ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
FRANKLIN BSP CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(dollars in thousands, except share and per share data)
| | | | | | | | | | | |
| September 30, | | December 31, |
| 2023 | | 2022 |
| (Unaudited) | | |
| Assets: | | | |
| Investments, at fair value: | | | |
Control Investments, at fair value (amortized cost of $67,151 and $62,113, respectively) | $ | 67,183 | | | $ | 62,156 | |
| | | |
Non-Affiliate Investments, at fair value (amortized cost of $699,555 and $726,116, respectively) | 691,878 | | | 720,224 | |
Investments, at fair value (amortized cost of $766,706 and $788,229, respectively) | 759,061 | | | 782,380 | |
| Cash and cash equivalents | 70,025 | | | 26,239 | |
| Deferred offering costs | — | | | 100 | |
| Interest and dividends receivable | 9,300 | | | 6,444 | |
| Receivable for unsettled trades | 10,520 | | | 713 | |
| Capital call receivable | 31 | | | 235 | |
| Prepaid expenses and other assets | 1,342 | | | 72 | |
| Due from broker | 8,336 | | | — | |
| Total assets | $ | 858,615 | | | $ | 816,183 | |
| | | |
| Liabilities: | | | |
Debt (net of deferred financing costs of $1,469 and $2,320, respectively) | $ | 342,031 | | | $ | 379,580 | |
| Short-term borrowings | — | | | 20,792 | |
| Secured borrowings | 33,344 | | | — | |
| Stockholder distributions payable | 13 | | | 33 | |
| Management fees payable | 1,079 | | | 1,007 | |
| Accounts payable and accrued expenses | 5,680 | | | 2,583 | |
| | | |
| Interest and debt fees payable | 6,276 | | | 1,407 | |
| Directors' fees payable | 175 | | | 17 | |
| | | |
| Other liabilities | 2,054 | | | 2,250 | |
| Total liabilities | 390,652 | | | 407,669 | |
| Commitments and Contingencies (Note 6) | | | |
| | | |
Redeemable convertible preferred stock Series A, $0.001 par value, 50,000,000 shares authorized; 77,500 issued and outstanding at September 30, 2023 and 36,147 issued and outstanding at December 31, 2022 | 77,393 | | | 36,093 | |
| | | |
| Net Assets attributable to common stock: | | | |
Common stock, $0.001 par value, 450,000,000 shares authorized; 25,862,766 issued and outstanding at September 30, 2023, and 24,609,132 issued and outstanding at December 31, 2022 | 26 | | | 25 | |
| Additional paid in capital | 394,483 | | | 375,557 | |
| Total distributable earnings (loss) | (3,939) | | | (3,161) | |
| Total net assets attributable to common stock | 390,570 | | | 372,421 | |
| Total liabilities, redeemable convertible preferred stock, and net assets attributable to common stock | $ | 858,615 | | | $ | 816,183 | |
| Net asset value per share attributable to common stock | $ | 15.10 | | | $ | 15.13 | |
The accompanying notes are an integral part of these consolidated financial statements.
1
FRANKLIN BSP CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except share and per share data)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended September 30, | | For the nine months ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| Investment income: | | | | | | | |
| From control investments: | | | | | | | |
| Interest income | $ | 1,154 | | | $ | 770 | | | $ | 3,252 | | | $ | 1,966 | |
| Dividend income | 675 | | | 675 | | | 2,025 | | | 2,023 | |
| Fee and other income | 2 | | | 1 | | | 5 | | | 2 | |
| Total investment income from control investments | 1,831 | | | 1,446 | | | 5,282 | | | 3,991 | |
| From affiliate investments: | | | | | | | |
| Interest income | — | | | — | | | — | | | 4 | |
| | | | | | | |
| | | | | | | |
| Total investment income from affiliate investments | — | | | — | | | — | | | 4 | |
| From non-affiliate investments: | | | | | | | |
| Interest income | 21,180 | | | 13,713 | | | 62,655 | | | 31,211 | |
| Dividend income | 34 | | | 34 | | | 101 | | | 34 | |
| Fee and other income | 513 | | | 690 | | | 1,375 | | | 1,134 | |
| Total investment income from non-affiliate investments | 21,727 | | | 14,437 | | | 64,131 | | | 32,379 | |
| Interest from cash and cash equivalents | 732 | | | 66 | | | 1,145 | | | 76 | |
| Total investment income | 24,290 | | | 15,949 | | | 70,558 | | | 36,450 | |
| Operating expenses: | | | | | | | |
| Management fees | 1,079 | | | 919 | | | 3,122 | | | 2,373 | |
| | | | | | | |
| Incentive fee on income | 2,109 | | | 1,285 | | | 5,963 | | | 2,992 | |
| Incentive fee on capital gains | — | | | — | | | — | | | (409) | |
| Interest and debt fees | 7,842 | | | 5,377 | | | 23,445 | | | 10,831 | |
| Professional fees | 493 | | | 494 | | | 1,516 | | | 1,252 | |
| Other general and administrative | 413 | | | 306 | | | 1,325 | | | 938 | |
| Amortization of common stock offering costs | — | | | — | | | — | | | 12 | |
| Administrative services | 48 | | | 51 | | | 197 | | | 155 | |
| Directors' fees | 296 | | | 139 | | | 719 | | | 434 | |
| Total expenses before incentive fee waiver | 12,280 | | | 8,571 | | | 36,287 | | | 18,578 | |
| Incentive fee waiver | (2,109) | | | (1,285) | | | (5,963) | | | (2,583) | |
| Expenses, net of incentive fee waiver | 10,171 | | | 7,286 | | | 30,324 | | | 15,995 | |
| Net investment income (loss) before income taxes | 14,119 | | | 8,663 | | | 40,234 | | | 20,455 | |
| Income tax expense, including excise tax | 50 | | | 89 | | | 468 | | | 503 | |
| | | | | | | |
| Net investment income (loss) | 14,069 | | | 8,574 | | | 39,766 | | | 19,952 | |
| | | | | | | |
| Realized and unrealized gain (loss): | | | | | | | |
| Net realized gain (loss) | | | | | | | |
| | | | | | | |
| | | | | | | |
| Non-affiliate investments | (211) | | | 197 | | | (341) | | | 263 | |
| | | | | | | |
| Total net realized gain (loss) | (211) | | | 197 | | | (341) | | | 263 | |
The accompanying notes are an integral part of these consolidated financial statements.
2
FRANKLIN BSP CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except share and per share data)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended September 30, | | For the nine months ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| Net change in unrealized appreciation (depreciation) on investments | | | | | | | |
| Control investments | (2) | | | 3 | | | (11) | | | 44 | |
| | | | | | | |
| Non-affiliate investments | 1,150 | | | (1,562) | | | (1,785) | | | (6,153) | |
| Net change in deferred taxes | (6) | | | (171) | | | (521) | | | (171) | |
| Total net change in unrealized appreciation (depreciation) on investments | 1,142 | | | (1,730) | | | (2,317) | | | (6,280) | |
| | | | | | | |
| | | | | | | |
| Net realized and unrealized gain (loss) | 931 | | | (1,533) | | | (2,658) | | | (6,017) | |
| | | | | | | |
| Net increase (decrease) in net assets resulting from operations attributable to participating securities | $ | 15,000 | | | $ | 7,041 | | | $ | 37,108 | | | $ | 13,935 | |
| Accretion to redemption value of Series A redeemable convertible preferred stock | (5) | | | (1) | | | (12) | | | (2) | |
| Accrual of Series A redeemable convertible preferred stock distributions | (2,197) | | | (508) | | | (5,417) | | | (859) | |
| Net increase (decrease) in net assets resulting from operations attributable to common stockholders | $ | 12,798 | | | $ | 6,532 | | | $ | 31,679 | | | $ | 13,074 | |
| | | | | | | |
| | | | | | | |
| Per share information | | | | | | | |
| Net investment income (loss) | $ | 0.55 | | | $ | 0.44 | | | $ | 1.57 | | | $ | 1.18 | |
| Net increase (decrease) in net assets resulting from operations attributable to participating securities | $ | 0.58 | | | $ | 0.38 | | | $ | 1.47 | | | $ | 0.82 | |
| Basic and diluted earnings (loss) per share | $ | 0.49 | | | $ | 0.34 | | | $ | 1.21 | | | $ | 0.75 | |
| Weighted average common shares outstanding | 25,739,135 | | | 19,481,677 | | | 25,288,074 | | | 16,953,274 | |
The accompanying notes are an integral part of these consolidated financial statements.
3
FRANKLIN BSP CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
(dollars in thousands, except share and per share data)
(Unaudited)
| | | | | | | | | | | |
| For the nine months ended September 30, |
| 2023 | | 2022 |
| Operations: | | | |
| Net investment income (loss) | $ | 39,766 | | | $ | 19,952 | |
| Net realized gain (loss) from investments | (341) | | | 263 | |
| | | |
| Net change in unrealized appreciation (depreciation) on investments | (1,796) | | | (6,109) | |
| Net change in deferred taxes | (521) | | | (171) | |
| | | |
| Accretion to redemption value of Series A redeemable convertible preferred stock | (12) | | | (2) | |
| Accrual of Series A redeemable convertible preferred stock distributions | (5,417) | | | (859) | |
| Net increase (decrease) in net assets resulting from operations attributable to common stockholders | 31,679 | | | 13,074 | |
| Stockholder distributions: | | | |
| Common stockholder distributions | (32,458) | | | (18,267) | |
| Net decrease in net assets attributable to common stock from stockholder distributions | (32,458) | | | (18,267) | |
| Capital share transactions: | | | |
| Issuance of common stock, net of issuance costs | 9,718 | | 115,000 | |
| Reinvestment of common stockholder distributions | 9,210 | | 5,499 |
| | | |
| Net increase in net assets attributable to common stock from capital share transactions | 18,928 | | 120,499 |
| Total increase (decrease) in net assets attributable to common stock | 18,149 | | 115,306 |
| Net assets at beginning of period attributable to common stock | 372,421 | | | 235,973 | |
| Net assets at end of period attributable to common stock | $ | 390,570 | | | $ | 351,279 | |
| | | |
| Net asset value per share attributable to common stock | $ | 15.10 | | | $ | 15.15 | |
| Common shares outstanding at end of period | 25,862,766 | | | 23,182,891 | |
The accompanying notes are an integral part of these consolidated financial statements.
4
FRANKLIN BSP CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands, except share and per share data)
(Unaudited)
| | | | | | | | | | | |
| For the nine months ended September 30, |
| 2023 | | 2022 |
| Operating activities: | | | |
| Net increase (decrease) in net assets resulting from operations attributable to participating securities | $ | 37,108 | | | $ | 13,935 | |
| Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities: | | | |
| Payment-in-kind interest income | (2,043) | | | (1,131) | |
| Net accretion of discount on investments | (1,351) | | | (828) | |
| Amortization of deferred financing costs | 851 | | | 853 | |
| Amortization of deferred offering costs | — | | | 1 | |
| Accretion of redemption value of Series A redeemable convertible preferred stock | — | | | (2) | |
| Sales and repayments of investments | 71,019 | | | 36,716 | |
| Purchases of investments | (46,408) | | | (262,305) | |
| Net realized (gain) loss from investments | 341 | | | (263) | |
| Net change in unrealized (appreciation) depreciation on investments | 1,796 | | | 6,109 | |
| (Increase) decrease in operating assets: | | | |
| Interest and dividends receivable | (2,856) | | | (4,507) | |
| Receivable for unsettled trades | (9,807) | | | (436) | |
| Prepaid expenses and other assets | (1,270) | | | (50) | |
| Due from broker | (8,336) | | | — | |
| (Increase) decrease in operating liabilities: | | | |
| Management fees payable | 72 | | | 395 | |
| Accounts payable and accrued expenses | 3,097 | | | (289) | |
| Payable for unsettled trades | — | | | (14,835) | |
| Interest and debt fees payable | 4,869 | | | 738 | |
| | | |
| Directors' fees payable | 158 | | | 17 | |
| Other liabilities | (196) | | | (1,008) | |
| Net cash provided by (used in) operating activities | 47,044 | | | (226,890) | |
| | | |
| Financing activities: | | | |
| Secured borrowings | 33,344 | | | — | |
| Proceeds from issuance of shares of common stock | 9,922 | | | 119,069 | |
| Proceeds from issuance of shares of preferred stock | 41,353 | | | 14,978 | |
| | | |
| Proceeds from debt | 32,000 | | | 160,000 | |
| Payments on debt | (70,400) | | | (55,500) | |
| Proceeds from short-term borrowings | 68,583 | | | 168,268 | |
| Repayments on short-term borrowings | (89,375) | | | (150,657) | |
| Payments of financing costs | — | | | (1,149) | |
| Common stockholder distributions | (23,268) | | | (12,768) | |
| Preferred stockholder distributions | (5,417) | | | (859) | |
| Net cash provided by (used in) financing activities | (3,258) | | | 241,382 | |
| Net increase (decrease) in cash and cash equivalents | 43,786 | | | 14,492 | |
| Cash and cash equivalents, beginning of period | 26,239 | | | 12,860 | |
| Cash and cash equivalents, end of period | $ | 70,025 | | | $ | 27,352 | |
The accompanying notes are an integral part of these consolidated financial statements.
5
FRANKLIN BSP CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands, except share and per share data)
(Unaudited)
| | | | | | | | | | | |
| For the nine months ended September 30, |
| 2023 | | 2022 |
| Supplemental information: | | | |
| Interest and non-usage fees paid during the period | $ | 17,306 | | | $ | 9,142 | |
| Taxes, including excise tax, paid during the period | $ | 325 | | | $ | 476 | |
| Distributions reinvested during the period | $ | 9,210 | | | $ | 5,499 | |
The accompanying notes are an integral part of these consolidated financial statements.
6
FRANKLIN BSP CAPITAL CORPORATION
CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands, except share and per share data)
September 30, 2023
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Portfolio Company (f) (g) (l) | | Industry | | Investment Coupon Rate/ Maturity (j) | | Principal/ Numbers of Shares | | Amortized Cost | | Fair Value | | % of Net Assets (b) |
Senior Secured First Lien Debt - 163.0% (b) | | | | | | | | | | | | |
| 1236904 BC, Ltd. (c) (h) | | Software/Services | | S+ 7.50% (12.94%), 3/4/2027 | | $ | 4,183 | | | $ | 4,129 | | | $ | 4,247 | | | 1.1 | % |
| ADCS Clinics Intermediate Holdings, LLC (c) | | Healthcare | | S+ 6.50% (12.07%), 5/7/2026 | | 91 | | | 91 | | | 90 | | | 0.0 | % |
| ADCS Clinics Intermediate Holdings, LLC (c) (h) | | Healthcare | | S+ 6.50% (11.87%), 5/7/2027 | | 5,713 | | | 5,640 | | | 5,634 | | | 1.4 | % |
| ADCS Clinics Intermediate Holdings, LLC (c) (h) | | Healthcare | | S+ 6.50% (11.94%), 5/7/2027 | | 1,171 | | | 1,171 | | | 1,155 | | | 0.3 | % |
| Alera Group Intermediate Holdings, Inc. (c) (h) | | Financials | | S+ 6.50% (11.92%), 10/2/2028 | | 4,583 | | | 4,583 | | | 4,583 | | | 1.2 | % |
| Alera Group Intermediate Holdings, Inc. (c) (h) | | Financials | | S+ 6.50% (11.92%), 10/2/2028 | | 2,873 | | | 2,824 | | | 2,873 | | | 0.7 | % |
| American Rock Salt Company, LLC (h) | | Chemicals | | S+ 4.00% (9.43%), 6/5/2028 | | 2,023 | | | 2,019 | | | 1,868 | | | 0.5 | % |
| Armada Parent, Inc. (c) (h) | | Industrials | | S+ 5.75% (11.27%), 10/29/2027 | | 1,008 | | | 1,008 | | | 992 | | | 0.3 | % |
| Armada Parent, Inc. (c) (h) | | Industrials | | S+ 5.75% (11.27%), 10/29/2027 | | 20,010 | | | 19,708 | | | 19,687 | | | 5.0 | % |
| Avalara, Inc. (c) (h) | | Software/Services | | S+ 7.25% (12.64%), 10/19/2028 | | 19,896 | | | 19,460 | | | 19,476 | | | 5.0 | % |
| Aventine Holdings, LLC (c) | | Media/Entertainment | | 10.25% PIK, 6/18/2027 | | 11,848 | | | 11,661 | | | 11,593 | | | 3.0 | % |
| Aventine Holdings, LLC (c) (h) | | Media/Entertainment | | S+ 6.00% (11.49%) 4.00% PIK, 6/18/2027 | | 4,863 | | | 4,863 | | | 4,799 | | | 1.2 | % |
| Aventine Holdings, LLC (c) (h) | | Media/Entertainment | | S+ 6.00% (11.49%) 4.00% PIK, 6/18/2027 | | 12,282 | | | 12,114 | | | 12,121 | | | 3.1 | % |
| BCPE Oceandrive Buyer, Inc. (c) | | Healthcare | | S+ 6.25% (11.72%) 3.00% PIK, 12/29/2028 | | 796 | | | 796 | | | 759 | | | 0.2 | % |
| BCPE Oceandrive Buyer, Inc. (c) | | Healthcare | | S+ 6.25% (11.68%), 12/29/2028 | | 1,559 | | | 1,559 | | | 1,486 | | | 0.4 | % |
| BCPE Oceandrive Buyer, Inc. (c) (h) | | Healthcare | | S+ 6.25% (11.72%), 3.00% PIK, 12/29/2028 | | 1,567 | | | 1,567 | | | 1,494 | | | 0.4 | % |
| BCPE Oceandrive Buyer, Inc. (c) (h) | | Healthcare | | S+ 6.25% (11.72%) 3.00% PIK, 12/29/2028 | | 9,403 | | | 9,235 | | | 8,965 | | | 2.3 | % |
| Center Phase Energy, LLC (c) (h) | | Utilities | | S+ 7.00% (12.72%), 6/23/2027 | | 11,720 | | | 11,542 | | | 11,522 | | | 3.0 | % |
| Center Phase Energy, LLC (c) (h) | | Utilities | | S+ 7.00% (12.67%), 6/23/2027 | | 253 | | | 253 | | | 248 | | | 0.1 | % |
| Communication Technology Intermediate, LLC (c) | | Business Services | | S+ 5.50% (10.93%), 5/5/2027 | | 86 | | | 86 | | | 86 | | | 0.0 | % |
| Communication Technology Intermediate, LLC (c) (h) | | Business Services | | S+ 5.50% (10.93%), 5/5/2027 | | 7,497 | | | 7,363 | | | 7,497 | | | 1.9 | % |
| Communication Technology Intermediate, LLC (c) (h) | | Business Services | | S+ 5.50% (10.93%), 5/5/2027 | | 2,608 | | | 2,608 | | | 2,608 | | | 0.7 | % |
| Community Brands ParentCo, LLC (c) (h) | | Software/Services | | S+ 5.50% (11.02%), 2/24/2028 | | 9,083 | | | 8,939 | | | 8,919 | | | 2.3 | % |
| Coronis Health, LLC (c) | | Healthcare | | S+ 6.25% (11.27%), 7/12/2028 | | 1,968 | | | 1,968 | | | 1,933 | | | 0.5 | % |
| Coronis Health, LLC (c) (h) | | Healthcare | | S+ 6.25% (11.62%), 7/27/2029 | | 24,116 | | | 23,655 | | | 23,687 | | | 6.1 | % |
| Division Holding Corp. (h) | | Business Services | | S+ 4.75% (10.18%), 5/26/2028 | | 3,713 | | | 3,682 | | | 3,685 | | | 0.9 | % |
| Eliassen Group, LLC (c) | | Business Services | | S+ 5.50% (10.82%), 4/14/2028 | | 456 | | | 456 | | | 452 | | | 0.1 | % |
The accompanying notes are an integral part of these consolidated financial statements.
7
FRANKLIN BSP CAPITAL CORPORATION
CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands, except share and per share data)
September 30, 2023
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Portfolio Company (f) (g) (l) | | Industry | | Investment Coupon Rate/ Maturity (j) | | Principal/ Numbers of Shares | | Amortized Cost | | Fair Value | | % of Net Assets (b) |
| Eliassen Group, LLC (c) (h) | | Business Services | | S+ 5.50% (10.84%), 4/14/2028 | | $ | 5,694 | | | $ | 5,649 | | | $ | 5,644 | | | 1.4 | % |
| Faraday Buyer, LLC (c) | | Utilities | | S+ 7.00% (12.04%), 10/11/2028 | | 960 | | | 960 | | | 936 | | | 0.2 | % |
| Faraday Buyer, LLC (c) (h) | | Utilities | | S+ 7.00% (12.32%), 10/11/2028 | | 12,837 | | | 12,495 | | | 12,514 | | | 3.2 | % |
| FGT Purchaser, LLC (c) (h) | | Consumer | | S+ 5.50% (10.99%), 9/13/2027 | | 9,585 | | | 9,433 | | | 9,585 | | | 2.5 | % |
| FGT Purchaser, LLC (c) (h) | | Consumer | | S+ 5.50% (10.99%), 9/13/2027 | | 800 | | | 800 | | | 800 | | | 0.2 | % |
| First Eagle Holdings, Inc. (c) (h) | | Financials | | S+ 6.50% (11.83%), 3/1/2027 | | 13,860 | | | 13,531 | | | 13,526 | | | 3.5 | % |
| Florida Food Products, LLC (c) (h) | | Food & Beverage | | S+ 5.00% (10.43%), 10/18/2028 | | 12,537 | | | 12,343 | | | 11,754 | | | 3.0 | % |
| FR Flow Control Luxco 1 SARL (c) (h) | | Industrials | | S+ 5.50% (10.93%), 6/28/2026 | | 4,428 | | | 4,395 | | | 4,428 | | | 1.1 | % |
| Galway Borrower, LLC (c) (h) | | Financials | | S+ 5.25% (10.74%), 9/29/2028 | | 125 | | | 125 | | | 122 | | | 0.0 | % |
| Galway Borrower, LLC (c) (h) | | Financials | | S+ 5.25% (10.74%), 9/29/2028 | | 13,438 | | | 13,275 | | | 13,438 | | | 3.4 | % |
| Geosyntec Consultants, Inc. (c) | | Business Services | | S+ 5.25% (10.57%), 5/18/2029 | | 2,755 | | | 2,755 | | | 2,714 | | | 0.7 | % |
| Geosyntec Consultants, Inc. (c) (h) | | Business Services | | S+ 5.25% (10.57%), 5/18/2029 | | 11,436 | | | 11,262 | | | 11,268 | | | 2.9 | % |
| Gordian Medical, Inc. (c) (h) | | Healthcare | | S+ 6.25% (12.15%), 1/31/2027 | | 4,372 | | | 4,295 | | | 3,082 | | | 0.8 | % |
| Green Energy Partners/Stonewall, LLC (c) (h) | | Utilities | | S+ 6.00% (11.65%), 11/12/2026 | | 4,572 | | | 4,510 | | | 4,572 | | | 1.2 | % |
| IG Investments Holdings, LLC (c) (h) | | Business Services | | S+ 6.00% (11.47%), 9/22/2028 | | 7,957 | | | 7,830 | | | 7,884 | | | 2.0 | % |
| IG Investments Holdings, LLC (c) (h) | | Business Services | | S+ 6.00% (11.47%), 9/22/2028 | | 143 | | | 142 | | | 142 | | | 0.0 | % |
| Indigo Buyer, Inc. (c) | | Paper & Packaging | | S+ 6.25% (11.73%), 5/23/2028 | | 256 | | | 256 | | | 252 | | | 0.1 | % |
| Indigo Buyer, Inc. (c) (h) | | Paper & Packaging | | S+ 6.25% (11.73%), 5/23/2028 | | 8,913 | | | 8,769 | | | 8,760 | | | 2.2 | % |
| Indigo Buyer, Inc. (c) (h) | | Paper & Packaging | | S+ 6.25% (11.72%), 5/23/2028 | | 3,812 | | | 3,812 | | | 3,747 | | | 1.0 | % |
| IQN Holding Corp. (c) (h) | | Software/Services | | S+ 5.25% (10.67%), 5/2/2029 | | 5,765 | | | 5,720 | | | 5,718 | | | 1.5 | % |
| Kissner Milling Co., Ltd. | | Industrials | | 4.88%, 5/1/2028 | | 2,275 | | | 2,275 | | | 2,004 | | | 0.5 | % |
| Knowledge Pro Buyer, Inc. (c) | | Business Services | | S+ 5.75% (11.17%), 12/10/2027 | | 1,044 | | | 1,044 | | | 1,044 | | | 0.3 | % |
| Knowledge Pro Buyer, Inc. (c) | | Business Services | | P+ 4.75% (13.25%), 12/10/2027 | | 642 | | | 642 | | | 642 | | | 0.2 | % |
| Knowledge Pro Buyer, Inc. (c) (h) | | Business Services | | S+ 5.75% (11.17%), 12/10/2027 | | 11,036 | | | 10,876 | | | 11,036 | | | 2.8 | % |
| Liquid Tech Solutions Holdings, LLC (c) (h) | | Industrials | | S+ 4.75% (10.26%), 3/20/2028 | | 5,411 | | | 5,392 | | | 5,411 | | | 1.4 | % |
| Medical Management Resource Group, LLC (c) | | Healthcare | | S+ 5.75% (11.27%), 9/30/2026 | | 217 | | | 217 | | | 214 | | | 0.1 | % |
| Medical Management Resource Group, LLC (c) (h) | | Healthcare | | S+ 5.75% (11.21%), 9/30/2027 | | 2,978 | | | 2,978 | | | 2,938 | | | 0.8 | % |
| Medical Management Resource Group, LLC (c) (h) | | Healthcare | | S+ 5.75% (11.27%), 9/30/2027 | | 7,212 | | | 7,108 | | | 7,114 | | | 1.8 | % |
| Mirra-Primeaccess Holdings, LLC (c) | | Healthcare | | S+ 6.50% (11.93%), 7/29/2026 | | 1,286 | | | 1,286 | | | 1,286 | | | 0.3 | % |
| Mirra-Primeaccess Holdings, LLC (c) (h) | | Healthcare | | S+ 6.50% (11.93%), 7/29/2026 | | 21,232 | | | 20,948 | | | 21,232 | | | 5.4 | % |
| Odessa Technologies, Inc. (c) (h) | | Software/Services | | S+ 5.75% (11.17%), 10/19/2027 | | 6,474 | | | 6,380 | | | 6,474 | | | 1.7 | % |
The accompanying notes are an integral part of these consolidated financial statements.
8
FRANKLIN BSP CAPITAL CORPORATION
CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands, except share and per share data)
September 30, 2023
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Portfolio Company (f) (g) (l) | | Industry | | Investment Coupon Rate/ Maturity (j) | | Principal/ Numbers of Shares | | Amortized Cost | | Fair Value | | % of Net Assets (b) |
| Pie Buyer, Inc. (c) | | Food & Beverage | | S+ 5.50% (11.04%), 4/5/2027 | | $ | 587 | | | $ | 587 | | | $ | 587 | | | 0.2 | % |
| Pie Buyer, Inc. (c) | | Food & Beverage | | S+ 5.50% (11.22%), 4/6/2026 | | 235 | | | 235 | | | 235 | | | 0.1 | % |
| Pie Buyer, Inc. (c) (h) | | Food & Beverage | | S+ 5.50% (11.09%), 4/5/2027 | | 11,207 | | | 10,990 | | | 11,207 | | | 2.9 | % |
| Pie Buyer, Inc. (c) (h) | | Food & Beverage | | S+ 5.50% (11.09%), 4/5/2027 | | 2,425 | | | 2,425 | | | 2,425 | | | 0.6 | % |
| Pie Buyer, Inc. (c) (h) | | Food & Beverage | | S+ 5.50% (11.20%), 4/5/2027 | | 830 | | | 818 | | | 830 | | | 0.2 | % |
| Pluralsight, LLC (c) (h) | | Software/Services | | S+ 8.00% (13.45%), 4/6/2027 | | 7,499 | | | 7,397 | | | 7,156 | | | 1.8 | % |
| Pluralsight, LLC (c) (h) | | Software/Services | | S+ 8.00% (13.45%), 4/6/2027 | | 2,680 | | | 2,639 | | | 2,558 | | | 0.7 | % |
| Pluralsight, LLC (c) (h) | | Software/Services | | S+ 8.00% (13.45%), 4/6/2027 | | 400 | | | 400 | | | 382 | | | 0.1 | % |
| Point Broadband Acquisition, LLC (c) | | Telecom | | S+ 6.00% (11.51%), 10/2/2028 | | 3,642 | | | 3,642 | | | 3,642 | | | 0.9 | % |
| Point Broadband Acquisition, LLC (c) (h) | | Telecom | | S+ 6.00% (11.37%), 10/2/2028 | | 8,641 | | | 8,461 | | | 8,641 | | | 2.2 | % |
| Relativity Oda, LLC (c) (h) | | Software/Services | | S+ 6.50% (11.92%), 5/12/2027 | | 2,291 | | | 2,257 | | | 2,291 | | | 0.6 | % |
| Roadsafe Holdings, Inc. (c) (h) | | Industrials | | S+ 5.75% (10.94%), 10/19/2027 | | 3,305 | | | 3,258 | | | 3,305 | | | 0.8 | % |
| Roadsafe Holdings, Inc. (c) (h) | | Industrials | | S+ 5.75% (11.29%), 10/19/2027 | | 4,326 | | | 4,326 | | | 4,326 | | | 1.1 | % |
| RSC Acquisition, Inc. (c) (h) | | Financials | | S+ 5.50% (11.04%), 10/30/2026 | | 2,166 | | | 2,166 | | | 2,166 | | | 0.6 | % |
| RSC Acquisition, Inc. (c) (h) | | Financials | | S+ 5.50% (11.04%), 10/30/2026 | | 6,797 | | | 6,792 | | | 6,797 | | | 1.7 | % |
| Safe Fleet Holdings, LLC (h) | | Industrials | | S+ 5.00% (10.42%), 2/23/2029 | | 5,992 | | | 5,835 | | | 6,007 | | | 1.5 | % |
| Saturn SHC Buyer Holdings, Inc. (c) (h) | | Healthcare | | S+ 6.00% (11.44%), 11/18/2027 | | 16,589 | | | 16,318 | | | 16,589 | | | 4.2 | % |
| Saturn SHC Buyer Holdings, Inc. (c) (h) | | Healthcare | | S+ 6.00% (11.44%), 11/18/2027 | | 14,780 | | | 14,547 | | | 14,780 | | | 3.8 | % |
| SCIH Salt Holdings, Inc. (h) | | Industrials | | S+ 4.00% (9.63%), 3/16/2027 | | 1,089 | | | 1,085 | | | 1,081 | | | 0.3 | % |
| Sherlock Buyer Corp. (c) (h) | | Business Services | | S+ 5.75% (11.24%), 12/8/2028 | | 4,963 | | | 4,879 | | | 4,963 | | | 1.3 | % |
| Simplifi Holdings, Inc. (c) | | Media/Entertainment | | S+ 5.50% (10.68%), 10/1/2026 | | 323 | | | 323 | | | 318 | | | 0.1 | % |
| Simplifi Holdings, Inc. (c) (h) | | Media/Entertainment | | S+ 5.50% (10.68%), 10/1/2027 | | 15,846 | | | 15,593 | | | 15,608 | | | 4.0 | % |
| SitusAMC Holdings Corp. (c) (h) | | Financials | | S+ 5.50% (10.99%), 12/22/2027 | | 6,324 | | | 6,279 | | | 6,324 | | | 1.6 | % |
| Skillsoft Corp. (h) | | Technology | | S+ 5.25% (10.70%), 7/14/2028 | | 586 | | | 580 | | | 551 | | | 0.1 | % |
| Striper Buyer, LLC (c) (h) | | Paper & Packaging | | S+ 5.50% (10.93%), 12/30/2026 | | 4,872 | | | 4,830 | | | 4,872 | | | 1.2 | % |
| SunMed Group Holdings, LLC (c) (h) | | Healthcare | | S+ 5.50% (10.99%), 6/16/2028 | | 3,835 | | | 3,785 | | | 3,778 | | | 1.0 | % |
| The NPD Group, LP (c) | | Business Services | | P+ 4.75% (13.25%), 12/1/2027 | | 170 | | | 170 | | | 167 | | | 0.0 | % |
| The NPD Group, LP (c) (h) | | Business Services | | S+ 6.25% (11.58%) 2.75% PIK, 12/1/2028 | | 17,023 | | | 16,738 | | | 16,767 | | | 4.3 | % |
| Therapy Brands Holdings, LLC (c) (h) | | Healthcare | | S+ 4.00% (9.43%), 5/18/2028 | | 1,797 | | | 1,792 | | | 1,797 | | | 0.5 | % |
| Tivity Health, Inc. (c) (h) | | Healthcare | | S+ 6.00% (11.39%), 6/28/2029 | | 31,860 | | | 31,161 | | | 31,210 | | | 8.0 | % |
The accompanying notes are an integral part of these consolidated financial statements.
9
FRANKLIN BSP CAPITAL CORPORATION
CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands, except share and per share data)
September 30, 2023
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Portfolio Company (f) (g) (l) | | Industry | | Investment Coupon Rate/ Maturity (j) | | Principal/ Numbers of Shares | | Amortized Cost | | Fair Value | | % of Net Assets (b) |
| Trinity Air Consultants Holdings Corp. (c) (h) | | Business Services | | S+ 5.25% (10.78%), 6/29/2027 | | $ | 1,768 | | | $ | 1,768 | | | $ | 1,768 | | | 0.4 | % |
| Trinity Air Consultants Holdings Corp. (c) (h) | | Business Services | | S+ 5.25% (10.62%), 6/29/2027 | | 8,788 | | | 8,671 | | | 8,788 | | | 2.3 | % |
| Triple Lift, Inc. (c) | | Software/Services | | S+ 5.50% (10.95%), 5/5/2028 | | 534 | | | 534 | | | 513 | | | 0.1 | % |
| Triple Lift, Inc. (c) (h) | | Software/Services | | S+ 5.75% (11.30%), 5/5/2028 | | 11,843 | | | 11,671 | | | 11,370 | | | 2.9 | % |
| US Oral Surgery Management Holdco, LLC (c) | | Healthcare | | S+ 6.50% (11.94%), 11/18/2027 | | 1,389 | | | 1,389 | | | 1,376 | | | 0.4 | % |
| US Oral Surgery Management Holdco, LLC (c) (h) | | Healthcare | | S+ 6.00% (11.49%), 11/18/2027 | | 2,176 | | | 2,176 | | | 2,154 | | | 0.6 | % |
| US Oral Surgery Management Holdco, LLC (c) (h) | | Healthcare | | S+ 6.00% (11.48%), 11/18/2027 | | 5,495 | | | 5,385 | | | 5,440 | | | 1.4 | % |
| US Salt Investors, LLC (c) (h) | | Chemicals | | S+ 5.50% (11.04%), 7/19/2028 | | 8,510 | | | 8,379 | | | 8,351 | | | 2.1 | % |
| Vensure Employer Services, Inc. (c) (h) | | Business Services | | S+ 4.75% (10.13%), 4/1/2027 | | 4,748 | | | 4,726 | | | 4,748 | | | 1.2 | % |
| Victors CCC Buyer, LLC (c) (h) | | Business Services | | S+ 5.75% (11.18%), 6/1/2029 | | 7,183 | | | 7,055 | | | 7,062 | | | 1.8 | % |
| West Coast Dental Services, Inc. (c) | | Healthcare | | S+ 5.50% (11.05%), 7/1/2028 | | 499 | | | 499 | | | 491 | | | 0.1 | % |
| West Coast Dental Services, Inc. (c) | | Healthcare | | S+ 5.50% (11.05%), 7/1/2028 | | 724 | | | 724 | | | 714 | | | 0.2 | % |
| West Coast Dental Services, Inc. (c) (h) | | Healthcare | | S+ 5.50% (11.02%), 7/1/2028 | | 8,376 | | | 8,252 | | | 8,254 | | | 2.1 | % |
| Westwood Professional Services, Inc. (c) | | Business Services | | S+ 6.00% (11.42%), 5/26/2026 | | 1,162 | | | 1,162 | | | 1,162 | | | 0.3 | % |
| Westwood Professional Services, Inc. (c) (h) | | Business Services | | S+ 6.00% (11.42%), 5/26/2026 | | 3,651 | | | 3,607 | | | 3,651 | | | 0.9 | % |
| WHCG Purchaser III, Inc. (c) | | Healthcare | | S+ 5.75% (11.40%), 6/22/2028 | | 3,027 | | | 3,027 | | | 2,221 | | | 0.6 | % |
| WHCG Purchaser III, Inc. (c) | | Healthcare | | S+ 5.75% (11.40%), 6/22/2026 | | 1,816 | | | 1,816 | | | 1,466 | | | 0.4 | % |
| WHCG Purchaser III, Inc. (c) (h) | | Healthcare | | S+ 5.75% (11.40%), 6/22/2028 | | 12,458 | | | 12,259 | | | 9,139 | | | 2.3 | % |
| WIN Holdings III Corp. (c) (h) | | Consumer | | S+ 5.25% (10.69%), 7/16/2028 | | 12,513 | | | 12,329 | | | 12,513 | | | 3.2 | % |
| Zendesk, Inc. (c) (m) (n) | | Software/Services | | S+ 6.75% (12.15%) 3.25% PIK, 11/22/2028 | | 21,589 | | | 21,325 | | | 21,218 | | | 5.4 | % |
| Subtotal Senior Secured First Lien Debt | | | | | | | | $ | 641,545 | | | $ | 636,499 | | | 163.0 | % |
| | | | | | | | | | | | |
Senior Secured Second Lien Debt - 13.2% (b) | | | | | | | | | | | | |
| American Rock Salt Company, LLC (h) | | Chemicals | | S+ 7.25% (12.68%), 6/11/2029 | | $ | 6,010 | | | $ | 5,950 | | | $ | 5,334 | | | 1.3 | % |
| ASP LS Acquisition Corp. (c) (h) | | Transportation | | S+ 7.50% (13.40%), 5/7/2029 | | 4,275 | | | 4,264 | | | 3,534 | | | 0.9 | % |
| Corelogic, Inc. (h) | | Business Services | | S+ 6.50% (11.93%), 6/4/2029 | | 4,645 | | | 4,604 | | | 3,894 | | | 1.0 | % |
| Mercury Merger Sub, Inc. (c) (h) | | Business Services | | S+ 6.50% (12.03%), 8/2/2029 | | 6,080 | | | 6,042 | | | 5,886 | | | 1.5 | % |
| Proofpoint, Inc. (c) (h) | | Software/Services | | S+ 6.25% (11.68%), 8/31/2029 | | 3,380 | | | 3,367 | | | 3,380 | | | 0.9 | % |
| RealPage, Inc. (h) | | Software/Services | | S+ 6.50% (11.93%), 4/23/2029 | | 5,445 | | | 5,381 | | | 5,452 | | | 1.4 | % |
| Therapy Brands Holdings, LLC (c) (h) | | Healthcare | | S+ 6.75% (12.18%), 5/18/2029 | | 1,947 | | | 1,935 | | | 1,947 | | | 0.5 | % |
| TRC Cos, Inc. (c) (h) | | Industrials | | S+ 6.75% (12.18%), 12/7/2029 | | 7,045 | | | 6,988 | | | 6,742 | | | 1.7 | % |
The accompanying notes are an integral part of these consolidated financial statements.
10
FRANKLIN BSP CAPITAL CORPORATION
CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands, except share and per share data)
September 30, 2023
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Portfolio Company (f) (g) (l) | | Industry | | Investment Coupon Rate/ Maturity (j) | | Principal/ Numbers of Shares | | Amortized Cost | | Fair Value | | % of Net Assets (b) |
| USIC Holdings, Inc. (c) (h) | | Business Services | | S+ 6.50% (11.93%), 5/14/2029 | | $ | 2,449 | | | $ | 2,428 | | | $ | 2,361 | | | 0.6 | % |
| Victory Buyer, LLC (c) (h) | | Industrials | | S+ 7.00% (12.43%), 11/19/2029 | | 14,304 | | | 14,188 | | | 13,274 | | | 3.4 | % |
| Subtotal Senior Secured Second Lien Debt | | | | | | | | $ | 55,147 | | | $ | 51,804 | | | 13.2 | % |
| | | | | | | | | | | | |
Subordinated Debt - 8.8% (b) | | | | | | | | | | | | |
| Post Road Equipment Finance, LLC (c) (k) (m) (n) | | Financials | | S+ 7.75% (13.06%), 12/31/2028 | | $ | 10,057 | | | $ | 10,057 | | | $ | 10,057 | | | 2.6 | % |
| Post Road Equipment Finance, LLC (c) (k) (m) (n) | | Financials | | S+ 7.75% (13.06%), 12/31/2028 | | 24,500 | | | 24,433 | | | 24,500 | | | 6.2 | % |
| Subtotal Subordinated Debt | | | | | | | | $ | 34,490 | | | $ | 34,557 | | | 8.8 | % |
| | | | | | | | | | | | |
Equity/Other - 9.3% (b) (d) | | | | | | | | | | | | |
| Center Phase Energy, LLC (c) (i) | | Utilities | | | | 1,680 | | | $ | 1,680 | | | $ | 1,742 | | | 0.5 | % |
| Jakks Pacific, Inc. (c) | | Consumer | | | | 783 | | | 23 | | | 116 | | | 0.0 | % |
| Point Broadband Acquisition, LLC (c) (e) (i) | | Telecom | | | | 1,159,828 | | | 1,160 | | | 1,717 | | | 0.4 | % |
| Post Road Equipment Finance, LLC (c) (i) (k) | | Financials | | | | 29,908,561 | | | 32,661 | | | 32,626 | | | 8.4 | % |
| Subtotal Equity/Other | | | | | | | | $ | 35,524 | | | $ | 36,201 | | | 9.3 | % |
| | | | | | | | | | | | |
Total Investments - 194.3% (b) | | | | | | | | $ | 766,706 | | | $ | 759,061 | | | 194.3 | % |
(a) All of the Company's investments, except the investments noted by this footnote, are qualifying assets under Section 55(a) of the Investment Company Act of 1940, as amended (the "1940 Act"). Under the 1940 Act, the Company may not acquire any non-qualifying asset unless, at the time the acquisition is made, qualifying assets represent at least 70% of the Company's total assets. At September 30, 2023, qualifying assets represent 100.0% of the Company's total assets. The significant majority of all investments held are deemed to be illiquid.
(b) Percentages are based on net assets attributable to common stock as of September 30, 2023.
(c) The fair value of investments with respect to securities for which market quotations are not readily available is determined in good faith by the Company's Board of Directors (as defined below) as required by the 1940 Act. Such investments are valued using significant unobservable inputs (see Note 3 to the consolidated financial statements).
(d) All amounts are in thousands except share amounts.
(e) Non-income producing at September 30, 2023.
(f) The Company has various unfunded commitments to portfolio companies. Please refer to Note 6 - Commitments and Contingencies for details of these unfunded commitments.
(g) Unless otherwise indicated, all investments in the consolidated schedules of investments are non-affiliated, non-controlled investments.
(h) The Company's investment or a portion thereof is pledged as collateral under the MS Credit Facility (as defined in Note 5).
(i) Investments are held in the taxable wholly owned, consolidated subsidiary, FBCC EEF Holdings LLC.
(j) The majority of the investments bear interest at a rate that may be determined by reference to Secured Overnight Financing Rate (“SOFR” or “S”), or Prime ("P") and which reset daily, monthly, quarterly, or semiannually. For each, the Company has provided the spread over the relevant reference rate and the current interest rate in effect at September 30, 2023. Certain investments are subject to reference rate floors. For fixed rate loans, a spread above a reference rate is not applicable. For floating rate securities, the all-in rate is disclosed within parentheses.
(k) The provisions of the 1940 Act classify investments based on the level of control that the Company maintains in a particular portfolio company. As defined in the 1940 Act, a company is generally presumed to be “non-controlled” when the Company owns 25% or less of the portfolio company’s outstanding voting securities and/or does not have the power to exercise control over the management or policies of such portfolio company. A company is generally presumed to be “controlled” when the Company owns more than 25% of the portfolio company’s outstanding voting securities and/or has the power to exercise control over the management or policies of such portfolio company. The Company classifies this investment as “controlled”.
(l) Unless otherwise indicated, all securities are restricted securities.
The accompanying notes are an integral part of these consolidated financial statements.
11
FRANKLIN BSP CAPITAL CORPORATION
CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands, except share and per share data)
September 30, 2023
(Unaudited)
(m) The Company’s investment or a portion thereof is held through a total return swap agreement with Nomura Global Financial Products Inc. (“Nomura”).
(n) 60% of the Company’s investment is pledged as collateral under the total return swap agreement with Nomura.
The following table shows the portfolio composition by industry grouping based on fair value at September 30, 2023:
| | | | | | | | | | | | | | |
| | At September 30, 2023 |
| | Investments at Fair Value | | Percentage of Total Portfolio |
| Healthcare | | $ | 182,425 | | | 24.0 | % |
| Financials | | 117,012 | | | 15.4 | % |
| Business Services | | 115,919 | | | 15.3 | % |
| Software/Services | | 99,154 | | | 13.1 | % |
| Industrials | | 67,257 | | | 8.9 | % |
| Media/Entertainment | | 44,439 | | | 5.8 | % |
| Utilities | | 31,534 | | | 4.2 | % |
| Food & Beverage | | 27,038 | | | 3.6 | % |
| Consumer | | 23,014 | | | 3.0 | % |
| Paper & Packaging | | 17,631 | | | 2.3 | % |
| Chemicals | | 15,553 | | | 2.0 | % |
| Telecom | | 14,000 | | | 1.8 | % |
| Transportation | | 3,534 | | | 0.5 | % |
| Technology | | 551 | | | 0.1 | % |
| Total | | $ | 759,061 | | | 100.0 | % |
The accompanying notes are an integral part of these consolidated financial statements.
12
FRANKLIN BSP CAPITAL CORPORATION
CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands, except share and per share data)
December 31, 2022
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Portfolio Company (f) (g) (m) | | Industry | | Investment Coupon Rate/ Maturity (j) | | Principal/ Numbers of Shares | | Amortized Cost | | Fair Value | | % of Net Assets (b) |
Senior Secured First Lien Debt - 178.0% (b) | | | | | | | | | | | | |
| 1236904 BC, Ltd. (c) (h) | | Software/Services | | L+ 7.50% (11.85%), 3/4/2027 | | $ | 4,183 | | | $ | 4,120 | | | $ | 4,247 | | | 1.1 | % |
| Absolute Software Corp. (a) (c) (h) | | Software/Services | | L+ 6.00% (10.73%), 7/1/2027 | | 19,502 | | | 19,197 | | | 19,209 | | | 5.2 | % |
| Acrisure, LLC (h) | | Financials | | L+ 4.25% (8.63%), 2/15/2027 | | 4,582 | | | 4,552 | | | 4,425 | | | 1.2 | % |
| ADCS Clinics Intermediate Holdings, LLC (c) (h) | | Healthcare | | L+ 6.50% (11.43%), 5/7/2027 | | 5,756 | | | 5,667 | | | 5,649 | | | 1.5 | % |
| ADCS Clinics Intermediate Holdings, LLC (c) (h) | | Healthcare | | L+ 6.50% (11.70%), 5/7/2027 | | 1,180 | | | 1,180 | | | 1,158 | | | 0.3 | % |
| Alera Group Intermediate Holdings, Inc. (c) | | Financials | | S+ 6.50% (10.92%), 10/2/2028 | | 3,240 | | | 3,240 | | | 3,179 | | | 0.9 | % |
| Alera Group Intermediate Holdings, Inc. (c) (h) | | Financials | | S+ 6.50% (10.92%), 10/2/2028 | | 2,895 | | | 2,839 | | | 2,840 | | | 0.8 | % |
| American Rock Salt Company, LLC (h) | | Chemicals | | L+ 4.00% (8.38%), 6/9/2028 | | 2,039 | | | 2,034 | | | 1,912 | | | 0.5 | % |
| Armada Parent, Inc. (c) (h) | | Industrials | | L+ 5.75% (10.13%), 10/29/2027 | | 1,016 | | | 1,016 | | | 1,000 | | | 0.3 | % |
| Armada Parent, Inc. (c) (h) | | Industrials | | L+5.75% (10.13%), 10/29/2027 | | 20,162 | | | 19,818 | | | 19,838 | | | 5.3 | % |
| Avalara, Inc. (c) (h) | | Software/Services | | S+ 7.25% (11.83%), 10/19/2028 | | 19,896 | | | 19,409 | | | 19,415 | | | 5.2 | % |
| Aveanna Healthcare, LLC (h) | | Healthcare | | L+ 3.75% (7.77%), 7/17/2028 | | 5,961 | | | 5,937 | | | 4,560 | | | 1.2 | % |
| Aventine Holdings, LLC (c) (h) | | Media/Entertainment | | L+ 6.00% (10.38%) 4.00% PIK, 6/18/2027 | | 4,356 | | | 4,356 | | | 4,299 | | | 1.2 | % |
| Aventine Holdings, LLC (c) | | Media/Entertainment | | 10.25% PIK, 6/18/2027 | | 11,270 | | | 11,052 | | | 11,028 | | | 3.0 | % |
| Aventine Holdings, LLC (c) (h) | | Media/Entertainment | | L+ 6.00% (10.38%) 4.00% PIK, 6/18/2027 | | 11,916 | | | 11,715 | | | 11,760 | | | 3.2 | % |
| BCPE Oceandrive Buyer, Inc. (c) | | Healthcare | | L+ 6.25% (10.67%), 12/29/2028 | | 786 | | | 786 | | | 759 | | | 0.2 | % |
| BCPE Oceandrive Buyer, Inc. (c) (h) | | Healthcare | | L+ 6.25% (10.67%), 12/29/2028 | | 1,547 | | | 1,547 | | | 1,495 | | | 0.4 | % |
| BCPE Oceandrive Buyer, Inc. (c) (h) | | Healthcare | | L+ 6.25% (10.67%), 12/29/2028 | | 9,286 | | | 9,100 | | | 8,969 | | | 2.4 | % |
| BCPE Oceandrive Buyer, Inc. (c) | | Healthcare | | L+ 6.25% (10.99%), 12/30/2026 | | 1,559 | | | 1,559 | | | 1,506 | | | 0.4 | % |
| Center Phase Energy, LLC (c) (h) | | Utilities | | S+ 7.00% (11.98%), 6/23/2027 | | 11,809 | | | 11,591 | | | 11,597 | | | 3.1 | % |
| Communication Technology Intermediate, LLC (c) (h) | | Business Services | | L+ 5.50% (9.88%), 5/5/2027 | | 7,554 | | | 7,417 | | | 7,554 | | | 2.0 | % |
| Communication Technology Intermediate, LLC (c) (h) | | Business Services | | L+ 5.50% (9.88%), 5/5/2027 | | 2,628 | | | 2,628 | | | 2,628 | | | 0.7 | % |
| Communication Technology Intermediate, LLC (c) | | Business Services | | L+ 5.50% (9.88%), 5/5/2027 | | 86 | | | 86 | | | 86 | | | 0.0 | % |
| Community Brands ParentCo, LLC (c) (h) | | Software/Services | | S+ 5.75% (10.17%), 2/24/2028 | | 9,152 | | | 8,987 | | | 8,987 | | | 2.4 | % |
| Coronis Health, LLC (c) (h) | | Healthcare | | S+ 6.25% (10.57%), 7/27/2029 | | 24,299 | | | 23,809 | | | 23,833 | | | 6.4 | % |
| Division Holding Corp. (h) | | Business Services | | L+ 4.75% (9.13%), 5/27/2028 | | 3,742 | | | 3,709 | | | 3,643 | | | 1.0 | % |
| Eliassen Group, LLC (c) | | Business Services | | S+ 5.50% (8.88%), 4/14/2028 | | 217 | | | 217 | | | 215 | | | 0.1 | % |
| Eliassen Group, LLC (c) (h) | | Business Services | | S+ 5.50% (10.08%), 4/14/2028 | | 5,738 | | | 5,685 | | | 5,687 | | | 1.5 | % |
| Faraday Buyer, LLC (c) (h) | | Utilities | | S+ 7.00% (11.32%), 10/11/2028 | | 12,902 | | | 12,521 | | | 12,529 | | | 3.4 | % |
The accompanying notes are an integral part of these consolidated financial statements.
13
FRANKLIN BSP CAPITAL CORPORATION
CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands, except share and per share data)
December 31, 2022
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Portfolio Company (f) (g) (m) | | Industry | | Investment Coupon Rate/ Maturity (j) | | Principal/ Numbers of Shares | | Amortized Cost | | Fair Value | | % of Net Assets (b) |
| FGT Purchaser, LLC (c) (h) | | Consumer | | S+ 5.50% (10.18%), 9/13/2027 | | $ | 9,658 | | | $ | 9,496 | | | $ | 9,658 | | | 2.6 | % |
| FGT Purchaser, LLC (c) | | Consumer | | L+ 5.50% (10.18%), 9/13/2027 | | 371 | | | 371 | | | 371 | | | 0.1 | % |
| First Eagle Holdings, Inc. (c) (h) | | Financials | | S+ 6.50% (10.73%), 3/1/2027 | | 13,860 | | | 13,471 | | | 13,483 | | | 3.6 | % |
| Florida Food Products, LLC (c) (h) | | Food & Beverage | | L+ 5.00% (9.38%), 10/18/2028 | | 12,633 | | | 12,413 | | | 11,938 | | | 3.2 | % |
| FR Flow Control Luxco 1 Sarl (c) (h) | | Industrials | | S+ 5.50% (9.94%), 6/28/2026 | | 4,462 | | | 4,422 | | | 4,462 | | | 1.2 | % |
| Galway Borrower, LLC (c) (h) | | Financials | | L+ 5.25% (9.98%), 9/29/2028 | | 13,541 | | | 13,355 | | | 13,304 | | | 3.6 | % |
| Geosyntec Consultants, Inc. (c) (h) | | Business Services | | S+ 5.25% (9.57%), 5/18/2029 | | 11,523 | | | 11,332 | | | 11,340 | | | 3.0 | % |
| Gordian Medical, Inc. (c) (h) | | Healthcare | | L+ 6.25% (10.98%), 1/31/2027 | | 4,405 | | | 4,314 | | | 4,057 | | | 1.1 | % |
| Green Energy Partners/Stonewall, LLC (c) (h) | | Utilities | | L+ 6.00% (10.73%), 11/12/2026 | | 4,618 | | | 4,543 | | | 4,618 | | | 1.2 | % |
| IG Investments Holdings, LLC (c) (h) | | Business Services | | L+ 6.00% (10.38%), 9/22/2028 | | 8,018 | | | 7,880 | | | 7,945 | | | 2.1 | % |
| IG Investments Holdings, LLC (c) (h) | | Business Services | | L+ 6.00% (10.38%), 9/22/2028 | | 145 | | | 143 | | | 143 | | | 0.0 | % |
| IG Investments Holdings, LLC (c) | | Business Services | | L+ 6.00% (10.39%), 9/22/2027 | | 253 | | | 253 | | | 250 | | | 0.1 | % |
| Indigo Buyer, Inc. (c) (h) | | Paper & Packaging | | S+ 5.75% (10.17%), 5/23/2028 | | 8,981 | | | 8,814 | | | 8,819 | | | 2.4 | % |
| Indigo Buyer, Inc. (c) | | Paper & Packaging | | S+ 5.75% (10.17%), 5/23/2028 | | 256 | | | 256 | | | 251 | | | 0.1 | % |
| IQN Holding Corp. (c) | | Software/Services | | S+ 5.50% (9.68%), 5/2/2029 | | 95 | | | 95 | | | 94 | | | 0.0 | % |
| IQN Holding Corp. (c) (h) | | Software/Services | | P+ 4.50% (12.00%), 5/2/2029 | | 5,460 | | | 5,410 | | | 5,412 | | | 1.5 | % |
| Kissner Milling Co., Ltd. | | Industrials | | 4.88%, 5/1/2028 | | 2,275 | | | 2,275 | | | 1,955 | | | 0.5 | % |
| Knowledge Pro Buyer, Inc. (c) | | Business Services | | L+ 5.75% (10.04%), 12/10/2027 | | 1,052 | | | 1,052 | | | 1,034 | | | 0.3 | % |
| Knowledge Pro Buyer, Inc. (c) (h) | | Business Services | | L+ 5.75% (10.04%), 12/10/2027 | | 11,121 | | | 10,936 | | | 10,926 | | | 2.9 | % |
| Liquid Tech Solutions Holdings, LLC (h) | | Industrials | | L+ 4.75% (8.92%), 3/20/2028 | | 5,452 | | | 5,431 | | | 5,153 | | | 1.4 | % |
| Medical Management Resource Group, LLC (c) (h) | | Healthcare | | L+ 5.75% (9.83%), 9/30/2027 | | 3,001 | | | 3,001 | | | 2,960 | | | 0.8 | % |
| Medical Management Resource Group, LLC (c) (h) | | Healthcare | | L+ 5.75% (10.17%), 9/30/2027 | | 7,267 | | | 7,147 | | | 7,169 | | | 1.9 | % |
| Mirra-Primeaccess Holdings, LLC (c) (h) | | Healthcare | | L+ 6.50% (10.88%), 7/29/2026 | | 21,394 | | | 21,054 | | | 21,394 | | | 5.8 | % |
| Mirra-Primeaccess Holdings, LLC (c) | | Healthcare | | L+ 6.50% (10.57%), 7/29/2026 | | 1,286 | | | 1,286 | | | 1,286 | | | 0.3 | % |
| Monumental RSN, LLC (c) (h) | | Media/Entertainment | | S+ 6.00% (10.32%), 9/20/2027 | | 13,645 | | | 13,512 | | | 13,781 | | | 3.7 | % |
| Odessa Technologies, Inc. (c) (h) | | Software/Services | | L+ 5.75% (10.09%), 10/19/2027 | | 6,524 | | | 6,414 | | | 6,408 | | | 1.7 | % |
| Pie Buyer, Inc. (c) (h) | | Food & Beverage | | L+ 5.50% (8.38%), 4/5/2027 | | 11,293 | | | 11,029 | | | 11,293 | | | 3.0 | % |
| Pie Buyer, Inc. (c) (h) | | Food & Beverage | | L+ 5.50% (9.67%), 4/5/2027 | | 2,443 | | | 2,443 | | | 2,443 | | | 0.7 | % |
| Pie Buyer, Inc. (c) | | Food & Beverage | | L+ 5.50% (10.67%), 4/6/2026 | | 185 | | | 185 | | | 185 | | | 0.0 | % |
| Pie Buyer, Inc. (c) (h) | | Food & Beverage | | S+ 5.50% (8.69%), 4/5/2027 | | 837 | | | 822 | | | 837 | | | 0.2 | % |
| Pluralsight, LLC (c) (h) | | Software/Services | | L+ 8.00% (11.83%), 4/6/2027 | | 7,499 | | | 7,380 | | | 7,375 | | | 2.0 | % |
| Pluralsight, LLC (c) (h) | | Software/Services | | L+ 8.00% (12.75%), 4/6/2027 | | 2,680 | | | 2,635 | | | 2,636 | | | 0.7 | % |
The accompanying notes are an integral part of these consolidated financial statements.
14
FRANKLIN BSP CAPITAL CORPORATION
CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands, except share and per share data)
December 31, 2022
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Portfolio Company (f) (g) (m) | | Industry | | Investment Coupon Rate/ Maturity (j) | | Principal/ Numbers of Shares | | Amortized Cost | | Fair Value | | % of Net Assets (b) |
| Pluralsight, LLC (c) | | Software/Services | | L+ 8.00% (12.75%), 4/6/2027 | | $ | 319 | | | $ | 319 | | | $ | 314 | | | 0.1 | % |
| Point Broadband Acquisition, LLC (c) | | Telecom | | L+ 6.00% (10.56%), 10/2/2028 | | 1,733 | | | 1,733 | | | 1,697 | | | 0.5 | % |
| Point Broadband Acquisition, LLC (c) (h) | | Telecom | | L+ 6.00% (9.75%), 10/2/2028 | | 8,707 | | | 8,514 | | | 8,529 | | | 2.3 | % |
| Relativity Oda, LLC (c) (h) | | Software/Services | | L+ 7.50% (11.89%) PIK, 5/12/2027 | | 2,241 | | | 2,202 | | | 2,168 | | | 0.6 | % |
| Roadsafe Holdings, Inc. (c) (h) | | Industrials | | L+ 5.75% (10.87%), 10/19/2027 | | 3,330 | | | 3,277 | | | 3,276 | | | 0.9 | % |
| Roadsafe Holdings, Inc. (c) | | Industrials | | P+ 4.75% (12.25%), 10/19/2027 | | 2,921 | | | 2,921 | | | 2,873 | | | 0.8 | % |
| RSC Acquisition, Inc. (c) | | Financials | | S+ 5.50% (10.23%), 10/30/2026 | | 638 | | | 638 | | | 638 | | | 0.2 | % |
| RSC Acquisition, Inc. (c) (h) | | Financials | | S+ 5.50% (10.23%), 10/30/2026 | | 6,850 | | | 6,844 | | | 6,850 | | | 1.8 | % |
| Safe Fleet Holdings, LLC (c) (h) | | Industrials | | S+ 5.00% (9.12%), 2/23/2029 | | 6,038 | | | 5,863 | | | 5,856 | | | 1.6 | % |
| Saturn SHC Buyer Holdings, Inc. (c) (h) | | Healthcare | | L+ 6.00% (9.29%), 11/18/2027 | | 16,715 | | | 16,405 | | | 16,715 | | | 4.5 | % |
| Saturn SHC Buyer Holdings, Inc. (c) (h) | | Healthcare | | L+ 6.00% (10.77%), 11/18/2027 | | 14,893 | | | 14,631 | | | 14,893 | | | 4.0 | % |
| SCIH Salt Holdings, Inc. (h) | | Industrials | | L+ 4.00% (8.42%), 3/16/2027 | | 1,099 | | | 1,095 | | | 1,066 | | | 0.3 | % |
| Sherlock Buyer Corp. (c) (h) | | Business Services | | L+ 5.75% (10.48%), 12/8/2028 | | 5,001 | | | 4,906 | | | 4,914 | | | 1.3 | % |
| Simplifi Holdings, Inc. (c) (h) | | Media/Entertainment | | L+ 5.50% (9.25%), 10/1/2027 | | 15,967 | | | 15,694 | | | 15,700 | | | 4.2 | % |
| SitusAMC Holdings Corp. (c) (h) | | Financials | | L+ 5.75% (9.42%), 12/22/2027 | | 6,771 | | | 6,714 | | | 6,771 | | | 1.8 | % |
| Skillsoft Corp. (h) | | Technology | | S+ 5.25% (9.58%), 7/14/2028 | | 591 | | | 583 | | | 490 | | | 0.1 | % |
| Striper Buyer, LLC (c) (h) | | Paper & Packaging | | L+ 5.50% (9.57%), 12/30/2026 | | 4,910 | | | 4,866 | | | 4,910 | | | 1.3 | % |
| SunMed Group Holdings, LLC (c) (h) | | Healthcare | | L+ 5.75% (10.48%), 6/16/2028 | | 3,864 | | | 3,809 | | | 3,806 | | | 1.0 | % |
| SunMed Group Holdings, LLC (c) | | Healthcare | | L+ 5.75% (10.49%), 6/16/2027 | | 124 | | | 124 | | | 123 | | | 0.0 | % |
| Tecta America Corp. (h) | | Industrials | | S+ 4.25% (8.69%), 4/10/2028 | | 3,861 | | | 3,830 | | | 3,697 | | | 1.0 | % |
| The NPD Group, LP (c) (h) | | Business Services | | S+ 5.75% (10.07%) 2.75% PIK, 12/1/2028 | | 16,786 | | | 16,466 | | | 16,472 | | | 4.4 | % |
| The NPD Group, LP (c) | | Business Services | | S+ 5.75% (10.07%) 2.75% PIK, 12/1/2027 | | 113 | | | 113 | | | 111 | | | 0.0 | % |
| Therapy Brands Holdings, LLC (c) (h) | | Healthcare | | L+ 4.00% (8.35%), 5/18/2028 | | 1,811 | | | 1,805 | | | 1,811 | | | 0.5 | % |
| Tivity Health, Inc. (c) (h) | | Healthcare | | S+ 6.00% (10.58%), 6/28/2029 | | 32,102 | | | 31,346 | | | 31,357 | | | 8.4 | % |
| Trinity Air Consultants Holdings Corp. (c) (h) | | Business Services | | L+ 5.25% (10.40%), 6/29/2027 | | 1,651 | | | 1,651 | | | 1,626 | | | 0.5 | % |
| Trinity Air Consultants Holdings Corp. (c) (h) | | Business Services | | L+ 5.25% (10.18%), 6/29/2027 | | 8,788 | | | 8,653 | | | 8,656 | | | 2.3 | % |
| Triple Lift, Inc. (c) (h) | | Software/Services | | S+ 5.50% (10.45%), 5/5/2028 | | 11,934 | | | 11,734 | | | 11,731 | | | 3.1 | % |
| Triple Lift, Inc. (c) | | Software/Services | | S+ 5.25% (9.58%), 5/5/2028 | | 534 | | | 534 | | | 525 | | | 0.1 | % |
| US Oral Surgery Management Holdco, LLC (c) | | Healthcare | | L+ 5.50% (10.72%), 11/18/2027 | | 1,591 | | | 1,591 | | | 1,575 | | | 0.4 | % |
| US Oral Surgery Management Holdco, LLC (c) (h) | | Healthcare | | L+ 6.00% (10.68%), 11/18/2027 | | 5,495 | | | 5,385 | | | 5,440 | | | 1.5 | % |
The accompanying notes are an integral part of these consolidated financial statements.
15
FRANKLIN BSP CAPITAL CORPORATION
CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands, except share and per share data)
December 31, 2022
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Portfolio Company (f) (g) (m) | | Industry | | Investment Coupon Rate/ Maturity (j) | | Principal/ Numbers of Shares | | Amortized Cost | | Fair Value | | % of Net Assets (b) |
| US Salt Investors, LLC (c) (h) | | Chemicals | | L+ 5.50% (9.17%), 7/19/2028 | | $ | 8,575 | | | $ | 8,429 | | | $ | 8,415 | | | 2.3 | % |
| Vensure Employer Services, Inc. (c) (h) | | Business Services | | S+ 4.75% (8.71%), 4/1/2027 | | 4,784 | | | 4,757 | | | 4,784 | | | 1.3 | % |
| Victors CCC Buyer, LLC (c) (h) | | Business Services | | S+ 5.75% (10.69%), 6/1/2029 | | 7,238 | | | 7,101 | | | 7,105 | | | 1.9 | % |
| West Coast Dental Services, Inc. (c) | | Healthcare | | S+ 5.75% (9.99%), 7/1/2028 | | 109 | | | 109 | | | 107 | | | 0.0 | % |
| West Coast Dental Services, Inc. (c) (h) | | Healthcare | | S+ 5.75% (9.99%), 7/1/2028 | | 8,440 | | | 8,300 | | | 8,305 | | | 2.2 | % |
| Westwood Professional Services, Inc. (c) | | Business Services | | L+ 6.00% (9.75%), 5/26/2026 | | 433 | | | 433 | | | 433 | | | 0.1 | % |
| Westwood Professional Services, Inc. (c) (h) | | Business Services | | L+ 6.00% (9.75%), 5/26/2026 | | 3,679 | | | 3,624 | | | 3,679 | | | 1.0 | % |
| WHCG Purchaser III, Inc. (c) (h) | | Healthcare | | L+ 5.75% (9.42%), 6/22/2028 | | 12,554 | | | 12,340 | | | 11,181 | | | 3.0 | % |
| WHCG Purchaser III, Inc. (c) | | Healthcare | | L+ 5.75% (9.42%), 6/22/2028 | | 3,051 | | | 3,051 | | | 2,717 | | | 0.7 | % |
| WHCG Purchaser III, Inc. (c) | | Healthcare | | L+ 5.75% (10.48%), 6/22/2026 | | 715 | | | 715 | | | 654 | | | 0.2 | % |
| WIN Holdings III Corp. (c) (h) | | Consumer | | L+ 5.25% (10.40%), 7/16/2028 | | 13,430 | | | 13,204 | | | 13,218 | | | 3.6 | % |
| Zendesk, Inc. (c) (l) | | Software/Services | | S+ 6.50% (11.04%) 3.50% PIK, 11/22/2028 | | 21,216 | | | 20,792 | | | 20,800 | | | 5.6 | % |
| Subtotal Senior Secured First Lien Debt | | | | | | | | $ | 666,045 | | | $ | 662,975 | | | 178.0 | % |
| | | | | | | | | | | | |
Senior Secured Second Lien Debt - 14.5% (b) | | | | | | | | | | | | |
| American Rock Salt Company, LLC (c) (h) | | Chemicals | | L+ 7.25% (11.63%), 6/11/2029 | | $ | 6,010 | | | $ | 5,950 | | | $ | 5,746 | | | 1.5 | % |
| Asp Ls Acquisition Corp. (c) (h) | | Transportation | | L+ 7.50% (12.23%), 5/7/2029 | | 4,275 | | | 4,263 | | | 3,533 | | | 0.9 | % |
| Corelogic, Inc. (c) (h) | | Business Services | | L+ 6.50% (10.94%), 6/4/2029 | | 4,645 | | | 4,603 | | | 3,976 | | | 1.1 | % |
| Mercury Merger Sub, Inc. (c) (h) | | Business Services | | L+ 6.50% (10.25%), 8/2/2029 | | 6,080 | | | 6,037 | | | 5,885 | | | 1.6 | % |
| Proofpoint, Inc. (h) | | Software/Services | | L+ 6.25% (10.99%), 8/31/2029 | | 3,380 | | | 3,367 | | | 3,234 | | | 0.9 | % |
| RealPage, Inc. (h) | | Software/Services | | L+ 6.50% (10.88%), 4/23/2029 | | 5,445 | | | 5,374 | | | 5,214 | | | 1.4 | % |
| Tecta America Corp. (c) (h) | | Industrials | | S+ 8.50% (12.94%), 4/9/2029 | | 2,155 | | | 2,104 | | | 2,110 | | | 0.6 | % |
| Therapy Brands Holdings, LLC (c) (h) | | Healthcare | | L+ 6.75% (11.10%), 5/18/2029 | | 1,947 | | | 1,935 | | | 1,947 | | | 0.5 | % |
| TRC Cos, Inc. (c) (h) | | Industrials | | L+ 6.75% (11.13%), 12/7/2029 | | 7,045 | | | 6,980 | | | 6,742 | | | 1.8 | % |
| USIC Holdings, Inc. (c) (h) | | Business Services | | L+ 6.50% (10.57%), 5/14/2029 | | 2,449 | | | 2,426 | | | 2,361 | | | 0.6 | % |
| Victory Buyer, LLC (c) (h) | | Industrials | | L+ 7.00% (11.35%), 11/19/2029 | | 14,304 | | | 14,174 | | | 13,274 | | | 3.6 | % |
| Subtotal Senior Secured Second Lien Debt | | | | | | | | $ | 57,213 | | | $ | 54,022 | | | 14.5 | % |
| | | | | | | | | | | | |
Subordinated Debt - 8.5% (b) | | | | | | | | | | | | |
| Post Road Equipment Finance, LLC (c) (k) | | Financials | | L+ 7.75% (11.94%), 12/31/2028 | | $ | 6,914 | | | $ | 6,914 | | | $ | 6,914 | | | 1.9 | % |
| Post Road Equipment Finance, LLC (c) (k) | | Financials | | L+ 7.75% (11.94%), 12/31/2028 | | 24,500 | | | 24,422 | | | 24,500 | | | 6.6 | % |
| Subtotal Subordinated Debt | | | | | | | | $ | 31,336 | | | $ | 31,414 | | | 8.5 | % |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
16
FRANKLIN BSP CAPITAL CORPORATION
CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands, except share and per share data)
December 31, 2022
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Portfolio Company (f) (g) (m) | | Industry | | Investment Coupon Rate/ Maturity (j) | | Principal/ Numbers of Shares | | Amortized Cost | | Fair Value | | % of Net Assets (b) |
Equity/Other - 9.1% (b) (d) | | | | | | | | | | | | |
| Center Phase Energy, LLC (c) (i) | | Utilities | | | | 1,680 | | | $ | 1,680 | | | $ | 1,742 | | | 0.5 | % |
| Jakks Pacific, Inc. (c) | | Consumer | | | | 783 | | | 18 | | | 116 | | | 0.0 | % |
| Point Broadband Acquisition, LLC (c) (e) (i) | | Telecom | | | | 1,159,828 | | | 1,160 | | | 1,369 | | | 0.4 | % |
| Post Road Equipment Finance, LLC (c) (i) (k) | | Financials | | | | 29,908,561 | | | 30,777 | | | 30,742 | | | 8.2 | % |
| Subtotal Equity/Other | | | | | | | | $ | 33,635 | | | $ | 33,969 | | | 9.1 | % |
| | | | | | | | | | | | |
Total Investments - 210.1% (b) | | | | | | | | $ | 788,229 | | | $ | 782,380 | | | 210.1 | % |
(a) All of the Company's investments, except the investments noted by this footnote, are qualifying assets under Section 55(a) of the Investment Company Act of 1940, as amended (the "1940 Act"). Under the 1940 Act, the Company may not acquire any non-qualifying asset unless, at the time the acquisition is made, qualifying assets represent at least 70% of the Company's total assets. At December 31, 2022, qualifying assets represent 97.6% of the Company's total assets. The significant majority of all investments held are deemed to be illiquid.
(b) Percentages are based on net assets attributable to common stock as of December 31, 2022.
(c) The fair value of investments with respect to securities for which market quotations are not readily available is determined in good faith by the Company's Board of Directors (as defined below) as required by the 1940 Act. Such investments are valued using significant unobservable inputs (See Note 3 to the consolidated financial statements).
(d) All amounts are in thousands except share amounts.
(e) Non-income producing at December 31, 2022.
(f) The Company has various unfunded commitments to portfolio companies. Please refer to Note 6 - Commitments and Contingencies for details of these unfunded commitments.
(g) Unless otherwise indicated, all investments in the consolidated schedules of investments are non-affiliated, non-controlled investments.
(h) The Company's investment or a portion thereof is pledged as collateral under the MS Credit Facility (as defined in Note 5).
(i) Investments are held in the taxable wholly owned, consolidated subsidiary, FBCC EEF Holdings LLC.
(j) The majority of the investments bear interest at a rate that may be determined by reference to London Interbank Offered Rate ("LIBOR" or "L"), Secured Overnight Financing Rate (“SOFR” or “S”), or Prime ("P") and which reset daily, monthly, quarterly, or semiannually. For each, the Company has provided the spread over the relevant reference rate and the current interest rate in effect at December 31, 2022. Certain investments are subject to reference rate floors. For fixed rate loans, a spread above a reference rate is not applicable. For floating rate securities, the all-in rate is disclosed within parentheses.
(k) The provisions of the 1940 Act classify investments based on the level of control that the Company maintains in a particular portfolio company. As defined in the 1940 Act, a company is generally presumed to be “non-controlled” when the Company owns 25% or less of the portfolio company’s outstanding voting securities and/or does not have the power to exercise control over the management or policies of such portfolio company. A company is generally presumed to be “controlled” when the Company owns more than 25% of the portfolio company’s outstanding voting securities and/or has the power to exercise control over the management or policies of such portfolio company. The Company classifies this investment as “controlled”.
(l) The Company purchased the investment, pursuant to a repurchase agreement with a rate of 0.22 basis points per day with Macquarie US Trading LLC, dated December 5, 2022 due January 19, 2023.
(m) Unless otherwise indicated, all securities are restricted securities.
The accompanying notes are an integral part of these consolidated financial statements.
17
FRANKLIN BSP CAPITAL CORPORATION
CONSOLIDATED SCHEDULES OF INVESTMENTS
(dollars in thousands, except share and per share data)
December 31, 2022
The following table shows the portfolio composition by industry grouping based on fair value at December 31, 2022:
| | | | | | | | | | | | | | |
| | At December 31, 2022 |
| | Investments at Fair Value | | Percentage of Total Portfolio |
| Healthcare | | $ | 185,426 | | | 23.7 | % |
| Software/Services | | 117,768 | | | 15.1 | % |
| Financials | | 113,646 | | | 14.4 | % |
| Business Services | | 111,454 | | | 14.2 | % |
| Industrials | | 71,302 | | | 9.1 | % |
| Media/Entertainment | | 56,568 | | | 7.2 | % |
| Utilities | | 30,486 | | | 3.9 | % |
| Food & Beverage | | 26,696 | | | 3.4 | % |
| Consumer | | 23,363 | | | 3.0 | % |
| Chemicals | | 16,073 | | | 2.1 | % |
| Paper & Packaging | | 13,980 | | | 1.8 | % |
| Telecom | | 11,595 | | | 1.5 | % |
| Transportation | | 3,533 | | | 0.5 | % |
| Technology | | 490 | | | 0.1 | % |
| Total | | $ | 782,380 | | | 100.0 | % |
The accompanying notes are an integral part of these consolidated financial statements.
18
FRANKLIN BSP CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended September 30, 2023
(Unaudited)
Note 1 - Organization
Franklin BSP Capital Corporation (the “Company”) is an externally managed, non-diversified, closed-end management investment company that has elected to be regulated as a business development company (a “BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”) and has elected to be treated for U.S. federal income tax purposes, and to qualify annually, as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). The Company was formed as a Delaware limited liability company on January 29, 2020 and converted to a Delaware corporation on September 23, 2020 pursuant to which Franklin BSP Capital Corporation succeeded to the business of Franklin BSP Capital L.L.C. The Company commenced investment operations on January 7, 2021.
The Company is managed by Franklin BSP Capital Adviser L.L.C. (the “Adviser”), a Delaware limited liability company and an affiliate of Benefit Street Partners L.L.C. (“Benefit Street Partners” or “BSP”) pursuant to an investment advisory agreement (the “Investment Advisory Agreement”). The Adviser is registered as an investment adviser under the Investment Advisers Act of 1940, as amended. The Adviser oversees the management of the Company’s activities and is responsible for making investment decisions with respect to the Company’s portfolio.
The Company’s investment objective is to generate both current income capital and capital appreciation through debt and equity investments. The Company invests primarily in first and second lien senior secured loans, and to a lesser extent, mezzanine loans, unsecured loans and equity of predominantly private U.S. middle market companies. The Company defines middle market companies as those with EBITDA of between $25 million and $100 million annually, although the Company may invest in larger or smaller companies. The Company also may purchase interests in loans or corporate bonds through secondary market transactions.
The Company is conducting a private placement of shares of its common stock, par value $0.001 per share (the “Common Stock”), to investors in reliance on exemptions from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"). Each investor in the private placement will make a capital commitment (the “Capital Commitments”) to purchase shares of Common Stock pursuant to a subscription agreement (a “Subscription Agreement”). Investors will be required to make capital contributions to purchase shares of Common Stock (the “Drawdown Purchase Price”) each time the Company delivers a drawdown notice (the “Drawdown Notice”), which will be delivered at least ten business days prior to the required funding date, in an aggregate amount not to exceed their respective Capital Commitments.
The Company is also conducting a private placement of shares of its preferred stock designated as series A convertible preferred stock (the “Series A Preferred Stock”) in reliance on exemption from the registration requirements of the Securities Act. See Note 10 - Preferred Stock for the terms of such preferred stock, including liquidation preference, distributions, and rights regarding conversion to shares of Common Stock.
FRANKLIN BSP CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended September 30, 2023
(Unaudited)
Note 2 - Summary of Significant Accounting Policies
Basis of Presentation
The following is a summary of significant accounting policies followed by the Company in the preparation of its consolidated financial statements. The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The consolidated financial statements reflect all adjustments, both normal and recurring which, in the opinion of management, are necessary for the fair presentation of the Company’s results of operations and financial condition for the periods presented. The Company is an investment company and accordingly applies specific accounting and financial reporting requirements under Financial Accounting Standards Codification (“ASC”) Topic 946, Financial Services-Investment Companies (“ASC 946”).
We have also formed and expect to continue to form consolidated subsidiaries (the "Consolidated Holding Companies"). The Company consolidates the following subsidiaries for accounting purposes: FBCC Lending I, LLC and FBCC EEF Holdings LLC. All intercompany balances and transactions have been eliminated in consolidation.
Interim financial statements are prepared in accordance with U.S. GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Regulation S-X, as appropriate. Accordingly, the consolidated financial statements may not include all of the information and notes required by U.S. GAAP for annual consolidated financial statements. U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses during the reported periods. Changes in the economic environment, financial markets, and any other parameters used in determining these estimates could cause actual results to differ materially. The current period’s results of operations will not necessarily be indicative of results that ultimately may be achieved for the fiscal year ending December 31, 2023.
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 and disclosures in these consolidated financial statements. Actual results could differ from those estimates.
Consolidation
As provided under ASC 946, the Company will generally not consolidate its investment in a company other than a substantially or wholly owned investment company or controlled operating company whose business consists of providing services to the Company. Accordingly, the Company consolidated the accounts of the Company's substantially wholly owned subsidiaries in its consolidated financial statements.
Valuation of Portfolio Investments
Portfolio investments are reported on the consolidated statements of assets and liabilities at fair value. The board of directors (the “Board of Directors”) has delegated to the Adviser as valuation designee (the “Valuation Designee”) the responsibility of determining the fair value of the Company’s investment portfolio, subject to oversight of the Board of Directors, pursuant to Rule 2a-5 under the 1940 Act. As such, the Valuation Designee is charged with determining the fair value of the Company’s investment portfolio, subject to oversight of the Board of Directors. On a quarterly basis, the Valuation Designee 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 Valuation Designee 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 Valuation Designee determines whether the quote obtained is readily available according to U.S. GAAP to determine the fair value of the security. If determined to be readily available, the Valuation Designee uses the quote obtained.
FRANKLIN BSP CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended September 30, 2023
(Unaudited)
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 Valuation Designee 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.
With respect to investments for which market quotations are not readily available, the Valuation Designee undertakes a multi-step valuation process each quarter, as described below:
•Each portfolio company or investment will be valued by the Valuation Designee, with assistance from one or more independent valuation firms engaged by the Company's Board of Directors; and
•The independent valuation firm(s) conduct independent appraisals and make an independent assessment of the value of each investment; and
•The Valuation Designee, under the supervision of the Board of Directors, determines the fair value of each investment, in good faith, based on the input of independent valuation firms (to the extent applicable) and the Valuation Designee’s own analysis. The Valuation Designee also has established a Valuation Committee to assist the Valuation Designee in carrying out its designated responsibilities, subject to oversight of the Board of Directors.
Because there is not a readily available market value for most of the investments in its portfolio, the Valuation Designee 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, in accordance with Section 2(a)(9) of the 1940 Act, any person who owns beneficially, either directly or through one or more controlled companies, more than 25% of the outstanding voting securities of a company shall be presumed to control such company. Any person who does not so own more than 25% of the outstanding voting securities of any company shall be presumed not to control such company. Any person who does not so own more than 25% of the outstanding voting securities of any company and/or does not have the power to exercise control over the management or policies of such portfolio company shall be presumed not to control such company. Consistent with the 1940 Act, “Affiliated Investments” are defined as those investments in companies in which the Company owns 5% or more of the outstanding voting securities. Consistent with the 1940 Act, “Non-affiliated Investments” are defined as investments that are neither Control Investments nor Affiliated Investments.
Cash and Cash Equivalents
Cash and cash equivalents include cash held in banks and short-term, liquid investments in a money market deposit account. Cash and cash equivalents are carried at cost which approximates fair value.
FRANKLIN BSP CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended September 30, 2023
(Unaudited)
Organization and Offering Costs
Organization costs consist of costs incurred to establish the Company and enable it legally to do business. Organization costs are expensed as incurred. Offering costs consist of costs incurred in connection with the offering of common shares of the Company. Offering costs are capitalized as a deferred charge and amortized to expense on a straight-line basis over 12 months from the commencement of operations.
The Company will bear the organization and offering expenses incurred in connection with the formation of the Company and the offering of shares of its Common Stock, including the out-of-pocket expenses of the Adviser and its agents and affiliates. In addition, the Company will reimburse the Adviser for the organization and offering costs it incurs on the Company’s behalf. If actual organization and offering costs incurred exceed the greater of $1 million or 0.10% of the Company’s total capital commitments, the Adviser or its affiliate will bear the excess costs. To the extent the Company’s capital commitments later increase, the Adviser or its affiliates may be reimbursed for past payments of excess organization and offering costs made on the Company’s behalf provided that the total organization and offering costs borne by the Company do not exceed 0.10% of total capital commitments and provided further that the Adviser or its affiliates may not be reimbursed for payment of excess organization and offering expenses that were incurred more than three years prior to the proposed reimbursement. For the three and nine months ended September 30, 2023 and 2022, respectively, there were no reimbursements from the Adviser.
In connection with the Company’s private placement of shares of its Series A Preferred Stock, the Company incurred various offering costs. These costs are capitalized as a deferred cost and included within redeemable convertible preferred stock Series A on the consolidated statement of assets and liabilities as the preferred shares are issued. The costs are not subject to reimbursement from the Adviser.
Deferred Financing Costs
Financing costs incurred in connection with the Company’s revolving credit facilities are capitalized and amortized into expense using the straight-line method, which approximates the effective yield method over the life of the respective facility. See Note 5 - Borrowings.
Convertible Preferred Stock
We record shares of convertible preferred stock based on proceeds received net of offering costs on the date of issuance. Redeemable preferred stock (including preferred stock that features redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control) is classified as temporary equity and is reported separately from liabilities and net assets attributable to common stock within the consolidated statements of assets and liabilities.
Distributions
The Company’s Board of Directors authorizes and declares cash distributions payable on a quarterly basis to stockholders of record on each record date. The amount of each such distribution is subject to the discretion of the Board of Directors and applicable legal restrictions related to the payment of distributions. The Company calculates each stockholder’s specific distribution amount for the quarter using record and declaration dates. 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 advances from the Adviser that are subject to reimbursement, as well as offering proceeds, borrowings, net investment income from operations, capital gain proceeds from the sale of assets, and non-capital gain proceeds from the sale of assets. The Company has not established limits on the amount of funds it may use from available sources to make distributions. See Note 13 - Income Tax Information and Distributions to Stockholders for additional information.
FRANKLIN BSP CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended September 30, 2023
(Unaudited)
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. Discount and premium 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 discount and amortization of premium on investments.
Dividend Income
Dividend income on preferred equity investments is recorded on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity investments is recorded on the record date for private portfolio companies and on the ex-dividend date for publicly traded portfolio companies.
Fee Income
Fee income, such as structuring fees, origination, closing, amendment fees, commitment, termination, and other upfront fees are generally non-recurring and are recognized as income when earned, either upon receipt or amortized into income. Upon the re-payment of a loan or debt security, any prepayment penalties and unamortized loan origination, structuring, closing, commitment, and other upfront fees are recorded as income.
Payment-in-Kind Interest
The Company may hold debt investments in its portfolio that contain payment-in-kind (“PIK”) interest and dividend provisions. PIK interest, which represents contractually deferred interest that add to the investment balance that is generally due at maturity, is recorded on the accrual basis to the extent such amounts are expected to be collected.
Non-accrual Income
Investments may be placed on non-accrual status when principal or interest payments are past due and/or when there is reasonable doubt that principal or interest will be collected. Accrued interest, which may include 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 Gain or Loss and Net Change in Unrealized Appreciation or Depreciation
Gain or loss on the sale of investments is calculated using the specific identification method. The Company measures realized gain or loss 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. 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 a gain or loss is realized.
Income Taxes
The Company has elected to be treated for federal income tax purposes as a RIC under Subchapter M of the Code. Generally, a RIC is not subject to federal income taxes in respect of each taxable year if it distributes dividends for federal income tax purposes to stockholders of an amount generally equal to at least 90% of “investment company taxable income,” as defined in the Code, and determined without regard to any deduction for dividends paid. Distributions declared prior to the filing of the previous year's tax return and paid up to twelve months after the previous tax year can be carried back to the prior tax year in determining the distributions paid in such tax year. The Company intends to make sufficient distributions to maintain its ability to be subject to be taxed as a RIC each year. The Company may be subject to federal excise tax imposed at a rate of 4% on certain undistributed amounts.
FRANKLIN BSP CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended September 30, 2023
(Unaudited)
The Company evaluates tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether it is “more-likely-than-not” (i.e., greater than 50-percent) that each tax position will be sustained upon examination by a taxing authority based on the technical merits of the position. Tax positions not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. The Company did not record any tax provision in the current period. However, management’s conclusions regarding tax positions taken may be subject to review and adjustment at a later date based on factors including, but not limited to, examination by tax authorities on-going analysis of and changes to tax laws, regulations and interpretations thereof. See Note 13 - Income Tax Information and Distributions to Stockholders for additional information.
Note 3 - Fair Value of Financial Instruments
The Company’s fair value measurements are classified into a fair value hierarchy in accordance with ASC Topic 820 (“ASC 820”), Fair Value Measurement, based on the markets in which the assets and liabilities are traded, and the reliability of the assumptions used to determine 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.
For investments for which Level 1 inputs, such as quoted prices, were not available at September 30, 2023 and December 31, 2022, 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 September 30, 2023 and December 31, 2022 may differ materially from values that would have been used had a ready market for the securities existed.
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 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 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 readily available according to U.S. GAAP to determine the fair value of the security. If determined readily available, the Company uses the quote obtained.
FRANKLIN BSP CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended September 30, 2023
(Unaudited)
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 Valuation Designee 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.
As part of the Company's quarterly valuation process, the Valuation Designee may be assisted by one or more independent valuation firms. The Valuation Designee under the supervision of the Board of Directors determines the fair value of each investment, in good faith, based on the input of the independent valuation firm(s) (to the extent applicable) and the Valuation Designee’s own analysis.
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.
For discussion of the fair value measurement of the Company's borrowings, refer to Note 5 - Borrowings.
The following table presents fair value measurements of investments, by major class, as of September 30, 2023, according to the fair value hierarchy:
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurements |
| Level 1 | | Level 2 | | Level 3 | | Total |
| Senior Secured First Lien Debt | $ | — | | | $ | 15,196 | | | $ | 621,303 | | | $ | 636,499 | |
| Senior Secured Second Lien Debt | — | | | 14,680 | | | 37,124 | | | 51,804 | |
| Subordinated Debt | — | | | — | | | 34,557 | | | 34,557 | |
| Equity/Other | — | | | — | | | 36,201 | | | 36,201 | |
| Total | $ | — | | | $ | 29,876 | | | $ | 729,185 | | | $ | 759,061 | |
The following table presents fair value measurements of investments, by major class, as of December 31, 2022, according to the fair value hierarchy:
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurements |
| Level 1 | | Level 2 | | Level 3 | | Total |
| Senior Secured First Lien Debt | $ | — | | | $ | 26,901 | | | $ | 636,074 | | | $ | 662,975 | |
| Senior Secured Second Lien Debt | — | | | 8,447 | | | 45,575 | | | 54,022 | |
| Subordinated Debt | — | | | — | | | 31,414 | | | 31,414 | |
| Equity/Other | — | | | — | | | 33,969 | | | 33,969 | |
| Total | $ | — | | | $ | 35,348 | | | $ | 747,032 | | | $ | 782,380 | |
FRANKLIN BSP CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended September 30, 2023
(Unaudited)
The following table provides a reconciliation of the beginning and ending balances for investments that use Level 3 inputs for the nine months ended September 30, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Senior Secured First Lien Debt | | Senior Secured Second Lien Debt | | Subordinated Debt | | Equity/Other | | Total |
| Balance as of January 1, 2023 | $ | 636,074 | | | $ | 45,575 | | | $ | 31,414 | | | $ | 33,969 | | | $ | 747,032 | |
| Purchases and other adjustments to cost | 43,785 | | | 28 | | | 4,097 | | | 1,888 | | | 49,798 | |
| Sales and repayments | (54,340) | | | (2,155) | | | (943) | | | — | | | (57,438) | |
| Net realized gain (loss) | 458 | | | 54 | | | — | | | — | | | 512 | |
| Transfers in | 5,153 | | | 3,234 | | | — | | | — | | | 8,387 | |
| Transfers out | (5,857) | | | (9,722) | | | — | | | — | | | (15,579) | |
| Net change in unrealized appreciation (depreciation) on investments | (3,970) | | | 110 | | | (11) | | | 344 | | | (3,527) | |
| Balance as of September 30, 2023 | $ | 621,303 | | | $ | 37,124 | | | $ | 34,557 | | | $ | 36,201 | | | $ | 729,185 | |
Net change in unrealized appreciation (depreciation) for the period relating to those Level 3 assets that were still held by the Company at the end of the year: | $ | (3,693) | | | $ | 115 | | | $ | (11) | | | $ | 344 | | | $ | (3,245) | |
For the nine months ended September 30, 2023, transfers from Level 2 to Level 3 were due to current assessments of investment liquidity and a decrease in the number of observable market inputs. For the nine months ended September 30, 2023, transfers from Level 3 to Level 2 were due to an increase in the number of observable market inputs.
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, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Senior Secured First Lien Debt | | Senior Secured Second Lien Debt | | Subordinated Debt | | Equity/Other | | Total |
| Balance as of January 1, 2022 | $ | 358,083 | | | $ | 42,360 | | | $ | 24,412 | | | $ | 31,813 | | | $ | 456,668 | |
| Purchases and other adjustments to cost | 317,946 | | | 3,941 | | | 6,924 | | | 1,891 | | | 330,702 | |
| Sales and repayments | (54,420) | | | — | | | — | | | 35 | | | (54,385) | |
| Net realized gain (loss) | 426 | | | — | | | — | | | — | | | 426 | |
| Transfers in | 21,533 | | | 11,641 | | | — | | | — | | | 33,174 | |
| Transfers out | (5,508) | | | (9,170) | | | — | | | — | | | (14,678) | |
| Net change in unrealized appreciation (depreciation) on investments | (1,986) | | | (3,197) | | | 78 | | | 230 | | | (4,875) | |
| Balance as of December 31, 2022 | $ | 636,074 | | | $ | 45,575 | | | $ | 31,414 | | | $ | 33,969 | | | $ | 747,032 | |
| Net change in unrealized appreciation (depreciation) for the period relating to those Level 3 assets that were still held by the Company at the end of the year: | $ | (1,978) | | | $ | (3,197) | | | $ | 78 | | | $ | 230 | | | $ | (4,867) | |
For the year ended December 31, 2022, transfers from Level 2 to Level 3 were due to current assessments of investment liquidity and a decrease in the number of observable market inputs. For the year ended December 31, 2022, transfers from Level 3 to Level 2 were due to an increase in the number of observable market inputs.
FRANKLIN BSP CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended September 30, 2023
(Unaudited)
The composition of the Company’s investments as of September 30, 2023, at amortized cost and fair value, were as follows:
| | | | | | | | | | | | | | | | | |
| Investments at Amortized Cost | | Investments at Fair Value | | Fair Value
Percentage of
Total Portfolio |
| Senior Secured First Lien Debt | $ | 641,545 | | | $ | 636,499 | | | 83.9 | % |
| Senior Secured Second Lien Debt | 55,147 | | | 51,804 | | | 6.8 | |
| Subordinated Debt | 34,490 | | | 34,557 | | | 4.5 | |
| Equity/Other | 35,524 | | | 36,201 | | | 4.8 | |
| Total | $ | 766,706 | | | $ | 759,061 | | | 100.0 | % |
The composition of the Company’s investments as of December 31, 2022, at amortized cost and fair value, were as follows:
| | | | | | | | | | | | | | | | | |
| Investments at Amortized Cost | | Investments at Fair Value | | Fair Value
Percentage of
Total Portfolio |
| Senior Secured First Lien Debt | $ | 666,045 | | | $ | 662,975 | | | 84.8 | % |
| Senior Secured Second Lien Debt | 57,213 | | | 54,022 | | | 6.9 | |
| Subordinated Debt | 31,336 | | | 31,414 | | | 4.0 | |
| Equity/Other | 33,635 | | | 33,969 | | | 4.3 | |
| Total | $ | 788,229 | | | $ | 782,380 | | | 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 September 30, 2023. 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 | | $ | 621,303 | | | Yield Analysis | | Market Yield | | 9.36% | | 26.35% | | 11.31% |
| Senior Secured Second Lien Debt | | 37,124 | | | Yield Analysis | | Market Yield | | 11.42% | | 21.50% | | 14.77% |
| Subordinated Debt | | 34,557 | | | Waterfall Analysis | | EBITDA Multiple | | 1.78x | | 1.78x | | 1.78x |
| Equity/Other | | 36,085 | | | Waterfall Analysis | | EBITDA Multiple | | 1.76x | | 23.00x | | 3.31x |
Equity/Other (b) | | 116 | | | Yield Analysis | | Market Yield | | 13.50% | | 13.50% | | 13.50% |
| Total | | $ | 729,185 | | | | | | | | | | | |
______________
(a) Weighted averages are calculated based on fair value of investments.
(b) This asset category contains one investment.
FRANKLIN BSP CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended September 30, 2023
(Unaudited)
The following table summarizes the significant unobservable inputs used to value the majority of the Level 3 investments as of December 31, 2022. 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 | | $ | 636,074 | | | Yield Analysis | | Market Yield | | 8.57% | | 13.33% | | 10.57% |
| Senior Secured Second Lien Debt | | 45,575 | | | Yield Analysis | | Market Yield | | 12.20% | | 19.80% | | 14.82% |
| Subordinated Debt | | 31,414 | | | Waterfall Analysis | | Tangible Net Asset Value Multiple | | 1.87x | | 1.87x | | 1.87x |
Equity/Other (b) | | 30,742 | | | Waterfall Analysis | | Tangible Net Asset Value Multiple | | 1.87x | | 1.87x | | 1.87x |
| Equity/Other | | 3,111 | | | Waterfall Analysis | | EBITDA Multiple | | 14.25x | | 20.75x | | 17.11x |
Equity/Other (b) | | 116 | | | Yield Analysis | | Market Yield | | 13.00% | | 13.00% | | 13.00% |
| Total | | $ | 747,032 | | | | | | | | | | | |
______________
(a) Weighted averages are calculated based on fair value of investments.
(b) This asset category contains one investment.
Level 3 inputs to the valuation methodology are unobservable and significant to overall fair value measurement. The inputs into the determination of fair value require significant management judgment or estimation. Financial instruments that are included in this category include investments in privately held entities where the fair value is based on unobservable inputs.
The income and market approaches were used in the determination of fair value of certain Level 3 assets as of September 30, 2023 and December 31, 2022. The significant unobservable inputs used in the income approach are the discount rate or market yield used to discount the estimated future cash flows expected to be received from the underlying investment, which include both future principal and interest payments. An increase in the discount rate or market yield would result in a decrease in the fair value. Included in the consideration and selection of discount rates is risk of default, rating of the investment, call provisions and comparable company investments. The significant unobservable inputs used in the market approach are based on market comparable transactions and market multiples of publicly traded comparable companies. Increases or decreases in market comparable transactions or market multiples would result in an increase or decrease, respectively, in the fair value.
Valuations of loans, corporate debt, and other debt obligations are generally based on discounted cash flow techniques, for which the significant inputs are the amount and timing of expected future cash flows, market yields and recovery assumptions. The significant inputs are generally determined based on relative value analysis, which incorporate comparisons to other debt instruments for which observable prices or broker quotes are available. Other valuation methodologies are used as appropriate including market comparables, transactions in similar instruments and recovery/liquidation analysis. The Company also considers the use of EBITDA multiples, revenue multiples, tangible net asset value multiples, TBV multiples, and other relevant multiples on its debt and equity investments to determine any credit gains or losses in certain instances. Increases or decreases in either of these inputs in isolation may result in a significantly lower or higher fair value measurement of the respective subject instrument.
As of September 30, 2023 and December 31, 2022, the Company had no portfolio companies on non-accrual status, respectively. Refer to Note 2 - Summary of Significant Accounting Policies - for additional details regarding the Company’s non-accrual policy.
FRANKLIN BSP CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended September 30, 2023
(Unaudited)
Note 4 - Related Party Transactions
Investment Advisory Agreement
The Company entered into an Investment Advisory Agreement with the Adviser pursuant to which the Adviser, subject to the overall supervision of the Company’s Board of Directors, manages the day-to-day operations of, and provides investment advisory services to the Company. The Investment Advisory Agreement was approved by the Board of Directors and the sole stockholder for an initial two year term on September 23, 2020. The Board of Directors most recently renewed the Investment Advisory Agreement on January 30, 2023.
Pursuant to the Investment Advisory Agreement, the Company pays the Adviser a fee for investment advisory and management services consisting of two components - a base management fee (the “Management Fee”) and an incentive fee, which consists of two components (together, the “Incentive Fee”).
Management Fee
The Management Fee is payable quarterly in arrears and is calculated based on the average value of the Company’s gross assets at the end of the two most recently completed calendar quarters, where gross assets includes the total assets of the Company, including any borrowings for investment purposes.
Prior to a liquidity event, the Management Fee payable under the Investment Advisory Agreement will be calculated at an annual rate of 0.5% of the Company’s average gross assets. A “1iquidity event” is defined as any of: (1) a merger or another transaction approved by the Board of Directors in which the Company’s stockholders will receive cash or shares of a publicly traded company (or a company that becomes publicly traded concurrently with the closing of such transaction), which may include an entity advised by the Adviser or its affiliates, (2) an initial public offering (“IPO”) or a listing (an “Exchange Listing”) of the Common Stock on a national securities exchange, or (3) the sale of all or substantially all of the Company’s assets either on a complete portfolio basis or individually followed by a liquidation.
After a liquidity event, the Management Fee payable under the Investment Advisory Agreement will be calculated at an annual rate of 1.50% of the Company’s average gross assets, provided, that the Management Fee will be calculated at an annual rate of 1.00% of the Company’s average gross assets purchased with borrowed funds above 1.0x debt-to-equity (equivalent to $1 of debt outstanding for each $1 of equity), and provided further that for a period of 15 months commencing on the date of the closing of a liquidity event, the Adviser will irrevocably waive Management Fees in excess of 0.5% of the Company’s average gross assets. Any fees waived under the Investment Advisory Agreement are not subject to reimbursement to the Adviser.
As of September 30, 2023 and December 31, 2022, $1.1 million and $1.0 million was payable to the Adviser for Management Fees, respectively.
For the three and nine months ended September 30, 2023, the Company incurred $1.1 million and $3.1 million, respectively, in Management Fees under the Investment Advisory Agreement. For the three and nine months ended September 30, 2022, the Company incurred $0.9 million and $2.4 million, respectively, in Management Fees under the Investment Advisory Agreement.
Incentive Fee
The Company will also pay the Adviser an Incentive Fee consisting of two parts, which are described below. Notwithstanding anything herein to the contrary, the Adviser will waive all Incentive Fees for the first twelve calendar quarters of operations of the Company.
The incentive fee consists of two parts. The first part is referred to as the “incentive fee on income” and it is calculated and payable quarterly in arrears based on the Company’s “Pre-Incentive Fee Net Investment Income” for the immediately preceding quarter.
FRANKLIN BSP CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended September 30, 2023
(Unaudited)
“Pre-Incentive Fee Net Investment Income” means interest income, dividend income and any other income (including any other fees, other than fees for providing managerial assistance, such as commitment, origination, structuring, diligence and consulting fees or other fees that the Company receives from portfolio companies) accrued during the calendar quarter, minus the Company’s operating expenses for the quarter (including the Management Fee, expenses payable under the Administration Agreement (as defined below) and any interest expense and dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-Incentive Fee Net Investment Income includes, in the case of investments with a deferred interest feature (such as original issue discount debt instruments with PIK interest and zero coupon securities), accrued income that the Company has not yet received in cash. Pre-Incentive Fee Net Investment Income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation. For purposes of computing the Company’s Pre-Incentive Fee Net Investment Income, the calculation methodology will look through total return swaps as if the Company owned the referenced assets directly.
For periods ending on or prior to the date of the closing of a liquidity event, the incentive fee on income with respect to the Company’s Pre-Incentive Fee Net Investment Income will be calculated as follows:
•No incentive fee on income in any calendar quarter in which the Company’s Pre-Incentive Fee Net Investment Income does not exceed the preferred return rate of 1.50%, or 6.00% annualized (the “Preferred Return”), on net assets;
•100% of Pre-Incentive Fee Net Investment Income, if any, that exceeds the Preferred Return but is less than or equal to 1.765% in any calendar quarter (7.06% annualized). This portion of the incentive fee on income is referred to as the “catch up” and is intended to provide the Adviser with an incentive fee of 15% on all of the Company’s Pre-Incentive Fee Net Investment Income when the Company’s Pre-Incentive Fee Net Investment Income reaches 1.765% (7.06% annualized) in any calendar quarter; and
•For any quarter in which Pre-Incentive Fee Net Investment Income exceeds 1.765% (7.06% annualized), the incentive fee on income equals 15% of the amount of Pre-Incentive Fee Net Investment Income, as the Preferred Return and catch-up will have been achieved.
For any period ending after the closing of a liquidity event, the incentive fee on income for each quarter will be calculated as follows:
•No incentive fee on income in any calendar quarter in which Pre-Incentive Fee Net Investment Income does not exceed the Preferred Return of 1.50%, or 6.00% annualized, on net assets;
•100% of Pre-Incentive Fee Net Investment Income, if any, that exceeds the Preferred Return but is less than or equal to 1.8175% in any calendar quarter (7.27% annualized), which portion of the incentive fee on income is referred to as the “catch up” and is intended to provide the Adviser with an incentive fee of 17.5% on all of Pre-Incentive Fee Net Investment Income when Pre-Incentive Fee Net Investment Income reaches 1.8175% (7.27% annualized) in any calendar quarter; and
•For any quarter in which Pre-Incentive Fee Net Investment Income exceeds 1.8175% (7.27% annualized), the incentive fee on income equals 17.5% of the amount of Pre-Incentive Fee Net Investment Income, as the Preferred Return and catch-up will have been achieved.
Notwithstanding the foregoing, for a period of 15 months commencing on the date of the closing of a liquidity event, the Adviser will irrevocably waive any incentive fee on income otherwise payable in excess of any amounts calculated at the pre-IPO or pre-Exchange Listing rates. Any fees waived under the Investment Advisory Agreement are not subject to reimbursement to the Adviser. For the three and nine months ended September 30, 2023, the Company incurred $2.1 million and $6.0 million, respectively, in incentive fees on income, none of which was payable to the Adviser under the Investment Advisory Agreement. For the three and nine months ended September 30, 2022, the Company incurred $1.3 million and $3.0 million, respectively, in incentive fees on income, none of which was payable to the Adviser under the Investment Advisory Agreement.
FRANKLIN BSP CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended September 30, 2023
(Unaudited)
The second part of the incentive fee, referred to as the “incentive fee on capital gains during operations,” is an incentive fee on capital gains earned on cumulative realized capital gains of the Company net of cumulative realized capital losses and unrealized capital depreciation and is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement, if earlier). Prior to a liquidity event, this fee equals 15% of the Company’s incentive fee capital gains, which equals realized capital gains of the Company on a cumulative basis from the date of the Company’s election to be regulated as a BDC, 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 incentive fee on capital gains during operations. Following a liquidity event, the incentive fee on capital gains during operations equals 17.5% of the Company’s incentive fee capital gains calculated as described above, on a cumulative basis from the date of the Company’s election to be regulated as a BDC.
U.S. GAAP requires that the incentive fee accrual be calculated assuming a hypothetical liquidation of the Company based upon investments held at the end of each period. In such a calculation, in order to calculate the accrual for the capital gains incentive fee in accordance with U.S. GAAP for a given period, the Company includes unrealized appreciation in calculating the accrual for the capital gains incentive fee even though such unrealized appreciation is not included in in calculating the capital gains incentive fee payable under the Investment Advisory Agreement. There can be no assurance that such unrealized appreciation will be realized in the future. Accordingly, the accrual for the capital gains incentive fee, as calculated and accrued in accordance with U.S. GAAP, does not necessarily represent amounts that will be payable under the Investment Advisory Agreement.
For the three and nine months ended September 30, 2023, the Company accrued $0 and $0, respectively, in incentive fees on capital gains in accordance with U.S. GAAP, none of which was payable to the Adviser under the Investment Advisory Agreement. For the three and nine months ended September 30, 2022, the Company accrued $0 and $(0.4) million, respectively, in incentive fees on capital gains in accordance with U.S. GAAP, none of which was payable to the Adviser under the Investment Advisory Agreement.
Administration Agreement
The Company entered into an administration agreement with Benefit Street Partners (the “Administration Agreement”), pursuant to which Benefit Street Partners (in such capacity, the “Administrator”) provides the Company with office facilities and certain administrative services necessary for the Company to conduct its business.
As of September 30, 2023 and December 31, 2022, $0.9 million and $0.8 million was payable to BSP under the Administration Agreement, respectively.
For the three and nine months ended September 30, 2023, the Company incurred $0.3 million and $0.9 million, respectively, in administrative service fees under the Administration Agreement, which are included in the other general and administrative expenses on the consolidated statements of operations. For the three and nine months ended September 30, 2022, the Company incurred $0.2 million and $0.6 million, respectively, in administrative service fees under the Administration Agreement, which are included in the other general and administrative expenses on the consolidated statements of operations.
Co-Investment Relief
The 1940 Act generally prohibits BDCs from entering into negotiated co-investments with affiliates absent an order from the SEC. The SEC staff has granted the Company exemptive relief that allows it to enter into certain negotiated co-investment transactions alongside with other funds managed by the Adviser or its affiliates (“Affiliated Funds”) in a manner consistent with its investment objective, positions, policies, strategies, and restrictions as well as regulatory requirements and other pertinent factors, subject to compliance with certain conditions (the “Order”). Pursuant to the Order, the Company is permitted to co-invest with its affiliates if a “required majority” (as defined in Section 57(o) of the 1940 Act) of its eligible directors make certain conclusions in connection with a co-investment transaction, including that (1) the terms of the transactions, including the consideration to be paid, are reasonable and fair to the Company and the Company’s stockholders and do not involve overreaching in respect of the Company or the Company’s stockholders on the part of any person concerned, and (2) the transaction is consistent with the interests of the Company’s stockholders and is consistent with the Company’s investment objective and strategies.
FRANKLIN BSP CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended September 30, 2023
(Unaudited)
Note 5 - Borrowings
MS Credit Facility
On March 15, 2021, the Company, FBCC Lending I, LLC, a wholly-owned, special purpose financing subsidiary of the Company (“FBCC Lending”), and the Adviser, as the servicer, entered into a loan and servicing agreement (together with the other documents executed in connection therewith, the “MS Credit Facility”) with Morgan Stanley Asset Funding, Inc. as administrative agent, Morgan Stanley Bank, N.A., as the lender, and U.S. Bank National Association as collateral agent, account bank and collateral custodian, that provides for borrowings of up to $100.0 million on a committed basis. Obligations under the MS Credit Facility are secured by a first priority security interest in substantially all of the assets of FBCC Lending, including its portfolio of investments and the Company’s equity interest in FBCC Lending. The obligations of FBCC Lending under the MS Credit Facility are nonrecourse to the Company. Any amounts borrowed under the MS Credit Facility will mature, and will be due and payable, on the maturity date, which is March 15, 2025. Prior to the Third Amendment (defined below), borrowings under the MS Credit Facility bore interest at three-month LIBOR, with a LIBOR floor of zero, plus a spread of 2.25%. Interest is payable quarterly in arrears. FBCC Lending is subject to a non-usage fee of 0.50% on the difference between total commitments and the greater of the (i) drawn amounts and (ii) minimum utilization requirement, and, in addition, after the ramp-up period, FBCC Lending would pay interest on undrawn amounts up to the minimum utilization requirement under the MS Credit Facility if drawn amounts are less than such minimum utilization requirement. The Company paid an upfront fee and incurred other customary costs and expenses in connection with the MS Credit Facility.
On July 1, 2021, FBCC Lending amended the MS Credit Facility to, among other things, increase the maximum permissible borrowings under the MS Credit Facility from $100.0 million to $200.0 million on a committed basis (the “First Amendment”).
On December 15, 2021, FBCC Lending amended the MS Credit Facility to, among other things, increase the maximum permissible borrowings under the MS Credit Facility from $200.0 million to $250.0 million on a committed basis (the “Second Amendment”).
On January 31, 2022, FBCC Lending amended the MS Credit Facility to, among other things, increase the maximum permissible borrowings from $250.0 million to $300.0 million on a committed basis, transition the benchmark rate to Adjusted Term SOFR and included the Canadian Imperial Bank of Commerce ("CIBC") as a lender (the “Third Amendment”). Following the Third Amendment, borrowings under the MS Credit Facility bear interest at Adjusted Term SOFR, with an Adjusted Term SOFR floor of zero, plus a spread of 2.00%. FBCC Lending is subject to non-usage fee of 0.50% on the difference between total commitments and the greater of the (i) drawn amounts and (ii) minimum utilization requirement, and, in addition after the ramp-up period, FBCC Lending would pay interest on undrawn amounts up to the minimum utilization requirement under the MS Credit Facility, at three month SOFR floor of zero, plus spread of 1.125%, if drawn amounts are less than such minimum utilization requirement. The entire facility is subject to a 0.25% administrative agent fee.
On June 28, 2022, FBCC Lending entered into a fourth amendment (together with any documents executed in connection therewith, the “Fourth Amendment”) to the MS Credit Facility. The Fourth Amendment, among other things, increases the maximum permissible borrowings under the MS Credit Facility to $400.0 million from $300.0 million on a committed basis and amends the spread on borrowings under the MS Credit Facility to 2.25%.
FRANKLIN BSP CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended September 30, 2023
(Unaudited)
MS Subscription Facility
On April 22, 2021, the Company entered into a $50.0 million revolving credit agreement (the “MS Subscription Facility”) with Morgan Stanley Asset Funding, Inc., as administrative agent and sole lead arranger, and Morgan Stanley Bank, N.A., as the letter of credit issuer and lender. The MS Subscription Facility was subject to certain restrictions, including availability under the borrowing base, which was based on unfunded capital commitments. The amount of permissible borrowings under the MS Subscription Facility could be increased up to an aggregate of $150.0 million with the consent of the lenders. The MS Subscription Facility had a maturity date of April 22, 2022, which could be extended for an additional two terms of not more than 12 months each with the consent of the administrative agent and lenders. On April 20, 2022, the Company entered into a first amendment (the “First Amendment”) to the MS Subscription Facility, which extended the maturity date to April 21, 2023, which could be extended for an additional term of not more than 12 months each with the consent of the administrative agent and lenders. On September 30, 2022, pursuant to the terms of the agreement, the Company voluntarily reduced commitments from $50.0 million to $44.5 million and on December 9, 2022, pursuant to the terms of the agreement, the Company voluntarily reduced commitments from $44.5 million to $25.5 million (together, the “MS Subscription Facility Downsizes”).
Prior to the First Amendment, the MS Subscription Facility bore interest at a rate of: (i) with respect LIBOR Rate Loans, Adjusted LIBOR (as defined in the MS Subscription Facility) for the applicable interest period plus 2.00% per annum and (ii) with respect to Base Rate Loans, the greatest of (a) the Prime Rate in effect on such day plus 1.00% per annum, (b) the Federal Funds Rate in effect on such day plus 0.50%, plus 1.00% per annum and (c) except during any period of time during which LIBOR is unavailable, one-month Adjusted LIBOR plus, without duplication, 100 basis points per annum. The Company paid an upfront fee and incurred other customary costs and expenses in connection with the MS Subscription Facility. Subsequent to the First Amendment, the MS Subscription Facility bore interest at a rate of: (i) with respect to Term SOFR Loans, Term SOFR with a one-month Interest Period plus 2.10% per annum and (ii) with respect to Base Rate Loans, the greatest of (a) the Prime Rate in effect on such day plus 100 basis points (1.00%) per annum, (b) the Federal Funds Rate in effect on such day plus 0.50% plus 1.00% per annum and (c) except during any period of time during which Term SOFR is unavailable, Term SOFR for a one-month tenor in effect on such day plus without duplication, 100 basis points (1.00%) per annum plus 100 basis points (1.00%) per annum. The Company paid an upfront fee and incurred other customary costs and expenses in connection with the First Amendment to MS Subscription Facility. In addition, the Company was subject to an unused commitment fee of 0.30%.
The MS Subscription Facility was terminated on March 29, 2023.
The following table represents facility borrowings as of September 30, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Maturity Date | | Total Aggregate Borrowing Capacity | | Total Principal Outstanding | | Less Deferred Financing Costs | | Amount per Consolidated Statements of Assets and Liabilities |
| MS Credit Facility | 3/15/2025 | | $ | 400,000 | | | $ | 343,500 | | | $ | (1,469) | | | $ | 342,031 | |
| Total | | | $ | 400,000 | | | $ | 343,500 | | | $ | (1,469) | | | $ | 342,031 | |
The following table represents facility borrowings as of December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Maturity Date | | Total Aggregate Borrowing Capacity | | Total Principal Outstanding | | Less Deferred Financing Costs | | Amount per Consolidated Statements of Assets and Liabilities |
| MS Credit Facility | 3/15/2025 | | $ | 400,000 | | | $ | 356,500 | | | $ | (2,222) | | | $ | 354,278 | |
| MS Subscription Facility | 4/21/2023 | | 25,500 | | | 25,400 | | | (98) | | | 25,302 | |
| Total | | | $ | 425,500 | | | $ | 381,900 | | | $ | (2,320) | | | $ | 379,580 | |
FRANKLIN BSP CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended September 30, 2023
(Unaudited)
The weighted average annualized interest cost for all facility borrowings for the nine months ended September 30, 2023 and 2022 was 7.63% and 3.47%, respectively. The average daily debt outstanding for facility borrowings for the nine months ended September 30, 2023 and 2022 was $352.5 million and $302.1 million, respectively. The maximum debt outstanding for facility borrowings for the nine months ended September 30, 2023 and 2022 was $381.9 million and $349.9 million, respectively.
Short-term Borrowings
From time to time, the Company finances the purchase of certain investments through repurchase agreements. In the repurchase agreements, the Company enters into a trade to sell an investment and contemporaneously enter into a trade to buy the same investment back on a specified date in the future with the same counterparty. Investments sold under repurchase agreements are accounted for as collateralized borrowings as the sale of the investment does not qualify for sale accounting under ASC Topic 860—Transfers and Servicing and remains as an investment on the consolidated statements of assets and liabilities. The Company uses repurchase agreements as a short-term financing alternative. As of September 30, 2023 and December 31, 2022, the Company had short-term borrowings outstanding of $0 and $20.8 million, respectively. For the nine months ended September 30, 2023 and 2022, the Company recorded interest expense of $1.7 million and $1.6 million, respectively, in connection with short-term borrowings. For the nine months ended September 30, 2023, the Company had an average outstanding balance of short-term borrowings of $27.1 million and bore interest at a weighted average rate of 0.02%. For the nine months ended September 30, 2022, the Company had an average outstanding balance of short-term borrowings of $49.3 million and bore interest at a weighted average rate of 0.01%.
Secured Borrowings
On August 21, 2023, the Company entered into a total return swap (“TRS”) with Nomura. A TRS 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 Company pays interest to Nomura for each loan at a rate equal to three-month SOFR plus 3.60% per annum. Upon the termination or repayment of any loan under the TRS, the Company will either receive from Nomura the appreciation in the value of such loan or pay to Nomura any depreciation in the value of such loan. The scheduled termination date for the TRS is February 17, 2025. The Company may terminate the TRS prior to February 17, 2025 upon the occurrence of certain events but in certain circumstances may be required to pay certain termination fees.
As of September 30, 2023, all total return swaps on the Nomura TRS were entered into contemporaneously with the Company’s sale of their reference assets. Due to the Company’s continuing involvement in these assets, these assets are not derecognized under ASC Topic 860 -- Transfers and Servicing, and are presented on the consolidated schedule of investments. Financing amounts related to these assets are presented as secured borrowings on the consolidated statement of assets and liabilities.
The TRS is subject to the SEC rule related to the use of derivatives, reverse repurchase agreements and certain other transactions by registered investment companies. The rule requires that the Company trade derivatives and other transactions that create future payment or delivery obligations subject to a value-at-risk leverage limit and certain derivatives risk management program and reporting requirements. Generally, these requirements apply unless the Company qualifies as a “limited derivatives user,” as defined in the rule, in which case certain exceptions to these conditions would apply. The Company may qualify as a limited derivatives user if it adopts and implements written policies and procedures reasonably designed to manage the Company's derivatives risk and the Company's derivatives exposure does not exceed 10 percent of the Company's net assets as calculated in accordance with the rule.
As of September 30, 2023 and December 31, 2022, the Company had secured borrowings outstanding of $33.3 million and $0, respectively. For the nine months ended September 30, 2023 and 2022, the Company recorded interest expense of $0.2 million and $0, respectively, in connection with secured borrowings. For the period August 21, 2023 through September 30, 2023, the Company had an average outstanding balance of secured borrowings of $24.1 million and bore interest at a weighted average rate of 8.98%. For the nine months ended September 30, 2022, the Company had no secured borrowings.
FRANKLIN BSP CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended September 30, 2023
(Unaudited)
The following table represents interest and debt fees for the three and nine months ended September 30, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2023 | | Nine Months Ended September 30, 2023 |
| Interest Rate | | Non-Usage Rate | | Interest Expense | | Deferred Financing Costs (1) | | Other Fees (2) | | Interest Rate | | Non-Usage Rate | | Interest Expense | | Deferred Financing Costs (1) | | Other Fees (2) |
| MS Credit Facility | (3) | | 0.50 | % | | $ | 6,622 | | | $ | 254 | | | $ | 359 | | | (3) | | 0.50 | % | | $ | 19,229 | | | $ | 753 | | | $ | 1,084 | |
MS Subscription Facility (5) | — | | — | | | — | | | — | | | — | | | (4) | | 0.30 | % | | 404 | | | 98 | | | — | |
| Short-term borrowings | | | | | 422 | | | — | | | — | | | | | | | 1,692 | | | — | | | — | |
| Secured borrowings | S + 360 | | | | 185 | | | — | | | — | | | | | | | 185 | | | — | | | — | |
| Total | | | | | $ | 7,229 | | | $ | 254 | | | $ | 359 | | | | | | | $ | 21,510 | | | $ | 851 | | | $ | 1,084 | |
(1) Amortization of deferred financing costs.
(2) Includes non-usage fees, custody fees, and administrative agent fees.
(3) From January 1, 2023 to September 30, 2023, the MS Credit Facility had an interest rate priced at Term SOFR, plus a spread of 2.25%.
(4) From January 1, 2023 to March 29, 2023, the MS Subscription Facility bore interest at a rate of Term SOFR with a one-month Interest Period plus 2.10% per annum.
(5) Amount presented represents activity prior to termination on March 29, 2023.
The following table represents interest and debt fees for the three and nine months ended September 30, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2022 | | Nine Months Ended September 30, 2022 |
| Interest Rate | | Non-Usage Rate | | Interest Expense | | Deferred Financing Costs (1) | | Other Fees (2) | | Interest Rate | | Non-Usage Rate | | Interest Expense | | Deferred Financing Costs (1) | | Other Fees (2) |
| MS Credit Facility | (3) | | 0.50 | % | | $ | 3,103 | | | $ | 255 | | | $ | 447 | | | (3) | | 0.50 | % | | $ | 6,076 | | | $ | 640 | | | $ | 1,048 | |
| MS Subscription Facility | (4) | | 0.30 | % | | 536 | | | 81 | | | — | | | (4) | | 0.30 | % | | 1,206 | | | 214 | | | — | |
| Short-term borrowings | | | | | 955 | | | — | | | — | | | | | | | 1,647 | | | — | | | — | |
| Total | | | | | $ | 4,594 | | | $ | 336 | | | $ | 447 | | | | | | | $ | 8,929 | | | $ | 854 | | | $ | 1,048 | |
______________
(1) Amortization of deferred financing costs.
(2) Includes non-usage fees and custody fees, and administrative agent fees.
(3) From January 1, 2022 through January 30, 2022, the MS Credit Facility had an interest rate priced at three-month LIBOR, with a LIBOR floor of zero, plus a spread of 2.25%. From January 31, 2022 through June 27, 2022, the MS Credit Facility transitioned the benchmark rate to Adjusted Term SOFR. Borrowings under the MS Credit Facility bore interest at Adjusted Term SOFR, with an Adjusted Term SOFR floor of zero, plus a spread of 2.00%. From June 28, 2022 to September 30, 2022, the MS Credit Facility had an interest rate priced at Term SOFR, plus a spread of 2.25%.
(4) From January 1, 2022 through April 19, 2022, the MS Subscription Facility bore interest at a rate of Adjusted LIBOR for the applicable interest period plus 2.00% per annum. From April 20, 2022 through September 30, 2022, the MS Subscription Facility bore interest at a rate of Term SOFR with a one-month Interest Period plus 2.10% per annum.
FRANKLIN BSP CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended September 30, 2023
(Unaudited)
The Company is required to disclose the fair value of financial instruments for which it is practicable to estimate fair value. The fair value of short-term financial instruments such as cash and cash equivalents, due to affiliates, accounts payable, and short-term borrowings approximate their carrying value on the accompanying consolidated statements of assets and liabilities due to their short-term nature.
At September 30, 2023, the carrying amount of the Company's secured borrowings approximated their fair value. The fair values of the Company's debt obligations are determined in accordance with ASC 820, which defines fair value in terms of the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value of the Company's borrowings is estimated based upon market interest rates for the Company's own borrowings or entities with similar credit risk, adjusted for nonperformance risk, if any. As of September 30, 2023 and December 31, 2022, the Company's borrowings would be deemed to be Level 3, as defined in Note 3 - Fair Value of Financial Instruments.
The fair values of the Company’s remaining financial instruments that are not reported at fair value on the accompanying consolidated statements of assets and liabilities are reported below:
| | | | | | | | | | | | | | | | | |
| Level | | Carrying Amount as of September 30, 2023 | | Fair Value as of September 30, 2023 |
| MS Credit Facility | 3 | | $ | 343,500 | | | $ | 343,500 | |
| Total | | | $ | 343,500 | | | $ | 343,500 | |
| | | | | | | | | | | | | | | | | |
| Level | | Carrying Amount as of December 31, 2022 | | Fair Value as of December 31, 2022 |
| MS Credit Facility | 3 | | $ | 356,500 | | | $ | 356,500 | |
| MS Subscription Facility | 3 | | 25,400 | | | 25,400 | |
| Total | | | $ | 381,900 | | | $ | 381,900 | |
Note 6 - Commitments and Contingencies
Commitments
In the ordinary course of business, the Company may enter into future funding commitments. As of September 30, 2023, the Company had unfunded commitments on delayed draw term loans of $26.2 million, and unfunded commitments on revolver term loans of $40.5 million. As of December 31, 2022, the Company had unfunded commitments on delayed draw term loans of $56.1 million, and unfunded commitments on revolver term loans of $47.5 million. The Company maintains sufficient cash on hand, unfunded Capital Commitments, and available borrowings to fund such unfunded commitments.
As of September 30, 2023, the Company's unfunded commitments consisted of the following: | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| Portfolio Company Name | | Investment Type | | Commitment Type | | Total Commitment | | Remaining Commitment |
| ADCS Clinics Intermediate Holdings, LLC | | Senior Secured First Lien Debt | | Delayed Draw | | $ | 1,246 | | | $ | 1,246 | |
| ADCS Clinics Intermediate Holdings, LLC | | Senior Secured First Lien Debt | | Revolver | | 533 | | | 442 | |
| Alera Group Intermediate Holdings, Inc. | | Senior Secured First Lien Debt | | Delayed Draw | | 5,758 | | | 1,175 | |
| Armada Parent, Inc. | | Senior Secured First Lien Debt | | Delayed Draw | | 2,027 | | | 1,018 | |
| Armada Parent, Inc. | | Senior Secured First Lien Debt | | Revolver | | 2,444 | | | 2,444 | |
| Avalara, Inc. | | Senior Secured First Lien Debt | | Revolver | | 1,990 | | | 1,990 | |
| Center Phase Energy, LLC | | Senior Secured First Lien Debt | | Revolver | | 6,593 | | | 6,340 | |
| Communication Technology Intermediate, LLC | | Senior Secured First Lien Debt | | Revolver | | 998 | | | 911 | |
FRANKLIN BSP CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended September 30, 2023
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| Portfolio Company Name | | Investment Type | | Commitment Type | | Total Commitment | | Remaining Commitment |
| Community Brands ParentCo, LLC | | Senior Secured First Lien Debt | | Delayed Draw | | $ | 1,085 | | | $ | 1,085 | |
| Community Brands ParentCo, LLC | | Senior Secured First Lien Debt | | Revolver | | 542 | | | 542 | |
| Eliassen Group, LLC | | Senior Secured First Lien Debt | | Delayed Draw | | 1,451 | | | 995 | |
| Faraday Buyer, LLC | | Senior Secured First Lien Debt | | Delayed Draw | | 1,255 | | | 295 | |
| FGT Purchaser, LLC | | Senior Secured First Lien Debt | | Revolver | | 976 | | | 176 | |
| Galway Borrower, LLC | | Senior Secured First Lien Debt | | Revolver | | 861 | | | 861 | |
| Geosyntec Consultants, Inc. | | Senior Secured First Lien Debt | | Delayed Draw | | 5,492 | | | 2,737 | |
| Geosyntec Consultants, Inc. | | Senior Secured First Lien Debt | | Revolver | | 2,017 | | | 2,017 | |
| Gogo Intermediate Holdings, LLC | | Senior Secured First Lien Debt | | Revolver | | 452 | | | 452 | |
| IG Investments Holdings, LLC | | Senior Secured First Lien Debt | | Revolver | | 632 | | | 632 | |
| Indigo Buyer, Inc. | | Senior Secured First Lien Debt | | Revolver | | 1,536 | | | 1,280 | |
| IQN Holding Corp. | | Senior Secured First Lien Debt | | Delayed Draw | | 660 | | | 660 | |
| IQN Holding Corp. | | Senior Secured First Lien Debt | | Revolver | | 503 | | | 503 | |
| Knowledge Pro Buyer, Inc. | | Senior Secured First Lien Debt | | Delayed Draw | | 2,282 | | | 1,238 | |
| Knowledge Pro Buyer, Inc. | | Senior Secured First Lien Debt | | Revolver | | 1,147 | | | 505 | |
| Medical Management Resource Group, LLC | | Senior Secured First Lien Debt | | Revolver | | 603 | | | 386 | |
| Mirra-Primeaccess Holdings, LLC | | Senior Secured First Lien Debt | | Revolver | | 3,429 | | | 2,143 | |
| Odessa Technologies, Inc. | | Senior Secured First Lien Debt | | Delayed Draw | | 1,217 | | | 1,217 | |
| Odessa Technologies, Inc. | | Senior Secured First Lien Debt | | Revolver | | 1,704 | | | 1,704 | |
| Pie Buyer, Inc. | | Senior Secured First Lien Debt | | Delayed Draw | | 2,904 | | | 2,317 | |
| Pie Buyer, Inc. | | Senior Secured First Lien Debt | | Revolver | | 741 | | | 506 | |
| Pluralsight, LLC | | Senior Secured First Lien Debt | | Revolver | | 638 | | | 238 | |
| Post Road Equipment Finance, LLC | | Subordinated Debt | | Delayed Draw | | 11,000 | | | 943 | |
| Relativity Oda, LLC | | Senior Secured First Lien Debt | | Revolver | | 196 | | | 196 | |
| Saturn SHC Buyer Holdings, Inc. | | Senior Secured First Lien Debt | | Revolver | | 4,012 | | | 4,012 | |
| Sherlock Buyer Corp. | | Senior Secured First Lien Debt | | Delayed Draw | | 1,454 | | | 1,454 | |
| Sherlock Buyer Corp. | | Senior Secured First Lien Debt | | Revolver | | 581 | | | 581 | |
| Simplifi Holdings, Inc. | | Senior Secured First Lien Debt | | Revolver | | 1,720 | | | 1,397 | |
| SunMed Group Holdings, LLC | | Senior Secured First Lien Debt | | Revolver | | 259 | | | 259 | |
| The NPD Group, LP | | Senior Secured First Lien Debt | | Revolver | | 943 | | | 773 | |
| Trinity Air Consultants Holdings Corp. | | Senior Secured First Lien Debt | | Delayed Draw | | 3,001 | | | 1,233 | |
| Trinity Air Consultants Holdings Corp. | | Senior Secured First Lien Debt | | Revolver | | 857 | | | 857 | |
| Triple Lift, Inc. | | Senior Secured First Lien Debt | | Revolver | | 1,393 | | | 859 | |
| US Oral Surgery Management Holdco, LLC | | Senior Secured First Lien Debt | | Delayed Draw | | 1,896 | | | 507 | |
| US Oral Surgery Management Holdco, LLC | | Senior Secured First Lien Debt | | Revolver | | 527 | | | 527 | |
| US Salt Investors, LLC | | Senior Secured First Lien Debt | | Revolver | | 934 | | | 934 | |
| Victors CCC Buyer, LLC | | Senior Secured First Lien Debt | | Delayed Draw | | 1,875 | | | 1,875 | |
| Victors CCC Buyer, LLC | | Senior Secured First Lien Debt | | Revolver | | 1,358 | | | 1,358 | |
| West Coast Dental Services, Inc. | | Senior Secured First Lien Debt | | Delayed Draw | | 1,447 | | | 948 | |
| West Coast Dental Services, Inc. | | Senior Secured First Lien Debt | | Revolver | | 1,087 | | | 363 | |
FRANKLIN BSP CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended September 30, 2023
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| Portfolio Company Name | | Investment Type | | Commitment Type | | Total Commitment | | Remaining Commitment |
| Westwood Professional Services, Inc. | | Senior Secured First Lien Debt | | Revolver | | $ | 162 | | | $ | 162 | |
| WHCG Purchaser III, Inc. | | Senior Secured First Lien Debt | | Revolver | | 1,821 | | | 5 | |
| WIN Holdings III Corp. | | Senior Secured First Lien Debt | | Revolver | | 1,908 | | | 1,908 | |
| Zendesk, Inc. | | Senior Secured First Lien Debt | | Delayed Draw | | 5,304 | | | 5,304 | |
| Zendesk, Inc. | | Senior Secured First Lien Debt | | Revolver | | 2,184 | | | 2,184 | |
| | | | | | $ | 99,635 | | | $ | 66,694 | |
As of December 31, 2022, the Company's unfunded commitments consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| Portfolio Company Name | | Investment Type | | Commitment Type | | Total Commitment | | Remaining Commitment |
| ADCS Clinics Intermediate Holdings, LLC | | Senior Secured First Lien Debt | | Delayed Draw | | $ | 1,513 | | | $ | 333 | |
| ADCS Clinics Intermediate Holdings, LLC | | Senior Secured First Lien Debt | | Delayed Draw | | 1,246 | | | 1,246 | |
| ADCS Clinics Intermediate Holdings, LLC | | Senior Secured First Lien Debt | | Revolver | | 533 | | | 533 | |
| Alera Group Intermediate Holdings, Inc. | | Senior Secured First Lien Debt | | Delayed Draw | | 5,793 | | | 2,552 | |
| Armada Parent, Inc. | | Senior Secured First Lien Debt | | Delayed Draw | | 2,034 | | | 1,019 | |
| Armada Parent, Inc. | | Senior Secured First Lien Debt | | Revolver | | 2,444 | | | 2,444 | |
| Avalara, Inc. | | Senior Secured First Lien Debt | | Revolver | | 1,990 | | | 1,990 | |
| Aventine Holdings, LLC | | Senior Secured First Lien Debt | | Delayed Draw | | 4,722 | | | 366 | |
| BCPE Oceandrive Buyer, Inc. | | Senior Secured First Lien Debt | | Delayed Draw | | 5,194 | | | 4,408 | |
| Center Phase Energy, LLC | | Senior Secured First Lien Debt | | Revolver | | 6,593 | | | 6,593 | |
| Communication Technology Intermediate, LLC | | Senior Secured First Lien Debt | | Revolver | | 998 | | | 912 | |
| Community Brands Parentco, LLC | | Senior Secured First Lien Debt | | Delayed Draw | | 1,085 | | | 1,085 | |
| Community Brands Parentco, LLC | | Senior Secured First Lien Debt | | Revolver | | 542 | | | 542 | |
| Coronis Health, LLC | | Senior Secured First Lien Debt | | Revolver | | 1,968 | | | 1,968 | |
| Eliassen Group, LLC | | Senior Secured First Lien Debt | | Delayed Draw | | 1,452 | | | 1,235 | |
| Faraday Buyer, LLC | | Senior Secured First Lien Debt | | Delayed Draw | | 1,260 | | | 1,260 | |
| FGT Purchaser, LLC | | Senior Secured First Lien Debt | | Revolver | | 976 | | | 605 | |
| Galway Borrower, LLC | | Senior Secured First Lien Debt | | Delayed Draw | | 125 | | | 125 | |
| Galway Borrower, LLC | | Senior Secured First Lien Debt | | Revolver | | 861 | | | 861 | |
| Geosyntec Consultants, Inc. | | Senior Secured First Lien Debt | | Delayed Draw | | 5,503 | | | 5,503 | |
| Geosyntec Consultants, Inc. | | Senior Secured First Lien Debt | | Revolver | | 2,017 | | | 2,017 | |
| Gogo Intermediate Holdings, LLC | | Senior Secured First Lien Debt | | Revolver | | 452 | | | 452 | |
| IG Investments Holdings, LLC | | Senior Secured First Lien Debt | | Revolver | | 632 | | | 379 | |
| Indigo Buyer, Inc. | | Senior Secured First Lien Debt | | Delayed Draw | | 3,841 | | | 3,841 | |
| Indigo Buyer, Inc. | | Senior Secured First Lien Debt | | Revolver | | 1,536 | | | 1,280 | |
| IQN Holding Corp. | | Senior Secured First Lien Debt | | Delayed Draw | | 1,258 | | | 1,163 | |
| IQN Holding Corp. | | Senior Secured First Lien Debt | | Revolver | | 503 | | | 503 | |
| Knowledge Pro Buyer, Inc. | | Senior Secured First Lien Debt | | Delayed Draw | | 2,290 | | | 1,238 | |
| Knowledge Pro Buyer, Inc. | | Senior Secured First Lien Debt | | Revolver | | 1,147 | | | 1,147 | |
FRANKLIN BSP CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended September 30, 2023
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| Portfolio Company Name | | Investment Type | | Commitment Type | | Total Commitment | | Remaining Commitment |
| Medical Management Resource Group, LLC | | Senior Secured First Lien Debt | | Revolver | | $ | 603 | | | $ | 603 | |
| Mirra-Primeaccess Holdings, LLC | | Senior Secured First Lien Debt | | Revolver | | 3,429 | | | 2,143 | |
| Monumental RSN, LLC | | Senior Secured First Lien Debt | | Revolver | | 1,590 | | | 1,590 | |
| Odessa Technologies, Inc. | | Senior Secured First Lien Debt | | Delayed Draw | | 1,217 | | | 1,217 | |
| Odessa Technologies, Inc. | | Senior Secured First Lien Debt | | Revolver | | 1,704 | | | 1,704 | |
| Pie Buyer, Inc. | | Senior Secured First Lien Debt | | Delayed Draw | | 2,905 | | | 2,905 | |
| Pie Buyer, Inc. | | Senior Secured First Lien Debt | | Revolver | | 741 | | | 556 | |
| Pluralsight, LLC | | Senior Secured First Lien Debt | | Revolver | | 638 | | | 319 | |
| Point Broadband Acquisition, LLC | | Senior Secured First Lien Debt | | Delayed Draw | | 3,663 | | | 1,930 | |
| Post Road Equipment Finance, LLC | | Subordinated Debt | | Delayed Draw | | 11,000 | | | 4,086 | |
| Relativity Oda, LLC | | Senior Secured First Lien Debt | | Revolver | | 196 | | | 196 | |
| Roadsafe Holdings, Inc. | | Senior Secured First Lien Debt | | Delayed Draw | | 4,357 | | | 1,437 | |
| RSC Acquisition, Inc. | | Senior Secured First Lien Debt | | Delayed Draw | | 2,179 | | | 1,541 | |
| Saturn SHC Buyer Holdings, Inc. | | Senior Secured First Lien Debt | | Revolver | | 4,012 | | | 4,012 | |
| Sherlock Buyer Corp. | | Senior Secured First Lien Debt | | Delayed Draw | | 1,454 | | | 1,454 | |
| Sherlock Buyer Corp. | | Senior Secured First Lien Debt | | Revolver | | 581 | | | 581 | |
| Simplifi Holdings, Inc. | | Senior Secured First Lien Debt | | Revolver | | 1,720 | | | 1,720 | |
| SunMed Group Holdings, LLC | | Senior Secured First Lien Debt | | Revolver | | 259 | | | 135 | |
| The NPD Group, LP | | Senior Secured First Lien Debt | | Revolver | | 943 | | | 830 | |
| Trinity Air Consultants Holdings Corp. | | Senior Secured First Lien Debt | | Delayed Draw | | 3,001 | | | 1,350 | |
| Trinity Air Consultants Holdings Corp. | | Senior Secured First Lien Debt | | Revolver | | 857 | | | 857 | |
| Triple Lift, Inc. | | Senior Secured First Lien Debt | | Revolver | | 1,393 | | | 859 | |
| US Oral Surgery Management Holdco, LLC | | Senior Secured First Lien Debt | | Delayed Draw | | 2,176 | | | 585 | |
| US Oral Surgery Management Holdco, LLC | | Senior Secured First Lien Debt | | Delayed Draw | | 1,896 | | | 1,896 | |
| US Oral Surgery Management Holdco, LLC | | Senior Secured First Lien Debt | | Revolver | | 527 | | | 527 | |
| US Salt Investors, LLC | | Senior Secured First Lien Debt | | Revolver | | 934 | | | 934 | |
| Victors CCC Buyer, LLC | | Senior Secured First Lien Debt | | Delayed Draw | | 1,875 | | | 1,875 | |
| Victors CCC Buyer, LLC | | Senior Secured First Lien Debt | | Revolver | | 1,358 | | | 1,358 | |
| West Coast Dental Services, Inc. | | Senior Secured First Lien Debt | | Delayed Draw | | 1,448 | | | 1,448 | |
| West Coast Dental Services, Inc. | | Senior Secured First Lien Debt | | Revolver | | 1,087 | | | 978 | |
| Westwood Professional Services, Inc. | | Senior Secured First Lien Debt | | Delayed Draw | | 1,299 | | | 866 | |
| Westwood Professional Services, Inc. | | Senior Secured First Lien Debt | | Revolver | | 162 | | | 162 | |
| WHCG Purchaser III, Inc. | | Senior Secured First Lien Debt | | Delayed Draw | | 5,886 | | | 2,836 | |
| WHCG Purchaser III, Inc. | | Senior Secured First Lien Debt | | Revolver | | 1,821 | | | 1,106 | |
| WIN Holdings III Corp. | | Senior Secured First Lien Debt | | Revolver | | 1,908 | | | 1,908 | |
| Zendesk, Inc. | | Senior Secured First Lien Debt | | Delayed Draw | | 5,304 | | | 5,304 | |
| Zendesk, Inc. | | Senior Secured First Lien Debt | | Revolver | | 2,184 | | | 2,184 | |
| | | | | | $ | 138,815 | | | $ | 103,592 | |
FRANKLIN BSP CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended September 30, 2023
(Unaudited)
Litigation and Regulatory Matters
In the ordinary course of business, the Company may become subject to litigation, claims, and regulatory matters. The Company has no knowledge of material legal or regulatory proceedings pending or known to be contemplated against the Company at this time.
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 7 - 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.
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 8 - Capital
Investor Commitments
The following table summarizes the total capital commitments and unfunded capital commitments of Common Stock and Series A Preferred Stock as of September 30, 2023 and as of December 31, 2022:
| | | | | | | | | | | | | | | | | |
| As of September 30, 2023 | | As of December 31, 2022 |
| Capital Commitments | Unfunded Capital Commitments | | Capital Commitments | Unfunded Capital Commitments |
| Common Stock | $ | 592,249 | | $ | 217,656 | | | $ | 586,156 | | $ | 221,281 | |
| Series A Preferred Stock | 77,500 | | — | | | 77,500 | | 41,354 | |
| Total | $ | 669,749 | | $ | 217,656 | | | $ | 663,656 | | $ | 262,635 | |
Capital Drawdowns
The following table summarizes the total shares issued and proceeds related to capital drawdowns of Common Stock for the nine months ended September 30, 2023:
| | | | | | | | | | | | | | |
| Share Issue Date | | Shares Issued | | Net Proceeds Received |
| For the nine months ended September 30, 2023 | | | | |
| March 27, 2023 | | 532,871 | | | $ | 8,073 | |
| July 31, 2023 | | 111,905 | | | 1,645 | |
| | | | |
| | | | |
| Total Capital Drawdowns | | 644,776 | | | $ | 9,718 | |
FRANKLIN BSP CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended September 30, 2023
(Unaudited)
The following table summarizes the total shares issued and proceeds related to capital drawdowns of Common Stock for the year ended December 31, 2022:
| | | | | | | | | | | | | | |
| Share Issue Date | | Shares Issued | | Net Proceeds Received |
| For the year ended December 31, 2022 | | | | |
| May 27, 2022 | | 1,653,439 | | | $ | 25,000 | |
| July 15, 2022 | | 2,621,233 | | | 40,000 | |
| September 28, 2022 | | 3,289,476 | | | 50,000 | |
| November 23, 2022 | | 1,256,895 | | | 18,854 | |
| Total Capital Drawdowns | | 8,821,043 | | | $ | 133,854 | |
The issuances of Common Stock described above were exempt from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"), pursuant to Section 4(a)(2) thereof and Regulation D thereunder. The Company relied, in part, upon representations from investors in the relevant Subscription Agreements that each investor is an "accredited investor," as defined in Regulation D under the Securities Act.
The following table summarizes the total shares issued and proceeds, net of issuance costs related to capital drawdowns of Series A Preferred Stock nine months ended September 30, 2023:
| | | | | | | | | | | | | | |
| Share Issue Date | | Shares Issued | | Net Proceeds Received |
| For the nine months ended September 30, 2023 | | | | |
| March 27, 2023 | | 41,353 | | | $ | 41,291 | |
| | | | |
| Total Capital Drawdowns | | 41,353 | | | $ | 41,291 | |
The following table summarizes the total shares issued and proceeds, net of issuance costs related to capital drawdowns of Series A Preferred Stock for the year ended December 31, 2022:
| | | | | | | | | | | | | | |
| Share Issue Date | | Shares Issued | | Net Proceeds Received |
| For the year ended December 31, 2022 | | | | |
| April 7, 2022 | | 5,000 | | | $ | 4,993 | |
| July 15, 2022 | | 10,000 | | | 9,985 | |
| November 23, 2022 | | 16,147 | | | 16,123 | |
| Total Capital Drawdowns | | 31,147 | | | $ | 31,101 | |
Note 9 - Common Stock
The following table reflects the net assets attributable to Common Stock activity for the nine months ended September 30, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common stock - shares | | Common stock - par | | Additional paid in capital | | Total distributable earnings (loss) | | Total net assets attributable to common stock |
| Balance as of December 31, 2022 | 24,609,132 | | | $ | 25 | | | $ | 375,557 | | | $ | (3,161) | | | $ | 372,421 | |
Net investment income (loss) | — | | | — | | | — | | | 12,061 | | | 12,061 | |
Net realized gain (loss) from investment transactions | — | | | — | | | — | | | (161) | | | (161) | |
Net change in unrealized appreciation (depreciation) on investments | — | | | — | | | — | | | (1,261) | | | (1,261) | |
FRANKLIN BSP CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended September 30, 2023
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common stock - shares | | Common stock - par | | Additional paid in capital | | Total distributable earnings (loss) | | Total net assets attributable to common stock |
| Accretion to redemption value of Series A redeemable convertible preferred stock | — | | | — | | | — | | | (3) | | | (3) | |
| Accrual of Series A redeemable convertible preferred stock distributions | — | | | — | | | — | | | (1,023) | | | (1,023) | |
| Distributions to common stockholders | — | | | — | | | — | | | (10,584) | | | (10,584) | |
| Issuance of common stock, net of issuance costs | 532,871 | | | 1 | | | 8,072 | | | — | | | 8,073 | |
| Reinvested dividends | 197,903 | | | 0(1) | | 2,994 | | | — | | | 2,994 | |
| Balance as of March 31, 2023 | 25,339,906 | | | $ | 26 | | | $ | 386,623 | | | $ | (4,132) | | | $ | 382,517 | |
Net investment income (loss) | — | | | — | | | — | | | 13,636 | | | 13,636 | |
Net realized gain (loss) from investment transactions | — | | | — | | | — | | | 31 | | | 31 | |
Net change in unrealized appreciation (depreciation) on investments | — | | | — | | | — | | | (2,198) | | | (2,198) | |
| Accretion to redemption value of Series A redeemable convertible preferred stock | — | | | — | | | — | | | (4) | | | (4) | |
| Accrual of Series A redeemable convertible preferred stock distributions | — | | | — | | | — | | | (2,197) | | | (2,197) | |
| Distributions to common stockholders | — | | | — | | | — | | | (10,895) | | | (10,895) | |
| | | | | | | | | |
| Reinvested dividends | 202,931 | | | 0(1) | | 3,074 | | | — | | | 3,074 | |
| Balance as of June 30, 2023 | 25,542,837 | | | $ | 26 | | | $ | 389,697 | | | $ | (5,759) | | | $ | 383,964 | |
Net investment income (loss) | — | | | — | | | — | | | 14,069 | | | 14,069 | |
Net realized gain (loss) from investment transactions | — | | | — | | | — | | | (211) | | | (211) | |
Net change in unrealized appreciation (depreciation) on investments | — | | | — | | | — | | | 1,142 | | | 1,142 | |
| Accretion to redemption value of Series A redeemable convertible preferred stock | — | | | — | | | — | | | (5) | | | (5) | |
| Accrual of Series A redeemable convertible preferred stock distributions | — | | | — | | | — | | | (2,197) | | | (2,197) | |
| Distributions to common stockholders | — | | | — | | | — | | | (10,978) | | | (10,978) | |
| Issuance of common stock, net of issuance costs | 111,905 | | | 0(1) | | 1,645 | | | — | | | 1,645 | |
| Reinvested dividends | 208,024 | | | 0(1) | | 3,141 | | | — | | | 3,141 | |
| Balance as of September 30, 2023 | 25,862,766 | | | $ | 26 | | | $ | 394,483 | | | $ | (3,939) | | | $ | 390,570 | |
(1) Less than $1.
FRANKLIN BSP CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended September 30, 2023
(Unaudited)
The following table reflects the net assets attributable to Common Stock activity for the nine months ended September 30, 2022: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common stock - shares | | Common stock - par | | Additional paid in capital | | Total distributable earnings (loss) | | Total net assets attributable to common stock |
| Balance as of December 31, 2021 | 15,260,764 | | | $ | 15 | | | $ | 231,200 | | | $ | 4,758 | | | $ | 235,973 | |
| Net investment income (loss) | — | | | — | | | — | | | 5,455 | | | 5,455 | |
Net realized gain (loss) from investment transactions | — | | | — | | | — | | | 12 | | | 12 | |
Net change in unrealized appreciation (depreciation) on investments | — | | | — | | | — | | | (634) | | | (634) | |
| Accretion to redemption value of Series A redeemable convertible preferred stock | — | | | — | | | — | | | 0(1) | | 0(1) |
| Accrual of Series A redeemable convertible preferred stock distributions | — | | | — | | | — | | | (97) | | | (97) | |
| Distributions to common stockholders | — | | | — | | | — | | | (4,575) | | | (4,575) | |
| | | | | | | | | |
| Reinvested dividends | 99,702 | | | — | | | 1,534 | | | — | | | 1,534 | |
| Balance as of March 31, 2022 | 15,360,466 | | | $ | 15 | | | $ | 232,734 | | | $ | 4,919 | | | $ | 237,668 | |
Net investment income (loss) | — | | | — | | | — | | | 5,924 | | | 5,924 | |
Net realized gain (loss) from investment transactions | — | | | — | | | — | | | 54 | | | 54 | |
Net change in unrealized appreciation (depreciation) on investments | — | | | — | | | — | | | (3,919) | | | (3,919) | |
| Accretion to redemption value of Series A redeemable convertible preferred stock | — | | | — | | | — | | | (1) | | | (1) | |
| Accrual of Series A redeemable convertible preferred stock distributions | — | | | — | | | — | | | (253) | | | (253) | |
| Distributions to common stockholders | — | | | — | | | — | | | (5,996) | | | (5,996) | |
| Issuance of common stock, net of issuance costs | 1,653,439 | | | 2 | | | 24,998 | | | — | | | 25,000 | |
| Reinvested dividends | 111,420 | | | — | | | 1,724 | | | — | | | 1,724 | |
| Balance as of June 30, 2022 | 17,125,325 | | | $ | 17 | | | $ | 259,456 | | | $ | 728 | | | $ | 260,201 | |
Net investment income (loss) | — | | | $ | — | | | $ | — | | | $ | 8,574 | | | $ | 8,574 | |
Net realized gain (loss) from investment transactions | — | | | $ | — | | | $ | — | | | $ | 197 | | | $ | 197 | |
Net change in unrealized appreciation (depreciation) on investments, net of change in deferred taxes | — | | | $ | — | | | $ | — | | | $ | (1,730) | | | $ | (1,730) | |
| Accretion to redemption value of Series A redeemable convertible preferred stock | — | | | $ | — | | | $ | — | | | $ | (1) | | | $ | (1) | |
| Accrual of Series A redeemable convertible preferred stock distributions | — | | | $ | — | | | $ | — | | | $ | (508) | | | $ | (508) | |
| Distributions to common stockholders | — | | | $ | — | | | $ | — | | | $ | (7,695) | | | $ | (7,695) | |
| Issuance of common stock, net of issuance costs | 5,910,709 | | | $ | 6 | | | $ | 89,994 | | | $ | — | | | $ | 90,000 | |
| Reinvested dividends | 146,857 | | | — | | | 2,241 | | | — | | | 2,241 | |
| Balance as of September 30, 2022 | 23,182,891 | | | $ | 23 | | | $ | 351,691 | | | $ | (435) | | | $ | 351,279 | |
(1) Less than $1.
FRANKLIN BSP CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended September 30, 2023
(Unaudited)
The Company has adopted a distribution reinvestment plan (the “DRIP”) pursuant to which all cash dividends or distributions (“Distributions”) declared by the Board of Directors are reinvested on behalf of investors who do not elect to receive their Distributions in cash (the “Participants”). As a result, if the Board of Directors declares a Distribution, then stockholders who have not elected to “opt out” of the DRIP will have their Distributions automatically reinvested in additional shares of the Company's Common Stock at a price equal to net asset value (“NAV”) per share as estimated in good faith by the Company on the payment date. The timing and amount of Distributions to stockholders are subject to applicable legal restrictions and the sole discretion of our Board of Directors.
The following table reflects the Common Stock activity for the nine months ended September 30, 2023:
| | | | | | | | | | | | | | |
| | Shares | | Value |
| Shares Sold | | 644,776 | | | $ | 9,718 | |
| Shares Issued through DRIP | | 608,858 | | | 9,210 | |
| | | | |
| | 1,253,634 | | | $ | 18,928 | |
The following table reflects the Common Stock activity for the year ended December 31, 2022:
| | | | | | | | | | | | | | |
| | Shares | | Value |
| Shares Sold | | 8,821,043 | | | $ | 133,854 | |
| Shares Issued through DRIP | | 527,325 | | | 8,073 | |
| | | | |
| | 9,348,368 | | | $ | 141,927 | |
Note 10 – Preferred Stock
On August 25, 2021, the Company filed with the Secretary of State of the State of Delaware the Certificate of Designation for the Series A Preferred Stock, which designates a total of 50.0 million shares of preferred stock as Series A Preferred Stock, par value $0.001 per share. On the same day, the Company entered into subscription agreements (collectively, the “Preferred Subscription Agreements”) with certain investors, pursuant to which the investors made new capital commitments (the “Preferred Capital Commitments”) to purchase shares of the Company’s Series A Preferred Stock. As of September 30, 2023, the Company has received total Preferred Capital Commitments of $77.5 million, which has and will continue to call from time to time. Pursuant to their respective Preferred Subscription Agreements, each investor is required to fund drawdowns to purchase shares of the Series A Preferred Stock up to the amount of their respective capital commitments on an as-needed basis, upon a minimum of 10 business days prior notice at a per-share price equal to the liquidation preference (the “Liquidation Preference”). The sale and issuance of shares of Series A Preferred Stock is exempt from the registration requirements of the Securities Act, pursuant to Section 4(a)(2) thereof and Regulation D thereunder. The Company shall rely, in part, upon representations from the Investors in the relevant Preferred Subscription Agreements that each Investor is an “accredited investor,” as defined in Regulation D under the Securities Act.
As of September 30, 2023, there were 50.0 million shares of preferred stock authorized, par value $0.001 per share, of which 77,500 shares of Series A Preferred Stock were issued and outstanding. As of December 31, 2022, there were 50.0 million shares of preferred stock authorized, par value $0.001 per share, of which 36,147 shares of Series A Preferred Stock were issued and outstanding. No shares outstanding of Series A Preferred Stock are redeemable before December 31, 2026.
Each holder of Series A Preferred Stock is entitled to a Liquidation Preference of $1,000.00 per share plus all dividends accrued and unpaid thereon. With respect to distributions, including the payment of dividends and distribution of the Company’s assets upon liquidation, dissolution, or winding-up, whether voluntary or involuntary, the Series A Preferred Stock will be senior to shares of Common Stock, will rank on parity with any other class or series of preferred stock that the Company is authorized to issue pursuant to its certificate of incorporation, whether such class or series is now existing or is created in the future, to the extent of the aggregate Liquidation Preference, which amount includes all accrued but unpaid dividends and will be subordinate to the rights of holders of our senior indebtedness.
FRANKLIN BSP CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended September 30, 2023
(Unaudited)
Dividends are payable on each outstanding share of Series A Preferred Stock quarterly in arrears at a rate equal to (1) for each fiscal quarter ending on or before September 30, 2022 (the “Initial Dividend Period”), the dividends that would have been paid in respect of each share of Series A Preferred Stock if it had been converted into a share of the Company’s Common Stock, on the first day of such quarter (or the date of issuance in the case of shares of Series A Preferred Stock issued after the first day of such quarter) at the applicable Conversion Rate (as defined below) and (2) for each quarter after the Initial Dividend Period, the greater of (i) an amount equal to $10.00 per share, subject to proration if such share is not outstanding for the full quarter, and (ii) the dividends that would have been paid in respect of such share of Series A Preferred Stock if it had been converted into a share of Common Stock on the first day of such quarter (or the date of issuance in the case of shares of Series A Preferred Stock issued after the first day of such quarter) at the applicable Conversion Rate.
The Series A Preferred Stock is convertible (a) by the Company, in its sole discretion, at any time commencing on the closing date of a liquidity event, as defined by the Confidential Private Placement Memorandum of Franklin BSP Capital Corporation, dated September 2020, or (b) by the holders thereof at any time commencing six months following the closing date of a liquidity event, in each case, into the number of shares of Common Stock equal to (1) the Liquidation Preference divided by (2) the price paid by investors for shares of Common Stock at the time of the purchase of such share of Series A Preferred Stock or if the purchase of such share of Series A Preferred Stock did not occur concurrent with a sale of Common Stock by the Company at the net asset value per share of Common Stock determined within 48 hours (excluding Sundays and holidays) of the purchase of such share of Series A Preferred Stock (the “Conversion Rate”). The Company has the right to redeem the Series A Preferred Stock at any time, and from time to time, on or after August 23, 2029 upon 90 days prior notice to holders of Series A Preferred Stock. As of September 30, 2023 and December 31, 2022, a liquidity event had not commenced.
The holders of the Preferred Stock are generally entitled to vote with the holders of the shares of Common Stock on all matters submitted for a vote to the common stockholders (voting together with the holders of shares of Common Stock as one class) on an as-converted basis, subject to certain limitations.
The following table presents the activity in the Company’s Series A Preferred Stock for the nine months ended September 30, 2023:
| | | | | | | | | | | | | | |
| Series A Preferred Stock | | Shares | | Amount |
| Beginning Balance, December 31, 2022 | | 36,147 | | | $ | 36,093 | |
| Issuance of Preferred Stock | | 41,353 | | | 41,353 | |
| | | | |
| Offering costs | | — | | | (65) | |
| Amortization of offering costs | | — | | | 12 | |
| Ending Balance, September 30, 2023 | | 77,500 | | | $ | 77,393 | |
The following table presents the activity in the Company’s Series A Preferred Stock for the nine months ended September 30, 2022:
| | | | | | | | | | | | | | |
| Series A Preferred Stock | | Shares | | Amount |
| Beginning Balance, December 31, 2021 | | 5,000 | | | $ | 4,992 | |
| Issuance of Preferred Stock | | 15,000 | | | 15,000 | |
| | | | |
| Offering costs | | — | | | (24) | |
| Amortization of offering costs | | — | | | 2 | |
| Ending Balance, September 30, 2022 | | 20,000 | | | $ | 19,970 | |
FRANKLIN BSP CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended September 30, 2023
(Unaudited)
Note 11 - Earnings Per Share
Basic and diluted earnings per share (“EPS”) are computed using the two-class method, which considers participating securities as a separate class of shares. The two-class method is an earnings allocation formula that determines EPS for common stock according to dividends distributed and participation rights in undistributed earnings. The Company’s participating securities consist of its Series A Preferred Stock. Basic earnings per share is computed by dividing earnings available to common stockholders, adjusted to exclude earnings allocated to participating securities, 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 following information sets forth the computation of the weighted average basic and diluted net increase in net assets per share resulting from operations for the three and nine months ended September 30, 2023 and 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended September 30, | | For the nine months ended September 30, |
| Numerator | | 2023 | | 2022 | | 2023 | | 2022 |
| Net increase (decrease) in net assets resulting from operations | | $ | 15,000 | | | $ | 7,041 | | | $ | 37,108 | | | $ | 13,935 | |
| Less: cumulative preferred stock dividends | | (2,197) | | | (508) | | | (6,591) | | | (1,270) | |
| Less: changes in carrying value of redeemable securities | | (5) | | | (1) | | | (12) | | | (2) | |
| Less: Undistributed earnings allocated to Series A Redeemable Preferred Stock Dividends in current period | | (279) | | | — | | | — | | | — | |
| Numerator for EPS - income available to common stockholders | | $ | 12,519 | | | $ | 6,532 | | | $ | 30,505 | | | $ | 12,663 | |
| | | | | | | | |
| Denominator | | | | | | | | |
| Weighted average common shares outstanding | | 25,739,135 | | | 19,481,677 | | | 25,288,074 | | | 16,953,274 | |
| Basic and diluted earnings per share | | $ | 0.49 | | | $ | 0.34 | | | $ | 1.21 | | | $ | 0.75 | |
Note 12 — Distributions
The following table reflects the distributions declared on shares of the Company’s Common Stock during the nine months ended September 30, 2023:
| | | | | | | | | | | | | | | | | | | | |
| Date Declared | | Record Date | | Payment Date | | Amount Per Share |
| For the Nine Months Ended September 30, 2023 | | | |
| February 24, 2023 | | February 24, 2023 | | March 24, 2023 | | $0.43 |
| April 27, 2023 | | April 27, 2023 | | May 5, 2023 | | $0.43 |
| July 28, 2023 | | July 28, 2023 | | August 7, 2023 | | $0.43 |
FRANKLIN BSP CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended September 30, 2023
(Unaudited)
The following table reflects the distributions declared on shares of the Company’s Common Stock during the nine months ended September 30, 2022:
| | | | | | | | | | | | | | | | | | | | |
| Date Declared | | Record Date | | Payment Date | | Amount Per Share |
| For the Nine Months Ended September 30, 2022 | | | | |
| February 4, 2022 | | January 31, 2022 | | February 22, 2022 | | $0.30 |
| May 11, 2022 | | May 11, 2022 | | May 24, 2022 | | $0.39 |
| July 28, 2022 | | July 28, 2022 | | August 5, 2022 | | $0.39 |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
The following table reflects the distributions declared on shares of the Company’s Series A Preferred Stock during the nine months ended September 30, 2023:
| | | | | | | | | | | | | | | | | | | | |
| Date Declared | | Record Date | | Payment Date | | Amount Per Share |
| For the Nine Months Ended September 30, 2023 | | | |
| February 24, 2023 | | February 24, 2023 | | March 24, 2023 | | $28.31 |
| April 27, 2023 | | April 27, 2023 | | May 5, 2023 | | $28.35 |
| July 28, 2023 | | July 28, 2023 | | August 7, 2023 | | $28.35 |
The following table reflects the distributions declared on shares of the Company’s Series A Preferred Stock during the nine months ended September 30, 2022:
| | | | | | | | | | | | | | | | | | | | |
| Date Declared | | Record Date | | Payment Date | | Amount Per Share |
| For the Nine Months Ended September 30, 2022 | | | |
| February 4, 2022 | | January 31, 2022 | | February 22, 2022 | | $19.49 |
| May 11, 2022 | | May 11, 2022 | | May 24, 2022 | | $25.28 |
| July 28, 2022 | | July 28, 2022 | | August 5, 2022 | | $25.42 |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Note 13 — Income Tax Information and Distributions to Stockholders
The Company has elected to be treated for federal income tax purposes as a RIC under the Code. Generally, a RIC is exempt from federal income taxes if it meets, certain quarterly asset diversification requirements, annual income tests, and distributes to stockholders its ‘‘investment company taxable income,’’ as defined in the Code, each taxable year. Distributions declared prior to the filing of the previous year's tax return and paid up to one year after the previous 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 may also be subject to federal excise taxes of 4%.
FRANKLIN BSP CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended September 30, 2023
(Unaudited)
A RIC is limited in its ability to deduct expenses in excess of its “investment company taxable income” (which is, generally, ordinary income plus net realized short-term capital gains in excess of net realized long-term capital losses). If the Company's expenses in a given taxable year exceed gross taxable income (e.g., as the result of large amounts of equity-based compensation), it would incur a net operating loss for that year. However, a RIC is not permitted to carry forward net operating losses to subsequent taxable years and such net operating losses do not pass through to the RIC’s stockholders. In addition, deductible expenses can be used only to offset investment company taxable income, not net capital gain. A RIC may not use any net capital losses (that is, realized capital losses in excess of realized capital gains) to offset the RIC’s investment company taxable income, but may carry forward such net capital losses, and use them to offset capital gains indefinitely. Due to these limits on the deductibility of expenses and net capital losses, the Company may for tax purposes have aggregate taxable income for several taxable years that it is required to distribute and that is taxable to stockholders even if such taxable income is greater than the aggregate net income the Company actually earned during those taxable years. Such required distributions may be made from the Company cash assets or by liquidation of investments, if necessary. The Company may realize gains or losses from such liquidations. In the event the Company realizes net capital gains from such transactions, the Company may make a larger capital gain distribution than it would have made in the absence of such transactions.
Depending on the level of taxable income earned in a tax year, for excise tax purposes the Company may choose to carry forward taxable income in excess of current year distributions into the next tax year and incur a 4% U.S. federal excise tax on such income, as required. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year distributions, the Company accrues excise tax, if any, on estimated excess taxable income as taxable income is earned.
The Company did not have any uncertain tax positions that met the recognition or measurement criteria of ASC 740-10-25, Income Taxes (“ASC Topic 740”), nor did the Company have any unrecognized tax benefits as of the periods presented herein. The Company’s current tax year, 2022, and 2021 federal and state tax returns remain subject to examination by the Internal Revenue Service and state departments of revenue.
As of September 30, 2023, the Company's domestic subsidiary had a cumulative net operating loss and unrealized gain. As a result, the Company has a deferred tax asset of $5.7 million and a deferred tax liability of $(6.5) million. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that all or some portion of the deferred tax assets will not be realized. As of September 30, 2023, deferred tax assets have been offset by valuation allowances of $0.4 million.
As of December 31, 2022, the Company’s domestic subsidiary is expected to have a net operating loss and unrealized gain. As a result, the Company has a deferred tax asset of $2.9 million and a deferred tax liability of $(3.7) million. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that all or some portion of the deferred tax assets will not be realized. The future realization of the tax benefits of existing deductible temporary differences or carryforwards ultimately depend on the existence of sufficient taxable income in the carryback (if permitted under the tax law) and carryforward periods. The Company has concluded future reversal of existing taxable temporary differences is sufficient to support a conclusion that a valuation allowance is not necessary as of December 31, 2022. As a result, no valuation allowance for the deferred tax assets is necessary. As of December 31, 2021, the Company did not have any deferred tax assets or deferred tax liabilities.
The deferred tax asset valuation allowance, if applicable, has been determined pursuant to the provisions of ASC Topic 740, including the Company's estimation of future taxable income, if necessary, and is adequate to reduce the total deferred tax asset to an amount that will more likely than not be realized.
FRANKLIN BSP CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended September 30, 2023
(Unaudited)
Note 14 - Financial Highlights
The following is a schedule of financial highlights for the nine months ended September 30, 2023 and 2022:
| | | | | | | | | | | | | |
| For the the nine months ended September 30, | | |
| 2023 | | 2022 | | |
| Per share data: | | | | | |
| Net asset value attributable to common stock, beginning of period | $ | 15.13 | | | $ | 15.46 | | | |
| | | | | |
Results of operations (1) | | | | | |
| Net investment income (loss) | 1.57 | | | 1.18 | | | |
| Net realized and unrealized gain (loss) on investments, net of change in deferred taxes | (0.10) | | | (0.36) | | | |
| Net increase (decrease) in net assets resulting from operations attributable to common stockholders and participating securities | 1.47 | | | 0.82 | | | |
| | | | | |
Accretion to redemption value of Series A redeemable convertible preferred stock (1)(8) | — | | | — | | | |
Accrual of Series A redeemable convertible preferred stock distributions (1) | (0.21) | | | (0.05) | | | |
| Net increase (decrease) in net assets resulting from operations attributable to common stockholders | 1.26 | | | 0.77 | | | |
| | | | | |
Stockholder distributions (2) | | | | | |
| Common stockholder distributions from net investment income | (1.29) | | | (1.08) | | | |
| Net decrease in net assets resulting from stockholder distributions | (1.29) | | | (1.08) | | | |
| | | | | |
| | | | | |
| Net asset value attributable to common stock, end of period | $ | 15.10 | | | $ | 15.15 | | | |
| | | | | |
| Common shares outstanding at end of period | 25,862,766 | | | 23,182,891 | | | |
Total return (3) | 8.57 | % | | 5.06 | % | | |
| Ratio/Supplemental data attributable to common stock: | | | | | |
| Total net assets attributable to common stock, end of period | $ | 390,570 | | | $ | 351,279 | | | |
| | | | | |
Ratio of net investment income to average net assets attributable to common stock (4) | 13.90 | % | | 9.83 | % | | |
Ratio of total expenses to average net assets attributable to common stock (4)(5) | 12.33 | % | | 9.08 | % | | |
| | | | | |
Ratio of net expenses to average net assets attributable to common stock (4)(6) | 10.77 | % | | 8.13 | % | | |
| | | | | |
Portfolio turnover rate (7) | 5.95 | % | | 5.97 | % | | |
—–—–—–—–—–
(1) The per share data was derived by using the weighted average common shares outstanding during the period.
(2) The per share data for distributions reflects the actual amount of distributions declared per share during the period.
(3) Total return is calculated assuming a purchase of shares of Common Stock at the current net asset value attributable to Common Stock on the first day and a sale at the current net asset value attributable to Common Stock on the last day of the periods reported. Common Stock distributions, if any, are assumed for purposes of this calculation to be reinvested at prices obtained under the DRIP. Total return is not annualized.
(4) Ratios are annualized, except for incentive fees and waivers.
(5) Ratio of total expenses to average net assets attributable to common stock is calculated using total operating expenses, including income tax expense over average net assets attributable to common stock.
(6) Ratio of net expenses to average net assets attributable to common stock is calculated using total operating expenses, including income tax expense, less applicable waivers over average net assets attributable to common stock.
FRANKLIN BSP CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended September 30, 2023
(Unaudited)
(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.
(8) Rounds to less than $0.01 per share.
Note 15 - Schedules of Investments and Advances to Affiliates
The following table presents the Schedule of Investments and Advances to Affiliates for the nine months ended September 30, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Portfolio Company (1) | | Type of Asset | | Amount of dividends and interest included in income | | Beginning Fair Value at December 31, 2022 | | Gross additions* | | Gross reductions** | | Realized Gain/(Loss) | | Change in Unrealized Gain (Loss) | | Fair Value at September 30, 2023 |
| Control Investments | | | | | | | | | | | | | | | | |
Post Road Equipment Finance, LLC (2) | | Equity/Other | | $ | 2,024 | | | $ | 30,742 | | | $ | 1,884 | | | $ | — | | | $ | — | | | $ | — | | | $ | 32,626 | |
Post Road Equipment Finance, LLC (2) | | Subordinated Debt | | 875 | | | 6,914 | | | 4,086 | | | (943) | | | — | | | — | | | 10,057 | |
Post Road Equipment Finance, LLC (2) | | Subordinated Debt | | 2,383 | | | 24,500 | | | 11 | | | — | | | — | | | (11) | | | 24,500 | |
| Total Control Investments | | | | $ | 5,282 | | | $ | 62,156 | | | $ | 5,981 | | | $ | (943) | | | $ | — | | | $ | (11) | | | $ | 67,183 | |
—–—–—–—–—–
* Gross additions include increases in the cost basis of investments resulting from new portfolio investments, PIK interest or dividends, the amortization of unearned income, the exchange of one or more existing securities for one or more new securities, and the movement of an existing portfolio company into this category from a different category.
** Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, the exchange of one or more existing securities for one or more new securities, and the movement of an existing portfolio company out of this category into a different category.
(1) The principal/share amount and ownership detail are shown in the consolidated schedules of investments.
(2) The fair value of investments with respect to securities for which market quotations are not readily available is determined in good faith by the Company's Board of Directors as required by the 1940 Act. Such investments are valued using significant unobservable inputs (See Note 3 to the consolidated financial statements).
The following table presents the Schedule of Investments and Advances to Affiliates for the year ended December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Portfolio Company (1) | | Type of Asset | | Amount of dividends and interest included in income | | Beginning Fair Value at December 31, 2021 | | Gross additions* | | Gross reductions** | | Realized Gain/(Loss) | | Change in Unrealized Gain | | Fair Value at December 31, 2022 |
| Control Investments | | | | | | | | | | | | | | | | |
Post Road Equipment Finance, LLC (2) | | Equity/Other | | $ | 2,698 | | | $ | 30,742 | | | $ | — | | | $ | 35 | | | $ | — | | | $ | (35) | | | $ | 30,742 | |
Post Road Equipment Finance, LLC (2) | | Subordinated Debt | | 409 | | | — | | | 6,914 | | | — | | | — | | | — | | | 6,914 | |
Post Road Equipment Finance, LLC (2) | | Subordinated Debt | | 2,493 | | | 24,412 | | | 10 | | | — | | | — | | | 78 | | | 24,500 | |
| Total Control Investments | | | | $ | 5,600 | | | $ | 55,154 | | | $ | 6,924 | | | $ | 35 | | | $ | — | | | $ | 43 | | | $ | 62,156 | |
| | | | | | | | | | | | | | | | |
| Affiliate Investments | | | | | | | | | | | | | | | | |
Jakks Pacific, Inc. (2) (3) | | Equity/Other | | $ | 4 | | | $ | 116 | | | $ | 5 | | | $ | (121) | | | $ | — | | | $ | — | | | $ | — | |
| Total Affiliate Investments | | | | $ | 4 | | | $ | 116 | | | $ | 5 | | | $ | (121) | | | $ | — | | | $ | — | | | $ | — | |
—–—–—–—–—–
* Gross additions include increases in the cost basis of investments resulting from new portfolio investments, PIK interest or dividends, the amortization of unearned income, the exchange of one or more existing securities for one or more new securities, and the movement of an existing portfolio company into this category from a different category.
** Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, the exchange of one or more existing securities for one or more new securities, and the movement of an existing portfolio company out of this category into a different category.
FRANKLIN BSP CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended September 30, 2023
(Unaudited)
(1) The principal/share amount and ownership detail are shown in the consolidated schedules of investments.
(2) The fair value of investments with respect to securities for which market quotations are not readily available is determined in good faith by the Company's Board of Directors as required by the 1940 Act. Such investments are valued using significant unobservable inputs (See Note 3 to the consolidated financial statements).
(3) Includes $4 of interest income from Jakks Pacific, Inc. subordinated debt.
Note 16 - Subsequent Events
In preparing these financial statements, the Company’s management has evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued.
Merger Agreement
On October 2, 2023, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with Franklin BSP Lending Corporation, a Maryland corporation ("FBLC"), Franklin BSP Merger Sub, Inc., a Maryland corporation and a direct wholly-owned subsidiary of the Company ("Merger Sub"), and, solely for the limited purposes set forth therein, the Adviser. The Merger Agreement provides that, subject to the conditions set forth in the Merger Agreement, at the effective time of the Merger (the "Effective Time"), Merger Sub will be merged with and into FBLC (the "Merger"), with FBLC continuing as the surviving company and as a wholly-owned subsidiary of the Company. Immediately after the Effective Time, FBLC will merge with and into the Company (together with the Merger, the "Mergers"), with the Company continuing as the surviving company. Both the Board and FBLC's board of directors, including all of the respective independent directors, in each case, on the recommendation of special committees comprised solely of the independent directors of the Company or FBLC, as applicable, have approved the Merger Agreement and the transactions contemplated thereby.
Subject to the terms and conditions of the Merger Agreement, in connection with the consummation of the Mergers, each share of FBLC’s common stock then issued and outstanding (other than shares owned by the Company or any of its controlled subsidiaries) will be converted into the right to receive a number of shares of the Company’s common stock equal to an exchange ratio calculated based on each funds’ respective NAVs (cash will be paid in lieu of fractional shares). No new preferred stock will be issued by the Company as a result of the Mergers.
The Merger Agreement contains representations and warranties by the Company, Merger Sub, the Adviser and FBLC, subject to specified exceptions and qualifications.
Consummation of the Mergers, which is currently anticipated to occur in early 2024, is subject to certain closing conditions, including requisite approvals of the Company’s and FBLC’s stockholders and certain other closing conditions. Assuming the Mergers are consummated, the combined company will enter into an amended and restated investment advisory agreement with the Adviser at closing.
FRANKLIN BSP CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
For the period ended September 30, 2023
(Unaudited)
MS Credit Facility Refinancing
On October 4, 2023, the Company refinanced the MS Credit Facility with a $400.0 million credit facility with FBCC Jupiter Funding, LLC, a wholly-owned, consolidated special purpose financing subsidiary of the Company, as borrower (“Jupiter Funding”), the Adviser, as portfolio manager, the lenders party thereto, U.S. Bank National Association, as securities intermediary, U.S. Bank Trust Company, National Association as collateral administrator and collateral agent, and JPMorgan Chase Bank, National Association, as administrative agent (the “JPM Credit Facility”). The JPM Credit Facility provides for borrowings through October 4, 2026, and any amounts borrowed under the JPM Credit Facility will mature on October 4, 2027. Borrowings under the JPM Credit Facility will bear interest at a benchmark rate, currently SOFR, plus a margin of 2.75% per annum, which is inclusive of an administrative agent fee. Interest is payable quarterly in arrears. Jupiter Funding will be subject to a non-usage fee of 0.75%, which is inclusive of the administrative agent fee, to the extent the commitments available under the JPM Credit Facility have not been borrowed. Jupiter Funding paid an upfront fee and incurred other customary costs and expenses in connection with the JPM Credit Facility.
Distribution Declarations
On November 8, 2023, the Board of Directors declared a distribution of $0.43 per share of Common Stock, which is payable on or around November 16, 2023 to stockholders of record as of November 8, 2023.
On November 8, 2023, the Board of Directors declared a distribution of $28.35 per share of Series A Preferred Stock, which is payable on or around November 16, 2023 to stockholders of record as of November 8, 2023.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements of Franklin BSP Capital Corporation (including, for periods prior the conversion, Franklin BSP Capital L.L.C., a Delaware limited liability company, the "Company," "FBCC," "we," “us,” or "our") 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, Franklin BSP Capital Adviser L.L.C. (the “Adviser”).
Forward Looking Statements
This report, and other statements that we may make, may contain forward-looking statements with respect to future financial or business performance, strategies, or expectations. Forward-looking statements are typically identified by words or phrases such as “trend,” “opportunity,” “pipeline,” “believe,” “comfortable,” “expect,” “anticipate,” “current,” “intention,” “estimate,” “position,” “assume,” “potential,” “outlook,” “continue,” “remain,” “maintain,” “sustain,” “seek,” “achieve,” and similar expressions, or future conditional verbs such as “will,” “would,” “should,” “could,” “may,” or similar expressions.
Forward-looking statements are subject to numerous assumptions, risks, and uncertainties, which change over time. Forward-looking statements speak only as of the date they are made, and we assume no duty to and do not undertake to update forward-looking statements. Actual results could differ materially from those anticipated in forward-looking statements and future results could differ materially from historical performance.
In addition to factors previously disclosed in our U.S. Securities and Exchange Commission (“SEC”) reports and those identified elsewhere in this report, including the “Risk Factors” section, the following factors, among others, could cause actual results to differ materially from forward-looking statements or historical performance:
•our future operating results;
•changes in political, economic or industry conditions, the interest rate environment or conditions affecting the financial and capital markets, including the effect of rising interest rates and a potential global recession;
•the impact of geo-political conditions, including revolution, insurgency, terrorism or war, including those arising out of the ongoing conflict between Russia and Ukraine;
•the impact that the discontinuation of London Interbank Offered Rate (“LIBOR”) and the transition to new reference rates could have on the value of any LIBOR-indexed portfolio investments we may hold and the cost of borrowing under any credit facilities we may enter into;
•the impact of the investments that we expect to make;
•the ability of our portfolio companies to achieve their objectives;
•our contractual arrangements and relationships with third parties;
•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 qualifications as a regulated investment company (“RIC”) and a business development company (“BDC”);
•the timing, form, and amount of any distributions;
•the impact of fluctuations in interest rates on our business;
•the valuation of any investments in portfolio companies, particularly those having no liquid trading market;
•the impact of changes to generally accepted accounting principles;
•the impact of changes to tax legislation and, generally, our tax position;
•the ability of our Adviser to locate suitable investments for us and to monitor and administer our investments; and
•the ability of our Adviser and its affiliates to attract and retain highly talented professionals.
•the ability of the parties to consummate the Mergers on the expected timeline, or at all;
•the ability to realize the anticipated benefits of the Mergers;
•the effects of disruption on our business from the Mergers;
•the combined company’s plans, expectations, objectives and intentions as a result of the Mergers;
•any potential termination of the Merger Agreement;
•the actions of our stockholders or the stockholders of FBLC with respect to the proposals submitted for their approval in connection with the Mergers;
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 obligations 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 an externally managed, non-diversified, closed-end management investment company that has elected to be regulated as a BDC, and has elected to be treated for U.S. federal income tax purposes, as a RIC under the Internal Revenue Code of 1986, as amended (the “Code”). We are managed by the Adviser. The Adviser is an affiliate of Benefit Street Partners (“Benefit Street Partners” or “BSP”). Our Adviser is a Delaware limited liability company that is registered as an investment adviser under the Advisers Act. Our Adviser oversees the management of our activities and is responsible for making investment decisions with respect to our portfolio.
Our investment objective is to generate both current income and capital appreciation through debt and equity investments. We intend to invest primarily in first and second lien senior secured loans, and to a lesser extent, mezzanine loans, unsecured loans and equity of predominantly private U.S. middle market companies. We define middle market companies as those with EBITDA of between $25 million and $100 million annually, although we may invest in larger or smaller companies. We also may purchase interests in loans or corporate bonds through secondary market transactions. We expect that each investment generally will range between approximately 0.5% and 3.0% of our total assets. As of September 30, 2023, 90.7% of our portfolio was invested in senior secured loans.
Senior secured loans generally are senior debt instruments that rank ahead of subordinated debt and equity in priority of payments 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.
On December 18, 2020, we completed our initial closing (“Initial Closing”) of capital commitments (“Capital Commitments”) to purchase shares of our common stock (“Common Stock”) to investors in a private placement in reliance on exemptions from the registration requirements of the Securities Act. Since our Initial Closing, we held additional closings and received aggregate Capital Commitments to purchase Common Stock. As of September 30, 2023, investors had made aggregate Capital Commitments to purchase Common Stock of $592.2 million. At each closing of the private placement, each investor will make a Capital Commitment to purchase shares of Common Stock pursuant to a Subscription Agreement entered into with us. Investors will be required to fund drawdowns to purchase shares of Common Stock up to the amount of their respective Capital Commitments on an as-needed basis each time we deliver a notice to the investors. Closings of the private placement of our Common Stock are expected to occur, from time to time, during the Initial Closing Period which our board of directors (“Board of Directors”) has extended such that it currently will end December 18, 2023. After the Initial Closing Period, we may permit one or more additional closings of the private placement of our Common Stock with the approval of our Board of Directors.
On August 25, 2021, we filed the Certificate of Designation for the Series A Preferred Stock (the “Series A Preferred Stock”). On the same day, we entered into the preferred subscription agreements (the “Preferred Subscription Agreements”) with certain investors, pursuant to which investors made new preferred capital commitments (“Preferred Capital Commitments") to purchase shares of our Series A Preferred Stock. As of September 30, 2023, total Preferred Capital Commitments of Series A Preferred Stock were $77.5 million.
On October 2, 2023, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Franklin BSP Lending Corporation, a Maryland corporation (“FBLC”), Franklin BSP Merger Sub, Inc., a Maryland corporation and our direct wholly-owned subsidiary (“Merger Sub”), and, solely for the limited purposes set forth therein, the Adviser. The Merger Agreement provides that, subject to the conditions set forth in the Merger Agreement, at the effective time of the Merger (the “Effective Time”), Merger Sub will be merged with and into FBLC (the “Merger”), with FBLC continuing as the surviving company and as our wholly-owned subsidiary. Immediately after the Effective Time, FBLC will merge with and into us (together with the Merger, the “Mergers”), and we will continue as the surviving company. See “—Recent Developments—Merger Agreement” for further information regarding the Merger Agreement and the Mergers.
Financial and Operating Highlights
| | | | | |
| (Dollars in thousands, except per share amounts) | |
At September 30, 2023: | |
| Investment Portfolio | $ | 759,061 | |
| Net assets attributable to common stock | 390,570 | |
| Debt (net of deferred financing costs) | 342,031 | |
| Secured borrowings | 33,344 | |
| Net asset value per share attributable to common stock | 15.10 | |
| |
Portfolio Activity for the Nine Months Ended September 30, 2023: | |
| Purchases during the year | 46,408 | |
| Sales, repayments, and other exits during the year | 71,019 | |
| Number of portfolio companies at end of year | 70 |
| |
Operating Results for the Nine Months Ended September 30, 2023: | |
| Net investment income (loss) per share - basic | 1.57 | |
| Net increase (decrease) in net assets resulting from operations attributable to common stockholders and participating securities | 1.47 | |
| Net investment income (loss) | 39,766 | |
| Net realized and unrealized gain (loss) | (2,658) | |
| Net increase (decrease) in net assets resulting from operations attributable to common stockholders | 31,679 | |
Portfolio and Investment Activity
We invest primarily in first and second lien senior secured loans, and to a lesser extent, mezzanine loans, unsecured loans and equity of predominantly private U.S. middle market companies. We define middle market companies as those with EBITDA of between $25 million and $100 million annually, although we may invest in larger or smaller companies. We also may purchase interests in loans or corporate bonds through secondary market transactions.
During the nine months ended September 30, 2023, we made $46.4 million of investments in new portfolio companies and had $71.0 million in aggregate amount of sales and repayments, resulting in net investments of $(24.6) million for the period. The total portfolio of debt investments at fair value consisted of 98.1% bearing variable interest rates and 1.9% bearing fixed interest rates.
Our portfolio composition, based on fair value at September 30, 2023 was as follows:
| | | | | | | | | | | |
| September 30, 2023 |
| Percentage of Total Portfolio(1) | | Weighted Average Current Yield for Total Portfolio (2) |
| Senior Secured First Lien Debt | 83.9 | % | | 11.9 | % |
| Senior Secured Second Lien Debt | 6.8 | | | 13.3 | |
| Subordinated Debt | 4.5 | | | 13.1 | |
| Debt Subtotal | 95.2 | % | | 12.1 | % |
Equity/Other | 4.8 | | | 7.8 | |
| Total | 100.0 | % | | 11.9 | % |
(1) As of September 30, 2023, we held investments in Post Road Equipment Finance, LLC (“Post Road”) consisting of subordinated debt and equity, which represented 4.5% and 4.3% of our total portfolio, respectively. Post Road’s primary business involves equipment finance transactions secured by mission-critical equipment of middle market companies. If we were to treat the investments in Post Road as senior secured first lien investments, given the underlying business of this portfolio company, then our portfolio composition as of September 30, 2023 would be as follows:
| | | | | | | | |
| | September 30, 2023 |
| | Percentage of
Total Portfolio |
| Senior Secured First Lien Debt | | 92.7 | % |
| Senior Secured Second Lien Debt | | 6.8 | |
| Senior Secured - Subtotal | | 99.5 | % |
| Equity/Other | | 0.5 | |
| Total | | 100.0 | % |
(2) Includes the effect of the amortization or accretion of loan premiums or discounts.
During the year ended December 31, 2022, we made $327.9 million of investments in new portfolio companies and had $58.6 million in aggregate amount of sales and repayments, resulting in net investments of $269.3 million for the period. The total portfolio of debt investments at fair value consisted of 98.3% bearing variable interest rates and 1.7% bearing fixed interest rates.
Our portfolio composition, based on fair value at December 31, 2022 was as follows:
| | | | | | | | | | | |
| December 31, 2022 |
| Percentage of Total Portfolio(1) | | Weighted Average Current Yield for Total Portfolio (2) |
| Senior Secured First Lien Debt | 84.8 | % | | 10.8 | % |
| Senior Secured Second Lien Debt | 6.9 | | | 12.1 | |
| Subordinated Debt | 4.0 | | | 12.0 | |
| Debt Subtotal | 95.7 | % | | 11.0 | % |
Equity/Other | 4.3 | | | 7.9 | |
| Total | 100.0 | % | | 10.8 | % |
(1) As of December 31, 2022, we held investments in Post Road Equipment Finance, LLC consisting of subordinated debt and equity, which represented 4.0% and 3.9% of our total portfolio, respectively. Post Road’s primary business involves equipment finance transactions secured by mission-critical equipment of middle market companies. If we were to treat the investments in Post Road as senior secured first lien investments, given the underlying business of this portfolio company, then our portfolio composition as of December 31, 2022 would be as follows:
| | | | | | | | |
| | December 31, 2022 |
| | Percentage of
Total Portfolio |
| Senior Secured First Lien Debt | | 92.7 | % |
| Senior Secured Second Lien Debt | | 6.9 | |
| Senior Secured - Subtotal | | 99.6 | % |
Equity/Other | | 0.4 | |
| Total | | 100.0 | % |
(2) Includes the effect of the amortization or accretion of loan premiums or discounts
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.
| | | | | | | | |
| 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 rating of our investments based on fair value was 2.2 and 2.1 as of September 30, 2023 and December 31, 2022, respectively. As of September 30, 2023 and December 31, 2022, the Company had no portfolio companies on non-accrual status, respectively. Refer to Note 2 - Summary of Significant Accounting Policies - for additional details regarding the Company’s non-accrual policy.
RESULTS OF OPERATIONS
Investments
Our level of investment activity can and does vary substantially from period to period depending on many factors, including the amount of debt and equity capital available to middle market companies, the level of merger and acquisition activity for such companies, the general economic environment, the amount of capital we have available to us and the competitive environment for the type of investments we make.
Our investment objective is to generate both current income and capital appreciation through debt and equity investments. We invest primarily in first and second lien senior secured loans, and to a lesser extent, mezzanine loans, unsecured loans and equity of predominantly private U.S. middle market companies. We define middle market companies as those with EBITDA of between $25 million and $100 million annually, although we may invest in larger or smaller companies. We also may purchase interests in loans or corporate bonds through secondary market transactions, which refers to acquisitions from secondary market participants rather than from the portfolio company directly.
As a BDC, we are generally required to invest at least 70% of our total assets primarily in securities of private and certain U.S. public companies (other than certain financial institutions), cash, cash equivalents and U.S. government securities and other limited float high quality debt investments that mature in one year or less.
Revenues
We generate revenues primarily in the form of interest income on debt investments we hold, and to a lesser extent, capital gains and distributions, if any, on equity securities that we may acquire in portfolio companies. Some of our investments may provide for deferred interest payments or payment-in-kind (“PIK”) income.
In addition, we may generate revenue in the form of fee income such as structuring fees, origination, closing, amendment fees, commitment, termination, and other upfront fees. We do not expect to receive material fee income as it is not our principal investment strategy. Upon the re-payment of a loan or debt security, any prepayment penalties and unamortized loan origination, structuring, closing, commitment, and other upfront fees are recorded as income.
Expenses
We will bear all out-of-pocket costs and expenses of our operations and transactions, including, but not limited to:
•expenses incurred by the Adviser and payable to third parties, including agents, consultants and other advisors, in monitoring the financial and legal affairs of the Company, news and quotation subscriptions, and market or industry research expenses;
•the cost of calculating the Company’s net asset value (“NAV”); the cost of effecting sales and repurchases of shares of our Common Stock and other securities;
•management and incentive fees payable pursuant to the Investment Advisory Agreement; fees payable to third parties, including agents, consultants and other advisors, relating to, or associated with, making investments, and, if necessary, enforcing its rights, and valuing investments (including third-party valuation firms);
•expenses related to consummated or unconsummated investments, including dead deal or broken deal expenses; rating agency expenses; fees to arrange debt financings for the Company;
•distributions on the Company’s shares; administration fees payable under the Administration Agreement;
•the allocated costs incurred by the Administrator in providing managerial assistance to those portfolio companies that request it; transfer agent and custodial fees; fees and expenses associated with marketing efforts (including attendance at investment conferences and similar events); accounting, audit and tax preparation expenses;
•federal and state registration fees; any exchange listing fees; federal, state, local, and other taxes;
•costs and expenses incurred in relation to compliance with applicable laws and regulations and the operation and administration of the Company generally;
•independent directors’ fees and expenses;
•brokerage commissions; costs of proxy statements, stockholders’ reports and notices; costs of preparing government filings, including periodic and current reports with the SEC; the Company’s fidelity bond, directors and officers/errors and omissions liability insurance, and any other insurance premiums; indemnification payments;
•expenses relating to the development and maintenance of the Company’s website, if any; other operations and technology costs;
•direct costs and expenses of administration, including printing, mailing, copying, telephone, fees of independent accountants and outside legal costs; and
•all other expenses incurred by the Company or the Administrator in connection with administering the Company’s business, including, but not limited to, payments under the Administration Agreement based upon the Company’s allocable portion of the Administrator’s overhead in performing its obligations under the Administration Agreement, including rent, travel and the allocable portion of the cost of the Company’s chief compliance officer and chief financial officer and their respective staffs, including operations and tax professionals and administrative staff who provide support services in respect of the Company.
Additionally, higher general and administrative expenses resulted from expenses related to the pending Merger with FBLC.
Our operating results for the three and nine months ended September 30, 2023 and 2022, were as follows (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended September 30, | | For the nine months ended September 30, | | |
| | 2023 | | 2022 | | 2023 | | 2022 | | |
| Total investment income | | $ | 24,290 | | | $ | 15,949 | | | $ | 70,558 | | | $ | 36,450 | | | |
| Expenses, net of incentive fee waiver | | 10,171 | | | 7,286 | | | 30,324 | | | 15,995 | | | |
| Income tax expense, including excise tax | | 50 | | | 89 | | | 468 | | | 503 | | | |
| Net investment income (loss) | | $ | 14,069 | | | $ | 8,574 | | | $ | 39,766 | | | $ | 19,952 | | | |
Investment Income
For the three and nine months ended September 30, 2023, total investment income was $24.3 million and $70.6 million, respectively, and was primarily attributable to interest income from investments in portfolio companies with an average portfolio fair value of $770.7 million and a weighted average current yield of 11.9%. Included within total investment income was $0.5 million and $1.4 million, respectively, of fee income for the three and nine months ended September 30, 2023. Fee income consists primarily of commitment fees. For the three and nine months ended September 30, 2022, total investment income was $15.9 million and $36.5 million, respectively, and was primarily attributable to interest income from investments in portfolio companies with an average portfolio fair value of $628.2 million and a weighted average current yield of 9.4%. Included within total investment income was $0.7 million and $1.1 million, respectively, of fee income for the three and nine months ended September 30, 2022. Fee income consists primarily of commitment fees. The increase in investment income for the three and nine months ended September 30, 2022 to the three and nine months ended September 30, 2023 was primarily driven by our deployment of capital and increasing invested balance as well as the rising rate environment.
Operating Expenses
The composition of our operating expenses for the three and nine months ended September 30, 2023 and 2022, were as follows (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended September 30, | | For the nine months ended September 30, | | |
| | 2023 | | 2022 | | 2023 | | 2022 | | |
| Management fees | | $ | 1,079 | | | $ | 919 | | | $ | 3,122 | | | $ | 2,373 | | | |
| | | | | | | | | | |
| Incentive fee on income | | 2,109 | | | 1,285 | | | 5,963 | | | 2,992 | | | |
| Incentive fee on capital gains | | — | | | — | | | — | | | (409) | | | |
| Interest and debt fees | | 7,842 | | | 5,377 | | | 23,445 | | | 10,831 | | | |
| Professional fees | | 493 | | | 494 | | | 1,516 | | | 1,252 | | | |
| Other general and administrative | | 413 | | | 306 | | | 1,325 | | | 938 | | | |
| Amortization of offering costs | | — | | | — | | | — | | | 12 | | | |
| Administrative services | | 48 | | | 51 | | | 197 | | | 155 | | | |
| Directors' fees | | 296 | | | 139 | | | 719 | | | 434 | | | |
| Incentive fee waiver | | (2,109) | | | (1,285) | | | (5,963) | | | (2,583) | | | |
| Expenses, net of incentive fee waiver | | $ | 10,171 | | | $ | 7,286 | | | $ | 30,324 | | | $ | 15,995 | | | |
Interest and debt fees
For the three and nine months ended September 30, 2023, we incurred interest and debt fees of $7.8 million and $23.4 million, respectively. For the three and nine months ended September 30, 2022, we incurred interest and debt fees of $5.4 million and $10.8 million, respectively. The increase in interest and debt fees for the three and nine months ended September 30, 2022 to the three and nine months ended September 30, 2023 was primarily driven by the increase in our average daily borrowings, and rising rate environment.
Management Fees
For the three and nine months ended September 30, 2023, we incurred management fees of $1.1 million and $3.1 million, respectively. For the three and nine months ended September 30, 2022, we incurred management fees of $0.9 million and $2.4 million, respectively. The increase in management fees for the three and nine months ended September 30, 2022 to the three and nine months ended September 30, 2023 was primarily driven by an increase in the size of our portfolio.
Professional Fees and Other General and Administrative Expenses
For the three and nine months ended September 30, 2023, we incurred professional fees and other general and administrative expenses of $0.9 million and $2.8 million, respectively. For the three and nine months ended September 30, 2022, we incurred professional fees and other general and administrative expenses of $0.8 million and $2.2 million, respectively. The increase in professional fees and other general and administrative expenses for the three and nine months ended September 30, 2022 to the three and nine months ended September 30, 2023 was primarily driven by an increase in the size of the portfolio and an increase in costs associated with servicing a larger investment portfolio.
Net Realized Gain (Loss) and Net Change in Unrealized Appreciation (Depreciation) on Investments
Net realized gain (loss) and net change in unrealized appreciation (depreciation) on investments for the three and nine months ended September 30, 2023 and 2022, were as follows (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended September 30, | | For the nine months ended September 30, | | |
| 2023 | | 2022 | | 2023 | | 2022 | | |
| Net realized gain (loss) | | | | | | | | | |
| | | | | | | | | |
| Non-affiliate investments | $ | (211) | | | $ | 197 | | | $ | (341) | | | $ | 263 | | | |
| Total net realized gain (loss) | $ | (211) | | | $ | 197 | | | $ | (341) | | | $ | 263 | | | |
| | | | | | | | | |
| Net change in unrealized appreciation (depreciation) on investments | | | | | | | | | |
| Control investments | $ | (2) | | | $ | 3 | | | $ | (11) | | | $ | 44 | | | |
| | | | | | | | | |
| Non-affiliate investments | $ | 1,150 | | | $ | (1,562) | | | $ | (1,785) | | | $ | (6,153) | | | |
| Net change in deferred taxes | $ | (6) | | | $ | (171) | | | $ | (521) | | | $ | (171) | | | |
| Total net change in unrealized appreciation (depreciation) on investments | $ | 1,142 | | | $ | (1,730) | | | $ | (2,317) | | | $ | (6,280) | | | |
| Net realized and unrealized gain (loss) | $ | 931 | | | $ | (1,533) | | | $ | (2,658) | | | $ | (6,017) | | | |
The net realized and unrealized loss for the three and nine months ended September 30, 2023 was primarily driven by unrealized losses on senior secured investments.
The net realized and unrealized loss for the three and nine months ended September 30, 2022 was primarily driven by unrealized losses on senior secured investments.
Recent Developments
Merger Agreement
On October 2, 2023, we entered into the Merger Agreement, which provides that, subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into FBLC, with FBLC continuing as the surviving company and as our wholly-owned subsidiary and, immediately thereafter, FBLC will merge with and into us, with us continuing as the surviving company. Both the Board and FBLC’s board of directors, including all of the respective independent directors, in each case, on the recommendation of special committees comprised solely of the independent directors of us or FBLC, as applicable (each, a “Special Committee”), have approved the Merger Agreement and the transactions contemplated thereby.
Subject to the terms and conditions of the Merger Agreement, in connection with the consummation of the Mergers, each share of FBLC’s common stock then issued and outstanding (other than shares owned by the Company or any of its controlled subsidiaries) will be converted into the right to receive a number of shares of the Company’s common stock equal to an exchange ratio calculated based on each funds’ respective NAVs (cash will be paid in lieu of fractional shares). No new preferred stock will be issued by the Company as a result of the Mergers.
The Merger Agreement contains representations and warranties by us, Merger Sub, the Adviser and FBLC, subject to specified exceptions and qualifications.
Consummation of the Mergers, which is currently anticipated to occur in early 2024, is subject to certain closing conditions, including requisite approvals of our and FBLC’s stockholders and certain other closing conditions. Assuming the Mergers are consummated, the combined company will enter into an amended and restated investment advisory agreement with the Adviser at closing.
The foregoing description of the Merger Agreement and the transactions contemplated thereby does not purport to be complete and is qualified in its entirety by reference to the full text of the Merger Agreement, which has been included as Exhibit 2.1 to this Quarterly Report on Form 10-Q. The representations, warranties, covenants and agreements contained in the Merger Agreement were made only for purposes of the Merger Agreement and as of specific dates; were solely for the benefit of the parties to the Merger Agreement (except as may be expressly set forth in the Merger Agreement); may be subject to limitations agreed upon by the parties, including being qualified by confidential disclosures made for the purposes of allocating contractual risk between the parties to the Merger Agreement instead of establishing these matters as facts; and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors. Investors and security holders should not rely on such representations, warranties, covenants or agreements, or any descriptions thereof, as characterizations of the actual state of facts or condition of any of the parties to the Merger Agreement or any of their respective subsidiaries or affiliates. Moreover, information concerning the subject matter of the representations, warranties, covenants and agreements may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in public disclosures by the parties to the Merger Agreement. For more information, see the final joint proxy statement/prospectus filed pursuant to Rule 424(b)(3) (Registration No. 333-274904), filed by us with the SEC on October 24, 2023 (the “Joint Proxy Statement/Prospectus”).
MS Credit Facility Refinancing
On October 4, 2023, the Company refinanced the MS Credit Facility with a $400.0 million credit facility with FBCC Jupiter Funding, LLC, a wholly-owned, consolidated special purpose financing subsidiary of the Company, as borrower (“Jupiter Funding”), the Adviser, as portfolio manager, the lenders party thereto, U.S. Bank National Association, as securities intermediary, U.S. Bank Trust Company, National Association as collateral administrator and collateral agent, and JPMorgan Chase Bank, National Association, as administrative agent (the “JPM Credit Facility”). The JPM Credit Facility provides for borrowings through October 4, 2026, and any amounts borrowed under the JPM Credit Facility will mature on October 4, 2027. Borrowings under the JPM Credit Facility will bear interest at a benchmark rate, currently SOFR, plus a margin of 2.75% per annum, which is inclusive of an administrative agent fee. Interest is payable quarterly in arrears. Jupiter Funding will be subject to a non-usage fee of 0.75%, which is inclusive of the administrative agent fee, to the extent the commitments available under
the JPM Credit Facility have not been borrowed. Jupiter Funding paid an upfront fee and incurred other customary costs and expenses in connection with the JPM Credit Facility.
Distribution Declarations
On November 8, 2023, our Board of Directors declared a distribution of $0.43 per share of Common Stock, which is payable on or around November 16, 2023 to stockholders of record as of November 8, 2023.
On November 8, 2023, our Board of Directors declared a distribution of $28.35 per share of Series A Preferred Stock, which is payable on or around November 16, 2023 to stockholders of record as of November 8, 2023.
Liquidity and Capital Resources
We generate cash primarily from the net proceeds of the purchase of shares of our Common Stock and Series A Preferred Stock via drawdowns on our investors’ capital commitments, cash flows from interest and fees earned from our investments and principal repayments and proceeds from sales of our investments. As of September 30, 2023, we had issued 25.9 million shares of our Common Stock for net proceeds of $392.6 million, including shares issued pursuant to the DRIP. We had also issued 77,500 shares of Series A Preferred Stock for net proceeds of $77.4 million. As of September 30, 2022, we had issued 23.2 million shares of our Common Stock for net proceeds of $352.3 million, including shares issued pursuant to the DRIP. We had also issued 20,000 shares of Series A Preferred Stock for net proceeds of $20.0 million.
As of September 30, 2023, we had $70.0 million of cash. For the nine months ended September 30, 2023, net cash provided by operating activities was $47.0 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. The cash flows provided by operating activities for the nine months ended September 30, 2023 was primarily a result of purchases of investments of $46.4 million, partially offset by sales and repayments of investments of $71.0 million. As of September 30, 2022, we had $27.4 million of cash. For the nine months ended September 30, 2022, net cash used in operating activities was $226.9 million. The level of cash flows used in operating activities is affected by the timing of purchases, redemptions, and sales of portfolio investments. The cash flows used in operating activities for the nine months ended September 30, 2022 was primarily a result of purchases of investments of $262.3 million, partially offset by sales and repayments of investments of $36.7 million.
Net cash used by financing activities of $3.3 million during the nine months ended September 30, 2023 primarily related to payments on debt of $70.4 million, repayments on short-term borrowings of $89.4 million, common stockholder distributions of $23.3 million, and preferred stockholder distributions of $5.4 million partially offset by proceeds from issuance of shares of common stock of $9.9 million, proceeds from issuance of shares of preferred stock of $41.4 million, proceeds from debt of $32.0 million, and proceeds from short-term borrowings of $68.6 million. Net cash provided by financing activities of $241.4 million during the nine months ended September 30, 2022 primarily related to proceeds from debt of $160.0 million, proceeds from short-term borrowings of $168.3 million, proceeds from issuance of shares of common stock of $119.1 million, proceeds from issuance of shares of preferred stock of $15.0 million partially offset by payments on debt of $55.5 million, repayments on short-term borrowings of $150.7 million, payments on financing costs of $1.1 million, common stockholder distributions of $12.8 million, and preferred stockholder distributions of $0.9 million.
We also fund a portion of our investments through borrowings from banks. Our primary use of cash will be investments in portfolio companies, payments of our expenses and payment of cash distributions to our stockholders. As of September 30, 2023, we are party to the MS Credit Facility, which is defined in and described in more detail in Note 5 - Borrowings.
As of September 30, 2023, we had $56.5 million of availability under the MS Credit Facility (subject to borrowing base availability), and had approximately $217.7 million of uncalled capital commitments to purchase shares of our Common Stock. We believe that it is unlikely that an investor with unfunded capital commitments of $217.5 million as of September 30, 2023 will be able to fund all of its unfunded capital commitment. As of September 30, 2022, we had $100.0 million of availability under the MS Credit Facility (subject to borrowing base availability), $0.1 million of availability under the MS Subscription Facility and had approximately $294.5 million of uncalled capital commitments to purchase shares of our Common Stock and Series A Preferred Stock. We expect to have sufficient liquidity for our investing activities and to conduct our operations in the near term.
Taxation as a RIC
We have elected to be treated as a RIC under Subchapter M of the Code. As a RIC, we generally will not be subject to corporate-level U.S. federal income taxes on any income that we distribute as dividends for U.S. federal income tax purposes to our stockholders. 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 tax year, an amount equal to 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 and determined without regard to any deduction for dividends paid, 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 state, local, and foreign taxes.
Additionally, in order to avoid the imposition of a U.S. federal excise tax, we are required to distribute, in respect of each calendar year, dividends to our stockholders of an amount at least equal to the sum of 98% of our calendar year net ordinary income (taking into account certain deferrals and elections); 98.2% of our capital gain net income (adjusted for certain ordinary losses) for the one year period ending on December 31 of such calendar year; and any net ordinary income and capital gain net income for preceding calendar years that were not distributed during such calendar years and on which we previously did not incur any U.S. federal income tax. If we fail to qualify as a RIC for any reason and become subject to corporate tax, the resulting corporate taxes could substantially reduce our net assets, the amount of income available for distribution and the amount of our distributions. Such a failure would have a material adverse effect on us and our stockholders. In addition, we could be required to recognize unrealized gains, incur substantial taxes and interest and make substantial distributions in order to re-qualify as a RIC. We cannot assure stockholders that they will receive any distributions.
Distributions
The amount of each distribution is subject to the discretion of the Board of Directors and applicable legal restrictions related to the payment of distributions. The Company calculates each stockholder’s specific distribution amount for the quarter using record and declaration dates.
The table shows the components of the distributions we have declared and/or paid to common stockholders for the nine months ended September 30, 2023 and 2022 (dollars in thousands):
| | | | | | | | | | | | | | |
| | For the nine months ended September 30, |
| | 2023 | | 2022 |
| Distributions declared | | $ | 32,458 | | | $ | 18,267 | |
| Distributions paid | | $ | 32,478 | | | $ | 18,267 | |
| Portion of distributions paid in cash | | $ | 23,268 | | | $ | 12,768 | |
| Portion of distributions paid in DRIP shares | | $ | 9,210 | | | $ | 5,499 | |
The table shows the components of the distributions we have declared and/or paid to preferred stockholders during the nine months ended September 30, 2023 and 2022 (dollars in thousands):
| | | | | | | | | | | | | | |
| | For the nine months ended September 30, |
| | 2023 | | 2022 |
| Distributions declared | | $ | 5,418 | | | $ | 859 | |
| Distributions paid | | $ | 5,418 | | | $ | 859 | |
| Portion of distributions paid in cash | | $ | 5,418 | | | $ | 859 | |
| Portion of distributions paid in DRIP shares | | $ | — | | | $ | — | |
We may fund our cash distributions to stockholders from any sources of funds available to us, including advances from the Adviser that are subject to reimbursement, as well as offering proceeds, borrowings, net investment income from operations, capital gain proceeds from the sale of assets, and non-capital gain proceeds from the sale of assets. We have not established limits on the amount of funds we may use from available sources to make distributions. We may have distributions which could be characterized as a return of capital for tax purposes. During the nine months ended September 30, 2023 and 2022, no portion of our distributions was characterized as return of capital for tax purposes. The specific tax characteristics of our distributions made in respect of our anticipated fiscal year ending December 31, 2023 will be reported to stockholders shortly after the end of the calendar year 2023 as well as in our periodic reports with the SEC. Stockholders should read any written disclosure accompanying a distribution payment carefully and should not assume that the source of any distribution is our ordinary income or gain. Moreover, 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. 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.
Related Party Transactions and Agreements
Investment Advisory Agreement
We entered into an Investment Advisory Agreement, dated as of September 23, 2020, which was approved by our Board of Directors and our sole stockholder for an initial two year term, under which the Adviser, subject to the overall supervision of our Board of Directors manages the day-to-day operations of, and provides investment advisory services to us. Affiliates of the Adviser also provide investment advisory services to other funds that have investment mandates that are similar, in whole and in part, with ours, including Franklin BSP Lending Corporation, a BDC advised by an affiliate of the Adviser. Affiliates of the Adviser also serve as investment adviser or sub-adviser to private funds and registered open-end funds, and as an investment adviser to a public real estate investment trust. The Adviser has adopted policies designed to manage and mitigate the conflicts of interest associated with the allocation of investment opportunities. In addition, any affiliated fund currently formed or formed in the future and managed by the Adviser or its affiliates may have overlapping investment objectives with our own and, accordingly, may invest in asset classes similar to those targeted by us. However, in certain instances due to regulatory, tax, investment, or other restrictions, certain investment opportunities may not be appropriate for either us or other funds managed by the Adviser or its affiliates. The Board of Directors most recently renewed the Investment Advisory Agreement on January 30, 2023.
Administration Agreement
On September 23, 2020, we entered into the Administration Agreement with BSP, pursuant to which BSP provides us with office facilities and administrative services. The Administration Agreement may be terminated by either party without penalty upon not less than 60 days’ written notice to the other. For the three and nine months ended September 30, 2023, the Company incurred $0.3 million and $0.9 million, respectively, in administrative service fees under the administrative agreement, which are included in other general and administrative expenses on the consolidated statements of operations in the accompanying consolidated financial statements. For the three and nine months ended September 30, 2022, the Company incurred $0.2 million and $0.6 million, respectively, in administrative service fees under the administrative agreement, which are included in other general and administrative expenses on the consolidated statements of operations in the accompanying consolidated financial statements.
Co-Investment Relief
The Investment Company Act of 1940, as amended (the “1940 Act”) generally prohibits BDCs from entering into negotiated co-investments with affiliates absent an order from the SEC. The SEC has granted exemptive relief to affiliates of the Adviser that allows us to enter into certain negotiated co-investment transactions alongside other funds managed by the Adviser or its affiliates (“Affiliated Funds”) in a manner consistent with our investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors, subject to compliance with certain conditions (the “Order”). Pursuant to the Order, we are permitted to co-invest with our affiliates if a “required majority” (as defined in Section 57(o) of the 1940 Act) of our eligible directors make certain conclusions in connection with a co-investment transaction, including that (1) the terms of the transactions, including the consideration to be paid, are reasonable and fair to us and our stockholders and do not involve overreaching in respect of us or our stockholders on the part of any person concerned, and (2) the transaction is consistent with the interests of our stockholders and is consistent with our investment objective and strategies.
Borrowings
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 not represented by senior securities to total borrowings, equals at least 150% after such borrowing, with certain limited exceptions. We are continually exploring forms of debt financing which could include new or expanded credit facilities or the issuance of senior securities that are debt or stock. We may use borrowed funds, known as “leverage,” to make investments and to attempt to increase returns to our stockholders by reducing our overall cost of capital. We currently have credit facilities with Morgan Stanley.
MS Credit Facility
On March 15, 2021, the Company, FBCC Lending I, LLC, a wholly-owned, special purpose financing subsidiary of the Company (“FBCC Lending”), and the Adviser, as the servicer, entered into a loan and servicing agreement (together with the other documents executed in connection therewith, the “MS Credit Facility”) with Morgan Stanley Asset Funding, Inc. as administrative agent, Morgan Stanley Bank, N.A., as the lender, and U.S. Bank National Association as collateral agent, account bank and collateral custodian, that provides for borrowings of up to $100.0 million on a committed basis. Obligations under the MS Credit Facility are secured by a first priority security interest in substantially all of the assets of FBCC Lending, including its portfolio of investments and the Company’s equity interest in FBCC Lending. The obligations of FBCC Lending under the MS Credit Facility are nonrecourse to us. Any amounts borrowed under the MS Credit Facility will mature, and will be due and payable, on the maturity date, which is March 15, 2025. Prior to the Third Amendment (defined below), borrowings under the MS Credit Facility bore interest at three-month LIBOR, with a LIBOR floor of zero, plus a spread of 2.25%. Interest is payable quarterly in arrears. FBCC Lending is subject to a non-usage fee of 0.50% on the difference between total commitments and the greater of the (i) drawn amounts and (ii) minimum utilization requirement, and, in addition, after the ramp-up period, FBCC Lending would pay interest on undrawn amounts up to the minimum utilization requirement under the MS Credit Facility if drawn amounts are less than such minimum utilization requirement. The Company paid an upfront fee and incurred other customary costs and expenses in connection with the MS Credit Facility.
On July 1, 2021, FBCC Lending amended the MS Credit Facility to, among other things, increase the maximum permissible borrowings under the MS Credit Facility from $100.0 million to $200.0 million on a committed basis (the “First Amendment”).
On December 15, 2021, FBCC Lending amended the MS Credit Facility to, among other things, increase the maximum permissible borrowings under the MS Credit Facility from $200.0 million to $250.0 million on a committed basis (the “Second Amendment”).
On January 31, 2022, FBCC Lending amended the MS Credit Facility to, among other things, increase the maximum permissible borrowings from $250.0 million to $300.0 million on a committed basis, transition the benchmark rate to Adjusted Term SOFR and included the Canadian Imperial Bank of Commerce (“CIBC”) as a lender (the “Third Amendment”). Following the Third Amendment, borrowings under the MS Credit Facility bear interest at Adjusted Term SOFR, with an Adjusted Term SOFR floor of zero, plus a spread of 2.00%. FBCC Lending is subject to non-usage fee of 0.50% on the difference between total commitments and the greater of the (i) drawn amounts and (ii) minimum utilization requirement, and, in addition after the ramp-up period, FBCC Lending would pay interest on undrawn amounts up to the minimum utilization requirement under the MS Credit Facility, at three month SOFR floor of zero, plus spread of 1.125%, if drawn amounts are less than such minimum utilization requirement. The entire facility is subject to a 0.25% administrative agent fee.
On June 28, 2022, FBCC Lending entered into a fourth amendment (together with any documents executed in connection therewith, the “Fourth Amendment”) to the MS Credit Facility. The Fourth Amendment, among other things, increases the maximum permissible borrowings under the MS Credit Facility to $400.0 million from $300.0 million on a committed basis and amends the spread on borrowings under the MS Credit Facility to 2.25%.
Short-Term Borrowings
From time to time, the Company finances the purchase of certain investments through repurchase agreements. In the repurchase agreements, the Company enters into a trade to sell an investment and contemporaneously enter into a trade to buy the same investment back on a specified date in the future with the same counterparty. Investments sold under repurchase agreements are accounted for as collateralized borrowings as the sale of the investment does not qualify for sale accounting under ASC Topic 860—Transfers and Servicing and remains as an investment on the consolidated statements of assets and liabilities. The Company uses repurchase agreements as a short-term financing alternative. As of September 30, 2023 and December 31, 2022, the Company had short-term borrowings outstanding of $0 and $20.8 million, respectively. For the nine months ended September 30, 2023 and 2022, the Company recorded interest expense of $1.7 million and $1.6 million, respectively, in connection with short-term borrowings. For the nine months ended September 30, 2023, the Company had an average outstanding balance of short-term borrowings of $27.1 million and bore interest at a weighted average rate of 0.02%. For the nine months ended September 30, 2022, the Company had an average outstanding balance of short-term borrowings of $49.3 million and bore interest at a weighted average rate of 0.01%.
Secured Borrowings
On August 21, 2023, the Company entered into a total return swap (“TRS”) with Nomura. 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 Company pays interest to Nomura for each loan at a rate equal to three-month SOFR plus 3.60% per annum. Upon the termination or repayment of any loan under the TRS, the Company will either receive from Nomura the appreciation in the value of such loan or pay to Nomura any depreciation in the value of such loan. The scheduled termination date for the TRS is February 17, 2025. The Company may terminate the TRS prior to February 17, 2025 upon the occurrence of certain events but in certain circumstances may be required to pay certain termination fees.
As of September 30, 2023, all total return swaps on the Nomura TRS were entered into contemporaneously with the Company’s sale of their reference assets. Due to the Company’s continuing involvement in these assets, these assets are not derecognized under ASC Topic 860 -- Transfers and Servicing, and are presented on the consolidated schedule of investments. Financing amounts related to these assets are presented as secured borrowings on the consolidated statement of assets and liabilities.
The TRS is subject to the SEC rule related to the use of derivatives, reverse repurchase agreements and certain other transactions by registered investment companies. The rule requires that the Company trade derivatives and other transactions that create future payment or delivery obligations subject to a value-at-risk leverage limit and certain derivatives risk management program and reporting requirements. Generally, these requirements apply unless the Company qualifies as a “limited derivatives user,” as defined in the rule, in which case certain exceptions to these conditions would apply. The Company may qualify as a limited derivatives user if it adopts and implements written policies and procedures reasonably designed to manage the Company's derivatives risk and the Company's derivatives exposure does not exceed 10 percent of the Company's net assets as calculated in accordance with the rule.
As of September 30, 2023 and December 31, 2022, the Company had secured borrowings outstanding of $33.3 million and $0, respectively. For the nine months ended September 30, 2023 and 2022, the Company recorded interest expense of $0.2 million and $0, respectively, in connection with secured borrowings. For the period August 21, 2023 through September 30, 2023, the Company had an average outstanding balance of secured borrowings of $24.1 million and bore interest at a weighted average rate of 8.98%. For the nine months ended September 30, 2022, the Company had no secured borrowings.
Contractual Obligations
The following table shows our payment obligations for repayment of debt and other contractual obligations as of September 30, 2023 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Payment Due by Period |
| Total | | Less than 1 year | | 1 - 3 years | | 3 - 5 years | | More than 5 years |
MS Credit Facility (1) | $ | 343,500 | | | $ | — | | | $ | 343,500 | | | $ | — | | | $ | — | |
| Secured borrowings | — | | | — | | | 33,344 | | | — | | | — | |
| Total | | | $ | — | | | $ | 376,844 | | | $ | — | | | $ | — | |
—–—–—–—–—–
(1) As of September 30, 2023, we had $56.5 million in unused borrowing capacity under the MS Credit Facility, subject to borrowing base limits.
Commitments
In the ordinary course of business, we may enter into future funding commitments. As of September 30, 2023, we had unfunded commitments on delayed draw term loans of $26.2 million and unfunded commitments on revolver term loans of $40.5 million. As of December 31, 2022, we had unfunded commitments on delayed draw term loans of $56.1 million and unfunded commitments on revolver term loans of $47.5 million. We maintain sufficient cash on hand, unfunded commitments to purchase our Common Stock, and available borrowings to fund such unfunded commitments. Please refer to Note 6 - Commitments and Contingencies in the notes to our consolidated financial statements for further detail of these unfunded commitments.
Significant Accounting Estimates and Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP (defined below). The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“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. On an on-going basis, we will evaluate our estimates, including those related to the matters described below. Actual results could differ from those estimates.
While our significant accounting policies are also described in Note 2 - Summary of Significant Accounting Policies of our notes to our consolidated financial statements appearing elsewhere in this report, we believe the following accounting policies require the most significant judgment in the preparation of our consolidated financial statements.
Valuation of Portfolio Investments
Portfolio investments are reported on the statements of assets and liabilities at fair value. The Board of Directors has delegated to the Adviser as valuation designee (the “Valuation Designee”) the responsibility of determining the fair value of the Company’s investment portfolio, subject to oversight of the Board of Directors, pursuant to Rule 2a-5 under the 1940 Act. As such, our Valuation Designee is charged with determining the fair value of the Company’s investment portfolio, subject to oversight of the Board of Directors. On a quarterly basis our Valuation Designee 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. Our Valuation Designee may also obtain quotes with respect to certain of our investments from pricing services or brokers or dealers in order to value assets. When doing so, our Valuation Designee determines whether the quote obtained is readily available according to U.S. GAAP to determine the fair value of the security. If determined readily available, our Valuation Designee 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 our Valuation Designee may take into account in fair value pricing our 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.
As part of our quarterly valuation process our Valuation Designee may be assisted by one or more independent valuation firms engaged by us. Our Valuation Designee under the supervision of the Board of Directors determines the fair value of each investment, in good faith, based on the input of the independent valuation firm(s) (to the extent applicable) and our Valuation Designee’s own analysis.
With respect to investments for which market quotations are not readily available, our Valuation Designee undertakes a multi-step valuation process each quarter, as described below:
•Each portfolio company or investment will be valued by our Valuation Designee, with assistance from one or more independent valuation firms engaged by our Board of Directors;
•The independent valuation firm(s) conduct independent appraisals and make an independent assessment of the value of each investment; and
•Our Valuation Designee, under the supervision of the Board of Directors determines the fair value of each investment, in good faith, based on the input of independent valuation firms (to the extent applicable) and our Valuation Designee’s own analysis. Our Valuation Designee also has established a Valuation Committee to assist our Valuation Designee in carrying out its designated responsibilities, subject to oversight of the Board of Directors.
Because there is not a readily available market value for most of the investments in our portfolio, our Valuation Designee values substantially all of our portfolio investments at fair value as determined in good faith by our 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 our investments may fluctuate from period to period. Additionally, the fair value of our 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 we 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 we were required to liquidate a portfolio investment in a forced or liquidation sale, we could realize significantly less than the value at which we have recorded it.
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. Discount and premium 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 discount and amortization of premium on investments.
Dividend Income
Dividend income on preferred equity investments is recorded on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity investments is recorded on the record date for private portfolio companies and on ex-dividend date for publicly traded portfolio companies.
Fee Income
Fee income, such as structuring fees, origination, closing, amendment fees, commitment, termination, and other upfront fees are generally non-recurring and are recognized as income when earned, either upon receipt or amortized into income. Upon the re-payment of a loan or debt security, any prepayment penalties and unamortized loan origination, structuring, closing, commitment, and other upfront fees are recorded as income.
Payment-in-Kind Interest
The Company may hold debt investments in its portfolio that contain PIK interest and dividend provisions. PIK interest, which represents contractually deferred interest that add to the investment balance that is generally due at maturity, is recorded on the accrual basis to the extent such amounts are expected to be collected.
Non-accrual Income
Investments may be placed on non-accrual status when principal or interest payments are past due and/or when there is reasonable doubt that principal or interest will be collected. Accrued interest, which may include 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. 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. 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.
See Note 2 - Summary of Significant Accounting Policies for a description of other accounting policies and recently issued accounting pronouncements.
Organization and Offering Expenses
Organization costs consist of costs incurred to establish the Company and enable it legally to do business. Organization costs are expensed as incurred. Offering costs consist of costs incurred in connection with the offering of common shares of the Company. Offering costs are capitalized as a deferred charge and amortized to expense on a straight-line basis over 12 months from the commencement of operations.
We will bear the organization and offering expenses incurred in connection with the formation of the Company and the offering of shares of our Common Stock, including the out-of-pocket expenses of the Adviser and its agents and affiliates. In addition, we will reimburse the Adviser for the organizational and offering costs it incurs on our behalf. If actual organization and offering costs incurred exceed the greater of $1 million or 0.10% of the Company’s total capital commitments, the Adviser or its affiliate will bear the excess costs. To the extent the Company’s capital commitments later increase, the Adviser or its affiliates may be reimbursed for past payments of excess organization and offering costs made on the Company’s behalf provided that the total organization and offering costs borne by the Company do not exceed 0.10% of total capital commitments and provided further that the Adviser or its affiliates may not be reimbursed for payment of excess organization and offering expenses that were incurred more than three years prior to the proposed reimbursement. In general, we may not deduct organizational expenses, and instead amortize organizational expenses over at least a 180-month period for tax purposes.
In connection with the private placement of shares of our preferred stock designated as Series A Preferred Stock, we incurred various offering costs. These costs are capitalized as a deferred cost and included within redeemable convertible preferred stock Series A on the consolidated statement of assets and liabilities as the preferred shares are issued. The costs are not subject to reimbursement from the Adviser.