing Agreement dated February 21, 2014 between BDCA 2L Funding I, LLC, as Borrower; Business Development Corporation of America, as Equityholder and as Servicer; the Lenders From Time to Time Parties Hereto; Deutsche Bank AG, New York Branch, as Administrative Agent, the Other Agents Party Hereto; and U.S. Bank National Association as Collateral Agent and as Collateral Custodian (previously filed as Exhibit 10.22 to the Company's Annual Report on form 10-K for the year ended December 31, 2013 filed on March 19, 2014 and herein incorporated by reference).
 
 
10.23
Sale and Contribution Agreement dated February 21, 2014 between Business Development Corporation of America, as Seller and BDCA 2L Funding I, LLC, as Purchaser (previously filed as Exhibit 10.23 to the Company's Annual Report on Form 10-K filed on March 19, 2014 and herein incorporated by reference).
 
 
10.24
Securities Account Control Agreement dated February 21, 2014 between BDCA 2L Funding I, LLC, as Pledgor, U.S. Bank National Association, as Secured Party; and U.S. Bank National Association, as Securities Intermediary (previously filed as Exhibit 10.24 to the Company's Annual Report on Form 10-K filed on March 19, 2014 and herein incorporated by reference).
 
 
10.25
Confirmation Letter Agreement by and between 405 TRS I, LLC and Citibank, N.A., amended and restated as of May 6, 2014 (filed herewith).
 
 
14
Code of Ethics (previously filed as Exhibit 14 to the Company's Annual Report on Form 10-K filed on March 19, 2014 and herein incorporated by reference).
 
 
21
Subsidiaries of the Registrant (filed herewith).
 
 
31.1
Certification of the Principal Executive Officer of the Company pursuant to Securities Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
 
 

76


31.2
Certification of the Principal Financial Officer of the Company pursuant to Securities Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
 
 
32
Written statement of the Principal Executive Officer and Principal Financial Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

77


SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized this 15 th day of May 2014.
 
 
 
 
 
BUSINESS DEVELOPMENT CORPORATION OF AMERICA
 
 
By:
/s/ Nicholas S. Schorsch
Name: Nicholas S. Schorsch
Title: Chief Executive Officer and Chairman of the Board of Directors
* * * * *
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
 
 
 
 
 
Signature
 
Title
 
Date
 
 
 
 
 
/s/ Nicholas S. Schorsch
Nicholas S. Schorsch
 
Chief Executive Officer and Chairman of the Board of Directors
(Principal Executive Officer)
 
May 15, 2014
/s/ Nicholas Radesca
Nicholas Radesca
 
Chief Financial Officer, Treasurer and Secretary
(Principal Financial and Accounting Officer)
 
May 15, 2014
/s/ Peter M. Budko
Peter M. Budko
 
President and Chief Operating Officer
 
May 15, 2014
/s/ William M. Kahane
William M. Kahane
 
Director
 
May 15, 2014
/s/ Edward G. Rendell
Edward G. Rendell
 
Independent Director
 
May 15, 2014
/s/ Leslie D. Michelson
Leslie D. Michelson
 
Independent Director
 
May 15, 2014
/s/ William G. Stanley
William G. Stanley
 
Independent Director
 
May 15, 2014



78

 

Exhibit 10.25

 

Citibank, N.A.  
390 Greenwich Street  
New York, New York 10013

 

EXECUTION COPY

 

Date: July 13, 2012 (amended and restated as of May 6, 2014)
   
To: 405 TRS I, LLC
  106 York Rd.
  Jenkintown, PA 19046
  Attention: General Counsel
  Facsimile: 646-861-7804
   
From: Citibank, N.A.
  388 Greenwich Street
  11th Floor
  New York, New York 10013
  Attention: Director Derivative Operations
  Facsimile: 212-615-8594

 

Transaction Reference Number: __________

 

CONFIRMATION

 

Ladies and Gentlemen:

 

The purpose of this letter agreement is to set forth the terms and conditions of the Transactions entered into between Citibank, N.A. (" Citibank ") and 405 TRS I, LLC, a limited liability company organized under the laws of the State of Delaware (" Counterparty "), on the Trade Date specified below (each, a " Transaction " and, collectively, the " Transactions "). This letter constitutes a "Confirmation" as referred to in the Master Agreement specified below.

 

The definitions and provisions contained in the 2000 ISDA Definitions (the " Definitions "), as published by the International Swaps and Derivatives Association, Inc., are incorporated into this Confirmation. In the event of any inconsistency between the Definitions and this Confirmation, this Confirmation shall govern. Capitalized terms used but not defined in this Confirmation have the meanings assigned to them in Annex A. Capitalized terms used but not defined in this Confirmation or in Annex A have the meanings assigned to them in the Definitions.

 

With effect from the Fifth Amendment Effective Date specified below, this Confirmation amends and restates the prior Confirmation dated July 13, 2012, amended and restated as of October 16, 2012, December 7, 2012, May 10, 2013, July 18, 2013 and October 15, 2013 relating to the Transactions described herein (the " Original Confirmation "), which Original Confirmation (with respect to the period from and after the Fifth Amendment Effective Date) is hereby superseded and shall be of no further force or effect.

 

1. Agreement

 

This Confirmation supplements, forms a part of and is subject to, the ISDA 2002 Master Agreement, dated as of July 13, 2012 (as amended, supplemented and otherwise modified and in effect from time to

 

Page 1
 

 

time, the " Master Agreement "), between Citibank and Counterparty. All provisions contained in the Master Agreement govern this Confirmation except as expressly modified below.

 

2. Terms Of Transactions

 

The terms of the particular Transactions to which this Confirmation relates are as follows:

 

General Terms:    
     
Trade Date:   July 13, 2012
     
Effective Date:   July 13, 2012
     
Amendment Effective Date:   December 7, 2012
     
Second Amendment Effective Date:   May 10, 2013
     
Third Amendment Effective Date:   July 18, 2013
     
Fourth Amendment Effective Date:   October 15, 2013
     
Fifth Amendment Effective Date:   May 6, 2014
     
Scheduled Termination Date:   The latest date for the final scheduled payment (or, if there is only one scheduled payment, for such scheduled payment) of principal of any Reference Obligation at any time included in the Reference Portfolio.
     
Termination Date:   The final Scheduled Settlement Date (as defined in the Master Agreement) with respect to all Transactions (other than any Counterparty Second Floating Rate Payer Payment Date). The obligations of the parties to make payments required to be made hereunder shall survive the Termination Date.
     
Obligation Termination Date:   (a) In relation to any Repaid Obligation, the related Repayment Date; and
     
    (b) In relation to any Terminated Obligation, the related Termination Settlement Date.
     
Reference Portfolio:   As of any date of determination, all Reference Obligations with respect to all Transactions outstanding on such date.
     
Reference Obligation:   Each obligation listed in Annex I as revised from time to time pursuant to this Confirmation having a Reference Amount equal to the "Reference Amount" indicated in Annex I for such obligation (and, in the case of a Committed Obligation, having an Outstanding Principal Amount equal to the

 

Page 2
 

 

    "Outstanding Principal Amount" indicated in Annex I for such Committed Obligation), in each case, subject to adjustment by the Calculation Agent in accordance with the terms of this Confirmation.
     
    Counterparty may, by notice to Citibank on any Business Day on or after the Trade Date (each, an " Obligation Trade Date "), designate that any obligation (each, a " Reference Obligation ") shall become the subject of a Transaction hereunder. Any such notice shall specify the proposed Reference Obligation and the proposed Reference Amount, Reference Entity and Initial Price in relation to such Transaction.
     
    Notwithstanding the foregoing, no such designation by Counterparty will be effective unless:
     
    (a)     Citibank, in its sole discretion, consents on or prior to the Obligation Trade Date to the relevant Reference Obligation becoming the subject of a Transaction hereunder with the effect set forth in the second and third paragraphs following subparagraph (c) below;
     
    (b)     on the Obligation Trade Date (i) the relevant Reference Obligation satisfies the Obligation Criteria set forth in Annex II and (ii) the Portfolio Criteria set forth in Annex II are satisfied (or, if any Portfolio Criterion is not satisfied immediately prior to such designation, then the extent of compliance with such Portfolio Criterion is improved); and
     
    (c)     if the relevant Reference Obligation would be a Non-Standard Reference Obligation, Counterparty gives notice of such fact to Citibank in such notice of designation (provided that any failure to give such notice shall not affect the effectiveness of such designation).
     
    Without limiting the generality of the foregoing clause (a), Citibank may reasonably withhold its consent to any such designation based on any legal, accounting, tax or other similar issues that are adverse to Citibank in any material respect and that would or could reasonably be expected to arise as a result of the entry into such Transaction or any purchase by the Citibank Holder of such Reference Obligation as a hedge for such Transaction.
     
    The " Obligation Settlement Date " for a Transaction

 

Page 3
 

 

    shall be the date following the Obligation Trade Date for such Transaction that is customary for settlement of the related Reference Obligation substantially in accordance with the then-current market practice in the principal market for the related Reference Obligation (as determined by the Calculation Agent).
     
    On the Obligation Trade Date for a Transaction, the Reference Amount of such Transaction shall, for all purposes hereof other than calculating Rate Payments, be increased by the "Reference Amount" specified in such notice from Counterparty. On the Obligation Settlement Date for a Transaction, the Reference Amount of such Transaction shall, solely for the purposes of calculating Rate Payments, be increased by the "Reference Amount" specified in such notice from Counterparty.
     
    Once a Reference Obligation becomes the subject of a Transaction hereunder, Citibank shall promptly prepare and deliver to Counterparty a revised Annex I reflecting the Reference Portfolio as of the related Obligation Trade Date.
     
    If any payment of interest on a Reference Obligation that would otherwise be made during the period from and including the Obligation Trade Date to but excluding the Termination Trade Date is not made but is capitalized as additional principal (without default), then the amount of interest so capitalized as principal shall become a new Transaction hereunder (a " PIK Transaction ") having the same terms and conditions as the Transaction relating to the Reference Obligation in respect of which such interest is capitalized, except that (1) the Initial Price in relation to such PIK Transaction shall be zero, (2) the Obligation Trade Date and Obligation Settlement Date for such PIK Transaction shall be the date on which such interest is capitalized and (3) the Reference Amount of such PIK Transaction will be the amount of interest so capitalized as principal. Citibank shall give notice to Counterparty after a PIK Transaction becomes outstanding as provided above, which notice shall set forth the information in the foregoing clauses (2) and (3).
     
Reference Entity:   The borrower of the Reference Obligation identified as such in Annex I. In addition, "Reference Entity", unless the context otherwise requires, shall also refer to any guarantor of or other obligor on the Reference

 

Page 4
 

 

    Obligation.
     
Ramp-Up Period:   The period from and including the Effective Date and ending on and including the date 90 days after the Amendment Effective Date.
     
Ramp-Down Period:   The period from and including the date 60 days prior to the Scheduled Termination Date and ending on and including the Scheduled Termination Date.
     
Portfolio Notional Amount:   As of any date of determination, the sum of the Notional Amounts for all Reference Obligations as of such date.
     
Notional Amount:   (a) In relation to any Transaction (other than with respect to any Terminated Obligation or Repaid Obligation), as of any date of determination, the Reference Amount of the related Reference Obligation as of such date multiplied by the Initial Price in relation to such Reference Obligation; and
     
    (b) In relation to any Terminated Obligation or Repaid Obligation, the amount of the reduction in the Reference Amount of the related Reference Obligation determined, in the case of a Terminated Obligation, pursuant to Clause 3 or, in the case of a Repaid Obligation, pursuant to Clause 5, in each case multiplied by the Initial Price in relation to the related Reference Obligation.
     
Outstanding Principal Amount:   In relation to any Reference Obligation as of any date of determination, the outstanding principal amount of such obligation as shown in the then current Annex I, as increased pursuant to this Clause 2 (or, in the case of any Committed Obligation, pursuant to any borrowing in respect of such Committed Obligation after the Obligation Settlement Date) and reduced pursuant to Clauses 3 and 5. Except as otherwise expressly provided below with respect to Counterparty First Floating Amounts, the Outstanding Principal Amount of any Committed Obligation on any date shall include the aggregate stated face amount of all letters of credit, bankers' acceptances and other similar instruments issued in respect of such Committed Obligation to the extent that the holder of such Committed Obligation is obligated to extend credit in respect of any drawing or other similar payment thereunder.
     
Commitment Amount:   In relation to any Reference Obligation that is a Committed Obligation (and the related Transaction)

 

Page 5
 

 

    as of any date of determination, the maximum outstanding principal amount of such Reference Obligation that a registered holder thereof would on such date be obligated to fund (including all amounts previously funded and outstanding, whether or not such amounts, if repaid, may be reborrowed).
     
Notional Funded Amount:   In relation to any Reference Obligation that is a Committed Obligation (and to the related Transaction) as of any date of determination, the greater of (a) zero and (b) the sum of (i) the Outstanding Principal Amount of such Reference Obligation as of the Obligation Trade Date multiplied by the Initial Price in relation to such Reference Obligation minus (ii) the product of (x) the excess, if any, of the Commitment Amount of such Reference Obligation as of the Obligation Trade Date over the Outstanding Principal Amount of such Reference Obligation as of the Obligation Trade Date multiplied by (y) 100% minus the Initial Price in relation to such Reference Obligation plus (iii) any increase in the Outstanding Principal Amount of such Reference Obligation during the period from but excluding the Obligation Trade Date to and including such date of determination minus (iv) any decrease in the Outstanding Principal Amount of such Reference Obligation during the period from but excluding the Obligation Trade Date to and including such date of determination.
     
    In relation to any Reference Obligation that is a Term Obligation (and the related Transaction) as of any date of determination, the Notional Amount of such Reference Obligation.
     
Portfolio Notional Funded Amount:   As of any date of determination, the aggregate of all Notional Funded Amounts with respect to all Reference Obligations in the Reference Portfolio on such date of determination.
     
Reference Amount:   In relation to (a) any Term Obligation (and the related Transaction), the Outstanding Principal Amount of such Term Obligation and (b) any Committed Obligation (and the related Transaction), the Commitment Amount of such Committed Obligation.
     
Utilization Amount:   In relation to any Calculation Period, the daily average of the Portfolio Notional Amount during such Calculation Period.

 

Page 6
 

 

 

Maximum Portfolio Notional Amount:   USD450,000,000
     
Minimum Portfolio Notional Amount   An amount equal to 70% of the Maximum Portfolio Notional Amount.
     
Business Day:   New York
     
Business Day Convention:   Following (which shall apply to any date specified herein for the making of any payment or determination or the taking of any action which falls on a day that is not a Business Day).
     
    If any anniversary date specified herein would fall on a day on which there is no corresponding day in the relevant calendar month, then such anniversary date shall be the last day of such calendar month.
     
Monthly Period:   Each period from and including the 15th day of any calendar month to but excluding the same day of the immediately succeeding calendar month.
     
Calculation Agent:   Citibank; provided that, if an Event of Default under Section 5(a)(i) or 5(a)(vii) with respect to Citibank shall have occurred and be continuing, then an Approved Buyer selected by Counterparty in good faith and acceptable to Citibank and that is not an Affiliate of either party shall be the Calculation Agent so long as no Event of Default with respect to Counterparty shall have occurred and be continuing. Unless otherwise specified, the Calculation Agent shall make all determinations, calculations and adjustments required pursuant to this Confirmation in good faith and on a commercially reasonable basis.
     
Calculation Agent City:   New York
     
Initial Price:   In relation to any Reference Obligation (and the related Transaction), the Initial Price specified in Annex I. The Initial Price (a) will initially be as specified by Counterparty in its notice to Citibank on the Obligation Trade Date, (b) will be determined exclusive of accrued interest and (c) will be expressed as a percentage of the Reference Amount. The Initial Price will be determined exclusive of Costs of Assignment that would be incurred by a buyer in connection with any purchase of the Reference Obligation and exclusive of any Delay Compensation.

 

Page 7
 

 

Payments by Counterparty    
     
Counterparty First Floating Amounts:    
     
First Floating Amount Payer:   Counterparty
     
First Floating Amount:   In relation to any First Floating Rate Payer Payment Date, the sum, for each Transaction, of the products of (a) the First Floating Rate Payer Calculation Amount for such Transaction for the related First Floating Rate Payer Calculation Period multiplied by (b) the Floating Rate Option for such Transaction during the related First Floating Rate Payer Calculation Period plus the Spread multiplied by (c) the Floating Rate Day Count Fraction; provided that, for purposes of the foregoing calculation, the percentage specified in the foregoing clause (b) shall be the Spread (and not the Floating Rate Option plus the Spread) with respect to any portion of a First Floating Rate Payer Calculation Amount constituting the undrawn stated face amount of all letters of credit, bankers' acceptances and other similar instruments issued in respect of a related Committed Obligation.
     
    If the Floating Rate Option or the Spread in relation to any Transaction varies during any First Floating Rate Payer Calculation Period, then the Floating Rate Option or the Spread, as the case may be, for such Calculation Period shall be equal to (a) the sum, for each day during such Calculation Period, of the products of the Notional Funded Amount of such Transaction for such day multiplied by the Floating Rate Option or the Spread, as the case may be, in effect on such day divided by (b) the sum of the Notional Funded Amount of such Transaction on each day during such Calculation Period.
     
First Floating Rate Payer Calculation Amount:   In relation to any First Floating Rate Payer Payment Date and any Transaction, the daily average of the Notional Funded Amount of such Transaction during the related First Floating Rate Payer Calculation Period.
     
First Floating Rate Payer Calculation Period:   In relation to any Transaction, each period from and including any date upon which a payment of interest is scheduled or otherwise required to be made on the related Reference Obligation to but excluding the next such date, except that (a) the initial First Floating Rate Payer Calculation Period will commence on, and include, the related Obligation Settlement Date and (b) the final First Floating Rate Payer Calculation

 

Page 8
 

 

    Period will end on, but exclude, the related Obligation Termination Date.
     
First Floating Rate Payer Payment Date:   (a) In relation to any Transaction (other than with respect to any Terminated Obligation or Repaid Obligation), the fifth Business Day following the last day of any Monthly Period during which any payment of interest is scheduled or otherwise required to be made on the related Reference Obligation, commencing with the first such date after the Obligation Settlement Date for such Transaction and ending with the last such date occurring prior to the related Obligation Termination Date; and
     
    (b) In relation to any Terminated Obligation or Repaid Obligation, the related Total Return Payment Date.
     
Floating Rate Option:   In relation to any Transaction, the floating rate index specified in the term loan agreement, revolving loan agreement or other similar credit agreement governing the related Reference Obligation (the " Reference Obligation Credit Agreement ") that is used to determine the rate of interest payable on such Reference Obligation; provided that (a) if more than one interest rate setting is at any time used to determine the rate of interest payable on a Reference Obligation ( i.e. , an interest rate election for a specific interest period relating to such Reference Obligation), then a separate First Floating Amount shall be calculated for each portion of such Reference Obligation as to which a separate interest rate setting has been effected, (b) any interest that has accrued to a specified date but is permitted under the Reference Obligation Credit Agreement to be capitalized or deferred as of such date (without default) shall be deemed to be scheduled to be paid on such date, (c) any Reference Obligation Credit Agreement that provides for the payment of interest less frequently than quarterly will be deemed to provide for a scheduled quarterly payment of interest on each date specified by Citibank, which date so specified shall be the calendar day of the month corresponding to other payment dates applicable to the related Reference Obligation and (d) notwithstanding the foregoing, (i) if the floating rate index for such Reference Obligation (or any portion thereof) is the prime or base rate or is a fixed rate (or is otherwise not a rate determined on the basis of rates at which deposits in USD are offered to prime banks in the London interbank market), then the Floating Rate Option for

 

Page 9
 

 

    such Reference Obligation (or such portion) shall equal USD-LIBOR-BBA and (ii) if the floating rate index for such Reference Obligation (or any portion thereof) is subject to the payment of a specified minimum rate regardless of the level of the relevant floating rate index, then the Floating Rate Option will be determined without regard to such specified minimum rate.
     
Designated Maturity:   In relation to any Transaction and the related Reference Obligation, the Floating Rate Option will have a Designated Maturity and Reset Dates that correspond to the maturity and reset dates specified in the related Reference Obligation Credit Agreement, except that, if the floating rate index specified in the related Reference Obligation Credit Agreement that is used to determine the rate of interest payable on the Reference Obligation (or any portion thereof) is the prime or base rate or is a fixed rate (or is otherwise not a rate determined on the basis of rates at which deposits in USD are offered to prime banks in the London interbank market), then for purposes of determining USD-LIBOR-BBA the "Designated Maturity" shall be one month and the first day of each First Floating Rate Payer Calculation Period will be a Reset Date.
     
Spread:   1.20%
     
Floating Rate Day Count Fraction:   In relation to any Transaction, the Floating Rate Day Count Fraction will be the day count basis for the computation of interest specified in the related Reference Obligation Credit Agreement, except that, if the floating rate index specified in the related Reference Obligation Credit Agreement that is used to determine the rate of interest payable on the Reference Obligation (or any portion thereof) is the prime or base rate or is a fixed rate (or is otherwise not a rate determined on the basis of rates at which deposits in USD are offered to prime banks in the London interbank market), then the Floating Rate Day Count Fraction will be Actual/360.
     
Reset Dates:   As set forth in "Designated Maturity" above
     
Compounding:   Inapplicable

 

Page 10
 

 

Counterparty Second Floating Amounts:    
     
Second Floating Amount Payer:   Counterparty
     
Second Floating Amount:   In relation to any Second Floating Rate Payer Payment Date, the product of (a) the Second Floating Rate Payer Calculation Amount for the related Second Floating Rate Payer Calculation Period multiplied by (b) the Spread multiplied by (c) the Floating Rate Day Count Fraction; provided that no Second Floating Amount shall be payable following the designation of an Early Termination Date by Counterparty as a result of the occurrence of an Event of Default under Section 5(a)(i) or 5(a)(vii) with respect to Citibank as Defaulting Party.
     
Second Floating Rate Payer Calculation Amount:   In relation to any Second Floating Rate Payer Calculation Period, the excess, if any, of (a) the Minimum Portfolio Notional Amount over (b) the Utilization Amount for such Second Floating Rate Payer Calculation Period.
     
Second Floating Rate Payer Calculation Period:   Each Monthly Period; provided that (a) the initial Second Floating Rate Payer Calculation Period shall begin on the last day of the Ramp-Up Period and (b) the final Second Floating Rate Payer Calculation Period shall end on the last Second Floating Rate Payer Payment Date.
     
Second Floating Rate Payer Payment Dates:   The fifth Business Day following the last day of each Monthly Period; provided that (a) the initial Second Floating Rate Payer Payment Date will be the first such Business Day after the last day of the Ramp-Up Period and (b) the final Second Floating Rate Payer Payment Date will be the Scheduled Termination Date (whether or not the Termination Date occurs prior to the final Second Floating Rate Payer Payment Date).
     
Spread:   1.20%
     
Floating Rate Day Count Fraction:   Actual/360.
     
Compounding:   Inapplicable
     
Counterparty Third Floating Amount:    
     
Third Floating Amount Payer:   Counterparty

 

Page 11
 

 

Third Floating Amount:   Each Expense or Other Payment.
     
Third Floating Rate Payer Payment Dates:   In relation to any Transaction, (a) the fifth Business Day after the last day of each Monthly Period, beginning with the first such Business Day after the Obligation Settlement Date for such Transaction, (b) the related Obligation Termination Date and (c) after the related Obligation Termination Date, the fifth Business Day after notice of a Third Floating Amount from Citibank to Counterparty; provided that, prior to the fifth Business Day after the related Obligation Termination Date, if Counterparty has received less than five Business Days' notice from Citibank that such Third Floating Amount is due and payable, such Third Floating Rate Payer Payment Date shall be the fifth Business Day after the last day of the next succeeding Monthly Period. The obligation of Counterparty to pay Third Floating Amounts in respect of any Transaction shall survive the related Obligation Termination Date.
     
Counterparty Fourth Floating Amounts:    
     
Fourth Floating Amount Payer:   Counterparty
     
Fourth Floating Amount:   In relation to any Terminated Obligation or Repaid Obligation, Capital Depreciation, if any.
     
Fourth Floating Rate Payer Payment Dates:   Each Total Return Payment Date.
     
Payments by Citibank:    
     
Citibank Fixed Amounts:    
     
Fixed Amount Payer:   Citibank
     
Fixed Amount:   In relation to any Transaction, the Interest and Fee Amount with respect to such Transaction for the related Fixed Amount Payer Payment Date.
     
Fixed Amount Payer Calculation Periods:   In relation to each Reference Obligation in the Reference Portfolio, each period from and including any date upon which a payment of interest is made on such Reference Obligation to but excluding the next such date; provided that (a) the initial Fixed Amount Payer Calculation Period shall commence on and

 

Page 12
 

 

    include the Obligation Settlement Date for such Reference Obligation and (b) the final Fixed Amount Payer Calculation Period shall end on, but exclude, the related Obligation Termination Date.
     
Fixed Amount Payer Payment Dates:   (a) In relation to any Transaction (other than with respect to any Terminated Obligation or Repaid Obligation), the fifth Business Day after the last day of any Monthly Period, commencing with the first such date after the Obligation Settlement Date for such Transaction and ending with the last such date occurring prior to the related Obligation Termination Date; and
     
    (b) In relation to any Transaction with respect to any Terminated Obligation or Repaid Obligation, the related Total Return Payment Date.
     
Citibank Floating Amounts:    
     
Floating Amount Payer:   Citibank
     
Floating Amount:   In relation to any Terminated Obligation or Repaid Obligation, Capital Appreciation, if any.
     
Floating Rate Payer Payment Dates:   Each Total Return Payment Date.

 

3. Reference obligation removal; accelerated termination.

 

Reference Obligation Removal

 

(a)          A Transaction may be terminated in whole by either party (or in part by Counterparty) in accordance with this Clause 3 by the giving of notice (an " Accelerated Termination Notice ") to the other party (each such termination, an " Accelerated Termination ").

 

(i) Counterparty shall be entitled to terminate any Transaction or any portion thereof by delivering an Accelerated Termination Notice to Citibank that is given (i) on the proposed Termination Trade Date and (ii) no more than 30 days prior to the proposed Termination Settlement Date; provided that, except in the case of the termination of all Transactions, (x) the Portfolio Criteria set forth in Annex II would be satisfied on the proposed Termination Trade Date after giving effect to such termination and (y) the Net Collateral Value Percentage would be greater than or equal to the Termination Threshold (in each case, after giving effect to such termination). The Accelerated Termination Notice shall specify the Reference Obligation that is the subject of such Accelerated Termination, the amount of the Terminated Obligation, the proposed Termination Trade Date and the proposed Termination Settlement Date.

 

Page 13
 

 

(ii) Following the occurrence of a Credit Event (as determined by the Calculation Agent) with respect to the related Reference Entity (including any guarantor or other obligor referred to in the definition thereof), Citibank shall, at any time after the Obligation Trade Date for the Reference Obligation, be entitled to propose, by notice to Counterparty, an increased Independent Amount Percentage with respect to the related Transaction. If Counterparty does not, by notice to Citibank within three Business Days after such notice from Citibank, agree to such increase, then Citibank may terminate the related Transaction by delivering an Accelerated Termination Notice to Counterparty that is given (i) on the Termination Trade Date and (ii) no less than 10 days prior to the proposed Termination Settlement Date. The Accelerated Termination Notice shall specify the Reference Obligation that is the subject of such Accelerated Termination, the amount of the Terminated Obligation, the Termination Trade Date and the Termination Settlement Date.

 

Elective Termination by Citibank due to Certain Events

 

(b) If:

 

(i)   any Reference Obligation (including any Exchange Consideration) fails to satisfy the Obligation Criteria at any time,

 

(ii)   the Portfolio Criteria are not satisfied at any time,

 

(iii)   Counterparty fails to perform when due any obligation to Transfer Eligible Collateral under Clause 9(a), or

 

(iv)   Counterparty fails to perform when due any obligation to Transfer Eligible Collateral under Clause 9(e) and such failure continues for one Business Day after notice of such failure is given to Counterparty,

 

then Citibank may notify Counterparty in writing of such event. In the case of the foregoing clause (i), if such event continues for 30 days following the delivery of such notice, then Citibank will have the right but not the obligation to terminate the related Transaction. In the case of the foregoing clause (ii), if such event continues for 30 days following the delivery of such notice, then Citibank will have the right but not the obligation to terminate all (but not less than all) Transactions that are the subject of this Confirmation. In the case of the foregoing clause (ii), pending any action taken to correct or remedy non-compliance with one or both of clauses (iv) and (v) of the Portfolio Criteria (but without limiting Counterparty's obligation to remedy such non-compliance or Citibank's right under this Clause 3(b) to terminate the related Transaction), Citibank may in its sole discretion elect to treat all or any portion of the Transactions as Transactions relating to "Excess Concentration Obligations", in each case, to the extent such treatment would remedy such non-compliance. In the case of the foregoing clause (iii) or (iv), Citibank will have the immediate right but not the obligation to terminate all (but not less than all) Transactions that are the subject of this Confirmation. Citibank may exercise this termination right with respect to each Terminated Obligation by delivering an Accelerated Termination Notice to Counterparty that is given, as to any Terminated Obligation, (1) on the proposed Termination Trade Date and (2) no less than 10 days prior to the proposed Termination Settlement Date for the related Terminated Obligation. The Accelerated Termination Notice shall specify each Reference Obligation that is the subject of such Accelerated Termination and, with respect to each such Reference Obligation, the amount of the Terminated Obligation, the proposed Termination Trade Date and the proposed Termination Settlement Date.

 

Page 14
 

 

Early Termination Date under Master Agreement

 

(c)         If an Early Termination Date is designated under the Master Agreement, then (i) each Transaction will be terminated in its entirety, (ii) notwithstanding any contrary or otherwise inconsistent provision of the Master Agreement, the provisions set forth in Section 6(e) of the Master Agreement shall not apply to any Transaction (except that amounts that become due and payable on or prior to such Early Termination Date with respect to any Transaction as provided in this Confirmation will constitute Unpaid Amounts) and (iii) the Termination Trade Date for each Transaction will be the date specified by the Calculation Agent occurring on or promptly after such Early Termination Date; provided that, if such Early Termination Date is designated by reason of an Event of Default as to which Citibank is the Defaulting Party, Counterparty may specify the Termination Trade Date with respect to any Transaction as to which the Calculation Agent has not specified the Termination Trade Date within 10 days after such Early Termination Date. The Calculation Agent shall give notice (an " Accelerated Termination Notice ") to each party (such termination, an " Accelerated Termination ") on or prior to such Early Termination Date, which Accelerated Termination Notice shall specify each Reference Obligation that is the subject of such Accelerated Termination and, with respect to each such Reference Obligation, the amount of the Terminated Obligation, the proposed Termination Trade Date and the proposed Termination Settlement Date. The amount, if any, payable in respect of such Early Termination Date will be determined in accordance with Clause 4(a) or 4(b) of this Confirmation (as applicable) based upon the delivery of such Accelerated Termination Notice.

 

Effect of Termination

 

(d)         With respect to any Transaction terminated in whole pursuant to this Clause 3, (i) as of the relevant Termination Trade Date the Reference Amount shall, for all purposes hereof other than calculating Rate Payments, be reduced to zero (and, in the case of a Committed Obligation, the Outstanding Principal Amount thereof shall be reduced to zero) and (ii) as of the relevant Termination Settlement Date the Reference Amount, for purposes of calculating Rate Payments, shall be reduced to zero (and, in the case of a Committed Obligation, the Outstanding Principal Amount thereof shall be reduced to zero). With respect to any Transaction terminated in part pursuant to this Clause 3, (i) as of the relevant Termination Trade Date the Reference Amount shall, for all purposes hereof other than calculating Rate Payments, be reduced by the amount of the reduction of the Reference Amount specified in the Accelerated Termination Notice (and, in the case of a Committed Obligation, the Outstanding Principal Amount shall be reduced by an amount equal to the product of the Outstanding Principal Amount in effect immediately prior to such reduction multiplied by the amount of the reduction of the Reference Amount divided by the Reference Amount in effect immediately prior to such reduction) and (ii) as of the relevant Termination Settlement Date the Reference Amount shall, for purposes of calculating Rate Payments, be reduced by the amount of the reduction of the Reference Amount specified in the Accelerated Termination Notice (and, in the case of a Committed Obligation, the Outstanding Principal Amount shall be reduced by an amount equal to the product of the Outstanding Principal Amount in effect immediately prior to such reduction multiplied by the amount of the reduction of the Reference Amount divided by the Reference Amount in effect immediately prior to such reduction). Following any Termination Trade Date (other than the Termination Trade Date in respect of the Termination Date), Citibank shall promptly prepare and deliver to Counterparty a revised Annex I.

 

Citibank Call Date

 

(e)         Citibank will have the right, but not the obligation, to terminate any Transaction that is the subject of this Confirmation or any portion thereof; provided that (i) no such termination shall have a Termination Trade Date that occurs prior to the date occurring 30 days prior to July 13, 2015 (the " Citibank Call Date ") or on a day other than a Business Day and (ii) any such termination shall be effected by Citibank

 

Page 15
 

 

giving notice to Counterparty on a Business Day occurring no less than 30 days prior to the proposed Termination Trade Date, which notice, in each case, shall specify the proposed Termination Trade Date. If Citibank does not exercise its right pursuant to this Clause 3(e) to terminate a Transaction with a Termination Trade Date occurring on the date 30 days prior to the Citibank Call Date, then Citibank will thereafter have the right, but not the obligation, to propose, by notice to Counterparty no fewer than 10 Business Days prior to the date on which such proposal is to be effective, to amend and restate one or more material terms of such Transaction, including, without limitation, the Spread, the Independent Amount Percentage and the application of the Obligation Criteria and Portfolio Criteria, with effect no earlier than the Citibank Call Date. If Citibank provides a notice to Counterparty proposing to amend and restate one or more material terms of a Transaction as provided above and Counterparty does not agree in writing to such amended and restated terms within 10 Business Days after Citibank provides such notice to Counterparty, each Transaction shall terminate, and the Termination Trade Date shall be such tenth Business Day. Even if a Termination Trade Date has been designated with respect to a Transaction or portion thereof pursuant to this Clause 3(e), such designation will not prevent Citibank or Counterparty from subsequently designating an earlier Termination Trade Date to the extent Citibank or Counterparty, as the case may be, is entitled to designate such earlier Termination Trade Date pursuant to this Confirmation. Notwithstanding anything in this Confirmation to the contrary:

 

(i) if Citibank elects to exercise its termination right under this Clause 3(e) with respect to all Transactions that are then the subject of this Confirmation, then each reference to the term "Scheduled Termination Date" in Clauses 4 (other than Clause 4(c)) and 5 and in the definitions of "Ramp-Down Period" and "Termination Trade Date" will instead be a reference to the date occurring 30 days after the Termination Trade Date specified in such notice from Citibank; and

 

(ii) whether or not Citibank elects to exercise its termination right under this Clause 3(e), each reference to the term "Scheduled Termination Date" in the definition of "Second Floating Rate Payer Payment Date" (and in the provisions of Clause 4(c) dealing with the payment of the discounted present value of Second Floating Amounts) will be a reference to the Citibank Call Date.

 

4. Final Price Determination

 

Following the termination of any Transaction in whole or in part pursuant to Clause 3 or by reason of the occurrence of the Scheduled Termination Date (other than in connection with a Repayment), the Final Price for the relevant Terminated Obligation will be determined in accordance with this Clause 4.

 

Determination by Counterparty

 

(a)         In order to determine the Final Price in relation to any Terminated Obligation then held by or on behalf of Citibank as a hedge for the related Transaction, Counterparty may arrange for the sale of such Terminated Obligation by giving notice of such sale to Citibank; provided that Counterparty shall have no right to arrange a sale of a Terminated Obligation pursuant to this Clause 4(a) in connection with the termination of a Transaction: (i) in the case of a termination pursuant to Clause 3(b); (ii) in the case of a termination pursuant to Clause 3(c) if the related Early Termination Date by reason of an Event of Default or Credit Event Upon Merger as to which Counterparty is the Defaulting Party or Affected Party; or (iii) if, as a result of such termination and the termination of all other Transactions as to which the Total Return Payment Date has not yet occurred, (x) the aggregate Value (as defined in the Credit Support Annex) of all Posted Credit Support (as so defined) held by Citibank as Secured Party (as so defined) plus the aggregate of all Citibank Floating Amounts payable in connection with such terminations would be less than (y) the aggregate of all Counterparty Fourth Floating Amounts payable in connection with such terminations. Such notice must be given at least three Business Days prior to the related Termination

 

Page 16
 

 

Settlement Date in the case of any Terminated Obligation and at least 30 days prior to the Scheduled Termination Date if all Transactions are to be terminated in connection with the Scheduled Termination Date. Any sale (i) must be to (x) an Approved Buyer or (y) another buyer approved in advance of the Termination Trade Date by Citibank, such approval not to be unreasonably withheld or delayed, and (ii) must be scheduled to occur no later than the date customary for settlement, substantially in accordance with the then-current market practice in the principal market for such Terminated Obligation (as determined by the Calculation Agent), following the Termination Trade Date and on or prior to the Scheduled Termination Date if all Transactions are to be terminated in connection with the Scheduled Termination Date. If Counterparty so arranges any sale, the net cash proceeds received from the sale of any Terminated Obligation, net of the related Costs of Assignment and adjusted by any Delay Compensation as provided in Clause 6(b), shall be the " Final Price " in relation to that Terminated Obligation.

 

Determination by Calculation Agent

 

(b)         If the Final Price for any Terminated Obligation is not determined according to Clause 4(a), the Calculation Agent shall attempt to obtain Firm Bids for such Terminated Obligation with respect to the applicable Termination Trade Date from three or more Dealers. The Calculation Agent will give Counterparty notice of its intention to obtain Firm Bids pursuant to this Clause 4(b) (such notice to be given telephonically and via electronic mail) not later than three hours prior to the bid submission deadline specified below. By notice to Citibank not later than one hour after such notice from the Calculation Agent, Counterparty may, but shall not be obligated to, designate a Dealer of credit standing acceptable to Citibank in the exercise of its reasonable discretion to provide a Firm Bid (and the Calculation Agent will seek a Firm Bid from such Dealer if so designated by Counterparty on a timely basis). A " Firm Bid " shall be a good and irrevocable bid for value, to purchase all or a portion of the applicable Terminated Obligation, expressed as a percentage of the Outstanding Principal Amount and exclusive of accrued interest, for scheduled settlement substantially in accordance with the then-current market practice in the principal market for such Terminated Obligation, as determined by the Calculation Agent, submitted by a Dealer as of 11 a.m. New York time or as soon as practicable thereafter. If there is more than one Terminated Obligation at any time, then the Calculation Agent may in its sole discretion obtain Firm Bids with respect each separate Terminated Obligation or any group or groups of such Terminated Obligations. Citibank may, but is not obligated to, sell or cause the sale of any portion of any Terminated Obligation to any Dealer that provides a Firm Bid.

 

If the Calculation Agent is unable to obtain from Dealers at least one Firm Bid or combination of Firm Bids for all of the Reference Amount of any Terminated Obligation with respect to the relevant Termination Trade Date, the Calculation Agent will attempt to obtain a Firm Bid or combination of Firm Bids for all of the Reference Amount of such Terminated Obligation from three or more Dealers until the earlier of (i) the second Business Day (inclusive) following such Termination Trade Date and (ii) the date a Firm Bid or combination of Firm Bids is obtained for all of the Reference Amount of such Terminated Obligation.

 

If the Calculation Agent is able to obtain at least one Firm Bid or combination of Firm Bids for all of the Reference Amount of any Terminated Obligation, the Final Price for such Terminated Obligation shall be determined by reference to such Firm Bid or Firm Bids. If no Firm Bids are obtained on or before such second Business Day for all or a portion of the applicable Terminated Obligation, the Final Price shall be deemed to be zero with respect to such Terminated Obligation (or portion thereof) for which no Firm Bid was obtained. The Calculation Agent will conduct the bid process in accordance with the procedures set forth in this Clause 4(b) and otherwise in a commercially reasonable manner.

 

Page 17
 

 

Notwithstanding anything to the contrary herein,

 

(i) the Calculation Agent shall be entitled to disregard any Firm Bid submitted by a Dealer if, in the Calculation Agent's commercially reasonable judgment, (x) such Dealer may be ineligible to accept assignment or transfer of the related Terminated Obligation or portion thereof, as applicable, substantially in accordance with the then-current market practice in the principal market for the Terminated Obligation, as determined by the Calculation Agent, or (y) such Dealer would not, through the exercise of its commercially reasonable efforts, be able to obtain any consent required under any agreement or instrument governing or otherwise relating to the related Terminated Obligation to the assignment or transfer of the related Terminated Obligation or portion thereof, as applicable, to it; and

 

(ii) if the Calculation Agent determines that the highest Firm Bid obtained in connection with any Termination Trade Date is not bona fide as a result of (x) the occurrence of an Event of Default described in Section 5(a)(vii) with respect to the bidder, (y) the inability, failure or refusal of the bidder to settle the purchase of the related Terminated Obligation or portion thereof, as applicable, or otherwise settle transactions in the relevant market or perform its obligations generally or (z) the Calculation Agent not having pre-approved trading lines with the bidder that would permit settlement of the purchase of the related Terminated Obligation or portion thereof, as applicable,

 

that Firm Bid shall be disregarded and the Calculation Agent shall designate a new Termination Trade Date; provided that the Calculation Agent shall designate a new Termination Trade Date pursuant to this paragraph only once. If the only Firm Bid for any portion of the related Terminated Obligation determined in connection with the second Termination Trade Date is disregarded pursuant to this paragraph, the Calculation Agent shall have no obligation to obtain further bids, and the applicable " Final Price " for the portion which was so disregarded shall be deemed to be zero. If one or more Firm Bids remains after disregarding any Firm Bid for any portion of the related Terminated Obligation determined in connection with the second Termination Trade Date pursuant to this paragraph, the Calculation Agent shall determine the Final Price for the Terminated Obligation by reference to such remaining Firm Bid or Firm Bids.

 

If Citibank transfers, or causes the transfer of, the Terminated Obligation to the Dealer or Dealers providing the highest Firm Bid or combination of Firm Bids, the net cash proceeds received from the sale of such Terminated Obligation (which sale shall be scheduled to settle substantially in accordance with the then-current market practice in the principal market for the related Reference Obligation as determined by the Calculation Agent), net of the related Costs of Assignment and adjusted by any Delay Compensation as provided in Clause 6(b), shall be the " Final Price " for that Terminated Obligation (or the portion thereof that is sold).

 

If Citibank determines, in its sole discretion, not to sell or cause the sale of any portion of any Terminated Obligation to the entity or entities providing the highest Firm Bid or combination of Firm Bids, the " Final Price " for such unsold portion shall be equal to the greater of (a) zero and (b) the sum of (i) the Outstanding Principal Amount of such Terminated Obligation as of the Termination Trade Date multiplied by the highest Firm Bid or combination of Firm Bids for all of the Reference Amount of such Terminated Obligation minus (ii) the product of (x) the excess, if any, of the Commitment Amount of such Terminated Obligation as of the Termination Trade Date over the Outstanding Principal Amount of such Terminated Obligation as of the Termination Trade Date multiplied by (y) 100% minus the highest Firm Bid or combination of Firm Bids for all of the Reference Amount of such Terminated Obligation. The Calculation Agent may perform any of its duties under this Clause 4(b) through any Affiliate

 

Page 18
 

 

designated by it, but no such designation shall relieve the Calculation Agent of its duties under this Clause 4(b).

 

Other than in the case of a termination pursuant to Clause 3(c), Citibank and Counterparty will make commercially reasonable efforts to accomplish the assignment to Counterparty (free of payment by Counterparty) of any Terminated Obligation or portion thereof held by or on behalf of Citibank as a hedge for the related Transaction for which the Final Price is deemed to be zero as provided in this Clause 4(b); provided that Citibank shall not be liable for any losses related to any delay in or failure of such assignment beyond its control.

 

The Calculation Agent will, with respect to each Terminated Obligation, provide to each party a statement showing, in reasonable detail, the calculation of the Final Price for such Terminated Obligation determined pursuant to this Clause 4(b) (including the identity of all Firm Bids obtained in connection with such calculation).

 

(c)          For the avoidance of doubt, if the Termination Date occurs prior to the Scheduled Termination Date (other than by reason of the designation of an Early Termination Date by Counterparty as a result of the occurrence of an Event of Default under Section 5(a)(i) or 5(a)(vii) with respect to Citibank as Defaulting Party), each Counterparty Second Floating Amount shall continue to be payable by Counterparty on each subsequent Second Floating Rate Payer Payment Date occurring on or prior to the Scheduled Termination Date; provided that, if either party shall so specify in writing to the other party prior to any final Termination Trade Date, then on such final Termination Trade Date (i) the obligation of Counterparty to continue to pay each Counterparty Second Floating Amount on each subsequent Second Floating Rate Payer Payment Date occurring on or prior to the Scheduled Termination Date shall terminate and be replaced by the obligation in the following clause and (ii) Counterparty shall pay to Citibank an amount equal to the present value (as calculated by the Calculation Agent with discounting on a continuous basis) of each Counterparty Second Floating Amount payable (without regard to the termination of such obligation under the foregoing clause) on each subsequent Second Floating Rate Payer Payment Date occurring on or prior to the Scheduled Termination Date, discounted to such final Termination Trade Date at a discount rate per annum equal to the Discount Rate. For this purpose, the " Discount Rate " means the zero coupon swap rate (as determined by the Calculation Agent) implied by the fixed rate offered to be paid by Citibank under a fixed for floating interest rate swap transaction with a remaining Term equal to the period from such final Termination Trade Date to the Scheduled Termination Date in exchange for the receipt of payments indexed to USD-LIBOR-BBA.

 

5. Repayment.

 

If all or a portion of the Reference Amount of any Reference Obligation is repaid or otherwise reduced (in the case of a Committed Obligation, only if the Reference Amount thereof is permanently reduced) (including, without limitation, through any exercise of any right of set-off, reduction, or counterclaim that results in the satisfaction of the obligations of such Reference Entity to pay any principal owing in respect of such Reference Obligation) on or prior to the Scheduled Termination Date (the amount of such repayment or other reduction, a " Repayment "; the portion of the related Reference Obligation so repaid or otherwise reduced, a " Repaid Obligation "; and the date of such Repayment, the " Repayment Date "):

 

(a) the Total Return Payment Date with respect to the Repaid Obligation will be the fifth Business Day next succeeding the last day of the Monthly Period in which the Repayment Date occurred;

 

(b) as of the related Repayment Date, the Reference Amount of such Reference Obligation shall be decreased by an amount equal to the principal amount of the Repaid Obligation; and

 

Page 19
 

 

(c) the related Final Price of the Repaid Obligation shall be (i) in the case of a Committed Obligation, the portion of the Reference Amount that is permanently reduced on such Repayment Date and (ii) in the case of a Term Obligation, the amount of principal and premium in respect of principal paid by such Reference Entity on the Repaid Obligation to holders thereof on such Repayment Date. Following any Repayment Date, Citibank shall prepare and deliver to Counterparty a revised Annex I showing the revised Reference Amount for the related Reference Obligation.

 

6. Adjustments.

 

(a)If any Reference Obligation or any portion thereof is irreversibly converted or exchanged into or for any securities, obligations, cash or other assets or property (" Exchange Consideration "), thereafter such Exchange Consideration will constitute such Reference Obligation or portion thereof, and the Calculation Agent shall in good faith adjust the terms of any Transaction relating to such Reference Obligation as the Calculation Agent determines appropriate to preserve the theoretical value of such Transaction to the parties immediately prior to such exchange or, if such exchange results in a change in value, the proportionate post-exchange value, and determine the effective date of such adjustments. Any such adjustment of the terms of any Transaction relating to such Reference Obligation made by the Calculation Agent shall be consistent with any comparable adjustments made in relation to the related conversion or exchange into or for such Exchange Consideration by any authority or association that is generally recognized by nationally recognized dealers in bank loans as having power or authority to make binding determinations with respect to such adjustments.

 

(b)         Delay Compensation (as defined below) shall result in an adjustment (i) as contemplated by the definition of "Interest and Fee Amount" in connection with the establishment by the Citibank Holder of a related hedge in respect of a Transaction, if the actual settlement of the purchase of the related hedge occurs after the date scheduled for the settlement of such purchase and (ii) of a Final Price with respect to a Terminated Obligation in connection with the termination by the Citibank Holder of a related hedge, if the actual settlement of the sale of the related hedge occurs after the date scheduled for the settlement of such sale; provided that Delay Compensation shall be payable in connection with any such termination only to the extent the related Final Price does not already reflect such adjustment for Delay Compensation. " Delay Compensation " shall accrue (x) in the case of clause (i) above, from and including the date scheduled for the settlement of the purchase effected to establish the related hedge to but excluding the actual settlement of such purchase (and, during such period, (A) the Counterparty First Floating Amount shall be calculated by reference to the Spread and not the Floating Rate Option and (B) Interest and Fee Amounts will be determined without regard to payments in respect of the interest rate index used in the Reference Obligation Credit Agreement to calculate interest payments in respect of the related Reference Obligation and in effect during such period) and (y) in the case of clause (ii) above, from and including the date scheduled for the sale effected to terminate the related hedge to but excluding the actual settlement of such sale (and, during such period, (A) the Counterparty First Floating Amount shall be calculated by reference to the Floating Rate Option and not the Spread and (B) Interest and Fee Amounts shall be reduced by interest accrued during such period in excess of the interest rate index used in the Reference Obligation Credit Agreement to calculate interest payments in respect of the related Reference Obligation and in effect during such period). In connection with any adjustment by reason of Delay Compensation, (i) any initial Payment Date in this Confirmation determined by reference to the "Obligation Settlement Date" shall be determined as if the Obligation Settlement Date were the actual settlement of the purchase of the related hedge and (ii) any final Payment Date in this Confirmation determined by reference to the "Termination Settlement Date" shall be determined as if the Termination Settlement Date were the actual settlement of the termination of the related hedge. If Citibank elects to establish a hedge as a result of the addition or increase in the Reference Amount of any Reference Obligation that is the subject of a Transaction, or to sell or cause the sale of any portion of any Terminated Obligation in order to determine the Final Price thereof as contemplated by Clause 4(b), then

 

Page 20
 

 

Citibank will use commercially reasonable efforts to cause the related purchase or sale to occur on the related Obligation Settlement Date or Termination Settlement Date, as the case may be.

 

(c)         If (i) Citibank elects to establish a hedge as a result of the addition or increase in the Reference Amount of any Reference Obligation that is the subject of a Transaction and (ii) the Citibank Holder is unable after using commercially reasonable efforts to effect the settlement of such hedge, then, by notice to Counterparty, Citibank may in its sole discretion, specify that such addition or increase in the Reference Amount of such Reference Obligation will not be effective.

 

7. Representations, warranties and agreements.

 

(a)         Each party hereby agrees as follows, so long as either party has or may have any obligation under any Transaction:

 

(i) Non-Reliance . It is acting for its own account, and it has made its own independent decisions to enter into such Transaction and as to whether such Transaction is appropriate or proper for it based upon its own judgment and upon advice from such advisors as it has deemed necessary. It is not relying on any communication (written or oral) of the other party as investment advice or as a recommendation to enter into such Transaction; it being understood that information and explanations related to the terms and conditions of such Transaction shall not be considered investment advice or a recommendation to enter into such Transaction. It has not received from the other party any assurance or guarantee as to the expected results of such Transaction;

 

(ii) Evaluation and Understanding . It is capable of evaluating and understanding (on its own behalf or through independent professional advice), and understands and accepts, the terms, conditions and risks of such Transaction. It is also capable of assuming, and assumes, the financial and other risks of such Transaction;

 

(iii) Status of Parties . The other party is not acting as a fiduciary or an advisor for it in respect of such Transaction; and

 

(iv) Reliance on its Own Advisors . Without limiting the generality of the foregoing, in making its decision to enter into, and thereafter to maintain, administer or terminate, such Transaction, it will not rely on any communication from the other party as, and it has not received any representation or other communication from the other party constituting, legal, accounting, business or tax advice, and it will consult its own legal, accounting, business and tax advisors concerning the consequences of such Transaction.

 

(b)         Each party acknowledges and agrees that, so long as either party has or may have any obligation under any Transaction:

 

(i) such Transaction does not create any direct or indirect obligation of any Reference Entity or any direct or indirect participation in any Reference Obligation or any other obligation of any Reference Entity;

 

(ii) each party and its Affiliates may deal in any Reference Obligation and may accept deposits from, make loans or otherwise extend credit to, and generally engage in any kind of commercial or investment banking or other business with any Reference Entity, any Affiliate of any Reference Entity, any other person or entity having obligations relating to any Reference Entity and may act with respect to such business in the same manner as if such Transaction did not exist and may originate, purchase, sell, hold or trade, and may exercise consensual or remedial rights in respect

 

Page 21
 

 

of, obligations, securities or other financial instruments of, issued by or linked to any Reference Entity, regardless of whether any such action might have an adverse effect on such Reference Entity, the value of the related Reference Obligation or the position of the other party to such Transaction or otherwise;

 

(iii) except as provided in Clause 7(d)(iv), each party and its Affiliates and the Calculation Agent may, whether by virtue of the types of relationships described herein or otherwise, at the date hereof or at any time hereafter, be in possession of information regarding any Reference Entity or any Affiliate of any Reference Entity that is or may be material in the context of such Transaction and that may or may not be publicly available or known to the other party. In addition, except as provided in Clause 7(b)(vii), this Confirmation does not create any obligation on the part of such party and its Affiliates to disclose to the other party any such relationship or information (whether or not confidential);

 

(iv) neither Citibank nor any of its Affiliates shall be under any obligation to hedge such Transaction or to own or hold any Reference Obligation as a result of such Transaction, and Citibank and its Affiliates may establish, maintain, modify, terminate or re-establish any hedge position or any methodology for hedging at any time without regard to Counterparty. Counterparty acknowledges and agrees that it is not relying on any representation, warranty or statement by Citibank or any of its Affiliates as to whether, at what times, in what manner or by what method Citibank or any of its Affiliates may engage in any hedging activities;

 

(v) notwithstanding any other provision in this Confirmation or any other document, Citibank and Counterparty (and each employee, representative, or other agent of Citibank or Counterparty) may each disclose to any and all persons, without limitation of any kind, the U.S. tax treatment and U.S. tax structure of the transaction and all materials of any kind (including opinions or other tax analyses) that are provided to them relating to such U.S. tax treatment and U.S. tax structure (as those terms are used in Treasury Regulations under Sections 6011, 6111 and 6112 of the U.S. Internal Revenue Code of 1986, as amended (the " Code ")), other than any information for which nondisclosure is reasonably necessary in order to comply with applicable securities laws. To the extent not inconsistent with the previous sentence, Citibank and Counterparty will each keep confidential (except as required by law) all information unless the other party has consented in writing to the disclosure of such information;

 

(vi) if Citibank chooses to hold a Reference Obligation as a result of any Transaction, Citibank shall hold such Reference Obligation directly or through an Affiliate (the " Citibank Holder "). The Citibank Holder may deal with such Reference Obligation as if the related Transaction did not exist, provided that, so long as the Citibank Holder remains the lender of record with respect to such Reference Obligation, upon any occasion permitting the Citibank Holder to exercise any right in relation to such Reference Obligation to give or withhold consent (an " Election ") to an action proposed to be taken (or to be refrained from being taken), the Citibank Holder shall, insofar as permitted under (x) applicable laws, rules and regulations and (y) each provision of any agreement or instrument evidencing or governing such Reference Obligation (and, in the case of any participation interest, governing such participation interest), give its consent to the action proposed to be taken (or to be refrained from being taken), unless (A) Counterparty, by timely notice to Citibank, requests (a " Counterparty Election Request ") that the Citibank Holder withhold such consent and (B) the Citibank Holder, in its sole discretion, elects to withhold such consent in accordance with the Counterparty Election Request. Notwithstanding the foregoing: (1) the Citibank Holder shall have no obligation to respond to, or consult with Counterparty in relation to, a Counterparty Election Request (failure to respond to a Counterparty Election Request being deemed a denial); (2) the Citibank Holder shall have no other duties or obligations

 

Page 22
 

 

to Counterparty of any nature with respect to any Election or any Counterparty Election Request; (3) the Citibank Holder shall not be liable to Counterparty or any of its Affiliates for the consequences of any consent given or withheld by the Citibank Holder in connection with such Reference Obligation (whether or not pursuant to a Counterparty Election Request); and (4) if the Citibank Holder elects in its sole discretion to withhold its consent in accordance with a Counterparty Election Request, the Citibank Holder may subsequently determine to give such consent at any time without notice to Counterparty; and

 

(vii) in connection with each Reference Obligation that is held by a Citibank Holder as a result of any Transaction, the Citibank Holder will promptly (and in any event within one Business Day after receipt) deliver or cause to be delivered to Counterparty the following information and documentation, in each case, to the extent actually received by the Citibank Holder from the Reference Entity or its agents under the related Reference Obligation Credit Agreement: all notices of any borrowings, prepayments and interest rate settings, all amendments, waivers and other modifications (whether final or proposed) in relation to the terms of the Reference Obligation; and all notices given by the Reference Entity to the lenders or their agent or by the lenders or their agent to the Reference Entity in relation to the exercise of remedies.

 

(c)         Each of the parties hereby represents that, on each date on which a Transaction is entered into hereunder:

 

(i) it is entering into such Transaction for investment, financial intermediation, hedging or other commercial purposes; and

 

(ii) (x) it is an "eligible contract participant" as defined in Section 1a of the U.S. Commodity Exchange Act, as amended (the " CEA "), (y) the Master Agreement and each Transaction are subject to individual negotiation by each party, and (z) neither the Master Agreement nor any Transaction will be executed or traded on a "trading facility" within the meaning of Section 1a of the CEA.

 

(d) Counterparty hereby represents to Citibank that:

 

(i) its financial condition is such that it has no need for liquidity with respect to its investment in any Transaction and no need to dispose of any portion thereof to satisfy any existing or contemplated undertaking or indebtedness. Its investments in and liabilities in respect of any Transaction, which it understands is not readily marketable, is not disproportionate to its net worth, and it is able to bear any loss in connection with any Transaction, including the loss of its entire investment in such Transaction;

 

(ii) it understands no obligations of Citibank to it hereunder will be entitled to the benefit of deposit insurance (except for any deposit insurance that may apply to Posted Collateral) and that such obligations will not be guaranteed by any Affiliate of Citibank or any governmental agency;

 

(iii) it is not an Affiliate of any Reference Entity;

 

(iv) as of (x) the relevant Obligation Trade Date and (y) any date on which a sale is effected pursuant to Clause 4(a) or on which the Calculation Agent solicits Firm Bids pursuant to Clause 4(b), neither Counterparty nor any of its Affiliates, whether by virtue of the types of relationships described herein or otherwise, is on such date in possession of information regarding any related Reference Entity or any Affiliate of such Reference Entity that is or may be material in the context of such Transaction or the purchase or sale of any related Reference Obligation unless

 

Page 23
 

 

such information either (x) is publicly available or (y) has been made available to each registered owner of such Reference Obligation on a basis that permits such registered owner to disclose such information to any assignee of or participant (whether on a funded or unfunded basis) in, or any prospective assignee of or participant (whether on a funded or unfunded basis) in, any rights or obligations under the related Reference Obligation Credit Agreement;

 

(v) it is a limited liability company formed under the laws of the State of Delaware, and it is a disregarded entity of a corporation organized under the laws of the State of Delaware for U.S. Federal income tax purposes (which representation shall also be made for purposes of Section 3(f) of the Master Agreement);

 

(vi) it has delivered to Citibank on or prior to the Trade Date (and it will, prior to any expiration of any such form previously so delivered, deliver to Citibank) a United States Internal Revenue Service Form W-9 (or applicable successor form), properly completed and signed;

 

(vii) it could have received all payments on the Reference Obligation without U.S. Federal or foreign withholding tax if it owned the Reference Obligation (which representation shall also be made for purposes of Section 3(f) of the Master Agreement); and

 

(viii) it is not a tax-exempt organization for U.S. Federal income tax purposes.

 

(e)          Except for disclosure authorized pursuant to Clause 7(b)(v), Counterparty agrees to be bound by the confidentiality provisions of the related Reference Obligation Credit Agreement with respect to all information and documentation in relation to a Reference Entity or a Reference Obligation delivered to Counterparty hereunder. Counterparty acknowledges that such information may include material non-public information concerning the Reference Entity or its securities and agrees to use such information in accordance with applicable law, including Federal and State securities laws.

 

(f)          Section 2(c)(ii) of the Master Agreement shall not apply to the Transactions to which this Confirmation relates. Multiple Transaction Payment Netting under Section 2(c) of the Master Agreement will apply to the Transactions to which this Confirmation relates.

 

(g)          Notwithstanding anything in the Master Agreement to the contrary, Citibank will not be required to pay any additional amount under Section 2(d)(i) of the Master Agreement in respect of any deduction or withholding for or on account of any Tax in relation to any payment under any Transaction that is determined by reference to interest or fees payable with respect to any Reference Obligation. If Citibank is required by any applicable law, as modified by the practice of any relevant governmental revenue authority, to make any deduction or withholding for or on account of any Tax in relation to any payment under any Transaction that is determined by reference to interest or fees payable with respect to any Reference Obligation and Citibank does not so deduct or withhold, then Section 2(d)(ii) of the Master Agreement shall be applicable.

 

8. Adjustments Relating to Certain Unpaid or Rescinded Payments .

 

(a)          If (i) Citibank makes any payment to Counterparty as provided under Clause 2 and the corresponding Interest and Fee Amount is not paid (in whole or in part) when due or (ii) any Interest and Fee Amount in respect of a Reference Obligation is required to be returned (in whole or in part) by a holder of such Reference Obligation (including, without limitation, the Citibank Holder) to the applicable Reference Entity or paid to any other person or entity or is otherwise rescinded pursuant to any bankruptcy or insolvency law or any other applicable law, then Counterparty will pay to Citibank, upon request by Citibank, such amount (or portion thereof) so not paid or so required to be returned, paid or

 

Page 24
 

  

otherwise rescinded. If such returned, paid or otherwise rescinded amount is subsequently paid, Citibank shall pay such amount (subject to Clause 8(c)) to Counterparty within five Business Days after the date of such subsequent payment.

 

(b)          If, with respect to any Repaid Obligation, the corresponding payment of principal of the Repaid Obligation is required to be returned (in whole or in part) by a holder thereof (including, without limitation, the Citibank Holder) to the applicable Reference Entity or paid to any other person or entity or is otherwise rescinded pursuant to any bankruptcy or insolvency law or any other applicable law, then (i) the parties hereto shall be restored severally and respectively to their former positions hereunder and thereafter all rights and obligations of the parties hereunder shall continue as though no Repayment had occurred and (ii) without limiting the generality of the foregoing, if either party has made a payment to the other party in respect of Capital Appreciation or Capital Depreciation related to such Repayment as provided under Clause 2, then the party that received the payment in respect of such Capital Appreciation or Capital Depreciation, as applicable, shall repay such amount (subject to Clause 8(c)) to the other party. If such returned, paid or otherwise rescinded amount is subsequently paid by the related Reference Entity or any such other person or entity, then the relevant party shall pay the amount of such Capital Appreciation or Capital Depreciation, as applicable, within five Business Days after the date of such subsequent payment.

 

(c)          Amounts payable pursuant to this Clause 8 shall be subject to adjustment by the Calculation Agent in good faith and on a commercially reasonable basis, as agreed by Citibank and Counterparty, in order to preserve for the parties the intended economic risks and benefits of the relevant Transaction.

 

(d)          The payment obligations of Citibank and Counterparty pursuant to this Clause 8 shall survive the termination of all Transactions.

 

9. C redit Support .

 

Notwithstanding anything in the Credit Support Annex (the " Credit Support Annex ") to the Schedule to the Master Agreement to the contrary, the following collateral terms shall apply to each Transaction to which this Confirmation relates (capitalized terms used in this Clause 9 but not otherwise defined in this Confirmation have the respective meanings given to such terms in the Credit Support Annex):

 

(a) With respect to each Transaction to which this Confirmation relates, an "Independent Amount" shall be applicable to Counterparty on each date of determination in an amount in USD equal to the Notional Amount of such Transaction on such date of determination multiplied by the relevant Independent Amount Percentage (determined in accordance with the table set forth below).

 

Condition   Independent Amount Percentage
     
(i) Except as provided in clauses (ii), (iii) and (iv) below, with respect to any Transaction   25%
     
(ii) Except as provided in clause (iv) below, with respect to any Transaction relating to a Non-Standard Reference Obligation   Such percentage as Citibank shall specify on or prior to the Obligation Trade Date for such Transaction
     
(iii) Except as provided in clause (iv) below, with respect to any Transaction relating to a   Such percentage as Citibank shall specify pursuant to Clause 3(b)

 

Page 25
 

   

Excess Concentration Obligation    
     
(iv) With respect to any Reference Obligation whose Independent Amount Percentage is agreed in writing as provided in Clause 3(a)(ii)   Such Independent Amount Percentage as is agreed in writing as provided in Clause 3(a)(ii)

 

Not later than the close of business in New York City on (i) the Effective Date and (ii) the date of any increase in the Independent Amount Percentage applicable to any Transaction, Counterparty as Pledgor will Transfer to Citibank as Secured Party Eligible Collateral having a Value as of the date of Transfer equal to the related Independent Amount (or increase in the related Independent Amount) determined pursuant to this Clause 9(a).

 

(b) In no event shall Citibank as Secured Party be obligated to Transfer Posted Credit Support in respect of a Return Amount to Counterparty as Pledgor if the Value as of any Valuation Date of all Posted Credit Support held by Citibank as Secured Party would be less than the aggregate of all Independent Amounts determined pursuant to Clause 9(a).

 

(c) In no event shall Counterparty as a Secured Party have any positive "Exposure" to Citibank with respect to any Transaction to which this Confirmation relates.

 

(d) Without limiting Clause 3(b)(iv) or Clause 9(e), in no event shall Citibank as a Secured Party shall have any positive "Exposure" to Counterparty with respect to any Transaction to which this Confirmation relates.

 

(e) If (i) the Net Collateral Value Percentage on any Valuation Date is less than the Termination Threshold on such Valuation Date and (ii) Citibank gives notice thereof to Counterparty on any Business Day, Counterparty will, not later than the close of business on the Business Day following the date of such notice from Citibank, effect the Transfer to Citibank as Secured Party of Eligible Collateral such that the Net Collateral Value Percentage after giving effect to such Transfer is at least equal to the Cure Threshold. In addition, Counterparty may, on any Business Day, effect the Transfer to Citibank as Secured Party of any additional Eligible Collateral.

 

(f) If Counterparty enters into any Transaction under the Master Agreement other than the Transactions contemplated by this Confirmation (each, a " Separate Transaction "), then the Credit Support Amount with respect to Counterparty as Pledgor shall never be less than the "Credit Support Amount" with respect to Counterparty as Pledgor calculated (i) solely with reference to all Separate Transactions and (ii) without regard to the aggregate of all Independent Amounts applicable to Counterparty as Pledgor under this Confirmation.

 

(g) Each Business Day shall be a Valuation Date.

 

Page 26
 

  

10. N otice and Account Details .

 

Notices to Citibank:

 

Citibank, N.A., New York Branch

390 Greenwich Street, 4th Floor

New York, New York 10013

Tel: (212) 723-6181

Fax: (646) 291-5779

Attn: Mitali Sohoni

 

with a copy to:

 

Office of the General Counsel

Fixed Income and Derivatives Sales and Trading

Citibank, N.A., New York Branch

388 Greenwich Street, 17th Floor

New York, New York 10013

Tel: (212) 816-2121

Fax: (646) 862-8431

Attn: Craig Seledee

 

Notices to Counterparty:

 

As set forth in Part 4 of the Schedule to the Master Agreement

 

Payments to Citibank:

 

Citibank, N.A., New York

ABA No.: 021-000-089

Account No.: 00167679

Ref: Financial Futures

 

Payments to Counterparty:

 

Any payment to be made by Citibank to Counterparty shall be subject to the condition that Citibank shall have received notice of the account to which such payment is to be made not less than three Local Business Days prior to the date of such payment.

 

11. O ffices .

 

(a) The Office of Citibank for each Transaction:

 

New York

 

(b) The Office of Counterparty for each Transaction:

 

New York

 

Page 27
 

  

Please confirm that the foregoing correctly sets forth the terms of our agreements by having a duly authorized officer of Counterparty execute this Confirmation and return the same by facsimile to the attention of the individual at Citibank indicated on the first page hereof.

 

Very truly yours,

 

CITIBANK, N.A.

 

By: /s/ David Santos  
  Name: David Santos  
  Title: Authorized Signatory  

 

CONFIRMED AND AGREED

AS OF THE GDATE FIRST ABOVE WRITTEN:

 

405 TRS I, LLC

 

By: Business Development Corporation of America, its

sole member

 

By: /s/ Robert K. Gruewald  
  Name: Robert K. Grunewald  
  Title: Chief Investment Officer  

 

Confirmation – Signature Page

 

 
 

  

ANNEX A

 

ADDITIONAL DEFINITIONS

 

" Affiliate ", for purposes of this Confirmation only, has the meaning given to such term in Rule 405 under the Securities Act of 1933, as amended.

 

" Approved Buyer " means (a) any entity listed in Annex III (as such Annex may be amended by mutual written consent of the parties hereto from time to time) so long as its long-term unsecured and unsubordinated debt obligations on the "trade date" for the related purchase or submission of a Firm Bid contemplated hereby are rated at least "Baa1" by Moody's and at least "BBB+ " by S&P and (b) if an entity listed in Annex III is not the principal banking or securities Affiliate within a financial holding company group, the principal banking or securities Affiliate of such listed entity within such financial holding company group so long as such obligations of such Affiliate have the rating indicated in clause (a) above.

 

" Capital Appreciation " and " Capital Depreciation " mean, for any Total Return Payment Date, the amount determined according to the following formula for the applicable Terminated Obligation or Repaid Obligation:

 

Final Price – Applicable Notional Amount

 

where

 

" Final Price " means (a) in the case of any Terminated Obligation, the amount determined pursuant to Clause 4, and (b) in the case of any Repaid Obligation, the amount determined pursuant to Clause 5, and

 

" Applicable Notional Amount " means the Notional Funded Amount (determined immediately prior to the related Repayment Date or Termination Trade Date) for such Terminated Obligation or Repaid Obligation, as applicable.

   

If such amount is positive, such amount is " Capital Appreciation " and if such amount is negative, the absolute value of such amount is " Capital Depreciation ".

 

" Committed Obligation " means (a) any Delayed Drawdown Reference Obligation and (b) any Revolving Reference Obligation.

 

" Costs of Assignment " means, in the case of any Terminated Obligation, the sum of (a) any actual costs of transfer or assignment paid by the seller under the terms of any Terminated Obligation or otherwise actually imposed on the seller by any applicable administrative agent, borrower or obligor incurred in connection with the sale of such Terminated Obligation and (b) any reasonable expenses incurred by the seller in connection with such sale and, if transfers of the Terminated Obligation are subject to the Standard Terms and Conditions for Distressed Trade Confirmations, as published by the LSTA and as in effect on the Obligation Trade Date, reasonable legal costs incurred by the seller in connection with such sale, in each case to the extent not already reflected in the Final Price.

 

" Credit Event " means the occurrence of a Bankruptcy or Failure to Pay. For purposes of the determination of whether a Credit Event has occurred, the Obligation Category will be Borrowed Money, the Payment Requirement will be USD1,000,000 and no Obligation Characteristics will be specified.

 

Confirmation – Annex A

 

 
 

  

Capitalized terms used in this definition but not defined in this Confirmation shall have the meanings specified in the 2003 ISDA Credit Derivatives Definitions.

 

" Cure Threshold " means, on any date of determination occurring from and including the Effective Date, a percentage equal to (a) the aggregate of all Independent Amounts under this Confirmation over (b) the Portfolio Notional Amount.

 

" Current Price " means, with respect to any Reference Obligation on any date of determination, the Calculation Agent's determination of the net cash proceeds that would be received from the sale on such date of determination of such Reference Obligation, net of the related Costs of Assignment. If Counterparty disputes the Calculation Agent's determination of the Current Price of any Reference Obligation, then Counterparty may, no later than three hours after Counterparty is given notice of such determination, designate two Dealers of credit standing acceptable to Citibank in the exercise of its reasonable discretion to provide a Firm Bid to Citibank within such three-hour period. The highest of such two Firm Bids will be the Current Price. The "Current Price" shall be expressed as a percentage of par and will be determined exclusive of accrued interest.

 

" Dealer " means (i) a nationally recognized independent dealer in the related Reference Obligation chosen by the Calculation Agent or its designated Affiliate (other than the Calculation Agent or any of its Affiliates), (ii) any Approved Buyer designated by Counterparty or (iii) any other entity (other than the Calculation Agent or any of its Affiliates) designated by the Calculation Agent or its designated Affiliate in its sole discretion as a "Dealer" for the purposes of this Confirmation.

 

" Delayed Drawdown Reference Obligation " means a Reference Obligation that (a) requires the holder thereof to make one or more future advances to the borrower under the instrument or agreement pursuant to which such Reference Obligation was issued or created, (b) specifies a maximum amount that can be borrowed on one or more fixed borrowing dates and (c) does not permit the re-borrowing of any amount previously repaid; provided that, on any date on which all commitments by the holder thereof to make advances to the borrower under such Delayed Drawdown Reference Obligation expire or are terminated or reduced to zero, such Reference Obligation shall cease to be a Delayed Drawdown Reference Obligation.

 

" Excess Concentration Obligation " means (a) any Reference Obligation whose inclusion in the Reference Portfolio (other than as an "Excess Concentration Obligation") would not on the related Obligation Trade Date satisfy one or more of clauses (iv) and (v) of the Portfolio Criteria (but only to the extent that such inclusion would not satisfy any such clause) and (b) any Reference Obligation deemed to be an Excess Concentration Obligation pursuant to Clause 3(b). Notwithstanding that the foregoing definition provides that only part of a Reference Obligation may be an "Excess Concentration Obligation" for all other purposes of this Confirmation, the entire Reference Obligation shall be deemed to be an "Excess Concentration Obligation" for purposes of determining pursuant to Clause 9(a) the Independent Amount Percentage for the Transaction relating to such Reference Obligation. Counterparty shall give notice to Citibank on or prior to the related Obligation Trade Date if any Reference Obligation would be an Excess Concentration Obligation pursuant to the foregoing clause (a).

 

" Expense or Other Payment " means the aggregate amount of any payments (other than extensions of credit) due from the lender(s) in respect of any Reference Obligation, including, without limitation, (a) any expense associated with any amendment, modification or waiver of the provisions of a credit agreement, (b) any reimbursement of any agents under the provisions of a credit agreement, and (c) any indemnity or other similar payment, including amounts owed on or after the related Obligation Termination Date in respect of amounts incurred or any event that occurred before the related Obligation Termination Date.

 

Confirmation – Annex A

 

 
 

  

" Interest and Fee Amount " means, for any Citibank Fixed Amount Payer Payment Date and any Transaction, the aggregate amount of interest (including interest breakage costs), fees (including, without limitation, amendment, consent, tender, facility, letter of credit and other similar fees) and other amounts (other than in respect of principal and premium paid in respect of principal) paid with respect to the related Reference Obligation (after deduction of any withholding taxes for which the Reference Entities are not obligated to reimburse holders of the related Reference Obligation, if applicable) during the relevant Citibank Fixed Amount Payer Calculation Period; provided that Interest and Fee Amounts:

 

(a) in the case of "Interest and Accruing Fees" (as defined in the "Standard Terms and Conditions for Par/Near Par Trade Confirmations" or "Standard Terms and Conditions for Distressed Trade Confirmations", as applicable to the relevant Reference Obligation, most recently published by the LSTA prior to the Trade Date), shall not include any amounts that accrue prior to the Obligation Settlement Date for the related Reference Obligation or that accrue on or after the Obligation Termination Date for the related Reference Obligation or portion thereof,

 

(b) in the case of "Non-Recurring Fees" (as so defined), shall not include any amounts that (i) are paid on or after the Termination Trade Date for the related Reference Obligation or portion thereof or (ii) are paid with respect to the related Reference Obligation that is not held by or on behalf of Citibank as a hedge for the related Transaction,

 

(c) shall be determined after deducting all customary and reasonable expenses that would be incurred by a buyer in connection with any purchase of the Reference Obligation as a hedge for such Transaction and shall be adjusted by any Delay Compensation as provided in Clause 6(b); and

 

(d) in the case of any Transaction as to which the related Reference Obligation is a Committed Obligation, shall include only 75% of fees that are stated to accrue on or in respect of the unfunded portion of any Commitment Amount.

 

" Loan " means any obligation for the payment or repayment of borrowed money that is documented by a term loan agreement, revolving loan agreement or other similar credit agreement.

 

" LSTA " means The Loan Syndications and Trading Association, Inc. and any successor thereto.

 

" Moody's " means Moody's Investors Service, Inc. or any successor thereto.

 

" Moody's Rating " means, with respect to a Reference Obligation, as of any date of determination:

 

(i) if the Reference Obligation itself is rated by Moody's (including pursuant to any credit estimate), such rating,

 

(ii) if the foregoing paragraph is not applicable, then, if the Reference Obligation is a Loan and the related Reference Entity has a corporate family rating by Moody's, the rating specified in the applicable row of the table below under "Relevant Rating" opposite the row in the table below that describes such Loan:

 

Loan   Relevant Rating
     
The Loan is a secured obligation, but is not a Second Lien Obligation and is not Subordinate   The rating by Moody's that is one rating subcategory above such corporate family rating
     
The Loan is an unsecured obligation or is a Second   The rating by Moody's that is one rating

 

Confirmation – Annex A

 

 
 

 

Lien Obligation, but is not Subordinate   subcategory below such corporate family rating
     
The Loan is Subordinate   The rating by Moody's that is two rating subcategories below such corporate family rating

  

(iii) if the foregoing paragraphs are not applicable, but there is a rating by Moody's on a secured obligation of the Reference Entity that is not a Second Lien Obligation and is not Subordinate (the "other obligation"), the rating specified in the applicable row of the table below under "Relevant Rating" opposite the row in the table below that describes such Reference Obligation:

 

Reference Obligation   Relevant Rating
     
The Reference Obligation is a secured obligation, but is not a Second Lien Obligation and is not Subordinate   The rating assigned by Moody's to the other obligation
     
The Reference Obligation is an unsecured obligation or is a Second Lien Obligation, but is not Subordinate   The rating by Moody's that is one rating subcategory below the rating assigned by Moody's to the other obligation
     
The Reference Obligation is Subordinate   The rating by Moody's that is two rating subcategories below the rating assigned by Moody's to the other obligation

 

(iv) if the foregoing paragraphs are not applicable, but there is a rating by Moody's on an unsecured obligation of the Reference Entity (or, failing that, an obligation that is a Second Lien Obligation) but is not Subordinate (the "other obligation"), the rating specified in the applicable row of the table below under "Relevant Rating" opposite the row in the table below that describes such Reference Obligation:

 

Reference Obligation   Relevant Rating
     
The Reference Obligation is a secured obligation, but is not a Second Lien Obligation and is not Subordinate   The rating by Moody's that is one rating subcategory above the rating assigned by Moody's to the other obligation
     
The Reference Obligation is an unsecured obligation or is a Second Lien Obligation, but is not Subordinate   The rating assigned by Moody's to the other obligation
     
The Reference Obligation is Subordinate   The rating by Moody's that is one rating subcategory below the rating assigned by Moody's to the other obligation

  

(v) if the foregoing paragraphs are not applicable, but there is a rating by Moody's on an obligation of the Reference Entity that is Subordinate (the "other obligation"), the rating specified in the

 

Confirmation – Annex A

 

 
 

  

applicable row of the table below under "Relevant Rating" opposite the row in the table below that describes such Reference Obligation:

 

Reference Obligation   Relevant Rating
     
The Reference Obligation is a secured obligation, but is not a Second Lien Obligation and is not Subordinate   The rating by Moody's that is two rating subcategories above the rating assigned by Moody's to the other obligation
     
The Reference Obligation is an unsecured obligation or is a Second Lien Obligation, but is not Subordinate   The rating by Moody's that is one rating subcategory above the rating assigned by Moody's to the other obligation
     
The Reference Obligation is Subordinate   The rating assigned by Moody's to the other obligation

 

(vi) if a rating cannot be assigned pursuant to clauses (i) through (v), the Moody's Rating may be determined using any of the methods below:

 

(A) for up to 10% of the Portfolio Target Amount, Counterparty may apply to Moody's for a shadow rating or public rating of such Reference Obligation, which shall then be the Moody's Rating (and Counterparty may deem the Moody's Rating of such Reference Obligation to be "B3" pending receipt of such shadow rating or public rating, as the case may be); provided that (x) a Reference Obligation will not be included in the 10% limit of the Portfolio Target Amount if Counterparty has assigned a rating to such Reference Obligation in accordance with clause (B) below and (y) upon receipt of a shadow rating or public rating, as the case may be, such Reference Obligation will not be included in the 10% limit of the Portfolio Target Amount;

 

(B) for up to 10% of the Portfolio Target Amount, if there is a private rating of an obligor that has been provided by Moody's to Citibank and Counterparty, Counterparty may impute a Moody's Rating that corresponds to such private rating; provided that a Reference Obligation will not be included in the 10% limit of the Portfolio Target Amount if Counterparty has applied to Moody's for a shadow rating; or

 

(C) for up to 10% of the Portfolio Target Amount, the Moody's Rating may be determined in accordance with the methodologies for establishing the S&P Rating except that the Moody's Rating of such obligation will be (1) one sub-category below the Moody's equivalent of the S&P Rating if such S&P Rating is "BBB-" or higher and (2) two subcategories below the Moody's equivalent of the S&P Rating if such S&P Rating is "BB+" or lower.

 

For purposes of the foregoing, a "private rating" shall refer to a rating obtained by Citibank, by Counterparty or by or on behalf of an obligor on a Reference Obligation that is not disseminated publicly; whereas a "shadow rating" shall refer to a credit estimate obtained upon application of Counterparty or a holder of a Reference Obligation. Any private rating or shadow rating shall be required to be refreshed annually. If Counterparty applies to Moody's for a shadow rating or public rating of a Reference Obligation, Counterparty shall provide evidence to Citibank of such application and shall notify Citibank of the expected rating. Counterparty shall notify Citibank of the shadow rating or public rating assigned by Moody's to a Reference Obligation.

 

Confirmation – Annex A

 

 
 

  

" Net Collateral Value " means, as of any date of determination, an amount equal to (a) the aggregate Value (as defined in the Credit Support Annex) on such date of all Posted Credit Support (as so defined) held by Citibank as Secured Party (as so defined) plus (b) the aggregate of all Unrealized Capital Gains on such date with respect to the Reference Portfolio minus (c) the aggregate of all Unrealized Capital Losses on such date with respect to the Reference Portfolio.

 

" Net Collateral Value Percentage " means, as of any date of determination, an amount (expressed as a percentage) equal to (a) the Net Collateral Value on such date divided by (b) the Portfolio Notional Amount on such date.

 

" Non-Standard Reference Obligation " means any Reference Obligation whose inclusion in the Reference Portfolio (other than as a "Non-Standard Reference Obligation") would not on the related Obligation Trade Date satisfy one or more of clauses (viii) through (xii) of the Obligation Criteria.

 

" Portfolio Target Amount " means (a) during the Ramp-Up Period and the Ramp-Down Period, the Maximum Portfolio Notional Amount, (b) at any other time, the Portfolio Notional Amount; provided that, for purposes of clauses (iv) and (v) of the Portfolio Criteria, the Portfolio Target Amount on any date of determination shall be reduced by the sum of the Notional Amounts for all Excess Concentration Obligations as of such date.

 

" Rate Payments " means Counterparty First Floating Amounts, Counterparty Second Floating Amounts and Citibank Fixed Amounts.

 

" Revolving Reference Obligation " means a Reference Obligation that (a) requires the holder thereof to make one or more future advances to the borrower under the instrument or agreement pursuant to which such Reference Obligation was issued or created, (b) specifies a maximum aggregate amount that can be borrowed and (c) permits, during any period on or after the date on which the holder thereof acquires such Reference Obligation, the re-borrowing of any amount previously repaid; provided that, on the date that all commitments by the holder thereof to make advances to the borrower under such Revolving Reference Obligation expire or are terminated or reduced to zero, such Reference Obligation shall cease to be a Revolving Reference Obligation.

 

" S&P " means Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, or any successor thereto.

 

S&P Rating means, with respect to a Reference Obligation:

 

(i) if the Reference Obligation itself is rated by S&P (including pursuant to any credit estimate), such rating,

 

(ii) if the foregoing paragraph is not applicable, then, if the Reference Obligation is a Loan and the related Reference Entity has a corporate issuer rating by S&P, the rating specified in the applicable row of the table below under "Relevant Rating" opposite the row in the table below that describes such Loan:

 

Loan   Relevant Rating
     
The Loan is a secured obligation, but is not a Second Lien Obligation and is not Subordinate   The rating by S&P that is one rating subcategory above such corporate issuer rating
     
The Loan is an unsecured obligation or is a Second   The rating by S&P that is one rating subcategory

 

Confirmation – Annex A

 

 
 

 

Lien Obligation, but is not Subordinate   below such corporate issuer rating
     
The Loan is Subordinate   The rating by S&P that is two rating subcategories below such corporate issuer rating

 

(iii) if the foregoing paragraphs are not applicable, but there is a rating by S&P on a secured obligation of the Reference Entity that is not a Second Lien Obligation and is not Subordinate (the "other obligation"), the rating specified in the applicable row of the table below under "Relevant Rating" opposite the row in the table below that describes such Reference Obligation:

 

Reference Obligation   Relevant Rating
     
The Reference Obligation is a secured obligation, but is not a Second Lien Obligation and is not   The rating assigned by S&P to the other obligation
Subordinate    
     
The Reference Obligation is an unsecured obligation or is a Second Lien Obligation, but is not Subordinate   The rating by S&P that is one rating subcategory below the rating assigned by S&P to the other obligation
     
The Reference Obligation is Subordinate   The rating by S&P that is two rating subcategories below the rating assigned by S&P to the other obligation

 

(iv) if the foregoing paragraphs are not applicable, but there is a rating by S&P on an unsecured obligation of the Reference Entity (or, failing that, an obligation that is a Second Lien Obligation) but is not Subordinate (the "other obligation"), the rating specified in the applicable row of the table below under "Relevant Rating" opposite the row in the table below that describes such Reference Obligation:

 

Reference Obligation   Relevant Rating
     
The Reference Obligation is a secured obligation, but is not a Second Lien Obligation and is not Subordinate   The rating by S&P that is one rating subcategory above the rating assigned by S&P to the other obligation
     
The Reference Obligation is an unsecured obligation or is a Second Lien Obligation, but is not Subordinate   The rating assigned by S&P to the other obligation
     
The Reference Obligation is Subordinate   The rating by S&P that is one rating subcategory below the rating assigned by S&P to the other obligation

 

(v) if the foregoing paragraphs are not applicable, but there is a rating by S&P on an obligation of the Reference Entity that is Subordinate (the "other obligation"), the rating specified in the applicable

 

Confirmation – Annex A

 

 
 

  

row of the table below under "Relevant Rating" opposite the row in the table below that describes such Reference Obligation:

 

Reference Obligation   Relevant Rating
     
The Reference Obligation is a secured obligation, but is not a Second Lien Obligation and is not Subordinate   The rating by S&P that is two rating subcategories above the rating assigned by S&P to the other obligation
     
The Reference Obligation is an unsecured obligation or is a Second Lien Obligation, but is not Subordinate   The rating by S&P that is one rating subcategory above the rating assigned by S&P to the other obligation
     
The Reference Obligation is Subordinate   The rating assigned by S&P to the other obligation

 

(vi) if the foregoing paragraphs are not applicable, then the S&P Rating shall be "CC"; provided that:

 

(A)     if application has been made to S&P to rate a Reference Obligation and such Reference Obligation has a Moody's Rating, then the S&P Rating with respect to such Reference Obligation shall, pending the receipt of such rating from S&P, be equal to the S&P Rating that is equivalent to such Moody's Rating and (y) Reference Obligations in the Reference Portfolio constituting no more, by aggregate Notional Amount, than 10% of the Portfolio Target Amount may be given a S&P Rating based on a rating given by Moody's as provided in clause (x) (after giving effect to the addition of the relevant Reference Obligation, if applicable); and

 

(B)   for up to 10% of the Portfolio Target Amount, the S&P Rating may be determined in accordance with the methodologies for establishing the Moody's Rating except that the S&P Rating of such obligation will be (1) one sub-category below the S&P equivalent of the Moody's Rating if such Moody's Rating is "Baa3" or higher and (2) two sub-categories below the S&P equivalent of the Moody's Rating if such Moody's Rating is "Ba1" or lower

 

" Second Lien Obligation " means a Loan that is secured by collateral, but as to which the beneficiary or beneficiaries of such collateral security agree for the benefit of the holder or holders of other indebtedness secured by the same collateral (" First Lien Debt ") as to one or more of the following: (1) to defer their right to enforce such collateral security either permanently or for a specified period of time while First Lien Debt is outstanding, (2) to permit a holder or holders of First Lien Debt to sell such collateral free and clear of the security in favor of such beneficiary or beneficiaries, (3) not to object to sales of assets by the obligor on such Loan following the commencement of a bankruptcy or other insolvency proceeding with respect to such obligor or to an application by the holder or holders of First Lien Debt to obtain adequate protection in any such proceeding and (4) not to contest the creation, validity, perfection or priority of First Lien Debt.

 

" Subordinate " means, with respect to an obligation (the " Subordinated Obligation ") and another obligation of the obligor thereon to which such obligation is being compared (the " Senior Obligation "), a contractual, trust or similar arrangement (without regard to the existence of preferred creditors arising by operation of law or to collateral, credit support, lien or other credit enhancement arrangements or provisions regarding the application of proceeds of any of the foregoing) providing that (i) upon the liquidation, dissolution, reorganization or winding up of the obligor, claims of the holders of the Senior Obligation will be satisfied prior to the claims of the holders of the Subordinated Obligation or (ii) the holders of the Subordinated Obligation will not be entitled to receive or retain payments in respect of their

 

Confirmation – Annex A

 

 
 

  

claims against the obligor at any time that the obligor is in payment arrears or is otherwise in default under the Senior Obligation.

 

" Term Obligation " means any Reference Obligation that is not a Committed Obligation.

 

" Terminated Obligation " means any Reference Obligation or portion of any Reference Obligation that is terminated pursuant to Clause 3.

 

" Termination Settlement Date " means, for any Terminated Obligation, the date customary for settlement, substantially in accordance with the then-current market practice in the principal market for such Terminated Obligation (as determined by the Calculation Agent), of the sale of such Terminated Obligation with the trade date for such sale occurring on the related Termination Trade Date.

 

" Termination Threshold " means, on any date of determination from and including the Effective Date, the Cure Threshold minus 5%.

 

" Termination Trade Date " means, with respect to any Terminated Obligation, the date so designated in the related Accelerated Termination Notice; provided that:

 

(a) except as provided in the following paragraph (b), if the related Final Price is not determined in accordance with Clause 4(a), the "Termination Trade Date" will be the bid submission deadline for the Firm Bid or combination of Firm Bids for all of the Reference Amount of such Terminated Obligation that are to be the basis for determining the Final Price of such Terminated Obligation as designated by the Calculation Agent in order to cause the related Total Return Payment Date to occur as promptly as practicable (in the discretion of the Calculation Agent) after the date originally designated as the "Termination Trade Date" pursuant to Clause 3; and

 

(b) in respect of the Scheduled Termination Date, if the related Final Price is not determined in accordance with Clause 4(a), the "Termination Trade Date" will be the date so designated by the Calculation Agent in its discretion, occurring during the 30 calendar days preceding the Scheduled Termination Date (or earlier in the case of any Terminated Obligation determined by the Calculation Agent in its sole discretion to be a distressed loan or other obligation) in a manner reasonably likely to cause the final Total Return Payment Date to occur on the Scheduled Termination Date.

 

The Calculation Agent shall notify the parties of any Termination Trade Date designated by it pursuant to the foregoing proviso.

 

" Total Return Payment Date " means, with respect to any Terminated Obligation or Repaid Obligation, the fifth Business Day next succeeding the last day of the Monthly Period during which the related Obligation Termination Date occurs.

 

" Unrealized Capital Gain " means, with respect to any Reference Obligation, if the Current Price of such Reference Obligation is greater than the Initial Price in relation to such Reference Obligation, then (a) such Current Price minus such Initial Price multiplied by (b) the Reference Amount of such Reference Obligation. For purposes of computing any Unrealized Capital Gain, a Repaid Obligation or Terminated Obligation will be deemed to continue to be outstanding in an amount equal to its Reference Amount until (but excluding) the related Total Return Payment Date (and after the determination of the related Final Price will have a Current Price equal to such Final Price).

 

Confirmation – Annex A

 

 
 

  

" Unrealized Capital Loss " means, with respect to any Reference Obligation, if the Initial Price in relation to such Reference Obligation is greater than the Current Price of such Reference Obligation, then (a) such Initial Price minus such Current Price multiplied by (b) the Reference Amount of such Reference Obligation. For purposes of computing any Unrealized Capital Loss, a Repaid Obligation or Terminated Obligation will be deemed to continue to be outstanding in an amount equal to its Reference Amount until (but excluding) the related Total Return Payment Date (and after the determination of the related Final Price will have a Current Price equal to such Final Price).

 

Confirmation – Annex A

 

 
 

  

ANNEX I

 

REFERENCE PORTFOLIO

 

                            Independent
            Outstanding   Initial   Obligation   Obligation   Amount
Reference   Reference   Reference   Principal   Price   Trade   Settlement   Percentage
Obligation   Entity   Amount   Amount   (%)   Date   Date   (%)
                             

 

Confirmation – Annex I

 

 
 

  

ANNEX II

 

OBLIGATION CRITERIA

 

The " Obligation Criteria " are as follows:

 

(i) The obligation is a Loan.

 

(ii) The obligation is denominated in USD.

 

(iii) The obligation constitutes a legal, valid, binding and enforceable obligation of the applicable Reference Entity, enforceable against such person in accordance with its terms (subject to applicable bankruptcy, reorganization, insolvency, moratorium or similar laws affecting creditors' rights generally and subject, as to enforceability, to equitable principles of general application (regardless of whether enforcement is sought in a proceeding in equity or at law)).

 

(iv) Except for any Delayed Drawdown Reference Obligation or Revolving Reference Obligation, the obligation does not require any future advances to be made to the related issuer or obligor on or after the Obligation Trade Date.

 

(v) On the Obligation Trade Date, the obligation is in the form of, and is treated as, indebtedness for U.S. Federal income tax purposes.

 

(vi) Transfers thereof on the Obligation Trade Date may be effected pursuant to the Standard Terms and Conditions for Par/Near Par Trade Confirmations and not the Standard Terms and Conditions for Distressed Trade Confirmations, in each case as published by the LSTA and as in effect on the Obligation Trade Date.

 

(vii) The obligation is not Subordinate.

 

(viii) Except for any Non-Standard Reference Obligation, the obligation is not a Second Lien Obligation.

 

(ix) Except for any Non-Standard Reference Obligation, the obligation has as of the Obligation Trade Date a Moody's Rating of at least "B2" and an S&P Rating of at least "B".

 

(x) Except for any Non-Standard Reference Obligation, on the Obligation Trade Date the obligation is part of a fungible class of debt obligations (as to issuance date and all economic terms) of at least USD150,000,000.

 

(xi) Except for any Non-Standard Reference Obligation, the obligation has an Initial Price as of the Obligation Trade Date of at least 80%.

 

(xii) Except for any Non-Standard Reference Obligation, the obligation on the Obligation Trade Date either (x) is the subject of at least two bid quotations from nationally recognized independent dealers in the related obligation as reported on a nationally recognized pricing service or (y) satisfies each of the following two conditions: (A) the obligation was originated not more than 30 days prior to the Obligation Trade Date and (B) the obligation is the subject of at least one bid quotation from a nationally recognized independent dealer in the related obligation as reported on a nationally recognized pricing service.

 

Confirmation – Annex II

 

 
 

  

PORTFOLIO CRITERIA

 

The " Portfolio Criteria " are as follows:

 

(i) The Portfolio Notional Amount does not exceed the Maximum Portfolio Notional Amount.

 

(ii) The sum of the Notional Amounts for all Reference Obligations that are Committed Obligations does not exceed 10% of the Portfolio Target Amount.

 

(iii) The sum of the Notional Amounts for all Reference Obligations that are Non-Standard Reference Obligations does not exceed 20% of the Portfolio Target Amount.

 

(iv) The sum of the Notional Amounts for Reference Obligations (other than any Excess Concentration Obligation so long as the sum of the Notional Amounts for Reference Obligations of any single Reference Entity or any of its Affiliates does not exceed 10% of the Portfolio Target Amount) of any single Reference Entity or any of its Affiliates does not exceed 5% of the Portfolio Target Amount.

 

(v) The sum of the Notional Amounts for Reference Obligations (other than any Excess Concentration Obligation) of Reference Entities in any single Moody's Industry Classification Group does not exceed 15% of the Portfolio Target Amount.

 

(vi) After the Ramp-Up Period and prior to the Ramp-Down Period, the Reference Portfolio has a Weighted Average Rating of at most 3,100.For purposes hereof:

 

" Moody's Industry Classification Groups " means each of the categories set forth in Table 1 below.

 

" Weighted Average Rating " means, as of any date of determination, the number obtained by (a) multiplying the Notional Amount of each Reference Obligation by the applicable Rating Factor (as set forth in Table 2 below) for the related Reference Entity; (b) summing the products obtained in clause (a) for all Reference Obligations; and (c) dividing the sum obtained in clause (b) by the aggregate of the Notional Amounts of all Reference Obligations.

 

Confirmation – Annex II

 

 
 

  

TABLE 1

 

MOODY'S INDUSTRY CLASSIFICATION GROUPS

 

Aerospace & Defense
Automotive
Banking, Finance, Insurance and Real Estate
Beverage, Food, & Tobacco
Capital Equipment
Chemicals, Plastics, & Rubber
Construction & Building
Consumer goods: durable
Consumer goods: non-durable
Containers, Packaging, & Glass
Energy: Electricity
Energy: Oil & Gas
Environmental Industries
Forest Products & Paper
Healthcare & Pharmaceuticals
High Tech Industries
Hotel, Gaming, & Leisure
Media: Advertising, Printing & Publishing
Media: Broadcasting & Subscription
Media: Diversified & Production
Metals & Mining
Retail
Services: Business
Services: Consumer
Sovereign & Public Finance
Telecommunications
Transportation: Cargo
Transportation: Consumer
Utilities: Electric
Utilities: Oil & Gas
Utilities: Water
Wholesale

 

Confirmation – Annex II

 

 
 

  

TABLE 2

 

RATING FACTORS

 

Moody's Rating   Rating Factor
Aaa   1
Aa1   10
Aa2   20
Aa3   40
A1   70
A2   120
A3   180
Baa1   260
Baa2   360
Baa3   610
Ba1   940
Ba2   1,350
Ba3   1,766
B1   2,220
B2   2,720
B3   3,490
Caa1   4,770
Caa2   6,500
Caa3   8,070
Below Caa3   10,000

 

Confirmation – Annex II

 

 
 

  

ANNEX III

 

APPROVED BUYERS

 

Bank of America, NA
The Bank of Montreal
The Bank of New York Mellon, N.A.
Barclays Bank plc
BNP Paribas
Citibank, N.A.
Credit Agricole S.A.
Canadian Imperial Bank of Commerce
Credit Suisse
Deutsche Bank AG
Goldman Sachs & Co.
HSBC Bank
JPMorgan Chase Bank, N.A.
Morgan Stanley & Co.
Natixis
Northern Trust Company
Royal Bank of Canada
The Royal Bank of Scotland plc
Scotia Capital
Societe Generale
The Toronto-Dominion Bank
UBS AG
U.S. Bank, National Association
Wells Fargo Bank, National Association

 

Confirmation – Annex III

 

 

Exhibit 21


Subsidiaries of Business Development Corporation of America


Name                                      Domicile
54 th Street Equity Holdings, Inc.                        Delaware
405 TRS I, LLC                                Delaware
BDCA Funding I, LLC                            Delaware
BDCA 2L Funding I, LLC                            Delaware





Exhibit 31.1

I, Nicholas S. Schorsch, certify that:

1.
I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2014 of Business Development Corporation of America;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:
May 15, 2014
/s/ Nicholas S. Schorsch
 
 
Nicholas S. Schorsch
 
 
Chief Executive Officer and
Chairman of the Board of Directors
(Principal Executive Officer)




Exhibit 31.2
 
I, Nicholas Radesca, certify that:

1.
I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2014 of Business Development Corporation of America;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:
May 15, 2014
/s/ Nicholas Radesca
 
 
Nicholas Radesca
Chief Financial Officer, Treasurer and Secretary
(Principal Financial and Accounting Officer)




Exhibit 32
 
SECTION 1350 CERTIFICATIONS
 
This Certificate is being delivered pursuant to the requirements of Section 1350 of Chapter 63 (Mail Fraud) of Title 18 (Crimes and Criminal Procedures) of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed for purposes of Section 18 of the Securities Act of 1934, as amended.
 
The undersigned, who are the Principal Executive Officer and Principal Financial Officer of Business Development Corporation of America (the “Company”), each hereby certify as follows:
 
To the best of his knowledge, the quarterly report of Form 10-Q of the Company, which accompanies this Certificate, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and all information contained in this quarterly report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
Dated this  15 th day of May 2014
 
/s/ Nicholas S. Schorsch
Nicholas S. Schorsch
Chief Executive Officer and Chairman of the Board of Directors
(Principal Executive Officer)
 
/s/ Nicholas Radesca
Nicholas Radesca
Chief Financial Officer, Treasurer and Secretary
(Principal Financial and Accounting Officer)