Table of Contents

 

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 

x

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the quarterly period ended June 30, 2009

 

 

 

OR

 

o

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period                   to

 

Commission File No. 000-50697

 

ARES CAPITAL CORPORATION

(Exact name of Registrant as specified in its charter)

 

Maryland

 

33-1089684

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification Number)

 

280 Park Avenue, 22nd Floor, Building East, New York, NY 10017

(Address of principal executive office)   (Zip Code)

 

(212) 750-7300

(Registrant’s telephone number, including area code)

 


 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 


 

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

 

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

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer x

 

Accelerated filer o

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

 

Outstanding at August 6, 2009

Common stock, $0.001 par value

 

97,152,820

 

 

 



Table of Contents

 

ARES CAPITAL CORPORATION

 

INDEX

 

Part I.

Financial Information

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Consolidated Balance Sheet as of June 30, 2009 (unaudited) and December 31, 2008

1

 

 

 

 

Consolidated Statement of Operations for the three and six months ended June 30, 2009 (unaudited) and June 30, 2008 (unaudited)

2

 

 

 

 

Consolidated Schedule of Investments as of June 30, 2009 (unaudited) and December 31, 2008

3

 

 

 

 

Consolidated Statement of Stockholders’ Equity for the six months ended June 30, 2009 (unaudited)

28

 

 

 

 

Consolidated Statement of Cash Flows for the six months ended June 30, 2009 (unaudited) and June 30, 2008 (unaudited)

29

 

 

 

 

Notes to Consolidated Financial Statements (unaudited)

30

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

46

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

56

 

 

 

Item 4.

Controls and Procedures

57

 

 

 

Part II.

Other Information

 

 

 

 

Item 1.

Legal Proceedings

58

 

 

 

Item 1A.

Risk Factors

58

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

58

 

 

 

Item 3.

Defaults Upon Senior Securities

58

 

 

 

Item 4.

Submission of Matters to a Vote of Security Holders

58

 

 

 

Item 5.

Other Information

58

 

 

 

Item 6.

Exhibits

59

 



Table of Contents

 

ARES CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(dollar amounts in thousands, except per share data)

 

 

 

As of

 

 

 

June 30, 2009

 

December 31, 2008

 

 

 

(unaudited)

 

 

 

ASSETS

 

 

 

 

 

Investments at fair value (amortized cost of $2,272,976 and $2,267,593, respectively)

 

 

 

 

 

Non-controlled/non-affiliate company investments

 

$

 1,504,277

 

$

 1,477,492

 

Non-controlled affiliate company investments

 

339,167

 

329,326

 

Controlled affiliate company investments

 

119,027

 

166,159

 

Total investments at fair value

 

1,962,471

 

1,972,977

 

Cash and cash equivalents

 

46,297

 

89,383

 

Receivable for open trades

 

442

 

3

 

Interest receivable

 

26,630

 

17,547

 

Other assets

 

11,215

 

11,423

 

Total assets

 

$

 2,047,055

 

$

 2,091,333

 

LIABILITIES

 

 

 

 

 

Debt

 

$

 879,255

 

$

 908,786

 

Management and incentive fees payable

 

48,287

 

32,989

 

Payable for open trades

 

16,744

 

 

Accounts payable and accrued expenses

 

11,726

 

10,006

 

Interest and facility fees payable

 

2,223

 

3,869

 

Dividend payable

 

98

 

40,804

 

Total liabilities

 

958,333

 

996,454

 

Commitments and contingencies (Note 6)

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

Common stock, par value $.001 per share, 200,000,000 common shares authorized, 97,152,820 common shares issued and outstanding

 

97

 

97

 

Capital in excess of par value

 

1,395,958

 

1,395,958

 

Accumulated undistributed net investment income (loss)

 

3,151

 

(7,637

)

Accumulated net realized gain (loss) on investments, foreign currency transactions and extinguishment of debt

 

(741

)

(124

)

Net unrealized loss on investments and foreign currency transactions

 

(309,743

)

(293,415

)

Total stockholders’ equity

 

1,088,722

 

1,094,879

 

Total liabilities and stockholders’ equity

 

$

 2,047,055

 

$

 2,091,333

 

NET ASSETS PER SHARE

 

$

 11.21

 

$

 11.27

 

 

See accompanying notes to consolidated financial statements.

 

1



Table of Contents

 

ARES CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

(dollar amounts in thousands, except per share data)

 

 

 

For the three months ended

 

For the six months ended

 

 

 

June 30, 2009

 

June 30, 2008

 

June 30, 2009

 

June 30, 2008

 

 

 

(unaudited)

 

(unaudited)

 

(unaudited)

 

(unaudited)

 

INVESTMENT INCOME:

 

 

 

 

 

 

 

 

 

From non-controlled/non-affiliate company investments:

 

 

 

 

 

 

 

 

 

Interest from investments

 

$

45,307

 

$

37,768

 

$

89,138

 

$

72,734

 

Capital structuring service fees

 

603

 

8,421

 

1,653

 

11,146

 

Interest from cash & cash equivalents

 

57

 

441

 

210

 

989

 

Dividend income

 

617

 

375

 

1,043

 

871

 

Other income

 

1,748

 

583

 

2,697

 

1,408

 

Total investment income from non-controlled/non-affiliate company investments

 

48,332

 

47,588

 

94,741

 

87,148

 

 

 

 

 

 

 

 

 

 

 

From non-controlled affiliate company investments:

 

 

 

 

 

 

 

 

 

Interest from investments

 

6,528

 

8,198

 

12,103

 

16,697

 

Capital structuring service fees

 

 

 

 

1,095

 

Dividend income

 

123

 

218

 

137

 

266

 

Management fees

 

1,192

 

188

 

1,317

 

188

 

Other income

 

78

 

190

 

168

 

431

 

Total investment income from non-controlled affiliate company investments

 

7,921

 

8,794

 

13,725

 

18,677

 

 

 

 

 

 

 

 

 

 

 

From controlled affiliate company investments:

 

 

 

 

 

 

 

 

 

Interest from investments

 

2,155

 

3,758

 

5,093

 

6,180

 

Capital structuring service fees

 

 

2,900

 

194

 

3,000

 

Management fees

 

695

 

409

 

1,286

 

606

 

Other income

 

8

 

15

 

88

 

60

 

Total investment income from controlled affiliate company investments

 

2,858

 

7,082

 

6,661

 

9,846

 

 

 

 

 

 

 

 

 

 

 

Total investment income

 

59,111

 

63,464

 

115,127

 

115,671

 

 

 

 

 

 

 

 

 

 

 

EXPENSES:

 

 

 

 

 

 

 

 

 

Interest and credit facility fees

 

6,301

 

7,155

 

12,882

 

17,078

 

Base management fees

 

7,496

 

7,679

 

14,994

 

14,766

 

Incentive management fees

 

7,987

 

9,015

 

15,537

 

15,508

 

Professional fees

 

2,308

 

1,653

 

3,705

 

2,871

 

Insurance

 

341

 

349

 

675

 

626

 

Administrative

 

1,092

 

365

 

2,096

 

900

 

Depreciation

 

165

 

102

 

338

 

204

 

Directors fees

 

134

 

66

 

236

 

140

 

Other

 

1,261

 

881

 

2,407

 

1,728

 

Total expenses

 

27,085

 

27,265

 

52,870

 

53,821

 

 

 

 

 

 

 

 

 

 

 

NET INVESTMENT INCOME BEFORE INCOME TAXES

 

32,026

 

36,199

 

62,257

 

61,850

 

 

 

 

 

 

 

 

 

 

 

Income tax expense (benefit), including excise tax

 

78

 

138

 

109

 

(184

)

 

 

 

 

 

 

 

 

 

 

NET INVESTMENT INCOME

 

31,948

 

36,061

 

62,148

 

62,034

 

 

 

 

 

 

 

 

 

 

 

REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS:

 

 

 

 

 

 

 

 

 

Net realized gains (losses):

 

 

 

 

 

 

 

 

 

Non-controlled/non-affiliate company investments

 

(857

)

10

 

(2,162

)

217

 

Non-controlled affiliate company investments

 

 

1

 

(482

)

1

 

Controlled affiliate company investments

 

 

 

 

 

Foreign currency transactions

 

116

 

6

 

68

 

(2

)

Net realized gains (losses)

 

(741

)

17

 

(2,576

)

216

 

 

 

 

 

 

 

 

 

 

 

Net unrealized gains (losses):

 

 

 

 

 

 

 

 

 

Non-controlled/non-affiliate company investments

 

11,333

 

(9,990

)

1,888

 

(28,594

)

Non-controlled affiliate company investments

 

(9,929

)

(13,116

)

(11,272

)

(23,858

)

Controlled affiliate company investments

 

2,175

 

(9,700

)

(6,926

)

2,633

 

Foreign currency transactions

 

(33

)

 

(18

)

7

 

Net unrealized gains (losses)

 

3,546

 

(32,806

)

(16,328

)

(49,812

)

 

 

 

 

 

 

 

 

 

 

Net realized and unrealized gains (losses) from investments and foreign currency transactions

 

2,805

 

(32,789

)

(18,904

)

(49,596

)

 

 

 

 

 

 

 

 

 

 

REALIZED GAIN ON EXTINGUISHMENT OF DEBT

 

 

 

26,543

 

 

 

 

 

 

 

 

 

 

 

 

NET INCREASE IN STOCKHOLDERS’ EQUITY RESULTING FROM OPERATIONS

 

$

34,753

 

$

3,272

 

$

69,787

 

$

12,438

 

 

 

 

 

 

 

 

 

 

 

BASIC AND DILUTED EARNINGS PER COMMON SHARE (see Note 4)

 

$

0.36

 

$

0.04

 

$

0.72

 

$

0.15

 

 

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING – BASIC AND DILUTED (see Note 4)

 

97,152,820

 

90,125,629

 

97,152,820

 

82,097,395

 

 

See accompanying notes to consolidated financial statements.

 

2



Table of Contents

 

ARES CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS

As of June 30, 2009 (unaudited)

(dollar amounts in thousands, except per unit data)

 

Company(1)

 

Industry

 

Investment

 

Interest(10)

 

Initial
Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Fair Value
Per Unit

 

Percentage of
Net Assets

 

Healthcare—Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

American Renal Associates, Inc.

 

Dialysis provider

 

Senior secured loan ($1,082 par due 12/2010)

 

8.5% (Libor + 6.00%/Q)

 

12/14/2005

 

$

1,082

 

$

1,082

 

$

1.00

(3)(15)

 

 

 

 

 

 

Senior secured loan ($10,413 par due 12/2011)

 

8.5% (Libor + 6.00%/M)

 

12/14/2005

 

10,413

 

10,413

 

$

1.00

(3)(15)

 

 

 

 

 

 

Senior secured loan ($180 par due 12/2011)

 

8.5% (Libor + 6.00%/Q)

 

12/14/2005

 

180

 

180

 

$

1.00

(3)(15)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capella Healthcare, Inc.

 

Acute care hospital operator

 

Junior secured loan ($55,000 par due 2/2016)

 

13.00%

 

2/29/2008

 

55,000

 

52,250

 

$

0.95

 

 

 

 

 

 

 

Junior secured loan ($30,000 par due 2/2016)

 

13.00%

 

2/29/2008

 

30,000

 

28,500

 

$

0.95

(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CT Technologies Intermediate Holdings, Inc. and CT Technologies Holdings, LLC(6)

 

Healthcare analysis services

 

Preferred stock (7,427 shares)

 

 

 

6/15/2007

 

7,427

 

7,055

 

$

950.00

(4)

 

 

 

 

 

 

Common stock (9,679 shares)

 

 

 

6/15/2007

 

4,000

 

5,382

 

$

556.10

(5)

 

 

 

 

 

 

Common stock (1,546 shares)

 

 

 

6/15/2007

 

 

 

$

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DSI Renal, Inc.

 

Dialysis provider

 

Senior secured revolving loan ($122 par due 3/2013)

 

6.25% (Base Rate + 3.00%/D)

 

4/4/2006

 

122

 

97

 

$

0.80

 

 

 

 

 

 

 

Senior secured revolving loan ($3,520 par due 3/2013)

 

5.38% (Libor + 5.00%/M)

 

4/4/2006

 

3,520

 

2,816

 

$

0.80

 

 

 

 

 

 

 

Senior secured revolving loan ($1,120 par due 3/2013)

 

5.31% (Libor + 5.00%/M)

 

4/4/2006

 

1,120

 

896

 

$

0.80

 

 

 

 

 

 

 

Senior secured revolving loan ($1,152 par due 3/2013)

 

3.31% (Libor + 3.00%/M)

 

4/4/2006

 

1,152

 

922

 

$

0.80

 

 

 

 

 

 

 

Senior secured revolving loan ($1,600 par due 3/2013)

 

3.31% (Libor + 3.00%/M)

 

4/4/2006

 

1,600

 

1,280

 

$

0.80

 

 

 

 

 

 

 

Senior secured revolving loan ($36 par due 3/2013)

 

5.38% (Libor + 5.00%/M)

 

4/4/2006

 

36

 

28

 

$

0.79

 

 

 

 

 

 

 

Senior secured revolving loan ($11 par due 3/2013)

 

5.31% (Libor + 5.00%/M)

 

4/4/2006

 

11

 

9

 

$

0.80

 

 

 

 

 

 

 

Senior secured revolving loan ($12 par due 3/2013)

 

3.31% (Libor + 3.00%/M)

 

4/4/2006

 

12

 

9

 

$

0.77

 

 

 

 

 

 

 

Senior secured revolving loan ($16 par due 3/2013)

 

3.31% (Libor + 3.00%/M)

 

4/4/2006

 

16

 

13

 

$

0.81

 

 

 

 

 

 

 

Senior secured revolving loan ($20 par due 3/2013)

 

0.25%

 

4/4/2006

 

20

 

17

 

$

0.84

 

 

 

 

 

 

 

Senior subordinated note ($61,531 par due 4/2014)

 

16.00% PIK

 

4/4/2006

 

61,087

 

47,379

 

$

0.77

(2)(4)

 

 

 

 

 

 

Senior subordinated note ($13,207 par due 4/2014)

 

16.00% PIK

 

4/4/2006

 

13,183

 

10,170

 

$

0.77

(3)(4)

 

 

 

 

 

 

Senior secured revolving loan ($17,348 par due 4/2014)

 

1.60% (Libor + 1.00%/Q)

 

4/4/2006

 

12,145

 

13,855

 

$

0.80

(15)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GG Merger Sub I, Inc.

 

Drug testing services

 

Senior secured loan ($11,330 par due 12/2014)

 

4.32% (Libor + 4.00%/M)

 

12/14/2007

 

10,839

 

9,631

 

$

0.85

 

 

 

 

 

 

 

Senior secured loan ($12,000 par due 12/2014)

 

4.32% (Libor + 4.00%/M)

 

12/14/2007

 

11,480

 

10,200

 

$

0.85

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HCP Acquisition Holdings, LLC(7)

 

Healthcare compliance advisory services

 

Class A units (8,566,824 units)

 

 

 

6/26/2008

 

8,567

 

6,125

 

$

0.72

(5)

 

 

 

3



Table of Contents

 

Company(1)

 

Industry

 

Investment

 

Interest(10)

 

Initial
Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Fair Value
Per Unit

 

Percentage of
Net Assets

 

Heartland Dental Care, Inc.

 

Dental services

 

Senior subordinated note ($32,717 par due 8/2013)

 

11.00% Cash, 3.25% PIK

 

7/31/2008

 

32,717

 

32,717

 

$

1.00

(4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Magnacare Holdings, Inc., Magnacare Administrative Services, LLC, and Magnacare, LLC

 

Healthcare professional provider

 

Senior subordinated note ($4,623 par due 12/2012)

 

10.75% Cash, 2.00% PIK

 

2/9/2009

 

3,176

 

4,623

 

$

1.00

(4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MPBP Holdings, Inc., Cohr Holdings, Inc. and MPBP Acquisition Co., Inc.

 

Healthcare equipment services

 

Junior secured loan ($20,000 par due 1/2014)

 

6.57% (Libor + 6.25%/M)

 

1/31/2007

 

20,000

 

6,200

 

$

0.31

 

 

 

 

 

 

 

Junior secured loan ($12,000 par due 1/2014)

 

6.57% (Libor + 6.25%/M)

 

1/31/2007

 

12,000

 

3,720

 

$

0.31

(3)

 

 

 

 

 

 

Common stock (50,000 shares)

 

 

 

1/31/2007

 

5,000

 

 

$

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MWD Acquisition Sub, Inc.

 

Dental services

 

Junior secured loan ($5,000 par due 5/2012)

 

6.57% (Libor + 6.25%/M)

 

5/3/2007

 

5,000

 

4,250

 

$

0.85

(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OnCURE Medical Corp.

 

Radiation oncology care provider

 

Senior secured loan ($3,083 par due 8/2009)

 

3.88% (Libor + 3.50%/M)

 

8/18/2006

 

3,083

 

2,713

 

$

0.88

(3)

 

 

 

 

 

 

Senior subordinated note ($32,393 par due 8/2013)

 

11.00% Cash, 1.50% PIK

 

8/18/2006

 

32,418

 

29,154

 

$

0.90

(4)

 

 

 

 

 

 

Common stock (857,143 shares)

 

 

 

8/18/2006

 

3,000

 

3,000

 

$

3.50

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Passport Health Communications, Inc., Passport Holding Corp. and Prism Holding Corp.

 

Healthcare technology provider

 

Senior secured loan ($12,790 par due 5/2014)

 

10.50% (Libor + 7.50%/S)

 

5/9/2008

 

12,790

 

12,534

 

$

0.98

(15)

 

 

 

 

 

 

Senior secured loan ($11,806 par due 5/2014)

 

10.50% (Libor + 7.50%/S)

 

5/9/2008

 

11,806

 

11,570

 

$

0.98

(3)(15)

 

 

 

 

 

 

Series A preferred stock (1,594,457 shares)

 

 

 

7/30/2008

 

9,900

 

9,900

 

$

6.21

(5)

 

 

 

 

 

 

Common stock (16,106 shares)

 

 

 

7/30/2008

 

100

 

100

 

$

6.21

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PG Mergersub, Inc.

 

Provider of patient surveys,  management reports and national databases for the integrated healthcare delivery system

 

Senior subordinated loan ($4,000 par due 3/2016)

 

12.50%

 

3/12/2008

 

3,920

 

3,840

 

$

0.96

 

 

 

 

 

 

 

Preferred stock (333 shares)

 

 

 

3/12/2008

 

333

 

334

 

$

1,003.00

(5)

 

 

 

 

 

 

Common stock (16,667 shares)

 

 

 

3/12/2008

 

167

 

167

 

$

10.00

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Schumacher Group of Delaware, Inc.

 

Outsourced physician service provider

 

Junior secured loan ($30,800 par due 7/2012)

 

11.125% Cash, 2.50% PIK

 

7/18/2008

 

30,800

 

30,800

 

$

1.00

(4)

 

 

 

 

 

 

Junior secured loan ($5,210 par due 7/2012)

 

11.125% Cash, 2.50% PIK

 

7/18/2008

 

5,210

 

5,210

 

$

1.00

(4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Triad Laboratory Alliance, LLC

 

Laboratory services

 

Senior secured loan ($4,461 par due 12/2011)

 

8.50% (Libor + 5.50%/Q)

 

12/21/2005

 

4,278

 

4,461

 

$

1.00

(3)(15)

 

 

 

 

 

 

Senior subordinated note ($15,466 par due 12/2012)

 

12.00% Cash, 1.75% PIK

 

12/21/2005

 

15,466

 

15,002

 

$

0.97

(4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

VOTC Acquisition Corp.

 

Radiation oncology care provider

 

Senior secured loan ($17,241 par due 7/2012)

 

11.00% Cash, 2.00% PIK

 

6/30/2008

 

17,241

 

17,241

 

$

1.00

(4)

 

 

 

 

 

 

Series E preferred shares (3,888,222 shares)

 

 

 

7/14/2008

 

8,749

 

3,800

 

$

0.98

(5)

 

 

 

 

 

 

 

 

 

 

 

 

470,166

 

409,645

 

 

 

37.63

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Education

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Campus Management Corp. and Campus Management Acquisition Corp.(6)

 

Education software developer

 

Senior secured loan ($3,243 par due 8/2013)

 

12.07 Cash, 3.00% PIK

 

2/8/2008

 

3,243

 

3,243

 

$

1.00

(16)(4)

 

 

 

 

 

 

Senior secured loan ($30,277 par due 8/2013)

 

12.07 Cash, 3.00% PIK

 

2/8/2008

 

30,277

 

30,277

 

$

1.00

(2)(16)(4)

 

 

 

4



Table of Contents

 

Company(1)

 

Industry

 

Investment

 

Interest(10)

 

Initial
Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Fair Value
Per Unit

 

Percentage of
Net Assets

 

 

 

 

 

Senior secured loan ($8,960 par due 8/2013)

 

10.00 Cash, 3.00% PIK

 

2/8/2008

 

8,960

 

8,960

 

$

1.00

(16)(4)

 

 

 

 

 

 

Preferred stock (493,147 shares)

 

8.00% PIK

 

2/8/2008

 

8,952

 

12,000

 

$

24.33

(4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ELC Acquisition Corporation

 

Developer, manufacturer and retailer of educational products

 

Senior secured loan ($176 par due 11/2012)

 

3.56% (Libor + 3.25%/M)

 

11/30/2006

 

176

 

155

 

$

0.88

(3)

 

 

 

 

 

 

Junior secured loan ($8,333 par due 11/2013)

 

7.31% (Libor + 7.00%/M)

 

11/30/2006

 

8,333

 

7,333

 

$

0.88

(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Instituto de Banca y Comercio, Inc. Leeds IV Advisors, Inc.(8)

 

Private school operator

 

Senior secured loan ($11,760 par due 3/2014)

 

8.50% (Libor + 6.00%/Q)

 

3/15/2007

 

11,760

 

11,760

 

$

1.00

(3)(15)

 

 

 

 

 

 

Senior subordinated loan ($40,411 par due 6/2014)

 

13.00% Cash, 3.00% PIK

 

6/4/2008

 

40,411

 

40,411

 

$

1.00

(4)

 

 

 

 

 

 

Preferred stock (165,811 shares)

 

 

 

6/4/2008

 

788

 

2,146

 

$

12.94

(5)

 

 

 

 

 

 

Common stock (214,286 shares)

 

 

 

6/4/2008

 

54

 

214

 

$

1.00

(5)

 

 

 

 

 

 

Preferred stock (140,577 shares)

 

 

 

3/31/2009

 

668

 

1,820

 

$

12.94

(5)

 

 

 

 

 

 

Common stock (140,577 shares)

 

 

 

3/31/2009

 

35

 

1,820

 

$

12.94

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lakeland Finance, LLC

 

Private school operator

 

Senior secured note ($30,000 par due 12/2012)

 

11.50%

 

12/13/2005

 

30,000

 

29,100

 

$

0.97

 

 

 

 

 

 

 

Senior secured note ($3,000 par due 12/2012)

 

11.50%

 

12/13/2005

 

3,000

 

2,910

 

$

0.97

(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

R3 Education, Inc. (formerly known as Equinox EIC Partners, LLC and MUA Management Company)(6)(8)

 

Medical school operator

 

Senior secured revolving loan ($1,500 par due 12/2012)

 

8.25% (Base Rate + 5.00%/D)

 

4/3/2007

 

1,500

 

1,470

 

$

0.98

 

 

 

 

 

 

 

Senior secured revolving loan ($2,000 par due 12/2012)

 

8.25% (Base Rate + 5.00%/D)

 

4/3/2007

 

2,000

 

1,960

 

$

0.98

 

 

 

 

 

 

 

Senior secured loan ($1,799 par due 12/2012)

 

6.31% (Libor + 6.00%/M)

 

4/3/2007

 

1,799

 

1,763

 

$

0.98

(2)

 

 

 

 

 

 

Senior secured loan ($14,113 par due 12/2012)

 

6.31% (Libor + 6.00%/M)

 

9/21/2007

 

14,113

 

13,830

 

$

0.98

(2)

 

 

 

 

 

 

Senior secured loan ($7,300 par due 12/2012)

 

6.31% (Libor + 6.00%/M)

 

4/3/2007

 

7,300

 

7,154

 

$

0.98

(3)

 

 

 

 

 

 

Common membership interest (26.27% interest)

 

 

 

9/21/2007

 

15,800

 

20,777

 

 

 

(5)

 

 

 

 

 

 

Preferred Stock (8,000 shares)

 

 

 

 

 

2,000

 

2,000

 

$

250.00

(5)

 

 

 

 

 

 

Preferred stock (800 shares)

 

 

 

 

 

200

 

200

 

$

250.00

(5)

 

 

 

 

 

 

 

 

 

 

 

 

191,369

 

201,303

 

 

 

18.49

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restaurants and Food Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ADF Capital, Inc. & ADF Restaurant Group, LLC

 

Restaurant owner and operator

 

Senior secured revolving loan ($608 par due 11/2013)

 

5.75% (Base Rate + 2.50%/D)

 

11/27/2006

 

608

 

608

 

$

1.00

(15)

 

 

 

 

 

 

Senior secured revolving loan ($2,008 par due 11/2013)

 

4.69% (Libor + 3.00% Cash, 0.50% PIK/Q)

 

11/27/2006

 

2,008

 

2,008

 

$

1.00

(4)(15)

 

 

 

 

 

 

Senior secured loan ($23,586 par due 11/2012)

 

9.69% (Libor + 7.50% Cash, 1.00% PIK/Q)

 

11/27/2006

 

23,592

 

23,586

 

$

1.00

(4)(15)

 

 

 

 

 

 

Senior secured loan ($11,055 par due 11/2012)

 

9.69% (Libor + 7.50% Cash, 1.00% PIK/Q)

 

11/27/2006

 

11,050

 

11,055

 

$

1.00

(2)(4)(15)

 

 

 

 

 

 

Promissory note ($12,079 par due 11/2016)

 

10.00% PIK

 

6/1/2006

 

12,067

 

12,079

 

$

1.00

(4)(15)

 

 

 

 

 

 

Warrants to purchase 0.61 shares

 

 

 

6/1/2006

 

 

 

$

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Encanto Restaurants, Inc.(8)

 

Restaurant owner and operator

 

Junior secured loan ($21,368 par due 8/2013)

 

7.50% Cash, 3.50% PIK

 

8/16/2006

 

21,368

 

20,299

 

$

0.95

(2)(4)

 

 

 

5



Table of Contents

 

Company(1)

 

Industry

 

Investment

 

Interest(10)

 

Initial
Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Fair Value
Per Unit

 

Percentage of
Net Assets

 

 

 

 

 

Junior secured loan ($4,070 par due 8/2013)

 

7.50% Cash, 3.50% PIK

 

8/16/2006

 

4,070

 

3,867

 

$

0.95

(3)(4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTG Management, Inc.

 

Airport restaurant operator

 

Junior secured loan ($15,623 par due 6/2013)

 

14.00% (Libor + 7.00% Cash, 4.00% PIK/M)

 

6/19/2008

 

15,623

 

14,529

 

$

0.93

(4) (15)

 

 

 

 

 

 

Warrants to purchase up to 88,991 shares of common stock

 

 

 

 

 

 

 

$

(5)

 

 

 

 

 

 

Warrants to purchase up to 9 shares of common stock

 

 

 

 

 

 

 

$

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vistar Corporation and Wellspring Distribution Corp.

 

Food service distributor

 

Senior subordinated loan ($43,625 par due 5/2015)

 

13.50%

 

5/23/2008

 

43,625

 

41,008

 

$

0.94

 

 

 

 

 

 

 

Senior subordinated loan ($30,000 par due 5/2015)

 

13.50%

 

5/23/2008

 

30,000

 

28,200

 

$

0.94

(2)

 

 

 

 

 

 

Class A non-voting common stock (1,366,120 shares)

 

 

 

5/23/2008

 

7,500

 

3,490

 

$

2.55

(5)

 

 

 

 

 

 

 

 

 

 

 

 

171,511

 

160,729

 

 

 

14.76

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beverage, Food and Tobacco

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3091779 Nova Scotia Inc.(8)

 

Baked goods manufacturer

 

Junior secured loan (Cdn $14,117 par due 11/2012)

 

11.50% Cash, 1.50% PIK

 

11/2/2007

 

14,992

 

11,592

 

$

0.82

(4)(12)

 

 

 

 

 

 

Warrants to purchase 57,545 shares

 

 

 

 

 

 

 

 

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Apple & Eve, LLC and US Juice Partners, LLC(6)

 

Juice manufacturer

 

Senior secured loan ($29,284 par due 10/2013)

 

14.50% (Libor + 11.50%/M)

 

10/5/2007

 

29,284

 

28,113

 

$

0.96

(15)

 

 

 

 

 

 

Senior secured loan ($11,904 par due 10/2013)

 

14.50% (Libor + 11.50%/M)

 

10/5/2007

 

11,904

 

11,427

 

$

0.96

(15)

 

 

 

 

 

 

Senior units (50,000 units)

 

 

 

 

 

5,000

 

2,500

 

$

50.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Best Brands Corporation

 

Baked goods manufacturer

 

Senior secured loan ($13,110 par due 12/2012)

 

7.57% (Libor + 5.00% Cash, 2.25% PIK/M)

 

2/15/2008

 

11,151

 

13,110

 

$

1.00

(4)

 

 

 

 

 

 

Junior secured loan ($8,441 par due 6/2013)

 

10.00% Cash, 8.00% PIK

 

12/14/2006

 

8,441

 

8,441

 

$

1.00

(4)

 

 

 

 

 

 

Junior secured loan ($23,753 par due 6/2013)

 

10.00% Cash, 8.00% PIK

 

12/14/2006

 

23,753

 

23,753

 

$

1.00

(2)(4)

 

 

 

 

 

 

Junior secured loan ($11,500 par due 6/2013)

 

10.00% Cash, 8.00% PIK

 

12/14/2006

 

11,500

 

11,500

 

$

1.00

(3)(4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bumble Bee Foods, LLC and BB Co-Invest LP

 

Canned seafood manufacturer

 

Senior subordinated loan ($30,425 par due 11/2018)

 

16.25% (12.00% Cash, 4.25% Optional PIK)

 

11/18/2008

 

30,425

 

30,425

 

$

1.00

(4)

 

 

 

 

 

 

Common stock (4,000 shares)

 

 

 

11/18/2008

 

4,000

 

4,000

 

$

1,000.00

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Charter Baking Company, Inc.

 

Baked goods manufacturer

 

Senior subordinated note ($5,543 par due 2/2013)

 

12.00% PIK

 

2/6/2008

 

5,543

 

5,543

 

$

1.00

(2)(4)

 

 

 

 

 

 

Preferred stock (6,258 shares)

 

 

 

9/1/2006

 

2,500

 

1,725

 

$

275.65

(5)

 

 

 

 

 

 

 

 

 

 

 

 

158,493

 

152,129

 

 

 

13.97

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Services—Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

American Residential Services, LLC

 

Plumbing, heating and air-conditioning services

 

Junior secured loan ($20,403 par due 4/2015)

 

10.00% Cash, 2.00% PIK

 

4/17/2007

 

20,403

 

19,179

 

$

0.94

(2)(4)

 

 

 

6



Table of Contents

 

Company(1)

 

Industry

 

Investment

 

Interest(10)

 

Initial
Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Fair Value
Per Unit

 

Percentage of
Net Assets

 

Diversified Collection Services, Inc.

 

Collections services

 

Senior secured loan ($11,175 par due 8/2011)

 

9.00% (Base Rate + 5.75%/D)

 

2/2/2005

 

9,415

 

11,175

 

$

1.00

 

 

 

 

 

 

 

Senior secured loan ($3,978 par due 8/2011)

 

9.00% (Base Rate + 5.75%/D)

 

2/2/2005

 

4,079

 

3,978

 

$

1.00

(3)

 

 

 

 

 

 

Senior secured loan ($1,931 par due 2/2011)

 

13.75% (Libor + 11.00%/S)

 

2/2/2005

 

1,931

 

1,931

 

$

1.00

(15)

 

 

 

 

 

 

Senior secured loan ($7,492 par due 8/2011)

 

13.75% (Libor + 11.00%/S)

 

2/2/2005

 

7,492

 

7,492

 

$

1.00

(15)

 

 

 

 

 

 

Preferred stock (14,927 shares)

 

 

 

5/18/2006

 

169

 

237

 

$

15.88

(5)

 

 

 

 

 

 

Common stock (114,004 shares)

 

 

 

2/2/2005

 

295

 

286

 

$

2.51

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GCA Services Group, Inc.

 

Custodial services

 

Senior secured loan ($20,865 par due 12/2011)

 

12.00%

 

12/15/2006

 

20,865

 

20,865

 

$

1.00

(2)

 

 

 

 

 

 

Senior secured loan ($5,000 par due 12/2011)

 

12.00%

 

12/15/2006

 

5,000

 

5,000

 

$

1.00

 

 

 

 

 

 

 

Senior secured loan ($10,346 par due 12/2011)

 

12.00%

 

12/15/2006

 

10,346

 

10,346

 

$

1.00

(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Growing Family, Inc. and GFH Holdings, LLC

 

Photography services

 

Senior secured revolving loan ($1,513 par due 8/2011)

 

8.42% (Libor + 3.00% Cash, 4.00% PIK/Q)

 

3/16/2007

 

1,513

 

454

 

$

0.30

(4)(14)

 

 

 

 

 

 

Senior secured loan ($11,188 par due 8/2011)

 

13.84% (Libor + 3.50% Cash, 6.00% PIK/Q)

 

3/16/2007

 

11,188

 

3,356

 

$

0.30

(4)(14)

 

 

 

 

 

 

Senior secured loan ($372 par due 8/2011)

 

11.25% (Base Rate + 8.00%/D)

 

3/16/2007

 

372

 

111

 

$

0.30

(4)(14)

 

 

 

 

 

 

Senior secured loan ($3,575 par due 8/2011)

 

16.34% (Libor + 6.00% Cash, 6.00% PIK/Q)

 

3/16/2007

 

3,575

 

1,073

 

$

0.30

(4)(14)

 

 

 

 

 

 

Senior secured loan ($147 par due 8/2011)

 

18.00% (Libor + 6.00% Cash, 6.00% PIK/Q)

 

3/16/2007

 

147

 

44

 

$

0.30

(4)(14)

 

 

 

 

 

 

Common stock (552,430 shares)

 

 

 

3/16/2007

 

872

 

 

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NPA Acquisition, LLC

 

Powersport vehicle auction

 

Junior secured loan ($12,000 par due 2/2013)

 

7.07% (Libor + 6.75%/M)

 

8/23/2006

 

12,000

 

12,000

 

$

1.00

(3)

 

 

 

 

operator

 

Common units (1,709 shares)

 

 

 

8/23/2006

 

1,000

 

2,300

 

$

1,345.82

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Web Services Company, LLC

 

Laundry service and

 

Senior subordinated loan ($17,988 par due 8/2016)

 

11.50% Cash, 2.50% PIK

 

8/29/2008

 

17,988

 

17,089

 

$

0.95

(4)

 

 

 

 

equipment provider

 

Senior secured loan ($5,000 par due 8/2014)

 

7.00% (Base Rate + 3.75%/D)

 

6/15/2009

 

4,600

 

4,600

 

$

0.92

(4)

 

 

 

 

 

 

Senior subordinated loan ($25,477 par due 8/2016)

 

11.50% Cash, 2.50% PIK

 

8/29/2008

 

25,477

 

24,203

 

$

0.95

(2)(4)

 

 

 

 

 

 

 

 

 

 

 

 

158,727

 

145,719

 

 

 

13.38

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Carador PLC(6)(8)(9)

 

Investment company

 

Ordinary shares (7,110,525 shares)

 

 

 

12/15/2006

 

9,033

 

1,600

 

$

0.38

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CIC Flex, LP(9)

 

Investment partnership

 

Limited partnership units (0.69 unit)

 

 

 

9/7/2007

 

34

 

34

 

$

49,644.93

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Covestia Capital Partners, LP(9)

 

Investment partnership

 

Limited partnership interest (47% interest)

 

 

 

6/17/2008

 

1,059

 

1,059

 

 

 

(5)

 

 

 

7



Table of Contents

 

Company(1)

 

Industry

 

Investment

 

Interest(10)

 

Initial
Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Fair Value
Per Unit

 

Percentage of
Net Assets

 

Firstlight Financial Corporation(6)(9)

 

Investment company

 

Senior subordinated loan ($72,710 par due 12/2016)

 

5.00% PIK

 

12/31/2006

 

72,710

 

54,533

 

$

0.75

(4)

 

 

 

 

 

 

Common stock (10,000 shares)

 

 

 

12/31/2006

 

10,000

 

 

$

(5)

 

 

 

 

 

 

Common stock (30,000 shares)

 

 

 

12/31/2006

 

30,000

 

 

$

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ivy Hill Asset Management, LP(7)

 

 

 

Member interest (100% interest)

 

 

 

6/15/2009

 

3,816

 

11,816

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ivy Hill Middle Market Credit Fund, Ltd.(7)(8)(9)

 

Investment company

 

Class B deferrable interest notes ($40,000 par due 11/2018)

 

6.72% (Libor + 6.00%/Q)

 

11/20/2007

 

40,000

 

36,000

 

$

0.90

 

 

 

 

 

 

 

Subordinated notes ($15,812 par due 11/2018)

 

 

 

11/20/2007

 

15,812

 

14,231

 

$

0.90

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Imperial Capital Group, LLC and Imperial Capital Private Opportunities, LP(6)(9)

 

Investment banking services

 

Limited partnership interest (80% interest)

 

 

 

5/10/2007

 

1,090

 

1,090

 

 

 

(5)

 

 

 

 

 

 

Common units (7,710 units)

 

 

 

5/10/2007

 

14,997

 

14,997

 

$

1,945.14

(5)

 

 

 

 

 

 

Common units (2,526 units)

 

 

 

5/10/2007

 

3

 

3

 

$

1.00

(5)

 

 

 

 

 

 

Common units (315 units)

 

 

 

5/10/2007

 

 

 

$

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Partnership Capital Growth Fund I, LP(9)

 

Investment partnership

 

Limited partnership interest (25% interest)

 

 

 

6/16/2006

 

2,711

 

2,711

 

 

 

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trivergance Capital Partners, LP(9)

 

Investment partnership

 

Limited partnership interest (100% interest)

 

 

 

6/5/2008

 

1,372

 

1,372

 

 

 

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

VSC Investors LLC(9)

 

Investment company

 

Membership interest (4.63% interest)

 

 

 

1/24/2008

 

281

 

281

 

 

 

(5)

 

 

 

 

 

 

 

 

 

 

 

 

202,918

 

139,727

 

 

 

12.83

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Business Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Booz Allen Hamilton, Inc.

 

Strategy and technology consulting services

 

Senior secured loan ($744 par due 7/2015)

 

7.50% (Libor + 4.50%/S)

 

7/31/2008

 

728

 

737

 

$

0.99

(3)(15)

 

 

 

 

 

 

Senior subordinated loan ($22,400 par due 7/2016)

 

11.00% Cash, 2.00% PIK

 

7/31/2008

 

22,176

 

21,952

 

$

0.98

(2)(4)

 

 

 

 

 

 

Senior subordinated loan ($250 par due 7/2016)

 

11.00% Cash, 2.00% PIK

 

7/31/2008

 

219

 

245

 

$

0.98

(2)(4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investor Group Services, LLC(6)

 

Financial services

 

Limited liability company membership interest (10.00% interest)

 

 

 

6/22/2006

 

 

500

 

 

 

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pillar Holdings LLC and PHL Holding Co.(6)

 

Mortgage services

 

Senior secured revolving loan ($375 par due 11/2013)

 

5.95% (Libor + 5.50%/B)

 

11/20/2007

 

375

 

375

 

$

1.00

 

 

 

 

 

 

 

Senior secured revolving loan ($938 par due 11/2013)

 

5.95% (Libor + 5.50%/B)

 

11/20/2007

 

938

 

938

 

$

1.00

 

 

 

 

 

 

 

Senior secured loan ($1,875 par due 5/2014)

 

14.50%

 

7/31/2008

 

1,875

 

1,875

 

$

1.00

 

 

 

 

 

 

 

Senior secured loan ($5,500 par due 5/2014)

 

14.50%

 

7/31/2008

 

5,500

 

5,500

 

$

1.00

 

 

 

 

 

 

 

Senior secured loan ($17,052 par due 11/2013)

 

5.95% (Libor + 5.50%/B)

 

11/20/2007

 

17,052

 

17,052

 

$

1.00

(2)

 

 

 

 

 

 

Senior secured loan ($10,638 par due 11/2013)

 

5.95% (Libor + 5.50%/B)

 

11/20/2007

 

10,638

 

10,638

 

$

1.00

(3)

 

 

 

 

 

 

Common stock (84.78 shares)

 

 

 

11/20/2007

 

3,768

 

6,212

 

$

62,127.93

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Primis Marketing Group, Inc. and Primis Holdings, LLC(6)

 

Database marketing services

 

Senior subordinated note ($10,222 par due 2/2013)

 

11.00% Cash, 2.50% PIK

 

8/24/2006

 

10,222

 

1,022

 

$

0.10

(4)(14)

 

 

 

 

 

 

Preferred units (4,000 units)

 

 

 

8/24/2006

 

3,600

 

 

$

(5)

 

 

 

 

 

 

Common units (4,000,000 units)

 

 

 

8/24/2006

 

400

 

 

$

(5)

 

 

 

8



Table of Contents

 

Company(1)

 

Industry

 

Investment

 

Interest(10)

 

Initial
Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Fair Value
Per Unit

 

Percentage of
Net Assets

 

Prommis Solutions, LLC, E-Default Services, LLC, Statewide Tax and Title Services, LLC & Statewide Publishing Services, LLC (formerly known as MR Processing Holding Corp.)

 

Bankruptcy and foreclosure processing services

 

Senior subordinated note ($26,012 par due 2/2014)

 

11.50% Cash, 2.00% PIK

 

2/8/2007

 

26,012

 

24,972

 

$

0.96

(4)

 

 

 

 

 

 

Senior subordinated note ($26,098 par due 2/2014)

 

11.50% Cash, 2.00% PIK

 

2/8/2007

 

26,098

 

25,054

 

$

0.96

(2)(4)

 

 

 

 

 

 

Preferred stock (30,000 shares)

 

 

 

4/11/2006

 

3,000

 

5,636

 

$

187.87

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

R2 Acquisition Corp.

 

Marketing services

 

Common stock (250,000 shares)

 

 

 

5/29/2007

 

250

 

250

 

$

1.00

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Summit Business Media, LLC

 

Business media consulting services

 

Junior secured loan ($10,000 par due 11/2013)

 

9.00% (Base Rate + 5.75%/D)

 

8/3/2007

 

10,000

 

2,000

 

$

0.20

(3)(14)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

VSS-Tranzact Holdings, LLC(6)

 

Management consulting services

 

Common membership interest (8.51% interest)

 

 

 

10/26/2007

 

10,000

 

6,000

 

 

 

(5)

 

 

 

 

 

 

 

 

 

 

 

 

152,851

 

130,958

 

 

 

12.03

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Apogee Retail, LLC

 

For-profit thrift retailer

 

Senior secured revolving loan ($1,951 par due 3/2012)

 

5.56% (Libor + 5.25%/M)

 

3/27/2007

 

1,951

 

1,912

 

$

0.98

 

 

 

 

 

 

 

Senior secured loan ($11,181 par due 11/2012)

 

12.00% Cash, 4.00% PIK

 

5/28/2008

 

11,181

 

11,181

 

$

1.00

(4)

 

 

 

 

 

 

Senior secured loan ($2,984 par due 3/2012)

 

6.21% (Libor + 5.25%/Q)

 

3/27/2007

 

2,984

 

2,686

 

$

0.90

 

 

 

 

 

 

 

Senior secured loan ($1,868 par due 3/2012)

 

6.21% (Libor + 5.25%/Q)

 

3/27/2007

 

1,868

 

1,681

 

$

0.90

 

 

 

 

 

 

 

Senior secured loan ($26,807 par due 3/2012)

 

5.56% (Libor + 5.25%/M)

 

3/27/2007

 

26,807

 

24,126

 

$

0.90

(2)

 

 

 

 

 

 

Senior secured loan ($11,730 par due 3/2012)

 

5.56% (Libor + 5.25%/M)

 

3/27/2007

 

11,730

 

10,557

 

$

0.90

(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dufry AG(8)

 

Retail newstand operator

 

Common stock (39,056 shares)

 

 

 

3/28/2008

 

3,000

 

1,501

 

$

0.25

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Savers, Inc. and SAI Acquisition Corporation

 

For-profit thrift retailer

 

Senior subordinated note ($6,044 par due 8/2014)

 

10.00% Cash, 2.00% PIK

 

8/8/2006

 

6,044

 

5,802

 

$

0.96

(4)

 

 

 

 

 

 

Senior subordinated note ($22,236 par due 8/2014)

 

10.00% Cash, 2.00% PIK

 

8/8/2006

 

22,236

 

21,347

 

$

0.96

(2)(4)

 

 

 

 

 

 

Common stock (1,170,182 shares)

 

 

 

8/8/2006

 

4,500

 

5,840

 

$

4.99

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Things Remembered, Inc. and TRM Holdings Corporation

 

Personalized gifts retailer

 

Senior secured loan ($4,506 par due 9/2012)

 

6.5%, 1.00% PIK Option

 

9/28/2006

 

4,506

 

3,154

 

$

0.70

(3)

 

 

 

 

 

 

Senior secured loan ($28,402 par due 9/2012)

 

6.5%, 1.00% PIK Option

 

9/28/2006

 

28,402

 

19,882

 

$

0.70

(2)

 

 

 

 

 

 

Senior secured loan ($7,303 par due 9/2012)

 

6.5%, 1.00% PIK Option

 

9/28/2006

 

7,303

 

5,112

 

$

0.70

(3)

 

 

 

 

 

 

Prefered stock (800 shares)

 

 

 

9/28/2006

 

200

 

 

$

(5)

 

 

 

 

 

 

Common stock (80 shares)

 

 

 

9/28/2006

 

1,800

 

 

$

(5)

 

 

 

 

 

 

Warrants to purchase 858 shares of common shares

 

 

 

3/19/2009

 

 

 

$

(5)

 

 

 

 

 

 

Warrants to purchase 73 shares of Preferred shares

 

 

 

3/19/2009

 

 

 

$

(5)

 

 

 

 

 

 

 

 

 

 

 

 

134,512

 

114,781

 

 

 

10.54

%

 

9



Table of Contents

 

Company(1)

 

Industry

 

Investment

 

Interest(10)

 

Initial
Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Fair Value
Per Unit

 

Percentage of
Net Assets

 

Manufacturing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Arrow Group Industries, Inc.

 

Residential and outdoor shed manufacturer

 

Senior secured loan ($5,616 par due 4/2010)

 

5.60% (Libor + 5.00%/Q)

 

3/28/2005

 

5,663

 

5,223

 

$

0.93

(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Emerald Performance Materials, LLC

 

Polymers and performance materials manufacturer

 

Senior secured loan ($9,018 par due 5/2011)

 

8.25% (Libor + 4.25%/A)

 

5/16/2006

 

9,018

 

8,477

 

$

0.94

(3)(15)

 

 

 

 

 

 

Senior secured loan ($313 par due 5/2011)

 

8.25% (Libor + 4.25%/M)

 

5/16/2006

 

313

 

294

 

$

0.94

(3)(15)

 

 

 

 

 

 

Senior secured loan ($536 par due 5/2011)

 

8.25% (Libor + 4.25%/A)

 

5/16/2006

 

536

 

504

 

$

0.94

(3)(15)

 

 

 

 

 

 

Senior secured loan ($1,523 par due 5/2011)

 

10.00% (Libor + 6.00%/A)

 

5/16/2006

 

1,523

 

1,431

 

$

0.94

(3)(15)

 

 

 

 

 

 

Senior secured loan ($81 par due 5/2011)

 

10.00% (Libor + 6.00%/A)

 

5/16/2006

 

81

 

76

 

$

0.93

(3)(15)

 

 

 

 

 

 

Senior secured loan ($4,618 par due 5/2011)

 

10.00% Cash, 3.00% PIK

 

5/16/2006

 

4,618

 

4,433

 

$

0.96

(2)(4)

 

 

 

 

 

 

Senior secured loan ($245 par due 5/2011)

 

10.00% Cash, 3.00% PIK

 

5/16/2006

 

245

 

235

 

$

0.96

(2)(4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Qualitor, Inc.

 

Automotive aftermarket components supplier

 

Senior secured loan ($1,747 par due 12/2011)

 

7.25% (Base Rate + 4.00%/Q)

 

12/29/2004

 

1,747

 

1,660

 

$

0.95

(3)

 

 

 

 

 

 

Junior secured loan ($5,000 par due 6/2012)

 

10.25% (Base Rate + 7.00%/D)

 

12/29/2004

 

5,000

 

4,750

 

$

0.95

(3)

 

 

Reflexite Corporation (7)

 

Developer and manufacturer of high-visibility reflective products

 

Senior subordinated loan ($16,343 par due 2/2015)

 

15.00% Cash, 3.00% PIK

 

2/28/2008

 

16,343

 

16,343

 

$

1.00

(4)

 

 

 

 

 

 

Common stock (1,821,860 shares)

 

 

 

3/28/2006

 

27,435

 

24,898

 

$

13.67

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Saw Mill PCG Partners LLC

 

Precision components manufacturer

 

Common units (1,000 units)

 

 

 

2/2/2007

 

1,000

 

 

$

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

UL Holding Co., LLC

 

Petroleum product manufacturer

 

Senior secured loan ($10,973 par, due 12/2012)

 

9.80% (Libor + 8.88% / Q)

 

2/13/2009

 

10,973

 

10,753

 

$

0.98

(5)

 

 

 

 

 

 

Senior secured loan ($2,993 par, due 12/2012)

 

14.00%

 

2/13/2009

 

2,993

 

2,933

 

$

0.98

(5)

 

 

 

 

 

 

Senior secured loan ($998 par, due 12/2012)

 

14.00%

 

2/13/2009

 

998

 

978

 

$

0.98

(5)

 

 

 

 

 

 

Senior secured loan ($2,985 par, due 12/2012)

 

14.00%

 

2/13/2009

 

2,985

 

2,925

 

$

0.98

(5)

 

 

 

 

 

 

Senior secured loan ($3,000 par, due 12/2012)

 

9.89% (Libor + 8.88% / Q)

 

2/13/2009

 

3,000

 

2,940

 

$

0.98

(5)

 

 

 

 

 

 

Common units (50,000 units)

 

 

 

4/25/2008

 

500

 

500

 

$

10.00

(5)

 

 

 

 

 

 

Common units (50,000 units)

 

 

 

4/25/2008

 

 

 

$

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Universal Trailer Corporation(6)

 

Livestock and specialty trailer manufacturer

 

Common stock (74,920 shares)

 

 

 

10/8/2004

 

7,930

 

 

$

(5)

 

 

 

 

 

 

 

 

 

 

 

 

102,901

 

89,353

 

 

 

8.21

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Environmental Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AWTP, LLC

 

Water treatment services

 

Junior secured loan ($4,755 par due 12/2012)

 

11.5% (Base Rate + 8.25%/D)

 

12/23/2005

 

4,755

 

2,853

 

$

0.60

(4)(14)

 

 

 

 

 

 

Junior secured loan ($2,086 par due 12/2012)

 

11.5% (Base Rate + 8.25%/D)

 

12/23/2005

 

2,086

 

1,252

 

$

0.60

(3)(4)(14)

 

 

 

 

 

 

Junior secured loan ($4,755 par due 12/2012)

 

13.48% (Libor + 9.50%/A)

 

12/23/2005

 

4,755

 

2,853

 

$

0.60

(4)(14)

 

 

 

 

 

 

Junior secured loan ($2,086 par due 12/2012)

 

13.48% (Libor + 9.50%/A)

 

12/23/2005

 

2,086

 

1,252

 

$

0.60

(3)(4)(14)

 

 

 

10



Table of Contents

 

Company(1)

 

Industry

 

Investment

 

Interest(10)

 

Initial
Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Fair Value
Per Unit

 

Percentage of
Net Assets

 

Mactec, Inc.

 

Engineering and environmental services

 

Class B-4 stock (16 shares)

 

 

 

11/3/2004

 

 

 

$

(5)

 

 

 

 

 

 

Class C stock (5,556 shares)

 

 

 

11/3/2004

 

 

150

 

$

27.00

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sigma International Group, Inc.

 

Water treatment parts manufacturer

 

Junior secured loan ($1,833 par due 10/2013)

 

15.00% (Libor + 7.00%/M)

 

10/11/2007

 

1,833

 

1,375

 

$

0.75

(2)(15)

 

 

 

 

 

 

Junior secured loan ($4,000 par due 10/2013)

 

15.00% (Libor + 7.00%/M)

 

10/11/2007

 

4,000

 

3,000

 

$

0.75

(3)(15)

 

 

 

 

 

 

Junior secured loan ($2,750 par due 10/2013)

 

15.00% (Libor + 7.00%/Q)

 

11/1/2007

 

2,750

 

2,063

 

$

0.75

(2)(15)

 

 

 

 

 

 

Junior secured loan ($6,000 par due 10/2013)

 

15.00% (Libor + 7.00%/Q)

 

11/1/2007

 

6,000

 

4,500

 

$

0.75

(3)(15)

 

 

 

 

 

 

Junior secured loan ($917 par due 10/2013)

 

15.00% (Libor + 7.00%/B)

 

11/6/2007

 

917

 

688

 

$

0.75

(2)(15)

 

 

 

 

 

 

Junior secured loan ($2,000 par due 10/2013)

 

15.00% (Libor + 7.00%/B)

 

11/6/2007

 

2,000

 

1,500

 

$

0.75

(3)(15)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Waste Pro USA, Inc.

 

Waste management services

 

Senior subordinated loan ($23,000 par due 11/2013)

 

13.75%

 

11/9/2006

 

23,000

 

23,000

 

$

1.00

(2)

 

 

 

 

 

 

Preferred stock (15,000 shares)

 

14.00% PIK

 

11/9/2006

 

15,000

 

15,000

 

$

1,000.00

(4)

 

 

 

 

 

 

Warrants to purchase 682,671 shares

 

 

 

11/9/2006

 

 

10,000

 

$

14.65

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wastequip, Inc.(6)

 

Waste management equipment manufacturer

 

Senior subordinated loan ($12,991 par due 2/2015)

 

10.00% Cash, 2.00% PIK

 

2/5/2007

 

12,991

 

5,196

 

$

0.40

(4)

 

 

 

 

 

 

Common stock (13,889 shares)

 

 

 

2/2/2007

 

1,389

 

 

$

(5)

 

 

 

 

 

 

 

 

 

 

 

 

83,562

 

74,682

 

 

 

 

6.86

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Printing, Publishing and Media

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Canon Communications LLC

 

Print publications services

 

Junior secured loan ($11,847 par due 11/2011)

 

13.75% (Base Rate + 8.75% Cash, 2.00% PIK/Q)

 

5/25/2005

 

11,847

 

11,136

 

$

0.94

(2)(15)

 

 

 

 

 

 

Junior secured loan ($12,073 par due 11/2011)

 

13.75% (Base Rate + 8.75% Cash, 2.00% PIK/Q)

 

5/25/2005

 

12,073

 

11,349

 

$

0.94

(3)(15)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Courtside Acquisition Corp.

 

Community newspaper publisher

 

Senior subordinated loan ($34,295 par due 6/2014)

 

17.00% PIK

 

6/29/2007

 

34,295

 

 

$

(4)(14)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LVCG Holdings LLC(7)

 

Commercial printer

 

Membership interests (56.53% interest)

 

 

 

10/12/2007

 

6,600

 

3,960

 

 

 

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

National Print Group, Inc.

 

Printing management services

 

Senior secured revolving loan ($343 par due 3/2012)

 

8.25% (Base Rate + 5.00%/D)

 

3/2/2006

 

343

 

165

 

$

0.48

(15)

 

 

 

 

 

 

Senior secured revolving loan ($1,826 par due 3/2012)

 

9.00% (Base Rate + 5.00%/D)

 

3/2/2006

 

1,826

 

877

 

$

0.48

(15)

 

 

 

 

 

 

Senior secured loan ($6,942 par due 3/2012)

 

16.00% (Base Rate + 6.00 Cash, 7.00% PIK/S)

 

3/2/2006

 

6,942

 

3,332

 

$

0.48

(3)(15)(4)

 

 

 

 

 

 

Senior secured loan ($1,405 par due 3/2012)

 

16.00% (Base Rate + 6.00 Cash, 6.00% PIK/D)

 

3/2/2006

 

1,405

 

674

 

$

0.48

(3)(15)(4)

 

 

 

 

 

 

Preferred stock (9,344 shares)

 

 

 

3/2/2006

 

2,000

 

 

$

(5)

 

 

 

11



Table of Contents

 

Company(1)

 

Industry

 

Investment

 

Interest(10)

 

Initial
Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Fair Value
Per Unit

 

Percentage of
Net Assets

 

The Teaching Company,  LLC and The Teaching Company Holdings,  Inc. (11)

 

Education publications provider

 

Senior secured loan ($18,000 par due 9/2012)

 

10.50%

 

9/29/2006

 

18,000

 

17,640

 

$

0.98

(2)(11)

 

 

 

 

 

 

Senior secured loan ($10,000 par due 9/2012)

 

10.50%

 

9/29/2006

 

10,000

 

9,800

 

$

0.98

(3)(11)

 

 

 

 

 

 

Preferred stock (29,969 shares)

 

8.00%

 

9/29/2006

 

2,997

 

2,997

 

$

100.00

(5)

 

 

 

 

 

 

Common stock (15,393 shares)

 

 

 

9/29/2006

 

3

 

3

 

$

0.19

(5)

 

 

 

 

 

 

 

 

 

 

 

 

108,331

 

61,933

 

 

 

5.69

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aerospace & Defense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AP Global Holdings, Inc.

 

Safety and security equipment manufacturer

 

Senior secured loan ($7,813 par due 10/2013)

 

4.81% (Libor + 4.50%/M)

 

11/8/2007

 

7,671

 

7,032

 

$

0.90

(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ILC Industries, Inc.

 

Industrial products provider

 

Junior secured loan ($12,000 par due 8/2012)

 

11.50%

 

6/27/2006

 

12,000

 

12,000

 

$

1.00

(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Thermal Solutions LLC and TSI Group, Inc.

 

Thermal management and electronics packaging manufacturer

 

Senior secured loan ($681 par due 3/2011)

 

4.10% (Libor + 3.50%/Q)

 

3/28/2005

 

681

 

654

 

$

0.96

(3)

 

 

 

 

 

 

Senior secured loan ($2,748 par due 3/2012)

 

4.60% (Libor + 4.00%/Q)

 

3/28/2005

 

2,748

 

2,501

 

$

0.91

(3)

 

 

 

 

 

 

Senior subordinated notes ($2,106 par due 9/2012)

 

11.50% Cash, 2.75% PIK

 

3/28/2005

 

2,095

 

2,043

 

$

0.97

(4)

 

 

 

 

 

 

Senior subordinated notes ($3,325 par due 9/2012)

 

11.50% Cash, 2.75% PIK

 

3/28/2005

 

3,308

 

3,225

 

$

0.97

(2)(4)

 

 

 

 

 

 

Senior subordinated notes ($2,679 par due 3/2013)

 

11.50% Cash, 2.50% PIK

 

3/21/2006

 

2,679

 

2,599

 

$

0.97

(2)(4)

 

 

 

 

 

 

Preferred stock (71,552 shares)

 

 

 

3/28/2005

 

716

 

716

 

$

10.01

(5)

 

 

 

 

 

 

Common stock (1,460,246 shares)

 

 

 

3/28/2005

 

15

 

15

 

$

0.01

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wyle Laboratories, Inc. and Wyle Holdings, Inc.

 

Provider of specialized engineering, scientific and technical services

 

Junior secured loan ($16,000 par due 7/2014)

 

15.00%

 

1/17/2008

 

16,000

 

16,000

 

$

1.00

 

 

 

 

 

 

 

Junior secured loan ($12,000 par due 7/2014)

 

15.00%

 

1/17/2008

 

12,000

 

12,000

 

$

1.00

(3)

 

 

 

 

 

 

Preferred stock (15,430 shares)

 

 

 

1/17/2008

 

1,912

 

1,530

 

$

67.18

(5)

 

 

 

 

 

 

Common stock (151,439 shares)

 

 

 

1/17/2008

 

188

 

150

 

$

0.99

(5)

 

 

 

 

 

 

 

 

 

 

 

 

62,013

 

60,465

 

 

 

5.55

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer Products—Non-Durable

 

 

 

 

 

 

 

 

 

 

 

 

 

Innovative Brands, LLC

 

Consumer products and personal care manufacturer

 

Senior secured loan ($9,276 par due 9/2011)

 

14.50%

 

10/12/2006

 

9,276

 

9,276

 

$

1.00

 

 

 

 

 

 

 

Senior secured loan ($8,563 par due 9/2011)

 

14.50%

 

10/12/2006

 

8,563

 

8,563

 

$

1.00

(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Making Memories Wholesale, Inc.(6)

 

Scrapbooking branded products manufacturer

 

Senior secured loan ($21,509 par due 3/2011)

 

8.25% (Base Rate + 5.00%/D)

 

5/5/2005

 

11,953

 

11,830

 

$

0.55

(14)

 

 

 

 

 

 

Senior subordinated loan ($16,250 par due 5/2012)

 

10.50% Cash, 4.00% PIK

 

5/5/2005

 

10,465

 

 

$

(4)(14)

 

 

 

 

 

 

Preferred stock (4,259 shares)

 

 

 

5/5/2005

 

3,759

 

 

$

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shoes for Crews, LLC

 

Safety footwear and slip-related mat manufacturer

 

Senior secured loan ($437 par due 7/2010)

 

4.10% (Libor + 3.50%/Q)

 

10/8/2004

 

440

 

437

 

$

1.00

(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Thymes, LLC(7)

 

Cosmetic products manufacturer

 

Preferred stock (6,283 shares)

 

8.00% PIK

 

6/21/2007

 

6,283

 

5,653

 

$

899.73

(4)

 

 

 

12



Table of Contents

 

Company(1)

 

Industry

 

Investment

 

Interest(10)

 

Initial
Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Fair Value
Per Unit

 

Percentage of
Net Assets

 

 

 

 

 

Common stock (5,400 shares)

 

 

 

6/21/2007

 

 

 

$

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wear Me Apparel, LLC(6)

 

Clothing manufacturer

 

Senior subordinated notes ($27,441 par due 4/2013)

 

17.50% PIK

 

4/2/2007

 

24,110

 

13,268

 

$

0.48

(4)(14)

 

 

 

 

 

 

Common stock (10,000 shares)

 

 

 

4/2/2007

 

10,000

 

 

$

(5)

 

 

 

 

 

 

 

 

 

 

 

 

84,849

 

49,027

 

 

 

4.50

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Telecommunications

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

American Broadband Communications, LLC and American Broadband Holding Company

 

Broadband communication services

 

Senior subordinated loan ($33,332 par due 11/2014)

 

18.00% (10.00% Cash, 8.00% PIK)

 

2/8/2008

 

33,332

 

33,332

 

$

1.00

(4)

 

 

 

 

 

 

Senior subordinated loan ($8,411 par due 11/2014)

 

18.00% (10.00% Cash, 8.00% PIK)

 

11/7/2007

 

8,411

 

8,411

 

$

1.00

(4)

 

 

 

 

 

 

Warrants to purchase 170 shares

 

 

 

11/7/2007

 

 

 

$

(5)

 

 

 

 

 

 

 

 

 

 

 

 

41,743

 

41,743

 

 

 

3.83

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cargo Transport

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Kenan Advantage Group, Inc.

 

Fuel transportation provider

 

Senior subordinated notes ($25,451 par due 12/2013)

 

9.50% Cash, 3.50% PIK

 

12/15/2005

 

25,451

 

24,433

 

$

0.96

(2)(4)

 

 

 

 

 

 

Senior secured loan ($2,413 par due 12/2011)

 

3.06% (Libor + 2.75%/M)

 

12/15/2005

 

2,413

 

2,244

 

$

0.93

(3)

 

 

 

 

 

 

Preferred stock (10,984 shares)

 

 

 

12/15/2005

 

1,098

 

1,459

 

$

132.83

(4)(5)

 

 

 

 

 

 

Common stock (30,575 shares)

 

 

 

12/15/2005

 

31

 

41

 

$

1.34

(5)

 

 

 

 

 

 

 

 

 

 

 

 

28,993

 

28,177

 

 

 

2.59

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Containers-Packaging

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Industrial Container Services, LLC(6)

 

Industrial container manufacturer, reconditioner and servicer

 

Senior secured revolving loan ($1,033 par due 9/2011)

 

4.32% (Libor + 4.00%/M)

 

6/21/2006

 

1,033

 

981

 

$

0.95

 

 

 

 

 

 

 

Senior secured revolving loan ($578 par due 9/2011)

 

5.75% (Base Rate + 2.50%/D)

 

6/21/2006

 

578

 

549

 

$

0.95

 

 

 

 

 

 

 

Senior secured loan ($455 par due 9/2011)

 

4.31% (Libor + 4.00%/M)

 

6/21/2006

 

455

 

432

 

$

0.95

(2)

 

 

 

 

 

 

Senior secured loan ($6,972 par due 9/2011)

 

4.31% (Libor + 4.00%/M)

 

6/21/2006

 

6,972

 

6,623

 

$

0.95

(3)

 

 

 

 

 

 

Senior secured loan ($79 par due 9/2011)

 

4.32% (Libor + 4.00%/M)

 

6/21/2006

 

79

 

75

 

$

0.95

(2)

 

 

 

 

 

 

Senior secured loan ($1,214 par due 9/2011)

 

4.32% (Libor + 4.00%/M)

 

6/21/2006

 

1,214

 

1,154

 

$

0.95

(3)

 

 

 

 

 

 

Senior secured loan ($244 par due 9/2011)

 

4.32% (Libor + 4.00%/M)

 

6/21/2006

 

244

 

232

 

$

0.95

(2)

 

 

 

 

 

 

Senior secured loan ($3,738 par due 9/2011)

 

4.32% (Libor + 4.00%/M)

 

6/21/2006

 

3,738

 

3,551

 

$

0.95

(3)

 

 

 

 

 

 

Senior secured loan ($98 par due 9/2011)

 

4.32% (Libor + 4.00%/M)

 

6/21/2006

 

98

 

93

 

$

0.95

(2)

 

 

 

 

 

 

Senior secured loan ($1,495 par due 9/2011)

 

4.32% (Libor + 4.00%/M)

 

6/21/2006

 

1,495

 

1,420

 

$

0.95

(3)

 

 

 

 

 

 

Common stock (1,800,000 shares)

 

 

 

9/29/2005

 

1,800

 

9,100

 

$

5.06

(5)

 

 

 

 

 

 

 

 

 

 

 

 

17,706

 

24,210

 

 

 

2.22

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Computers and Electronics

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RedPrairie Corporation

 

Software manufacturer

 

Junior secured loan ($3,300 par due 1/2013)

 

7.51% (Libor + 6.50%/Q)

 

7/13/2006

 

3,300

 

3,069

 

$

0.93

(2)

 

 

 

13



Table of Contents

 

Company(1)

 

Industry

 

Investment

 

Interest(10)

 

Initial
Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Fair Value
Per Unit

 

Percentage of
Net Assets

 

 

 

 

 

Junior secured loan ($12,000 par due 1/2013)

 

7.51% (Libor + 6.50%/Q)

 

7/13/2006

 

12,000

 

11,160

 

$

0.93

(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TZ Merger Sub, Inc.

 

Computers and Electronics

 

Senior secured loan ($4,842 par due 07/2015)

 

7.50% (Libor + 4.50%/Q)

 

6/15/2009

 

4,735

 

4,746

 

$

0.98

(2)(15)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

X-rite, Incorporated

 

Artwork software manufacturer

 

Junior secured loan ($3,097 par due 7/2013)

 

13.63% (Libor + 10.38%/Q)

 

7/6/2006

 

3,097

 

3,097

 

$

1.00

(15)

 

 

 

 

 

 

Junior secured loan ($7,743 par due 7/2013)

 

13.63% (Libor + 10.38%/Q)

 

7/6/2006

 

7,743

 

7,743

 

$

1.00

(3)(15)

 

 

 

 

 

 

Junior secured loan ($1 par due 7/2013)

 

14.38% (Libor + 10.38%/D)

 

7/6/2006

 

1

 

1

 

$

1.00

(15)

 

 

 

 

 

 

Junior secured loan ($1 par due 7/2013)

 

14.38% (Libor + 10.38%/D)

 

7/6/2006

 

1

 

1

 

$

1.00

(3)(15)

 

 

 

 

 

 

 

 

 

 

 

 

30,877

 

29,817

 

 

 

2.74

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Health Clubs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Athletic Club Holdings, Inc.

 

Premier health club operator

 

Senior secured loan ($1,000 par due 10/2013)

 

4.81% (Libor + 4.50%/M)

 

10/11/2007

 

1,000

 

880

 

$

0.88

(13)

 

 

 

 

 

 

Senior secured loan ($1,750 par due 10/2013)

 

4.82% (Libor + 4.50%/M)

 

10/11/2007

 

1,750

 

1,540

 

$

0.88

(13)

 

 

 

 

 

 

Senior secured loan ($12,451 par due 10/2013)

 

4.81% (Libor + 4.50%/M)

 

10/11/2007

 

12,451

 

10,957

 

$

0.88

(2)(13)

 

 

 

 

 

 

Senior secured loan ($11,455 par due 10/2013)

 

4.81% (Libor + 4.50%/M)

 

10/11/2007

 

11,455

 

10,081

 

$

0.88

(3)(13)

 

 

 

 

 

 

Senior secured loan ($49 par due 10/2013)

 

7.75% (Base Rate + 4.50%/D)

 

10/11/2007

 

49

 

43

 

$

0.88

(2)(13)

 

 

 

 

 

 

Senior secured loan ($45 par due 10/2013)

 

7.75% (Base Rate + 4.50%/D)

 

10/11/2007

 

45

 

39

 

$

0.88

(3)(13)

 

 

 

 

 

 

 

 

 

 

 

 

26,750

 

23,540

 

 

 

2.16

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Grocery

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Planet Organic Health Corp.(8)

 

Organic grocery store operator

 

Junior secured loan ($840 par due 7/2014)

 

7.81% (Libor + 7.50%/M)

 

7/3/2007

 

840

 

798

 

$

0.95

 

 

 

 

 

 

 

Junior secured loan ($10,014 par due 7/2014)

 

7.81% (Libor + 7.50%/M)

 

7/3/2007

 

10,014

 

9,514

 

$

0.95

(3)

 

 

 

 

 

 

Senior subordinated loan ($11,250 par due 7/2012)

 

11.00% Cash, 2.00% PIK

 

7/3/2007

 

11,250

 

9,563

 

$

0.85

(2)(4)

 

 

 

 

 

 

 

 

 

 

 

 

22,104

 

19,875

 

 

 

1.83

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer Products—Durable

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct Buy Holdings, Inc. and Direct Buy Investors, LP(6)

 

Membership-based buying club franchisor and operator

 

Senior secured loan ($2,281 par due 11/2012)

 

6.82% (Libor + 6.50%/M)

 

12/14/2007

 

2,189

 

1,710

 

$

0.75

 

 

 

 

 

 

 

Partnership interests (19.31% interest)

 

 

 

11/30/2007

 

10,000

 

2,500

 

 

 

(5)

 

 

 

 

 

 

 

 

 

 

 

 

12,189

 

4,210

 

 

 

0.39

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Housing—Building Materials

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HB&G Building Products

 

Synthetic and wood product manufacturer

 

Senior subordinated loan ($8,956 par due 3/2011)

 

14.00% Cash, 2.00% PIK

 

10/8/2004

 

9,005

 

448

 

$

0.05

(2)(4)(14)

 

 

 

14



Table of Contents

 

Company(1)

 

Industry

 

Investment

 

Interest(10)

 

Initial
Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Fair Value
Per Unit

 

Percentage of
Net Assets

 

 

 

 

 

Common stock (2,743 shares)

 

 

 

10/8/2004

 

753

 

 

$

(5)

 

 

 

 

 

 

Warrants to purchase 4,464 shares

 

 

 

10/8/2004

 

653

 

 

$

(5)

 

 

 

 

 

 

 

 

 

 

 

 

10,411

 

448

 

 

 

0.04

%

 

 

 

 

 

 

 

 

 

 

$

2,272,976

 

$

1,962,471

 

 

 

 

 

 


(1)  Other than our investments in HCP Acquisition Holdings, LLC, Ivy Hill Middle Market Credit Fund, Ltd., LVCG Holdings LLC, R3 Education, Inc., Reflexite Corporation and The Thymes, LLC, we do not “Control” any of our portfolio companies, as defined in the Investment Company Act. In general, under the Investment Company Act, we would “Control” a portfolio company if we owned more than 25% of its outstanding voting securities and/or had the power to exercise control over the management or policies of such portfolio company. All of our portfolio company investments are subject to legal restrictions on sales which as of June 30, 2009 represented 180% of the Company’s net assets.

 

(2)  These assets are owned by the Company’s wholly owned subsidiary Ares Capital CP, are pledged as collateral for the CP Funding Facility and, as a result, are not directly available to the creditors of the Company to satisfy any obligations of the Company other than Ares Capital CP’s obligations under the CP Funding Facility (see Note 7 to the consolidated financial statements). Unless otherwise noted, as of June 30, 2009, all other investments were pledged as collateral for the Revolving Credit Facility (see Note 7 to the consolidated financial statements).

 

(3)  Pledged as collateral for the ARCC CLO. Unless otherwise noted, as of June 30, 2009, all other investments were pledged as collateral for the Revolving Credit Facility (see Note 7 to the consolidated financial statements).

 

(4)  Has a payment-in-kind interest feature (see Note 2 to the consolidated financial statements).

 

(5)  Non-income producing at June 30, 2009.

 

(6)  As defined in the Investment Company Act, we are an “Affiliate” of this portfolio company because we own 5% or more of the portfolio company’s outstanding voting securities or we have the power to exercise control over the management or policies of such portfolio company (including through a management agreement). Transactions during the period for the six months ended June 30, 2009 in which the issuer was an Affiliate (but not a portfolio company that we “Control”) are as follows (in thousands):

 

Company

 

Purchases

 

Redemptions
(cost)

 

Sales (cost)

 

Interest
income

 

Capital
structuring
service fees

 

Dividend
Income

 

Other income

 

Net realized
gains (losses)

 

Net unrealized
gains (losses)

 

Apple & Eve, LLC and US Juice Partners, LLC

 

$

4,500

 

$

12,730

 

$

 

$

2,525

 

$

 

$

 

$

13

 

$

 

$

8,236

 

Carador, PLC

 

$

 

$

 

$

 

$

 

$

 

$

137

 

$

 

$

 

$

(2,667

)

Campus Management Corp. and Campus Management Acquisition Corp.

 

$

 

$

2,309

 

$

15,000

 

$

3,143

 

$

 

$

 

$

33

 

$

(482

)

$

 

CT Technologies Intermediate Holdings, Inc. and CT Technologies Holdings, LLC

 

$

 

$

 

$

 

$

516

 

$

 

$

 

$

 

$

 

$

(371

)

Direct Buy Holdings, Inc. and Direct Buy Investors LP

 

$

 

$

 

$

 

$

58

 

$

 

$

 

$

 

$

 

$

(4,000

)

Firstlight Financial Corporation

 

$

 

$

 

$

 

$

2,613

 

$

 

$

 

$

1,317

 

$

 

$

(11,009

)

Imperial Capital Group, LLC

 

$

206

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

Industrial Container Services, LLC

 

$

4,750

 

$

7,142

 

$

 

$

373

 

$

 

$

 

$

80

 

$

 

$

(795

)

Investor Group Services, LLC

 

$

 

$

750

 

$

 

$

 

$

 

$

 

$

12

 

$

 

$

 

Making Memories Wholesale, Inc.

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

(258

)

Pillar Holdings LLC and PHL Holding Co.

 

$

 

$

2,692

 

$

 

$

1,474

 

$

 

$

 

$

16

 

$

 

$

945

 

Primis Marketing Group, Inc. and Primis Holdings, LLC

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

R3 Education, Inc.

 

$

13,000

 

$

17,075

 

$

 

$

549

 

$

 

$

 

$

14

 

$

 

$

86

 

Universal Trailer Corporation

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

VSS-Tranzact Holdings, LLC

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

Wastequip, Inc.

 

$

 

$

 

$

 

$

777

 

$

 

$

 

$

 

$

 

$

(2,651

)

Wear Me Apparel, LLC

 

$

 

$

 

$

 

$

75

 

$

 

$

 

$

 

$

 

$

1,212

 

 

(7)  As defined in the Investment Company Act, we are an “Affiliate” of this portfolio company because we own 5% or more of the portfolio company’s outstanding voting securities or we have the power to exercise control over the management or policies of such portfolio company (including through a management agreement). In addition, as defined in the Investment Company Act, we “Control” this portfolio company because we own more than 25% of the portfolio company’s outstanding voting securities or we have the power to exercise control over the management or policies of such portfolio company (including through a management agreement). Transactions during the period for the six months ended June 30, 2009 in which the issuer was both an Affiliate and a portfolio company that we Control are as follows (in thousands):

 

15



Table of Contents

 

Company

 

Purchases

 

Redemptions
(cost)

 

Sales (cost)

 

Interest
income

 

Capital
structuring
service fees

 

Dividend
Income

 

Other income

 

Net realized
gains (losses)

 

Net unrealized
gains (losses)

 

HCP Acquisition Holdings, LLC

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

(375

)

Ivy Hill Asset Management, LP

 

$

3,816

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

8,000

 

Ivy Hill Middle Market Credit Fund, Ltd.

 

$

 

$

188

 

$

 

$

3,017

 

$

 

$

 

$

1,236

 

$

 

$

 

LVCG Holdings, LLC

 

$

 

$

 

$

 

$

 

$

 

$

 

$

50

 

$

 

$

(4,540

)

R3 Education, Inc.

 

$

15,613

 

$

5,437

 

$

 

$

506

 

$

 

$

 

$

17

 

$

 

$

(36

)

Reflexite Corporation

 

$

7,800

 

$

 

$

2,000

 

$

1,321

 

$

194

 

$

 

$

71

 

$

 

$

(10,603

)

The Thymes, LLC

 

$

 

$

 

$

 

$

249

 

$

 

$

 

$

 

$

 

$

628

 

 

(8)  Non-U.S. company or principal place of business outside the U.S. and as a result is not a qualifying asset under Section 55(a) of the Investment Company Act. Under the Investment Company Act, we may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of our total assets.

 

(9)  Non-registered investment company.

 

(10)  A majority of the variable rate loans to our portfolio companies bear interest at a rate that may be determined by reference to either Libor or an alternate Base Rate (commonly based on the Federal Funds Rate or the Prime Rate), at the borrower’s option, which reset annually (A), semi-annually (S), quarterly (Q), bi-monthly (B), monthly (M) or daily (D).  For each such loan, we have provided the interest rate in effect at June 30, 2009.

 

(11)  In addition to the interest earned based on the stated interest rate of this security, we are entitled to receive an additional interest amount of 2.50% on $20.3 million aggregate principal amount of the portfolio company’s senior term debt previously syndicated by us.

 

(12)  Principal amount denominated in Canadian dollars has been translated into U.S. dollars (see Note 2 to the consolidated financial statements).

 

(13)  In addition to the interest earned based on the stated interest rate of this security, we are entitled to receive an additional interest amount of 2.50% on $25.0 million aggregate principal amount of the portfolio company’s senior term debt previously syndicated by us.

 

(14)  Loan was on non-accrual status as of June 30, 2009.

 

(15)  Loan includes interest rate floor feature.

 

(16)  In addition to the interest earned based on the stated interest rate of this security, we are entitled to receive an additional interest amount of 2.98% on $15.0 million aggregate principal amount of the portfolio company’s senior term debt previously syndicated by us.

 

See accompanying notes to consolidated financial statements.

 

16



Table of Contents

 

ARES CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS

As of December 31, 2008

(dollar amounts in thousands, except per unit data)

 

Company(1)

 

Industry

 

Investment

 

Interest(10)

 

Initial
Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Fair
Value
Per Unit

 

Percentage of
Net
Assets

 

Healthcare—Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

American Renal Associates, Inc.

 

Dialysis provider

 

Senior secured loan ($1,443 par due 12/2010)

 

4.72% (Libor + 3.25%/Q)

 

12/14/2005

 

$

1,443

 

$

1,399

 

$

0.97

(3)

 

 

 

 

 

 

Senior secured loan ($180 par due 12/2010)

 

5.00% (Base Rate + 1.75%/D)

 

12/14/2005

 

180

 

175

 

$

0.97

(3)

 

 

 

 

 

 

Senior secured loan ($5,705 par due 12/2011)

 

4.72% (Libor + 3.25%/Q)

 

12/14/2005

 

5,705

 

5,534

 

$

0.97

(3)

 

 

 

 

 

 

Senior secured loan ($34 par due 12/2011)

 

5.00% (Base Rate + 1.75%/D)

 

12/14/2005

 

34

 

33

 

$

0.97

(3)

 

 

 

 

 

 

Senior secured loan ($262 par due 12/2011)

 

4.72% (Libor + 3.25%/Q)

 

12/14/2005

 

262

 

254

 

$

0.97

(3)

 

 

 

 

 

 

Senior secured loan ($2,620 par due 12/2011)

 

7.30% (Libor + 3.25% /Q)

 

12/14/2005

 

2,620

 

2,541

 

$

0.97

(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capella Healthcare, Inc.

 

Acute care hospital operator

 

Junior secured loan ($70,000 par due 2/2016)

 

13.00%

 

2/29/2008

 

70,000

 

63,000

 

$

0.90

 

 

 

 

 

 

 

Junior secured loan ($25,000 par due 2/2016)

 

13.00%

 

2/29/2008

 

25,000

 

22,500

 

$

0.90

(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CT Technologies Intermediate Holdings, Inc. and CT Technologies Holdings, LLC(6)

 

Healthcare analysis services

 

Preferred stock (7,427 shares)

 

14.00% PIK

 

6/15/2007

 

7,427

 

7,427

 

$

1,000.00

(4)

 

 

 

 

 

 

Common stock (9,679 shares)

 

 

 

6/15/2007

 

4,000

 

5,382

 

$

556.05

(5)

 

 

 

 

 

 

Common stock (1,546 shares)

 

 

 

6/15/2007

 

 

 

$

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DSI Renal, Inc.

 

Dialysis provider

 

Senior secured revolving loan ($142 par due 3/2013)

 

6.25% (Base Rate + 3.00%/D)

 

4/4/2006

 

142

 

127

 

$

0.89

 

 

 

 

 

 

 

Senior secured revolving loan ($3,520 par due 3/2013)

 

3.47% (Libor + 3.00%/M)

 

4/4/2006

 

3,520

 

3,168

 

$

0.90

 

 

 

 

 

 

 

Senior secured revolving loan ($1,120 par due 3/2013)

 

3.47% (Libor + 3.00%/M)

 

4/4/2006

 

1,120

 

1,008

 

$

0.90

 

 

 

 

 

 

 

Senior secured revolving loan ($1,152 par due 3/2013)

 

4.50% (Libor + 3.00%/Q)

 

4/4/2006

 

1,152

 

1,037

 

$

0.90

 

 

 

 

 

 

 

Senior secured revolving loan ($1,600 par due 3/2013)

 

4.50% (Libor + 3.00%/Q)

 

4/4/2006

 

1,600

 

1,440

 

$

0.90

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Senior subordinated note ($29,589 par due 4/2014)

 

12.00% Cash, 2.00% PIK

 

4/4/2006

 

29,658

 

21,896

 

$

0.74

(4)

 

 

 

 

 

 

Senior subordinated note ($26,927 par due 4/2014)

 

12.00% Cash, 2.00% PIK

 

4/4/2006

 

26,971

 

19,847

 

$

0.73

(2)(4)

 

 

 

 

 

 

Senior subordinated note ($12,211 par due 4/2014)

 

12.00% Cash, 2.00% PIK

 

4/4/2006

 

12,231

 

9,036

 

$

0.74

(3)(4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GG Merger Sub I, Inc.

 

Drug testing services

 

Senior secured loan ($23,330 par due 12/2014)

 

7.09% (Libor + 4.00%/S)

 

12/14/2007

 

22,426

 

18,938

 

$

0.81

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HCP Acquisition Holdings, LLC(7)

 

Healthcare compliance advisory services

 

Class A units (8,566,824 units)

 

 

 

6/26/2008

 

8,567

 

6,500

 

$

0.76

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Heartland Dental Care, Inc.

 

Dental services

 

Senior subordinated note ($40,217 par due 8/2013)

 

11.00% Cash, 3.25% PIK

 

7/31/2008

 

40,217

 

40,217

 

$

1.00

(4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MPBP Holdings, Inc., Cohr Holdings, Inc. and MPBP Acquisition Co., Inc.

 

Healthcare equipment services

 

Junior secured loan ($20,000 par due 1/2014)

 

9.19% (Libor + 6.25%/S)

 

1/31/2007

 

20,000

 

7,000

 

$

0.35

 

 

 

 

 

 

 

Junior secured loan ($12,000 par due 1/2014)

 

9.19% (Libor + 6.25%/S)

 

1/31/2007

 

12,000

 

4,200

 

$

0.35

(3)

 

 

 

 

 

 

Common stock (50,000 shares)

 

 

 

1/31/2007

 

5,000

 

 

$

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MWD Acquisition Sub, Inc.

 

Dental services

 

Junior secured loan ($5,000 par due 5/2012)

 

8.13% (Libor + 6.25%/M)

 

5/3/2007

 

5,000

 

4,250

 

$

0.85

(3)

 

 

OnCURE Medical Corp.

 

Radiation oncology care provider

 

Senior subordinated note ($32,176 par due 8/2013)

 

11.00% Cash, 1.50% PIK

 

8/18/2006

 

32,176

 

28,935

 

$

0.90

(4)

 

 

 

 

 

 

Senior secured loan ($3,083 par due 8/2009)

 

4.75% (Libor + 3.50%/M)

 

8/18/2006

 

3,083

 

3,000

 

$

0.97

(3)

 

 

 

 

 

 

Common stock (857,143 shares)

 

 

 

8/18/2006

 

3,000

 

2,713

 

$

3.17

(5)

 

 

 

17



Table of Contents

 

Company(1)

 

Industry

 

Investment

 

Interest(10)

 

Initial
Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Fair
Value
Per Unit

 

Percentage
of Net
Assets

 

Passport Health Communications, Inc., Passport Holding Corp. and Prism Holding Corp.

 

Healthcare technology provider

 

Senior secured loan ($12,935 par due 5/2014)

 

10.50% (Libor + 7.50%/S)

 

5/9/2008

 

12,935

 

12,671

 

$

0.98

(15)

 

 

 

 

 

 

Senior secured loan ($11,940 par due 5/2014)

 

10.50% (Libor + 7.50%/S)

 

5/9/2008

 

11,940

 

11,701

 

$

0.98

(3)(15)

 

 

 

 

 

 

Series A preferred stock (1,594,457 shares)

 

 

 

7/30/2008

 

9,900

 

9,902

 

$

6.21

(5)

 

 

 

 

 

 

Common stock (16,106 shares)

 

 

 

7/30/2008

 

100

 

100

 

$

6.21

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PG Mergersub, Inc.

 

Provider of patient surveys, management reports and national databases for the integrated healthcare delivery system

 

Senior subordinated loan ($5,000 par due 3/2016)

 

12.50%

 

3/12/2008

 

4,901

 

4,750

 

$

0.95

 

 

 

 

 

 

 

Preferred stock (333 shares)

 

 

 

3/12/2008

 

333

 

333

 

$

1,000.00

(5)

 

 

 

 

 

 

Common stock (16,667 shares)

 

 

 

3/12/2008

 

167

 

167

 

$

10.00

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Schumacher Group of Delaware, Inc.

 

Outsourced physician service provider

 

Senior subordinated loan ($35,849 par due 7/2012)

 

11.00% Cash, 2.50% PIK

 

7/18/2008

 

35,849

 

35,849

 

$

1.00

(4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Triad Laboratory Alliance, LLC

 

Laboratory services

 

Senior subordinated note ($15,354 par due 12/2012)

 

12.00% Cash, 1.75% PIK

 

12/21/2005

 

15,354

 

14,894

 

$

0.97

(4)

 

 

 

 

 

 

Senior secured loan ($2,473 par due 12/2011)

 

4.71% (Libor + 3.25%/Q)

 

12/21/2005

 

2,473

 

2,201

 

$

0.89

(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

VOTC Acquisition Corp.

 

Radiation oncology care provider

 

Senior secured loan ($3,068 par due 7/2012)

 

11.00% Cash, 2.00% PIK

 

6/30/2008

 

3,068

 

3,068

 

$

1.00

(4)

 

 

 

 

 

 

Senior secured loan ($14,000 par due 7/2012)

 

11.00% Cash, 2.00% PIK

 

6/30/2008

 

14,000

 

14,000

 

$

1.00

(4)

 

 

 

 

 

 

Series E preferred shares (3,888,222 shares)

 

 

 

7/14/2008

 

8,749

 

6,561

 

$

1.69

(5)

 

 

 

 

 

 

 

 

 

 

 

 

464,303

 

397,754

 

 

 

36.33

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Education

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Campus Management Corp. and Campus Management Acquisition Corp.(6)

 

Education software developer

 

Senior secured revolving loan ($2,309 par due 8/2013)

 

13.00%

 

2/8/2008

 

2,309

 

2,309

 

$

1.00

 

 

 

 

 

 

 

Senior secured loan ($19,924 par due 8/2013)

 

13.00%

 

2/8/2008

 

19,924

 

19,924

 

$

1.00

 

 

 

 

 

 

 

Senior secured loan ($25,108 par due 8/2013)

 

13.00%

 

2/8/2008

 

25,108

 

25,108

 

$

1.00

(2)

 

 

 

 

 

 

Senior secured loan ($12,019 par due 8/2013)

 

13.00%

 

2/8/2008

 

12,019

 

12,019

 

$

1.00

 

 

 

 

 

 

 

Preferred stock (493,147 shares)

 

8.00% PIK

 

2/8/2008

 

8,952

 

12,000

 

$

24.33

(4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ELC Acquisition Corporation

 

Developer, manufacturer and retailer of educational products

 

Senior secured loan ($242 par due 11/2012)

 

5.45% (Libor + 3.25%/Q)

 

11/30/2006

 

243

 

219

 

$

0.90

(3)

 

 

 

 

 

 

Junior secured loan ($8,333 par due 11/2013)

 

7.47% (Libor + 7.00%/M)

 

11/30/2006

 

8,333

 

7,500

 

$

0.90

(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Instituto de Banca y Comercio, Inc.(8)

 

Private school operator

 

Senior secured revolving loan ($1,643 par due 3/2014)

 

5.00% (Libor + 3.00%/Q)

 

3/15/2007

 

1,643

 

1,643

 

$

1.00

 

 

 

 

 

 

 

Senior secured loan ($7,500 par due 3/2014)

 

8.42% (Libor + 5.00%/Q)

 

3/15/2007

 

7,500

 

7,500

 

$

1.00

 

 

 

 

 

 

 

Senior secured loan ($7,266 par due 3/2014)

 

8.42% (Libor + 5.00%/Q)

 

3/15/2007

 

7,266

 

7,266

 

$

1.00

 

 

 

 

 

 

 

Senior secured loan ($4,987 par due 3/2014)

 

8.42% (Libor + 5.00%/Q)

 

3/15/2007

 

4,987

 

4,987

 

$

1.00

(2)

 

 

 

 

 

 

Senior secured loan ($11,820 par due 3/2014)

 

8.42% (Libor + 5.00%/Q)

 

3/15/2007

 

11,820

 

11,820

 

$

1.00

(3)

 

 

 

 

 

 

Senior subordinated loan ($19,641 par due 6/2014)

 

10.50% Cash, 3.50% PIK

 

6/4/2008

 

19,641

 

19,641

 

$

1.00

(4)

 

 

 

 

 

 

Promissory note ($429 par due 9/2015)

 

6.00%

 

6/4/2008

 

429

 

1,714

 

$

4.00

 

 

 

 

 

 

 

Preferred stock (214,286 shares)

 

 

 

6/4/2008

 

1,018

 

4,072

 

$

19.00

(5)

 

 

 

 

 

 

Common stock (214,286 shares)

 

 

 

6/4/2008

 

54

 

214

 

$

1.00

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lakeland Finance, LLC

 

Private school operator

 

Senior secured note ($18,000 par due 12/2012)

 

11.50%

 

12/13/2005

 

18,000

 

16,920

 

$

0.94

 

 

 

 

 

 

 

Senior secured note ($15,000 par due 12/2012)

 

11.50%

 

12/13/2005

 

15,000

 

14,100

 

$

0.94

(2)

 

 

 

18



Table of Contents

 

Company(1)

 

Industry

 

Investment

 

Interest(10)

 

Initial
Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Fair
Value
Per Unit

 

Percentage
of Net
Assets

 

R3 Education, Inc. (formerly known as Equinox EIC Partners, LLC and MUA Management Company, Ltd.)(7)(8)

 

Medical school operator

 

Senior secured revolving loan ($3,850 par due 12/2012)

 

8.25% (Base Rate + 5.00%/D)

 

4/3/2007

 

3,850

 

3,773

 

$

0.98

 

 

 

 

 

 

 

Senior secured revolving loan ($1,250 par due 12/2012)

 

8.25% (Base Rate + 5.00%/D)

 

4/3/2007

 

1,250

 

1,225

 

$

0.98

 

 

 

 

 

 

 

Senior secured loan ($3,024 par due 12/2012)

 

6.46% (Libor + 6.00%/M)

 

4/3/2007

 

3,024

 

2,963

 

$

0.98

(2)

 

 

 

 

 

 

Senior secured loan ($14,113 par due 12/2012)

 

6.46% (Libor + 6.00%/M)

 

9/21/2007

 

14,113

 

13,830

 

$

0.98

(2)

 

 

 

 

 

 

Senior secured loan ($7,350 par due 12/2012)

 

9.09% (Libor + 6.00%/S)

 

4/3/2007

 

7,350

 

7,203

 

$

0.98

(3)

 

 

 

 

 

 

Common membership interest (26.27% interest)

 

 

 

9/21/2007

 

15,800

 

20,785

 

 

(5)

 

 

 

 

 

 

Preferred stock (800 shares)

 

 

 

 

 

200

 

200

 

$

250.00

(5)

 

 

 

 

 

 

 

 

 

 

 

 

209,833

 

218,935

 

 

 

20.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restaurants and Food Services

 

 

 

 

 

 

 

 

 

 

 

 

 

ADF Capital, Inc. & ADF Restaurant Group, LLC

 

Restaurant owner and operator

 

Senior secured revolving loan ($1,381 par due 11/2013)

 

5.75% (Base Rate + 2.50%/D)

 

11/27/2006

 

1,381

 

1,313

 

$

0.95

 

 

 

 

 

 

 

Senior secured revolving loan ($2,005 par due 11/2013)

 

6.61% (Libor + 3.00% Cash, 0.50% PIK/S)

 

11/27/2006

 

2,005

 

1,905

 

$

0.95

(4)

 

 

 

 

 

 

Senior secured loan ($2 par due 11/2012)

 

12.00% (Base Rate + 7.5%/D)

 

11/27/2006

 

2

 

2

 

$

1.00

 

 

 

 

 

 

 

Senior secured loan ($1 par due 11/2012)

 

12.00% (Base Rate + 7.5%/D)

 

11/27/2006

 

1

 

1

 

$

1.00

(3)

 

 

 

 

 

 

Senior secured loan ($22,656 par due 11/2012)

 

11.61% (Libor + 7.50% Cash, 1.00% PIK/S)

 

11/27/2006

 

22,912

 

21,520

 

$

0.94

(4)

 

 

 

 

 

 

Senior secured loan ($992 par due 11/2012)

 

11.61% (Libor + 7.50% Cash, 1.00% PIK/S)

 

11/27/2006

 

992

 

942

 

$

0.95

(2)(4)

 

 

 

 

 

 

Senior secured loan ($11,081 par due 11/2012)

 

11.61% (Libor + 7.50% Cash, 1.00% PIK/S)

 

11/27/2006

 

11,075

 

10,529

 

$

0.95

(3)(4)

 

 

 

 

 

 

Promissory note ($12,079 par due 11/2016)

 

10.00% PIK

 

6/1/2006

 

12,067

 

12,067

 

$

1.00

(4)

 

 

 

 

 

 

Warrants to purchase 0.61 shares

 

 

 

6/1/2006

 

 

 

$

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Encanto Restaurants, Inc.(8)

 

Restaurant owner and operator

 

Junior secured loan ($21,184 par due 8/2013)

 

7.50% Cash, 3.50% PIK

 

8/16/2006

 

21,184

 

19,084

 

$

0.90

(2)(4)

 

 

 

 

 

 

Junior secured loan ($4,035 par due 8/2013)

 

7.50% Cash, 3.50% PIK

 

8/16/2006

 

4,035

 

3,635

 

$

0.90

(3)(4)

 

 

OTG Management, Inc.

 

Airport restaurant operator

 

Junior secured loan ($15,312 par due 6/2013)

 

18.00% (Libor + 11.00% Cash, 4.00% PIK/M)

 

6/19/2008

 

15,312

 

15,312

 

$

1.00

(4)(15)

 

 

 

 

 

 

Warrants to purchase up to 9 shares of common stock

 

 

 

 

 

 

 

$

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vistar Corporation and Wellspring Distribution Corp.

 

Food service distributor

 

Senior subordinated loan ($48,625 par due 5/2015)

 

13.50%

 

5/23/2008

 

48,625

 

46,680

 

$

0.96

 

 

 

 

 

 

 

Senior subordinated loan ($25,000 par due 5/2015)

 

13.50%

 

5/23/2008

 

25,000

 

24,000

 

$

0.96

(2)

 

 

 

 

 

 

Class A non-voting common stock (1,366,120 shares)

 

 

 

5/23/2008

 

7,500

 

3,500

 

$

2.56

(5)

 

 

 

 

 

 

 

 

 

 

 

 

172,091

 

160,490

 

 

 

14.66

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beverage, Food and Tobacco

 

 

 

 

 

 

 

 

 

 

 

 

 

3091779 Nova Scotia Inc.(8)

 

Baked goods manufacturer

 

Junior secured loan (Cdn$14,058 par due 11/2012)

 

11.50% Cash,  1.50% PIK

 

11/2/2007

 

14,904

 

10,961

 

$

0.74

(4)(12)

 

 

 

 

 

 

Warrants to purchase 57,545 shares

 

 

 

 

 

 

 

$

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Apple & Eve, LLC and US Juice Partners, LLC(6)

 

Juice manufacturer

 

Senior secured revolving loan ($8,000 par due 10/2013)

 

7.90% (Libor + 6.00%/M)

 

10/5/2007

 

8,000

 

6,400

 

$

0.80

 

 

 

 

 

 

 

Senior secured loan ($10,637 par due 10/2013)

 

6.47% (Libor + 6.00%/M)

 

10/5/2007

 

10,637

 

8,509

 

$

0.80

 

 

 

 

 

 

 

Senior secured loan ($19,976 par due 10/2013)

 

6.47% (Libor + 6.00%/M)

 

10/5/2007

 

19,976

 

15,981

 

$

0.80

(2)

 

 

 

 

 

 

Senior secured loan ($10,805 par due 10/2013)

 

6.47% (Libor + 6.00%/M)

 

10/5/2007

 

10,805

 

8,644

 

$

0.80

(3)

 

 

 

 

 

 

Senior units (50,000 units)

 

 

 

10/5/2007

 

5,000

 

2,500

 

$

50.00

(5)

 

 

 

19



Table of Contents

 

Company(1)

 

Industry

 

Investment

 

Interest(10)

 

Initial
Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Fair 
Value
Per Unit

 

Percentage
of Net
Assets

 

Best Brands Corporation

 

Baked goods manufacturer

 

Senior secured loan ($10,971 par due 12/2012)

 

10.43% (Libor + 4.50% Cash, 4.50% PIK/M)

 

2/15/2008

 

9,501

 

9,326

 

$

0.86

(4)

 

 

 

 

 

 

Junior secured loan ($4,319 par due 6/2013)

 

10.00% Cash, 8.00% PIK

 

12/14/2006

 

4,307

 

3,883

 

$

0.90

(4)

 

 

 

 

 

 

Junior secured loan ($26,400 par due 6/2013)

 

10.00% Cash, 8.00% PIK

 

12/14/2006

 

26,308

 

23,729

 

$

0.90

(2)(4)

 

 

 

 

 

 

Junior secured loan ($12,201 par due 6/2013)

 

10.00% Cash, 8.00% PIK

 

12/14/2006

 

12,164

 

10,969

 

$

0.90

(3)(4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bumble Bee Foods, LLC and BB Co-Invest LP

 

Canned seafood manufacturer

 

Senior subordinated loan ($40,706 par due 11/2018)

 

16.25% (12.00% Cash, 4.25% Optional PIK)

 

11/18/2008

 

40,706

 

40,706

 

$

1.00

(4)

 

 

 

 

 

 

Common stock (4,000 shares)

 

 

 

11/18/2008

 

4,000

 

4,000

 

$

1,000.00

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Charter Baking Company, Inc.

 

Baked goods manufacturer

 

Senior subordinated note ($5,547 par due 2/2013)

 

12.00% PIK

 

2/6/2008

 

5,547

 

5,547

 

$

1.00

(2)(4)

 

 

 

 

 

 

Preferred stock (6,258 shares)

 

 

 

9/1/2006

 

2,500

 

2,500

 

$

399.49

(5)

 

 

 

 

 

 

 

 

 

 

 

 

174,355

 

153,655

 

 

 

14.03

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Services—Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

American Residential Services, LLC

 

Plumbing, heating and air-conditioning services

 

Junior secured loan ($20,201 par due 4/2015)

 

10.00% Cash, 2.00% PIK

 

4/17/2007

 

20,201

 

18,180

 

$

0.90

(2)(4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diversified Collection Services, Inc.

 

Collections services

 

Senior secured loan ($11,809 par due 8/2011)

 

8.50% (Libor + 5.75%/M)

 

2/2/2005

 

9,715

 

11,219

 

$

0.95

 

 

 

 

 

 

 

Senior secured loan ($4,203 par due 8/2011)

 

8.50% (Libor + 5.75%/M)

 

2/2/2005

 

4,209

 

3,993

 

$

0.95

(3)

 

 

 

 

 

 

Senior secured loan ($1,837 par due 2/2011)

 

11.25% (Libor + 8.50%/M)

 

2/2/2005

 

1,837

 

1,653

 

$

0.90

(2)

 

 

 

 

 

 

Senior secured loan ($7,125 par due 8/2011)

 

11.25% (Libor + 8.50%/M)

 

2/2/2005

 

7,125

 

6,412

 

$

0.90

(3)

 

 

 

 

 

 

Preferred stock (14,927 shares)

 

 

 

5/18/2006

 

169

 

109

 

$

7.30

(5)

 

 

 

 

 

 

Common stock (114,004 shares)

 

 

 

2/2/2005

 

295

 

414

 

$

3.63

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GCA Services Group, Inc.

 

Custodial services

 

Senior secured loan ($25,000 par due 12/2011)

 

12.00%

 

12/15/2006

 

25,000

 

25,000

 

$

1.00

(2)

 

 

 

 

 

 

Senior secured loan ($2,965 par due 12/2011)

 

12.00%

 

12/15/2006

 

2,965

 

2,965

 

$

1.00

 

 

 

 

 

 

 

Senior secured loan ($11,186 par due 12/2011)

 

12.00%

 

12/15/2006

 

11,186

 

11,186

 

$

1.00

(3)

 

 

Growing Family, Inc. and GFH Holdings, LLC

 

Photography services

 

Senior secured revolving loan ($1,513 par due 8/2011)

 

11.34% (Libor + 3.00% Cash, 4.00% PIK/Q)

 

3/16/2007

 

1,513

 

756

 

$

0.50

(4)

 

 

 

 

 

 

Senior secured loan ($11,188 par due 8/2011)

 

13.84% (Libor + 3.50% Cash, 6.00% PIK/Q)

 

3/16/2007

 

11,188

 

5,594

 

$

0.50

(4)

 

 

 

 

 

 

Senior secured loan ($372 par due 8/2011)

 

5.25% (Libor + 3.50% Cash, 6.00% PIK/Q)

 

3/16/2007

 

372

 

186

 

$

0.50

 

 

 

 

 

 

 

Senior secured loan ($3,575 par due 8/2011)

 

16.34% (Libor + 6.00% Cash, 6.00% PIK/Q)

 

3/16/2007

 

3,575

 

1,788

 

$

0.50

(4)

 

 

 

 

 

 

Senior secured loan ($147 par due 8/2011)

 

15.50% (Libor + 6.00% Cash, 6.00% PIK/Q)

 

3/16/2007

 

147

 

74

 

$

0.50

(4)

 

 

 

 

 

 

Common stock (552,430 shares)

 

 

 

3/16/2007

 

872

 

 

$

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NPA Acquisition, LLC

 

Powersport vehicle auction operator

 

Junior secured loan ($12,000 par due 2/2013)

 

8.58% (Libor + 6.75%/M)

 

8/23/2006

 

12,000

 

12,000

 

$

1.00

(3)

 

 

 

 

 

 

Common units (1,709 shares)

 

 

 

8/23/2006

 

1,000

 

2,300

 

$

1,345.82

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Web Services Company, LLC

 

Laundry service and equipment provider

 

Senior subordinated loan ($17,764 par due 8/2016)

 

11.50% Cash, 2.50% PIK

 

8/29/2008

 

17,764

 

17,231

 

$

0.97

(4)

 

 

 

 

 

 

Senior subordinated loan ($25,160 par due 8/2016)

 

11.50% Cash, 2.50% PIK

 

8/29/2008

 

25,160

 

24,330

 

$

0.97

(2)(4)

 

 

 

 

 

 

 

 

 

 

 

 

156,293

 

145,390

 

 

 

13.28

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Carador PLC(6)(8)(9)

 

Investment company

 

Ordinary shares (7,110,525 shares)

 

 

 

12/15/2006

 

9,033

 

4,266

 

$

0.60

(5)

 

 

 

20



Table of Contents

 

Company(1)

 

Industry

 

Investment

 

Interest(10)

 

Initial
Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Fair 
Value
Per Unit

 

Percentage
of Net 
Assets

 

CIC Flex, LP(9)

 

Investment partnership

 

Limited partnership units (1 unit)

 

 

 

9/7/2007

 

28

 

28

 

$

28,000.00

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Covestia Capital Partners, LP(9)

 

Investment partnership

 

Limited partnership interest (47% interest)

 

 

 

6/17/2008

 

1,059

 

1,059

 

 

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Firstlight Financial Corporation(6)(9)

 

Investment company

 

Senior subordinated loan ($69,910 par due 12/2016)

 

10.00% PIK

 

12/31/2006

 

69,910

 

62,919

 

$

0.90

(4)

 

 

 

 

 

 

Common stock (10,000 shares)

 

 

 

12/31/2006

 

10,000

 

0

 

$

(5)

 

 

 

 

 

 

Common stock (30,000 shares)

 

 

 

12/31/2006

 

30,000

 

0

 

$

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ivy Hill Middle Market Credit Fund, Ltd. (7)(8)(9)

 

Investment company

 

Class B deferrable interest notes ($40,000 par due 11/2018)

 

8.15% (Libor + 6.00%/Q)

 

11/20/2007

 

40,000

 

36,000

 

$

0.90

 

 

 

 

 

 

 

Subordinated notes ($16,000 par due 11/2018)

 

 

 

11/20/2007

 

16,000

 

14,400

 

$

0.90

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Imperial Capital Group, LLC and Imperial Capital Private Opportunities, LP(6)(9)

 

Investment banking services

 

Limited partnership interest (80% interest)

 

 

 

5/10/2007

 

584

 

584

 

$

1.00

(5)

 

 

 

 

 

 

Common units (7,710 units)

 

 

 

5/10/2007

 

14,997

 

14,997

 

$

1,945.14

(5)

 

 

 

 

 

 

Common units (2,526 units)

 

 

 

5/10/2007

 

3

 

3

 

$

1.19

(5)

 

 

 

 

 

 

Common units (315 units)

 

 

 

5/10/2007

 

 

 

$

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Partnership Capital Growth Fund I, LP(9)

 

Investment partnership

 

Limited partnership interest (25% interest)

 

 

 

6/16/2006

 

2,384

 

2,384

 

 

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trivergance Capital Partners, LP(9)

 

Investment partnership

 

Limited partnership interest (100% interest)

 

 

 

6/5/2008

 

723

 

723

 

 

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

VSC Investors LLC(9)

 

Investment company

 

Membership interest (4.63% interest)

 

 

 

1/24/2008

 

302

 

302

 

 

(5)

 

 

 

 

 

 

 

 

 

 

 

 

195,023

 

137,665

 

 

 

12.57

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Business Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Booz Allen Hamilton, Inc.

 

Strategy and technology consulting services

 

Senior secured loan ($748 par due 7/2015)

 

7.50% (Libor + 4.50%/S)

 

7/31/2008

 

733

 

658

 

$

0.88

(3)

 

 

 

 

 

 

Senior subordinated loan ($22,400 par due 7/2016)

 

11.00% Cash, 2.00% PIK

 

7/31/2008

 

22,177

 

19,040

 

$

0.85

(2)(4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investor Group Services, LLC(6)

 

Financial services

 

Senior secured revolving loan ($750 par due 6/2011)

 

6.97% (Libor + 5.50%/Q)

 

6/22/2006

 

750

 

750

 

$

1.00

 

 

 

 

 

 

 

Limited liability company membership interest (10.00% interest)

 

 

 

6/22/2006

 

 

500

 

$

5,000.00

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pillar Holdings LLC and PHL Holding Co.(6)

 

Mortgage services

 

Senior secured revolving loan ($375 par due 11/2013)

 

7.53% (Libor + 5.50%/B)

 

11/20/2007

 

375

 

375

 

$

1.00

 

 

 

 

 

 

 

Senior secured revolving loan ($938 par due 11/2013)

 

7.53% (Libor + 5.50%/B)

 

11/20/2007

 

938

 

938

 

$

1.00

 

 

 

 

 

 

 

Senior secured loan ($7,375 par due 5/2014)

 

14.50%

 

7/31/2008

 

7,375

 

7,375

 

$

1.00

 

 

 

 

 

 

 

Senior secured loan ($18,709 par due 11/2013)

 

7.53% (Libor + 5.50%/B)

 

11/20/2007

 

18,709

 

18,709

 

$

1.00

(2)

 

 

 

 

 

 

Senior secured loan ($11,678 par due 11/2013)

 

7.53% (Libor + 5.50%/B)

 

11/20/2007

 

11,678

 

11,678

 

$

1.00

(3)

 

 

 

 

 

 

Common stock (85 shares)

 

 

 

11/20/2007

 

3,768

 

5,267

 

$

61,964.71

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Primis Marketing Group, Inc. and Primis Holdings, LLC(6)

 

Database marketing services

 

Senior subordinated note ($10,222 par due 2/2013)

 

11.00% Cash, 2.50% PIK

 

8/24/2006

 

10,222

 

1,022

 

$

0.10

(4)(14)

 

 

 

 

 

 

Preferred units (4,000 units)

 

 

 

8/24/2006

 

3,600

 

 

$

(5)

 

 

 

 

 

 

Common units (4,000,000 units)

 

 

 

8/24/2006

 

400

 

 

$

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prommis Solutions, LLC, E-Default Services, LLC, Statewide Tax and Title Services, LLC & Statewide Publishing Services, LLC (formerly known as MR Processing Holding Corp.)

 

Bankruptcy and foreclosure processing services

 

Senior subordinated note ($26,007 par due 2/2014)

 

11.50% Cash, 2.00% PIK

 

2/8/2007

 

26,007

 

24,713

 

$

0.95

(4)

 

 

 

 

 

 

Senior subordinated note ($26,109 par due 2/2014)

 

11.50% Cash, 2.00% PIK

 

2/8/2007

 

26,109

 

24,810

 

$

0.95

(2)(4)

 

 

 

 

 

 

Preferred stock (30,000 shares)

 

 

 

4/11/2006

 

3,000

 

4,000

 

$

133.33

(5)

 

 

 

21



 

Table of Contents

 

Company(1)

 

Industry

 

Investment

 

Interest(10)

 

Initial
Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Fair 
Value
Per Unit

 

Percentage
of Net 
Assets

 

R2 Acquisition Corp.

 

Marketing services

 

Common stock (250,000 shares)

 

 

 

5/29/2007

 

250

 

250

 

$

1.00

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Summit Business Media, LLC

 

Business media consulting services

 

Junior secured loan ($10,000 par due 11/2013)

 

9.47% (Libor + 7.00%/M)

 

8/3/2007

 

10,000

 

6,000

 

$

0.60

(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

VSS-Tranzact Holdings, LLC(6)

 

Management consulting services

 

Common membership interest (8.51% interest)

 

 

 

10/26/2007

 

10,000

 

6,000

 

 

(5)

 

 

 

 

 

 

 

 

 

 

 

 

156,091

 

132,085

 

 

 

12.06

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Apogee Retail, LLC

 

For-profit thrift retailer

 

Senior secured revolving loan ($390 par due 3/2012)

 

7.25% (Base Rate + 4.00%/D)

 

3/27/2007

 

390

 

390

 

$

1.00

 

 

 

 

 

 

 

Senior secured loan ($10,960 par due 11/2012)

 

12.00% Cash, 4.00% PIK

 

5/28/2008

 

10,960

 

10,960

 

$

1.00

(4)

 

 

 

 

 

 

Senior secured loan ($2,307 par due 3/2012)

 

8.71% (Libor + 5.25%/S)

 

3/27/2007

 

2,307

 

2,053

 

$

0.89

 

 

 

 

 

 

 

Senior secured loan ($24,637 par due 3/2012)

 

8.71% (Libor + 5.25%/S)

 

3/27/2007

 

24,637

 

21,927

 

$

0.89

(2)

 

 

 

 

 

 

Senior secured loan ($11,790 par due 3/2012)

 

8.71% (Libor + 5.25%/S)

 

3/27/2007

 

11,790

 

10,493

 

$

0.89

(3)

 

 

 

 

 

 

Senior secured loan ($4,876 par due 3/2012)

 

7.64% (Libor + 5.25%/Q)

 

3/27/2007

 

4,876

 

4,340

 

$

0.89

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dufry AG(8)

 

Retail newstand operator

 

Common stock (39,056 shares)

 

 

 

3/28/2008

 

3,000

 

1,050

 

$

26.88

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Savers, Inc. and SAI Acquisition Corporation

 

For-profit thrift retailer

 

Senior subordinated note ($6,000 par due 8/2014)

 

10.00% Cash, 2.00% PIK

 

8/8/2006

 

6,000

 

5,700

 

$

0.95

(4)

 

 

 

 

 

 

Senior subordinated note ($22,000 par due 8/2014)

 

10.00% Cash, 2.00% PIK

 

8/8/2006

 

22,000

 

20,900

 

$

0.95

(2)(4)

 

 

 

 

 

 

Common stock (1,170,182 shares)

 

 

 

8/8/2006

 

4,500

 

5,301

 

$

4.53

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Things Remembered, Inc. and TRM Holdings Corporation

 

Personalized gifts retailer

 

Senior secured loan ($4,506 par due 9/2012)

 

7.00% (Base Rate + 3.75%/D)

 

9/28/2006

 

4,506

 

3,470

 

$

0.77

(3)

 

 

 

 

 

 

Senior secured loan ($25,192 par due 9/2012)

 

15.00% (Base Rate + 9.75%/D)

 

9/28/2006

 

25,189

 

18,651

 

$

0.74

(2)

 

 

 

 

 

 

Senior secured loan ($3,095 par due 9/2012)

 

15.00% (Base Rate + 9.75%/D)

 

9/28/2006

 

3,094

 

2,291

 

$

0.74

 

 

 

 

 

 

 

Senior secured loan ($7,273 par due 9/2012)

 

15.00% (Base Rate + 9.75%/D)

 

9/28/2006

 

7,273

 

5,385

 

$

0.74

(3)

 

 

 

 

 

 

Preferred stock (80 shares)

 

 

 

9/28/2006

 

1,800

 

 

$

(5)

 

 

 

 

 

 

Common stock (800 shares)

 

 

 

9/28/2006

 

200

 

 

$

(5)

 

 

 

 

 

 

 

 

 

 

 

 

132,522

 

112,911

 

 

 

10.31

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Environmental Services

 

 

 

 

 

 

 

 

 

 

 

 

 

AWTP, LLC

 

Water treatment services

 

Junior secured loan ($402 par due 12/2012)

 

8.97% (Libor + 7.50% Cash, 1.00% PIK/Q)

 

12/23/2005

 

402

 

322

 

$

0.80

(4)

 

 

 

 

 

 

Junior secured loan ($3,018 par due 12/2012)

 

8.97% (Libor + 7.50% Cash, 1.00% PIK/Q)

 

12/23/2005

 

3,018

 

2,414

 

$

0.80

(3)(4)

 

 

 

 

 

 

Junior secured loan ($805 par due 12/2012)

 

11.48% (Libor + 7.50% Cash, 1.00% PIK/A)

 

12/23/2005

 

805

 

644

 

$

0.80

(4)

 

 

 

 

 

 

Junior secured loan ($6,036 par due 12/2012)

 

11.48% (Libor + 7.50% Cash, 1.00% PIK/A)

 

12/23/2005

 

6,036

 

4,829

 

$

0.80

(3)(4)

 

 

 

 

 

 

Junior secured loan ($402 par due 12/2012)

 

9.35% (Libor + 7.50% Cash, 1.00% PIK/A)

 

12/23/2005

 

402

 

322

 

$

0.80

(4)

 

 

 

 

 

 

Junior secured loan ($3,018 par due 12/2012)

 

9.35% (Libor + 7.50% Cash, 1.00% PIK/A)

 

12/23/2005

 

3,018

 

2,414

 

$

0.80

(3)(4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mactec, Inc.

 

Engineering and environmental services

 

Class B-4 stock (16 shares)

 

 

 

11/3/2004

 

 

 

$

27.00

(5)

 

 

 

 

 

 

Class C stock (5,556 shares)

 

 

 

11/3/2004

 

 

150

 

$

27.00

(5)

 

 

 

22



Table of Contents

 

Company(1)

 

Industry

 

Investment

 

Interest(10)

 

Initial
Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Fair
Value
Per Unit

 

Percentage
of Net
Assets

 

 

Sigma International Group, Inc.

 

Water treatment parts manufacturer

 

Junior secured loan ($1,833 par due 10/2013)

 

9.55% (Libor + 7.50%/Q)

 

10/11/2007

 

1,833

 

1,558

 

$

0.85

(2)

 

 

 

 

 

 

 

Junior secured loan ($4,000 par due 10/2013)

 

9.55% (Libor + 7.50%/Q)

 

10/11/2007

 

4,000

 

3,400

 

$

0.85

(3)

 

 

 

 

 

 

 

Junior secured loan ($2,750 par due 10/2013)

 

7.97% (Libor + 7.50/M)

 

11/1/2007

 

2,750

 

2,338

 

$

0.85

(2)

 

 

 

 

 

 

 

Junior secured loan ($6,000 par due 10/2013)

 

7.97% (Libor + 7.50/M)

 

11/1/2007

 

6,000

 

5,100

 

$

0.85

(3)

 

 

 

 

 

 

 

Junior secured loan ($917 par due 10/2013)

 

9.40% (Libor + 7.50%/M)

 

11/6/2007

 

917

 

779

 

$

0.85

(2)

 

 

 

 

 

 

 

Junior secured loan ($2,000 par due 10/2013)

 

9.40% (Libor + 7.50%/M)

 

11/6/2007

 

2,000

 

1,700

 

$

0.85

(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Waste Pro USA, Inc.

 

Waste management services

 

Senior subordinated loan ($25,000 par due 11/2013)

 

11.50%

 

11/9/2006

 

25,000

 

25,000

 

$

1.00

(2)

 

 

 

 

 

 

 

Preferred stock (15,000 shares)

 

10.00% PIK

 

11/9/2006

 

15,000

 

15,000

 

$

1,000.00

(4)

 

 

 

 

 

 

 

Warrants to purchase 682,671 shares

 

 

 

11/9/2006

 

 

6,827

 

$

10.00

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wastequip, Inc.(6)

 

Waste management equipment manufacturer

 

Senior subordinated loan ($12,990 par due 2/2015)

 

10.00% Cash, 2.00% PIK

 

2/5/2007

 

12,990

 

7,715

 

$

0.59

(4)

 

 

 

 

 

 

 

Common stock (13,889 shares)

 

 

 

2/2/2007

 

1,389

 

131

 

$

9.43

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

85,560

 

80,643

 

 

 

7.37

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Printing, Publishing and Media

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Canon Communications LLC

 

Print publications services

 

Junior secured loan ($11,784 par due 11/2011)

 

13.00% (Base Rate + 9.75%/D)

 

5/25/2005

 

11,784

 

11,313

 

$

0.96

(2)(15)

 

 

 

 

 

 

 

Junior secured loan ($12,009 par due 11/2011)

 

13.00% (Base Rate + 9.75%/D)

 

5/25/2005

 

12,009

 

11,529

 

$

0.96

(3)(15)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Courtside Acquisition Corp.

 

Community newspaper publisher

 

Senior subordinated loan ($34,295 par due 6/2014)

 

17.00% PIK

 

6/29/2007

 

34,295

 

3,430

 

$

0.10

(4)(14)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LVCG Holdings LLC(7)

 

Commercial printer

 

Membership interests (56.53% interest)

 

 

 

10/12/2007

 

6,600

 

8,500

 

 

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

National Print Group, Inc.

 

Printing management services

 

Senior secured revolving loan ($2,736 par due 3/2012)

 

8.25% (Base Rate + 5.00%/D)

 

3/2/2006

 

2,736

 

2,462

 

$

0.90

(15)

 

 

 

 

 

 

 

Senior secured loan ($8,623 par due 3/2012)

 

7.50% (Base Rate + 4.25%/D)

 

3/2/2006

 

8,623

 

7,761

 

$

0.90

(3)(15)

 

 

 

 

 

 

 

Preferred stock (9,344 shares)

 

 

 

3/2/2006

 

2,000

 

 

$

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Teaching Company,  LLC and The Teaching Company Holdings, Inc.(11)

 

Education media provider

 

Senior secured loan ($18,000 par due 9/2012)

 

11.70%

 

9/29/2006

 

18,000

 

17,100

 

$

0.95

(2)

 

 

 

 

 

 

 

Senior secured loan ($10,000 par due 9/2012)

 

11.70%

 

9/29/2006

 

10,000

 

9,500

 

$

0.95

(3)

 

 

 

 

 

 

 

Preferred stock (29,969 shares)

 

 

 

9/29/2006

 

2,997

 

3,996

 

$

133.34

(5)

 

 

 

 

 

 

 

Common stock (15,393 shares)

 

 

 

9/29/2006

 

3

 

4

 

$

0.26

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

109,047

 

75,595

 

 

 

6.90

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Manufacturing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Arrow Group Industries, Inc.

 

Residential and outdoor shed manufacturer

 

Senior secured loan ($5,616 par due 4/2010)

 

6.46% (Libor + 5.00%/Q)

 

3/28/2005

 

5,647

 

5,372

 

$

0.96

(3)(15)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Emerald Performance Materials, LLC

 

Polymers and performance materials manufacturer

 

Senior secured loan ($9,018 par due 5/2011)

 

8.25% (Libor + 4.25%/A)

 

5/16/2006

 

9,018

 

8,567

 

$

0.95

(3)(15)

 

 

 

 

 

 

 

Senior secured loan ($626 par due 5/2011)

 

6.75% (Base Rate + 3.50%/D)

 

5/16/2006

 

626

 

595

 

$

0.95

(3)(15)

 

 

 

 

 

 

 

Senior secured loan ($536 par due 5/2011)

 

8.25% (Libor + 4.25%/A)

 

5/16/2006

 

536

 

509

 

$

0.95

(3)(15)

 

 

 

 

 

 

 

Senior secured loan ($1,523 par due 5/2011)

 

10.00% (Libor + 6.00%/A)

 

5/16/2006

 

1,523

 

1,447

 

$

0.95

(3)(15)

 

 

 

 

 

 

 

Senior secured loan ($81 par due 5/2011)

 

10.00% (Libor + 6.00%/A)

 

5/16/2006

 

81

 

77

 

$

0.95

(3)(15)

 

 

 

 

 

 

 

Senior secured loan ($4,537 par due 5/2011)

 

10.00% Cash, 3.00% PIK

 

5/16/2006

 

4,546

 

4,319

 

$

0.95

(2)(4)

 

 

 

 

 

 

 

Senior secured loan ($241 par due 5/2011)

 

10.00% Cash, 3.00% PIK

 

5/16/2006

 

241

 

229

 

$

0.95

(2)(4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Qualitor, Inc.

 

Automotive aftermarket components supplier

 

Senior secured loan ($1,756 par due 12/2011)

 

5.46% (Libor + 4.00%/Q)

 

12/29/2004

 

1,752

 

1,664

 

$

0.95

(3)

 

 

 

 

 

 

 

Senior secured loan ($5 par due 12/2011)

 

 

 

 

 

5

 

5

 

$

1.00

(3)

 

 

 

 

23



Table of Contents

 

Company(1)

 

Industry

 

Investment

 

Interest(10)

 

Initial
Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Fair 
Value
Per Unit

 

Percentage
of Net 
Assets

 

 

 

 

 

Junior secured loan ($5,000 par due 6/2012)

 

8.46% (Libor + 7.00%/Q)

 

12/29/2004

 

5,000

 

4,750

 

$

0.95

(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reflexite Corporation (7)

 

Developer and manufacturer of high-visibility reflective products

 

Senior subordinated loan ($10,253 par due 2/2015)

 

11.00% Cash, 3.00% PIK

 

2/28/2008

 

10,253

 

10,253

 

$

1.00

(4)

 

 

 

 

 

 

Common stock (1,821,860 shares)

 

 

 

3/28/2006

 

27,435

 

35,500

 

$

19.49

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Saw Mill PCG Partners LLC

 

Precision components manufacturer

 

Common units (1,000 units)

 

 

 

2/2/2007

 

1,000

 

 

$

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

UL Holding Co., LLC

 

Petroleum product

 

Common units (50,000 units)

 

 

 

4/25/2008

 

500

 

750

 

$

15.00

(5)

 

 

 

 

manufacturer

 

Common units (50,000 units)

 

 

 

4/25/2008

 

 

 

$

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Universal Trailer Corporation(6)

 

Livestock and specialty trailer manufacturer

 

Common stock (74,920 shares)

 

 

 

10/8/2004

 

7,930

 

 

$

(5)

 

 

 

 

 

 

 

 

 

 

 

 

76,093

 

74,037

 

 

 

6.76

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aerospace & Defense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AP Global Holdings, Inc.

 

Safety and security equipment manufacturer

 

Senior secured loan ($7,898 par due 10/2013)

 

4.97% (Libor + 4.50%/M)

 

11/8/2007

 

7,799

 

7,121

 

$

0.90

(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ILC Industries, Inc.

 

Industrial products provider

 

Junior secured loan ($12,000 par due 8/2012)

 

11.50%

 

6/27/2006

 

12,000

 

12,000

 

$

1.00

(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Thermal Solutions LLC and TSI Group, Inc.

 

Thermal management and electronics packaging manufacturer

 

Senior secured loan ($871 par due 3/2011)

 

3.92% (Libor + 3.50%/M)

 

3/28/2005

 

871

 

836

 

$

0.96

(3)

 

 

 

 

 

 

Senior secured loan ($2,765 par due 3/2012)

 

4.42% (Libor + 4.00%/M)

 

3/28/2005

 

2,765

 

2,461

 

$

0.89

(3)

 

 

 

 

 

 

Senior subordinated notes ($2,117 par due 9/2012)

 

11.50% Cash, 2.75% PIK

 

3/28/2005

 

2,117

 

2,043

 

$

0.97

(4)

 

 

 

 

 

 

Senior subordinated notes ($3,342 par due 9/2012)

 

11.50% Cash, 2.75% PIK

 

3/28/2005

 

3,342

 

3,225

 

$

0.96

(2)(4)

 

 

 

 

 

 

Senior subordinated notes ($2,679 par due 3/2013)

 

11.50% Cash, 2.50% PIK

 

3/21/2006

 

2,679

 

2,599

 

$

0.97

(2)(4)

 

 

 

 

 

 

Preferred stock (71,552 shares)

 

 

 

3/28/2005

 

716

 

716

 

$

10.00

(5)

 

 

 

 

 

 

Common stock (1,460,246 shares)

 

 

 

3/28/2005

 

15

 

15

 

$

0.01

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wyle Laboratories, Inc. and Wyle Holdings, Inc.

 

Provider of specialized engineering, scientific and technical services

 

Junior secured loan ($16,000 par due 7/2014)

 

8.96% (Libor + 7.50%/Q)

 

1/17/2008

 

16,000

 

15,200

 

$

0.95

 

 

 

 

 

 

 

Junior secured loan ($12,000 par due 7/2014)

 

8.96% (Libor + 7.50%/Q)

 

1/17/2008

 

12,000

 

11,400

 

$

0.95

(3)

 

 

 

 

 

 

Common stock (246,279 shares)

 

 

 

1/17/2008

 

2,100

 

1,680

 

$

6.82

(5)

 

 

 

 

 

 

 

 

 

 

 

 

62,404

 

59,296

 

 

 

5.42

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer Products—Non-Durable

 

 

 

 

 

 

 

 

 

 

 

 

 

Innovative Brands, LLC

 

Consumer products and personal care manufacturer

 

Senior secured loan ($9,901 par due 9/2011)

 

14.50%

 

10/12/2006

 

9,901

 

9,901

 

$

1.00

 

 

 

 

 

 

 

Senior secured loan ($9,139 par due 9/2011)

 

14.50%

 

10/12/2006

 

9,139

 

9,139

 

$

1.00

(3)

 

 

 

24



Table of Contents

 

Company(1)

 

Industry

 

Investment

 

Interest(10)

 

Initial
Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Fair
Value
Per Unit

 

Percentage
of Net
Assets

 

Making Memories Wholesale, Inc.(6)

 

Scrapbooking branded products manufacturer

 

Senior secured loan ($21,509 par due 3/2011)

 

10.00% (Base Rate + 5.00%/D)

 

5/5/2005

 

11,953

 

12,087

 

$

0.56

(14)

 

 

 

 

 

 

Senior subordinated loan ($10,465 par due 5/2012)

 

12.00% Cash, 4.00% PIK

 

5/5/2005

 

10,465

 

 

$

(4)(14)

 

 

 

 

 

 

Preferred stock (4,259 shares)

 

 

 

5/5/2005

 

3,759

 

 

$

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shoes for Crews, LLC

 

Safety footwear and slip-related mat manufacturer

 

Senior secured revolving loan ($1,000 par due 7/2010)

 

5.25% (Base Rate + 2.00%/D)

 

10/8/2004

 

1,000

 

1,000

 

$

1.00

 

 

 

 

 

 

 

Senior secured loan ($572 par due 7/2010)

 

5.31% (Libor + 3.50%/S)

 

10/8/2004

 

572

 

572

 

$

1.00

(3)

 

 

 

 

 

 

Senior secured loan ($88 par due 7/2010)

 

4.96% (Libor + 3.50%/Q)

 

10/8/2004

 

88

 

88

 

$

1.00

(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Thymes, LLC(7)

 

Cosmetic products manufacturer

 

Preferred stock (6,283 shares)

 

8.00% PIK

 

6/21/2007

 

6,283

 

5,026

 

$

799.94

(4)

 

 

 

 

 

 

Common stock (5,400 shares)

 

 

 

6/21/2007

 

 

 

$

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wear Me Apparel, LLC(6)

 

Clothing manufacturer

 

Senior subordinated notes ($23,985 par due 4/2013)

 

17.50% PIK

 

4/2/2007

 

24,035

 

12,055

 

$

0.50

(4)(14)

 

 

 

 

 

 

Common stock (10,000 shares)

 

 

 

4/2/2007

 

10,000

 

 

$

(5)

 

 

 

 

 

 

 

 

 

 

 

 

87,195

 

49,868

 

 

 

4.55

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Telecommunications

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

American Broadband Communications, LLC and American Broadband Holding  Company

 

Broadband communication services

 

Senior subordinated loan ($32,048 par due 11/2014)

 

10.00% Cash, 6.00% PIK

 

2/8/2008

 

32,048

 

32,048

 

$

1.00

(4)

 

 

 

 

 

 

Senior subordinated loan ($8,087 par due 11/2014)

 

10.00% Cash, 6.00% PIK

 

11/7/2007

 

8,087

 

8,087

 

$

1.00

(4)

 

 

 

 

 

 

Warrants to purchase 170 shares

 

 

 

11/7/2007

 

 

 

$

(5)

 

 

 

 

 

 

 

 

 

 

 

 

40,135

 

40,135

 

 

 

3.67

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cargo Transport

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Kenan Advantage Group, Inc.

 

Fuel transportation provider

 

Senior subordinated notes ($25,266 par due 12/2013)

 

9.50% Cash, 3.50% PIK

 

12/15/2005

 

25,260

 

24,000

 

$

0.95

(2)(4)

 

 

 

 

 

 

Senior secured loan ($2,426 par due 12/2011)

 

4.46% (Libor + 3.00%/Q)

 

12/15/2005

 

2,425

 

2,183

 

$

0.90

(3)

 

 

 

 

 

 

Preferred stock (10,984 shares)

 

8.00% PIK

 

12/15/2005

 

1,371

 

1,732

 

$

157.68

(4)(5)

 

 

 

 

 

 

Common stock (30,575 shares)

 

 

 

12/15/2005

 

31

 

41

 

$

1.34

(5)

 

 

 

 

 

 

 

 

 

 

 

 

29,087

 

27,956

 

 

 

2.55

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Containers-Packaging

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Industrial Container Services, LLC(6)

 

Industrial container manufacturer, reconditioner and servicer

 

Senior secured revolving loan ($1,198 par due 9/2011)

 

5.75% (Base Rate + 2.50%/D)

 

6/21/2006

 

1,198

 

1,198

 

$

1.00

 

 

 

 

 

 

 

Senior secured revolving loan ($1,239 par due 9/2011)

 

4.47% (Libor + 4.00%/M)

 

6/21/2006

 

1,239

 

1,239

 

$

1.00

 

 

 

 

 

 

 

Senior secured loan ($42 par due 9/2011)

 

4.47% (Libor + 4.00%/B)

 

9/30/2005

 

42

 

42

 

$

1.00

(2)

 

 

 

 

 

 

Senior secured loan ($516 par due 9/2011)

 

4.46% (Libor + 4.00%/M)

 

6/21/2006

 

516

 

516

 

$

1.00

(2)

 

 

 

 

 

 

Senior secured loan ($7,902 par due 9/2011)

 

4.46% (Libor + 4.00%/M)

 

6/21/2006

 

7,902

 

7,902

 

$

1.00

(3)

 

 

 

 

 

 

Senior secured loan ($85 par due 9/2011)

 

5.20% (Libor + 4.00%/M)

 

6/21/2006

 

85

 

85

 

$

1.00

(2)

 

 

 

 

 

 

Senior secured loan ($1,309 par due 9/2011)

 

5.20% (Libor + 4.00%/M)

 

6/21/2006

 

1,309

 

1,309

 

$

1.00

(3)

 

 

 

 

 

 

Senior secured loan ($263 par due 9/2011)

 

5.20% (Libor + 4.00%/M)

 

6/21/2006

 

263

 

263

 

$

1.00

(2)

 

 

 

 

 

 

Senior secured loan ($4,028 par due 9/2011)

 

5.20% (Libor + 4.00%/M)

 

6/21/2006

 

4,028

 

4,028

 

$

1.00

(3)

 

 

 

 

 

 

Senior secured loan ($105 par due 9/2011)

 

5.88% (Libor + 4.00%/M)

 

6/21/2006

 

105

 

105

 

$

1.00

(2)

 

 

 

 

 

 

Senior secured loan ($1,611 par due 9/2011)

 

5.88% (Libor + 4.00%/M)

 

6/21/2006

 

1,611

 

1,611

 

$

1.00

(3)

 

 

 

 

 

 

Common stock (1,800,000 shares)

 

 

 

9/29/2005

 

1,800

 

9,100

 

$

5.06

(5)

 

 

 

 

 

 

 

 

 

 

 

 

20,098

 

27,398

 

 

 

2.50

%

 

25



Table of Contents

 

Company(1)

 

Industry

 

Investment

 

Interest(10)

 

Initial
Acquisition
Date

 

Amortized
Cost

 

Fair Value

 

Fair
Value
Per Unit

 

Percentage
of Net
 Assets

 

Computers and Electronics

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RedPrairie Corporation

 

Software manufacturer

 

Junior secured loan ($3,300 par due 1/2013)

 

9.21% (Libor + 6.50%/Q)

 

7/13/2006

 

3,300

 

2,970

 

$

0.90

(2)

 

 

 

 

 

 

Junior secured loan ($12,000 par due 1/2013)

 

9.21% (Libor + 6.50%/Q)

 

7/13/2006

 

12,000

 

10,800

 

$

0.90

(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

X-rite, Incorporated

 

Color management solutions provider

 

Junior secured loan ($3,098 par due 7/2013)

 

13.63% (Libor + 10.38%/D)

 

7/6/2006

 

3,098

 

3,098

 

$

1.00

(15)

 

 

 

 

 

 

Junior secured loan ($7,744 par due 7/2013)

 

13.63% (Libor + 10.38%/D)

 

7/6/2006

 

7,744

 

7,744

 

$

1.00

(3)(15)

 

 

 

 

 

 

 

 

 

 

 

 

26,142

 

24,612

 

 

 

2.25

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Health Clubs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Athletic Club Holdings, Inc.(13)

 

Premier health club operator

 

Senior secured loan ($1,000 par due 10/2013)

 

4.97% (Libor + 4.5%/M)

 

10/11/2007

 

1,000

 

880

 

$

0.88

 

 

 

 

 

 

 

Senior secured loan ($1,750 par due 10/2013)

 

8.88% (Libor + 4.5%/S)

 

10/11/2007

 

1,750

 

1,540

 

$

0.88

 

 

 

 

 

 

 

Senior secured loan ($12,486 par due 10/2013)

 

5.01% (Libor + 4.5%/M)

 

10/11/2007

 

12,486

 

10,988

 

$

0.88

(2)

 

 

 

 

 

 

Senior secured loan ($11,487 par due 10/2013)

 

5.01% (Libor + 4.5%/M)

 

10/11/2007

 

11,487

 

10,109

 

$

0.88

(3)

 

 

 

 

 

 

Senior secured loan ($14 par due 10/2013)

 

6.75% (Base Rate + 3.50/D)

 

10/11/2007

 

14

 

12

 

$

0.86

(2)

 

 

 

 

 

 

Senior secured loan ($13 par due 10/2013)

 

6.75% (Base Rate + 3.50/D)

 

10/11/2007

 

13

 

11

 

$

0.85

(3)

 

 

 

 

 

 

 

 

 

 

 

 

26,750

 

23,540

 

 

 

2.07

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Grocery

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Planet Organic Health Corp.(8)

 

Organic grocery store operator

 

Junior secured loan ($860 par due 7/2014)

 

6.01% (Libor + 5.50%/M)

 

7/3/2007

 

860

 

817

 

$

0.95

 

 

 

 

 

 

 

Junior secured loan ($10,250 par due 7/2014)

 

6.01% (Libor + 5.50%/M)

 

7/3/2007

 

10,250

 

9,738

 

$

0.95

(3)

 

 

 

 

 

 

Senior subordinated loan ($10,900 par due 7/2012)

 

11.00% Cash, 2.00% PIK

 

7/3/2007

 

10,900

 

9,845

 

$

0.90

(2)(4)

 

 

 

 

 

 

 

 

 

 

 

 

22,010

 

20,400

 

 

 

1.86

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer Products—Durable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct Buy Holdings, Inc. and Direct Buy Investors, LP(6)

 

Membership-based buying club franchisor and operator

 

Senior secured loan ($2,281 par due 11/2012)

 

4.97% (Libor + 4.50%/B)

 

12/14/2007

 

2,189

 

1,861

 

$

0.82

 

 

 

 

 

 

 

Partnership interests (19.31% interest)

 

 

 

11/30/2007

 

10,000

 

6,500

 

 

(5)

 

 

 

 

 

 

 

 

 

 

 

 

12,189

 

8,361

 

 

 

0.76

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Housing—Building Materials

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HB&G Building Products

 

Synthetic and wood product manufacturer

 

Senior subordinated loan ($8,956 par due 3/2011)

 

13.00% Cash, 6.00% PIK

 

10/8/2004

 

8,966

 

2,251

 

$

0.25

(2)(4)(14)

 

 

 

 

 

 

Common stock (2,743 shares)

 

 

 

10/8/2004

 

753

 

 

$

(5)

 

 

 

 

 

 

Warrants to purchase 4,464 shares

 

 

 

10/8/2004

 

653

 

 

$

(5)

 

 

 

 

 

 

 

 

 

 

 

 

10,372

 

2,251

 

 

 

0.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

$

2,267,593

 

$

1,972,977

 

 

 

 

 

 


(1)

Other than our investments in R3 Education, Inc., HCP Acquisition Holdings, LLC, Ivy Hill Middle Market Credit Fund, Ltd., LVCG Holdings LLC, Reflexite Corporation and The Thymes, LLC, we do not “Control” any of our portfolio companies, as defined in the Investment Company Act. In general, under the Investment Company Act, we would “Control” a portfolio company if we owned more than 25% of its outstanding voting securities and/or had the power to exercise control over the management or policies of such portfolio company. All of our portfolio company investments are subject to legal restrictions on sales which as of December 31, 2008 represented 180% of the Company’s net assets.

 

 

(2)

These assets are owned by the Company’s wholly owned subsidiary Ares Capital CP, are pledged as collateral for the CP Funding Facility and, as a result, are not directly available to the creditors of the Company to satisfy any obligations of the Company other than Ares Capital CP’s obligations under the CP Funding Facility (see Note 7 to the consolidated financial statements).

 

 

(3)

Pledged as collateral for the ARCC CLO. Unless otherwise noted, all other investments are pledged as collateral for the Revolving Credit Facility (see Note 7 to the consolidated financial statements).

 

 

(4)

Has a payment-in-kind interest feature (see Note 2 to the consolidated financial statements).

 

 

(5)

Non-income producing at December 31, 2008.

 

 

(6)

As defined in the Investment Company Act, we are an “Affiliate” of this portfolio company because we own 5% or more of the portfolio company’s outstanding voting securities or we have the power to exercise control over the management or policies of such portfolio company (including through a management agreement). Transactions during the period for the year ended December 31, 2008 in which the issuer was an Affiliate (but not a portfolio company that we “Control”) are as follows (in thousands):

 

26



Table of Contents

 

Company

 

Purchases

 

Redemptions
(cost)

 

Sales
(cost)

 

Interest
income

 

Capital
structuring
service fees

 

Dividend
income

 

Other
income

 

Net
realized
gains (losses)

 

Net
unrealized
gains (losses)

 

Apple & Eve, LLC and US Juice Partners, LLC

 

$

11,500

 

$

10,814

 

$

 

$

4,634

 

$

 

$

 

$

43

 

$

40

 

$

(12,383

)

Carador, PLC

 

$

 

$

 

$

 

$

 

$

 

$

825

 

$

 

$

 

$

(3,479

)

Campus Management Corp. and Campus Management Acquisition Corp.

 

$

69,193

 

$

1,768

 

$

 

$

5,367

 

$

1,540

 

$

 

$

112

 

$

 

$

3,048

 

CT Technologies Intermediate Holdings, Inc. and CT Technologies Holdings, LLC

 

$

4,719

 

$

56,822

 

$

 

$

2,573

 

$

 

$

 

$

340

 

$

100

 

$

1,382

 

Daily Candy, Inc.

 

$

 

$

11,872

 

$

10,806

 

$

735

 

$

 

$

 

$

 

$

1,208

 

$

 

Direct Buy Holdings, Inc. and Direct Buy Investors LP

 

$

 

$

219

 

$

 

$

192

 

$

 

$

 

$

 

$

9

 

$

(3,828

)

Firstlight Financial Corporation

 

$

 

$

 

$

 

$

5,854

 

$

 

$

 

$

750

 

$

 

$

(36,991

)

Imperial Capital Group, LLC

 

$

584

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

Industrial Container Services, LLC

 

$

6,939

 

$

16,677

 

$

 

$

1,710

 

$

 

$

 

$

120

 

$

 

$

4,100

 

Investor Group Services, LLC

 

$

1,250

 

$

1,500

 

$

 

$

24

 

$

 

$

 

$

55

 

$

 

$

500

 

Making Memories Wholesale, Inc

 

$

5,942

 

$

1,114

 

$

 

$

199

 

$

 

$

 

$

 

$

 

$

(6,668

)

Pillar Holdings LLC and PHL Holding Co.

 

$

15,807

 

$

600

 

$

31,865

 

$

3,404

 

$

281

 

$

 

$

167

 

$

 

$

1,500

 

Primis Marketing Group, Inc. and Primis Holdings, LLC

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

(7,565

)

Universal Trailer Corporation

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

(700

)

VSS-Tranzact Holdings, LLC

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

(4,000

)

Wastequip, Inc.

 

$

 

$

 

$

 

$

1,424

 

$

 

$

 

$

 

$

 

$

(3,318

)

Wear Me Apparel, LLC

 

$

 

$

 

$

 

$

2,416

 

$

 

$

 

$

13

 

$

 

$

(14,055

)

 

(7)

As defined in the Investment Company Act, we are an “Affiliate” of this portfolio company because we own 5% or more of the portfolio company’s outstanding voting securities or we have the power to exercise control over the management or policies of such portfolio company (including through a management agreement). In addition, as defined in the Investment Company Act, we “Control” this portfolio company because we own more than 25% of the portfolio company’s outstanding voting securities or we have the power to exercise control over the management or policies of such portfolio company (including through a management agreement). Transactions during the period for the year ended December 31, 2008 in which the issuer was both an Affiliate and a portfolio company that we Control are as follows (in thousands):

 

Company

 

Purchases

 

Redemptions
(cost)

 

Sales
(cost)

 

Interest
income

 

Capital
structuring
service fees

 

Dividend
income

 

Other
income

 

Net
realized
gains (losses)

 

Net
unrealized
gains (losses)

 

HCP Acquisition Holdings, LLC

 

$

 8,567

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

 (2,067

)

Ivy Hill Middle Market Credit Fund, Ltd.

 

$

 —

 

$

 —

 

$

 —

 

$

 5,427

 

$

 —

 

$

 —

 

$

 1,528

 

$

 —

 

$

 (5,600

)

LVCG Holdings, LLC

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

 100

 

$

 —

 

$

 (1,900

)

R3 Education, Inc.

 

$

 62,600

 

$

 69,089

 

$

 —

 

$

 3,521

 

$

 2,900

 

$

 —

 

$

 65

 

$

 —

 

$

 4,393

 

Reflexite Corporation

 

$

 10,239

 

$

 —

 

$

 —

 

$

 928

 

$

 100

 

$

 —

 

$

 10

 

$

 —

 

$

 (19,166

)

The Thymes, LLC

 

$

 —

 

$

 —

 

$

 1,450

 

$

 544

 

$

 —

 

$

 133

 

$

 —

 

$

 —

 

$

 (1,257

)

 

(8)

Non-U.S. company or principal place of business outside the U.S. and as a result is not a qualifying asset under Section 55(a) of the Investment Company Act. Under the Investment Company Act, we may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of our total assets.

 

 

(9)

Non-registered investment company.

 

 

(10)

A majority of the variable rate loans to our portfolio companies bear interest at a rate that may be determined by reference to either Libor or an alternate Base Rate (commonly based on the Federal Funds Rate or the Prime Rate), at the borrower’s option, which reset annually (A), semi-annually (S), quarterly (Q), bi-monthly (B), monthly (M) or daily (D). For each such loan, we have provided the interest rate in effect at December 31, 2008.

 

 

(11)

In addition to the interest earned based on the stated interest rate of this security, we are entitled to receive an additional interest amount of 2.50% on $22.2 million aggregate principal amount of the portfolio company’s senior term debt previously syndicated by us.

 

 

(12)

Principal amount denominated in Canadian dollars has been translated into U.S. dollars (see Note 2 to the consolidated financial statements).

 

 

(13)

In addition to the interest earned based on the stated interest rate of this security, we are entitled to receive an additional interest amount of 2.50% on $25.0 million aggregate principal amount of the portfolio company’s senior term debt previously syndicated by us.

 

 

(14)

Loan was on non-accrual status as of December 31, 2008.

 

 

(15)

Loan includes interest rate floor feature.

 

See accompanying notes to consolidated financial statements.

 

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Table of Contents

 

ARES CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

For the Six Months Ended June 30, 2009 (unaudited)

(dollar amounts in thousands, except per share data)

 

 

 

Common Stock

 

Capital in
Excess of

 

Accumulated
Undistributed
Net Investment

 

Accumulated
Undistributed
Net Realized
Gain (Loss) on
Investments,
Foreign Currency
Transactions and
Extinguishment

 

Net Unrealized
Loss on
Investments
and Foreign
Currency

 

Total
Stockholders’

 

 

 

Shares

 

Amount

 

Par Value

 

Income (Loss)

 

of Debt

 

Transactions

 

Equity

 

Balance at December 31, 2008

 

97,152,820

 

$

97

 

$

1,395,958

 

$

(7,637

)

(124

)

$

(293,415

)

$

1,094,879

 

Net increase in stockholders’ equity resulting from operations

 

 

 

 

62,148

 

23,967

 

(16,328

)

69,787

 

Dividend declared ($0.77 per share)

 

 

 

 

(50,224

)

(24,584

)

 

(74,808

)

Purchase of shares in connection with dividend reinvestment plan

 

 

 

 

(1,136

)

 

 

(1,136

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2009

 

97,152,820

 

$

97

 

$

1,395,958

 

$

3,151

 

$

(741

)

$

(309,743

)

$

1,088,722

 

 

See accompanying notes to consolidated financial statements.

 

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Table of Contents

 

ARES CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(dollar amounts in thousands)

 

 

 

For the six months ended

 

 

 

June 30, 2009

 

June 30, 2008

 

 

 

(unaudited)

 

(unaudited)

 

OPERATING ACTIVITIES:

 

 

 

 

 

Net increase in stockholders’ equity resulting from operations

 

$

69,787

 

$

12,438

 

Adjustments to reconcile net increase in stockholders’ equity resulting from operations:

 

 

 

 

 

Realized gain on extinguishment of debt

 

(26,543

)

 

Net realized gains (losses) from investments

 

2,644

 

(216

)

Net unrealized gains (losses) from investments and foreign currency transactions

 

16,328

 

49,812

 

Net accretion of discount on securities

 

(720

)

(835

)

Increase in accrued payment-in-kind dividends and interest

 

(22,196

)

(12,879

)

Amortization of debt issuance costs

 

2,389

 

450

 

Depreciation

 

338

 

204

 

Proceeds from sale and redemption of investments

 

161,986

 

227,154

 

Purchase of investments

 

(136,728

)

(578,824

)

Changes in operating assets and liabilities:

 

 

 

 

 

Interest receivable

 

(3,148

)

(858

)

Other assets

 

321

 

64

 

Management and incentive fees payable

 

15,298

 

3,653

 

Accounts payable and accrued expenses

 

1,841

 

(77

)

Interest and facility fees payable

 

(1,646

)

(2,128

)

Net cash used in operating activities

 

79,951

 

(302,042

)

FINANCING ACTIVITIES:

 

 

 

 

 

Net proceeds from issuance of common stock

 

 

259,970

 

Borrowings on debt

 

246,700

 

520,000

 

Repayments on credit facility payable

 

(250,247

)

(353,500

)

Credit facility financing costs

 

(2,840

)

(112

)

Dividends paid in cash

 

(116,650

)

(68,411

)

Net cash provided by financing activities

 

(123,037

)

357,947

 

CHANGE IN CASH AND CASH EQUIVALENTS

 

(43,086

)

55,905

 

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

 

89,383

 

21,142

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

 

$

46,297

 

$

77,047

 

Supplemental Information:

 

 

 

 

 

Interest paid during the period

 

$

12,100

 

$

18,401

 

Taxes paid during the period

 

$

658

 

$

1,416

 

Dividends declared during the period

 

$

74,808

 

$

71,333

 

 

See accompanying notes to consolidated financial statements.

 

29



Table of Contents

 

ARES CAPITAL CORPORATION AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of June 30, 2009 (unaudited)

(dollar amounts in thousands, except per share data and as otherwise indicated)

 

1.             ORGANIZATION

 

Ares Capital Corporation (the “Company” or “ARCC” or “we”) is a specialty finance company that is a closed-end, non-diversified management investment company incorporated in Maryland. We have elected to be regulated as a business development company under the Investment Company Act of 1940 (the “Investment Company Act”). We were incorporated on April 16, 2004 and were initially funded on June 23, 2004. On October 8, 2004, we completed our initial public offering (the “IPO”). On the same date, we commenced substantial investment operations.

 

The Company has elected to be treated as a regulated investment company, or a “RIC”, under subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”) and operates in a manner so as to qualify for the tax treatment applicable to RICs. 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 loans and mezzanine debt, which in some cases includes an equity component like warrants, and, to a lesser extent, in equity investments in private middle market companies.

 

We are externally managed by Ares Capital Management LLC (the “investment adviser”), an affiliate of Ares Management LLC (“Ares Management”), an independent international investment management firm. Ares Operations LLC (“Ares Administration” or the “administrator”), an affiliate of Ares Management, provides the administrative services necessary for us to operate.

 

Interim financial statements are prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Articles 6 or 10 of Regulation S-X. In the opinion of management, all adjustments, consisting solely of normal recurring accruals considered necessary for the fair presentation of financial statements for the interim period, have been included. 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, 2009.

 

2.          SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States, and include the accounts of the Company and its wholly owned subsidiaries. The consolidated financial statements reflect all adjustments and reclassifications which, in the opinion of management, are necessary for the fair presentation of the results of the operations and financial condition as of and for the periods presented. All significant intercompany balances and transactions have been eliminated.

 

Cash and Cash Equivalents

 

Cash and cash equivalents include short-term, liquid investments in a money market fund. Cash and cash equivalents are carried at cost which approximates fair value.

 

Concentration of Credit Risk

 

The Company places its cash and cash equivalents with financial institutions and, at times, cash held in money market accounts may exceed the Federal Deposit Insurance Corporation insured limit.

 

Investments

 

Investment transactions are recorded on the trade date. Realized gains or losses are computed using the specific identification method. Investments for which market quotations are readily available are typically valued at such market quotations. In order to validate market quotations, we look at a number of factors to determine if the quotations are representative of fair value, including the source and nature of the quotations. Debt and equity securities that are not publicly traded or whose market prices are not readily available (i.e., substantially all of our investments) are valued at fair value as determined in good faith by our board of directors, based on the input of our management and audit committee and independent valuation firms that have been engaged at the direction of the board to assist in the valuation of each portfolio investment without a

 

30



Table of Contents

 

readily available market quotation at least once during a trailing 12 month period and under a valuation policy and a consistently applied valuation process. The valuation process is conducted at the end of each fiscal quarter, with approximately 50% (based on value) of our valuations of portfolio companies without readily available market quotations subject to review by an independent valuation firm.

 

As part of the valuation process, we may take into account the following types of factors, if relevant, in determining the fair value of our investments: the enterprise value of a portfolio company (an estimate of the total fair value of the portfolio company’s debt and equity), the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings and discounted cash flow, the markets in which the portfolio company does business, comparison of the portfolio company’s securities to publicly traded securities, changes in the interest rate environment and the credit markets generally that may affect the price at which similar investments may be made in the future and other relevant factors. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, we use the pricing indicated by the external event to corroborate our valuation.

 

Because there is not a readily available market value for most of the investments in our portfolio, we value substantially all of our portfolio investments at fair value as determined in good faith by our board of directors, based on the input of our management and audit committee and independent valuation firms under a valuation policy and a consistently applied valuation process. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may 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 may realize significantly less than the value at which we have recorded it.

 

In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the valuations currently assigned.

 

With respect to investments for which market quotations are not readily available, our board of directors undertakes a multi-step valuation process each quarter, as described below:

 

·                  Our quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals responsible for the portfolio investment in conjunction with our portfolio management team.

 

·                  Preliminary valuation conclusions are then documented and discussed by our management.

 

·                  The audit committee of our board of directors reviews these preliminary valuations, as well as the input of independent valuation firms with respect to the valuations of approximately 50% (based on value) of our portfolio companies without readily available market quotations.

 

·                  The board of directors discusses valuations and determines the fair value of each investment in our portfolio without a readily available market quotation in good faith based on the input of our management and audit committee and independent valuation firms.

 

Effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”), which expands the application of fair value accounting for investments (see Note 8 to the consolidated financial statements).

 

Interest Income Recognition

 

Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis. Discounts and premiums on securities purchased are accreted/amortized over the life of the respective security using the effective yield method. The amortized cost of investments represents the original cost adjusted for the accretion of discounts and amortization of premiums.

 

Loans are generally placed on non-accrual status when principal or interest payments are past due 30 days or more or when there is reasonable doubt that principal or interest will be collected. Accrued interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment regarding collectability. Non-accrual loans are restored to accrual status

 

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Table of Contents

 

when past due principal and interest is paid and, in management’s judgment, are likely to remain current. The Company may make exceptions to this if the loan has sufficient collateral value and is in the process of collection. As of June 30, 2009, nine loans or 6.2% of total investments at amortized cost (or 2.1% at fair value), were placed on non-accrual status. As of December 31, 2008, six loans or 4.4% of total investments at amortized cost (or 1.6% at fair value), were placed on non-accrual status.

 

Payment-in-Kind Interest

 

The Company has loans in its portfolio that contain a payment-in-kind (“PIK”) provision. The PIK interest, computed at the contractual rate specified in each loan agreement, is added to the principal balance of the loan and recorded as interest income. To maintain the Company’s status as a RIC, this non-cash source of income must be paid out to stockholders in the form of dividends even though the Company has not yet collected the cash. For the three and six months ended June 30, 2009, $11,474 and $22,196, respectively, in PIK income was recorded. For the three and six months ended June 30, 2008, $7,452 and $12,879, respectively, in PIK income was recorded.

 

Capital Structuring Service Fees and Other Income

 

The Company’s investment adviser seeks to provide assistance to our portfolio companies in connection with the Company’s investments and in return the Company may receive fees for capital structuring services. These fees are generally only available to the Company as a result of the Company’s underlying investments, are normally paid at the closing of the investments, are generally non-recurring and are recognized as revenue when earned upon closing of the investment. The services that the Company’s investment adviser provides vary by investment, but generally consist of reviewing existing credit facilities, arranging bank financing, arranging equity financing, structuring financing from multiple lenders, structuring financing from multiple equity investors, restructuring existing loans, raising equity and debt capital, and providing general financial advice, which concludes upon closing of the investment.  Any services of the above nature subsequent to the closing would generally generate a separate fee payable to the Company. In certain instances where the Company is invited to participate as a co-lender in a transaction and does not provide significant services in connection with the investment, a portion of loan fees paid to the Company in such situations will be deferred and amortized over the estimated life of the loan. The Company’s investment adviser may also take a seat on the board of directors of a portfolio company, or observe the meetings of the board of directors without taking a formal seat.

 

Other income includes fees for asset management, consulting, loan guarantees, commitments, and other services rendered by the Company to portfolio companies. Such fees are recognized as income when earned or the services are rendered.

 

Foreign Currency Translation

 

The Company’s books and records are maintained in U.S. dollars. Any foreign currency amounts are translated into U.S. dollars on the following basis:

 

(1)         Market value of investment securities, other assets and liabilities — at the exchange rates prevailing at the end of the period.

 

(2)         Purchases and sales of investment securities, income and expenses — at the rates of exchange prevailing on the respective dates of such transactions, income or expenses.

 

Results of operations based on changes in foreign exchange rates are separately disclosed in the statement of operations. Foreign security and currency translations may involve certain considerations and risks not typically associated with investing in U.S. companies and U.S. government securities. These risks include, but are not limited to, currency fluctuation and revaluations and future adverse political, social and economic developments, which could cause investments in foreign markets to be less liquid and prices more volatile than those of comparable U.S. companies or U.S. government securities.

 

Accounting for Derivative Instruments

 

The Company does not utilize hedge accounting and marks its derivatives to market through operations.

 

Offering Expenses

 

The Company’s offering costs are charged against the proceeds from equity offerings when received. For the six months ended June 30, 2009, there were no equity offerings. For the six months ended June 30, 2008, the Company incurred approximately $1,245 of offering costs.

 

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Table of Contents

 

Debt Issuance Costs

 

Debt issuance costs are being amortized over the life of the related credit facility using the straight line method, which closely approximates the effective yield method.

 

U.S. Federal Income Taxes

 

The Company has elected to be treated as a RIC under subchapter M of the Code and operates in a manner so as to qualify for the tax treatment applicable to RICs. In order to qualify as a RIC, among other things, the Company is required to timely distribute to its stockholders at least 90% of investment company taxable income, as defined by the Code, for each year. The Company, among other things, has made and intends to continue to make the requisite distributions to its stockholders, which will generally relieve the Company from U.S. federal income taxes.

 

Depending on the level of taxable income earned in a tax year, we may choose to carry forward taxable income in excess of current year dividend distributions into the next tax year and pay a 4% 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 dividend distributions, the Company accrues excise tax, if any, on estimated excess taxable income as taxable income is earned. For the three months ended June 30, 2009, no amount was recorded for U.S. federal excise tax. For the six months ended June 30, 2009, a net benefit of $30 was recorded for U.S. Federal excise tax. For the three months ended June 30, 2008, the Company recorded a provision of $135 for U.S. Federal excise tax. For the six months ended June 30, 2008, the Company recorded a benefit of approximately $299 for U.S. Federal excise tax.

 

Certain of our wholly owned subsidiaries are subject to U.S. Federal and state income taxes. For the three and six months ended June 30, 2009, we recorded tax expenses of approximately $78 and $139, respectively, for these subsidiaries. For the three and six months ended June 30, 2008, we recorded tax provisions of approximately $3 and $115, respectively, for these subsidiaries.

 

Dividends

 

Dividends and distributions to common stockholders are recorded on the record date. The amount to be paid out as a dividend is determined by the board of directors each quarter and is generally based upon the earnings estimated by management. Net realized capital gains, if any, are generally distributed at least annually, although we may decide to retain such capital gains for investment.

 

We have adopted a dividend reinvestment plan that provides for reinvestment of any distributions we declare in cash on behalf of our stockholders, unless a stockholder elects to receive cash. As a result, if our board of directors authorizes, and we declare, a cash dividend, then our stockholders who have not ‘‘opted out’’ of our dividend reinvestment plan will have their cash dividends automatically reinvested in additional shares of our common stock, rather than receiving the cash dividend.  While we generally use primarily newly issued shares to implement the plan (especially if our shares are trading at a premium to net asset value), we may purchase shares in the open market in connection with our obligations under the plan.  In particular, if our shares are trading at a significant enough discount to net asset value and we are otherwise permitted under applicable law to purchase such shares, we intend to purchase shares in the open market in connection with our obligations under our dividend reinvestment plan.

 

Use of Estimates in the Preparation of Financial Statements

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of actual and contingent assets and liabilities at the date of the financial statements and the reported amounts of income or loss and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the valuation of investments.

 

New Accounting Pronouncements

 

On October 10, 2008, the Financial Accounting Standards Board (“FASB”) issued Staff Position No. 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active, or “FSP 157-3”. FSP 157-3 provides an illustrative example of how to determine the fair value of a financial asset in an inactive market. FSP 157-3 does not change the fair value measurement principles set forth in SFAS 157 (see Note 8 for a description of SFAS 157). Since adopting SFAS 157 in January 2008, our process for determining the fair value of our investments has been, and continues to be, consistent with the guidance provided in the example in FSP 157-3. As a result, the adoption of FSP 157-3 did not affect our process for determining the fair value of our investments and did not have a material effect on our financial position or results of operations.  See Note 8 for more information.

 

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In April 2009, the FASB issued Staff Position 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly, or “FSP 157-4”.  FSP 157-4 provides additional guidance for estimating fair value when the volume and level of activity for the asset or liability have significantly decreased when compared with normal market activity for the asset or liability, and identifying transactions that are not orderly. In those circumstances, further analysis and significant adjustment to the transaction or quoted prices may be necessary to estimate fair value.  FSP 157-4 reaffirms fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions.   FSP 157-4 has been adopted by the Company and will be effective for reporting periods ending after June 15, 2009.  The Company’s adoption of FSP 157-4 did not have a significant impact on the Company’s financial statements.  See Note 8 for more information.

 

In May 2009, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 165, Subsequent Events, or (“SFAS 165”, which addresses accounting and disclosure requirements related to subsequent events. SFAS 165 requires management to evaluate subsequent events through the date the financial statements are either issued or available to be issued, depending on the company’s expectation of whether it will widely distribute its financial statements to its shareholders and other financial statement users. Companies are required to disclose the date through which subsequent events have been evaluated. SFAS 165 is effective for interim or annual financial periods ending after June 15, 2009 and should be applied prospectively. The adoption of SFAS 165 did not have a material effect on our financial condition or results of operations.

 

In June 2009, the FASB issued SFAS No. 166, Accounting for Transfer of Financial Assets or SFAS 166”, which amends the guidance in SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. It eliminates the qualifying special-purpose entities (“QSPEs”) concept, creates more stringent conditions for reporting a transfer of a portion of a financial asset as a sale, clarifies the derecognition criteria, revises how retained interests are initially measured, and removes the guaranteed mortgage securitization recharacterization provisions. SFAS 166 requires additional year-end and interim disclosures for public and nonpublic companies that are similar to the disclosures required by FSP FAS 140-4 and FIN 46(R)-8. SFAS 166 is effective as of the beginning of a company’s first fiscal year that begins after November 15, 2009 (January 1, 2010 for calendar year-end companies), and for subsequent interim and annual reporting periods. SFAS 166’s disclosure requirements must be applied to transfers that occurred before and after its effective date. Early adoption is prohibited. We are currently evaluating the effect that the provisions of SFAS 166 may have on our financial condition and results of operations.

 

In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R), or “SFAS 167”, which amends the guidance in FASB Interpretation No. (“FIN”) 46(R), Consolidation of Variable Interest Entities. It requires reporting entities to evaluate former QSPEs for consolidation, changes the approach to determining a variable interest entity’s (VIE’s) primary beneficiary from a quantitative assessment to a qualitative assessment designed to identify a controlling financial interest, and increases the frequency of required reassessments to determine whether a company is the primary beneficiary of a VIE. It also clarifies, but does not significantly change, the characteristics that identify a VIE. SFAS 167 requires additional year-end and interim disclosures for public and non-public companies that are similar to the disclosures required by FSP FAS 140-4 and FIN 46(R)-8, Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities. SFAS 167 is effective as of the beginning of a company’s first fiscal year that begins after November 15, 2009 (January 1, 2010 for calendar year-end companies), and for subsequent interim and annual reporting periods. All QSPE’s and entities currently subject to FIN 46(R) will need to be reevaluated under the amended consolidation requirements as of the beginning of the first annual reporting period that begins after November 15, 2009. Early adoption is prohibited. We are currently evaluating the effect that the provisions of SFAS 167 may have on our financial condition and results of operations.

 

3.          AGREEMENTS

 

Investment Advisory and Management Agreement

 

The Company is party to an investment advisory and management agreement (the “investment advisory and management agreement”) with Ares Capital Management. Subject to the overall supervision of our board of directors, Ares Capital Management provides investment advisory services to the Company. For providing these services, Ares Capital Management receives a fee from us, consisting of two components—a base management fee and an incentive fee. The base management fee is calculated at an annual rate of 1.5% based on the average value of our total assets (other than cash or cash equivalents but including assets purchased with borrowed funds) at the end of the two most recently completed calendar quarters. The base management fee is payable quarterly in arrears.

 

The incentive fee has two parts. One part is calculated and payable quarterly in arrears based on our pre-incentive fee net investment income for the quarter. Pre-incentive fee net investment income means interest income, dividend income and any

 

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other income (including any other fees such as commitment, origination, structuring, diligence and consulting fees or other fees that we receive from portfolio companies but excluding fees for providing managerial assistance) accrued during the calendar quarter, minus operating expenses for the quarter (including the base management fee, any expenses payable under the administration agreement, and any interest expense and dividends paid on any 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 market discount, debt instruments with payment-in-kind interest, preferred stock with payment-in-kind dividends and zero coupon securities, accrued income that we have not yet received in cash. The investment adviser is not under any obligation to reimburse us for any part of the incentive fee it received that was based on accrued interest that we never actually receive.

 

Pre-incentive fee net investment income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation. Because of the structure of the incentive fee, it is possible that we may pay an incentive fee in a quarter where we incur a loss. For example, if we receive pre-incentive fee net investment income in excess of the hurdle rate (as defined below) for a quarter, we will pay the applicable incentive fee even if we have incurred a loss in that quarter due to realized and/or unrealized capital losses. Pre-incentive fee net investment income, expressed as a rate of return on the value of our net assets (defined as total assets less indebtedness and before taking into account any incentive fees payable during the period) at the end of the immediately preceding calendar quarter, is compared to a fixed “hurdle rate” of 2.00% per quarter. If market interest rates rise, we may be able to invest our funds in debt instruments that provide for a higher return, which would increase our pre-incentive fee net investment income and make it easier for our investment adviser to surpass the fixed hurdle rate and receive an incentive fee based on such net investment income. Our pre-incentive fee net investment income used to calculate this part of the incentive fee is also included in the amount of our total assets (other than cash and cash equivalents but including assets purchased with borrowed funds) used to calculate the 1.5% base management fee.

 

We pay the investment adviser an incentive fee with respect to our pre-incentive fee net investment income in each calendar quarter as follows:

 

·                  no incentive fee in any calendar quarter in which the pre-incentive fee net investment income does not exceed the hurdle rate;

 

·                  100% of our pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds the hurdle rate but is less than 2.50% in any calendar quarter. We refer to this portion of our pre-incentive fee net investment income (which exceeds the hurdle rate but is less than 2.50%) as the “catch-up” provision. The “catch-up” is meant to provide our investment adviser with 20% of the pre-incentive fee net investment income as if a hurdle rate did not apply if this net investment income exceeds 2.50% in any calendar quarter; and

 

·                  20% of the amount of our pre-incentive fee net investment income, if any, that exceeds 2.50% in any calendar quarter.

 

These calculations are adjusted for any share issuances or repurchases during the quarter.

 

The second part of the incentive fee, the “Capital Gains Fee”, is determined and payable in arrears as of the end of each calendar year (or, upon termination of the investment advisory and management agreement, as of the termination date), and is calculated at the end of each applicable year by subtracting (a) the sum of our cumulative aggregate realized capital losses and aggregate unrealized capital depreciation from (b) our cumulative aggregate realized capital gains, in each case calculated from October 8, 2004. If such amount is positive at the end of such year, then the Capital Gains Fee for such year is equal to 20.0% of such amount, less the aggregate amount of Capital Gains Fees paid in all prior years. If such amount is negative, then there is no Capital Gains Fee for such year.

 

The cumulative aggregate realized capital gains are calculated as the sum of the differences, if positive, between (a) the net sales price of each investment in our portfolio when sold and (b) the accreted or amortized cost basis of such investment.

 

The cumulative aggregate realized capital losses are calculated as the sum of the amounts by which (a) the net sales price of each investment in the Company’s portfolio when sold is less than (b) the accreted or amortized cost basis of such investment.

 

The aggregate unrealized capital depreciation is calculated as the sum of the differences, if negative, between (a) the valuation of each investment in the Company’s portfolio as of the applicable Capital Gains Fee calculation date and (b) the accreted or amortized cost basis of such investment.

 

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We defer cash payment of any incentive fee otherwise earned by the investment adviser if during the most recent four full calendar quarter period ending on or prior to the date such payment is to be made the sum of (a) the aggregate distributions to the stockholders of the Company and (b) the change in net assets (defined as total assets less indebtedness and before taking into account any incentive fees payable during the period) is less than 8.0% of our net assets at the beginning of such period. These calculations were appropriately pro rated during the first three calendar quarters following October 8, 2004 and are adjusted for any share issuances or repurchases.

 

For the three and six months ended June 30, 2009, we incurred $7,496 and $14,994, respectively, in base management fees and $7,987 and $15,537, respectively, in incentive management fees related to pre-incentive fee net investment income. For the three and six months ended June 30, 2009, we accrued no incentive management fees related to realized capital gains.  As of June 30, 2009, $48,287 was unpaid and included in management and incentive fees payable in the accompanying consolidated balance sheet. Included in this $48,287 was $40,791 in incentive management fees related to the twelve months ended June 30, 2009 that have been deferred pursuant to the investment advisory and management agreement.

 

For the three and six months ended June 30, 2008, we incurred $7,679 and $14,766, respectively, in base management fees and $9,015 and $15,508, respectively, in incentive management fees related to pre-incentive fee net investment income. For the three and six months ended June 30, 2008, we accrued no incentive management fees related to net realized capital gains.  As of June 30, 2008, $16,694 was unpaid and included in management and incentive fees payable in the accompanying consolidated balance sheet.

 

Administration Agreement

 

We are also party to a separate administration agreement, the “administration agreement,” with our administrator, Ares Administration. Our board of directors approved the continuation of our administration agreement on May 4, 2009, which extended the term of the agreement until June 1, 2010. Pursuant to the administration agreement, Ares Administration furnishes us with office equipment and clerical, bookkeeping and record keeping services. Under the administration agreement, Ares Administration also performs, or oversees the performance of, our required administrative services, which include, among other things, being responsible for the financial records that we are required to maintain and preparing reports to our stockholders and reports filed with the SEC. In addition, Ares Administration assists us in determining and publishing our net asset value, oversees the preparation and filing of our tax returns and the printing and dissemination of reports to our stockholders, and generally oversees the payment of our expenses and the performance of administrative and professional services rendered to us by others. Under the administration agreement, Ares Administration also provides, on our behalf, managerial assistance to those portfolio companies to which we are required to provide such assistance. Payments under the administration agreement are equal to an amount based upon our allocable portion of Ares Administration’s overhead in performing its obligations under the administration agreement, including our allocable portion of the cost of our officers (including our chief compliance officer, chief financial officer, secretary and treasurer) and their respective staffs. The administration agreement may be terminated by either party without penalty upon 60-days’ written notice to the other party.

 

For the three and six months ended June 30, 2009, we incurred $1,092 and $2,096, respectively, in administrative fees. As of June 30, 2009, $1,092 was unpaid and included in accounts payable and accrued expenses in the accompanying consolidated balance sheet.

 

For the three and six months ended June 30, 2008, we incurred $365 and $900, respectively, in administrative fees.

 

4.                               EARNINGS PER SHARE

 

The following information sets forth the computations of basic and diluted net increase in stockholders’ equity per share resulting from the operations for the three and six months ended June 30, 2009:

 

 

 

Three months ended
June 30, 2009

 

Six months ended
June 30, 2009

 

Numerator for basic and diluted net increase in stockholders’ equity resulting from operations per share:

 

$

34,753

 

$

69,787

 

Denominator for basic and diluted net increase in stockholders’ equity resulting from operations per share:

 

97,152,820

 

97,152,820

 

Basic and diluted net increase in stockholders’ equity resulting from operations per share:

 

$

0.36

 

$

0.72

 

 

The following information sets forth the computations of basic and diluted net increase in stockholders’ equity per share resulting from operations for the three and six months ended June 30, 2008:

 

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Three months ended
June 30, 2008

 

Six months ended
June 30, 2008

 

Numerator for basic and diluted net increase in stockholders’ equity resulting from operations per share:

 

$

3,272

 

$

12,438

 

Denominator for basic and diluted net increase in stockholders’ equity resulting from operations per share:

 

90,125,629

 

82,097,395

 

Basic and diluted net increase in stockholders’ equity resulting from operations per share:

 

$

0.04

 

$

0.15

 

 

In accordance with Statement of Financial Accounting Standards No. 128, Earnings per Share (“SFAS 128”), the weighted average shares of common stock outstanding used in computing basic and diluted net increase in stockholders’ equity resulting from operations per share for the three and six months ended June 30, 2008 has been adjusted retroactively by a factor of 1.02% to recognize the bonus element associated with rights to acquire shares of common stock that we issued to stockholders of record as of March 24, 2008 in connection with a transferable rights offering.

 

5.                               INVESTMENTS

 

Under the Investment Company Act, we are required to separately identify non-controlled investments where we own more than 5% of a portfolio company’s outstanding voting securities as “affiliated companies.”  In addition, under the Investment Company Act, we are required to separately identify investments where we own more than 25% of a portfolio company’s outstanding voting securities as “control affiliated companies.”  We had no existing control relationship with any of the portfolio companies identified as “affiliated companies” or “control affiliated companies” prior to making the indicated investment.

 

For the three months ended June 30, 2009, the Company funded $63.0 million aggregate principal amount of senior term debt and $6.5 million of investments in equity securities.

 

In addition, for the three months ended June 30, 2009, $53.4 million aggregate principal amount of senior term debt was redeemed. Additionally, $29.2 million aggregate principal amount of senior term debt and $4.0 million of senior subordinated debt were sold.

 

As of June 30, 2009, investments and cash and cash equivalents consisted of the following:

 

 

 

Amortized Cost

 

Fair Value

 

Cash and cash equivalents

 

$

46,297

 

$

46,297

 

Senior term debt

 

1,143,155

 

1,042,660

 

Senior subordinated debt

 

757,893

 

626,551

 

Equity securities

 

316,116

 

243,029

 

Collateralized loan obligations

 

55,812

 

50,231

 

Total

 

$

2,319,273

 

$

2,008,768

 

 

As of December 31, 2008, investments and cash and cash equivalents consisted of the following:

 

 

 

Amortized Cost

 

Fair Value

 

Cash and cash equivalents

 

$

89,383

 

$

89,383

 

Senior term debt

 

1,165,460

 

1,055,089

 

Senior subordinated debt

 

737,072

 

619,491

 

Equity securities

 

309,061

 

247,997

 

Collateralized loan obligations

 

56,000

 

50,400

 

Total

 

$

2,356,976

 

$

2,062,360

 

 

The amortized cost represents the original cost adjusted for the accretion of discounts and amortization of premiums on debt using the effective interest method.

 

The industrial and geographic compositions of our portfolio at fair value at June 30, 2009 and December 31, 2008 were as follows:

 

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Industry

 

June 30, 2009

 

December 31, 2008

 

 

 

 

 

 

 

Health Care

 

19.1

%

20.2

%

Education

 

10.3

 

11.1

 

Restaurants and Food Services

 

8.2

 

8.1

 

Beverage/Food/Tobacco

 

7.8

 

7.8

 

Other Services

 

7.4

 

7.4

 

Financial

 

7.1

 

7.0

 

Business Services

 

6.7

 

6.7

 

Retail

 

5.8

 

5.7

 

Manufacturing

 

4.6

 

3.8

 

Environmental Services

 

3.8

 

4.1

 

Computers/Electronics

 

3.3

 

1.2

 

Printing/Publishing/Media

 

3.2

 

3.8

 

Aerospace and Defense

 

3.1

 

3.0

 

Consumer Products

 

2.7

 

3.0

 

Telecommunications

 

2.1

 

2.0

 

Cargo Transport

 

1.4

 

1.4

 

Containers/Packaging

 

1.2

 

1.4

 

Health Clubs

 

1.2

 

1.2

 

Grocery

 

1.0

 

1.0

 

Homebuilding

 

0.0

 

0.1

 

Total

 

100.0

%

100.0

%

 

Geographic Region

 

June 30, 2009

 

December 31, 2008

 

 

 

 

 

 

 

Mid-Atlantic

 

21.9

%

21.0

%

Southeast

 

21.9

 

22.2

 

Midwest

 

21.0

 

20.6

 

West

 

18.2

 

18.3

 

International

 

13.4

 

14.1

 

Northeast

 

3.6

 

3.8

 

Total

 

100.0

%

100.0

%

 

6.                                     COMMITMENTS AND CONTINGENCIES

 

As of June 30, 2009 and December 31, 2008, the Company had the following commitments to fund various revolving senior secured and subordinated loans:

 

 

 

June 30, 2009

 

December 31, 2008

 

Total revolving commitments

 

$

287,200

 

$

419,000

 

Less: funded commitments

 

(89,000

)

(139,600

)

Total unfunded commitments

 

198,200

 

279,400

 

Less: commitments substantially at discretion of the Company

 

(16,000

)

(32,400

)

Less: unavailable commitments due to borrowing base or other covenant restriction

 

(60,100

)

(64,500

)

Total net adjusted unfunded revolving commitments

 

$

122,100

 

$

182,500

 

 

Of the total commitments as of June 30, 2009, $160,400 extend beyond the maturity date of our Revolving Credit Facility (as defined in Note 7). Additionally, $109,000 of the total commitments, or $34,000 of the net adjusted unfunded commitments, are scheduled to expire in 2009. Included within the total commitments as of June 30, 2009 are commitments to issue up to $15,600 in standby letters of credit through a financial intermediary on behalf of certain portfolio companies.

 

Under these arrangements, the Company would be required to make payments to third parties if the portfolio companies were to default on their related payment obligations. As of June 30, 2009, the Company had $10,300 in standby letters of credit issued and outstanding on behalf of the portfolio companies, of which no amounts were recorded as a liability.  Of these letters of credit, $4,900 expire on September 30, 2009, $300 expire on January 31, 2010, $200 expire on February 28, 2010, $1,500 expire on March 31, 2010 and $3,400 expire on July 31, 2010.  These letters of credit may be extended under

 

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substantially similar terms for additional one-year terms at the Company’s option until the Revolving Credit Facility, under which the letters of credit were issued, matures on December 28, 2010.

 

As of June 30, 2009 and December 31, 2008, the Company was subject to subscription agreements to fund equity investments in private equity investment partnerships, substantially all at the discretion of the Company, as follows:

 

 

 

June 30, 2009

 

December 31, 2008

 

Total private equity commitments

 

$

428,300

 

$

428,300

 

Total unfunded private equity commitments

 

$

421,800

 

$

423,600

 

 

7.                              BORROWINGS

 

In accordance with the Investment Company Act, with certain limited exceptions, we are only allowed to borrow amounts such that our asset coverage, as defined in the Investment Company Act, is at least 200% after such borrowing. As of June 30, 2009, our asset coverage for borrowed amounts was 224%.

 

Our debt obligations consisted of the following as of June 30, 2009 and December 31, 2008:

 

 

 

June 30, 2009

 

December 31, 2008

 

 

 

Outstanding

 

Total
Available(1)

 

Outstanding

 

Total
Available(1)

 

Revolving Credit Facility

 

$

375,045

 

$

525,000

 

$

480,486

 

$

510,000

 

CP Funding Facility

 

225,000

 

225,000

 

114,300

 

350,000

 

Debt Securitization

 

279,210

 

279,210

 

314,000

 

314,000

 

 

 

$

879,255

 

$

1,029,210

 

$

908,786

 

$

1,174,000

 

 


(1)                                  Subject to borrowing base and leverage restrictions.

 

The weighted average interest rate of all our debt obligations as of June 30, 2009 and December 31, 2008 was 1.98% and 3.03%, respectively.

 

CP Funding Facility

 

In October 2004, we formed Ares Capital CP Funding LLC (“Ares Capital CP”), a wholly owned subsidiary of the Company, through which we established a revolving facility, referred to as the “CP Funding Facility,” that, as amended, allowed Ares Capital CP to issue up to $350,000 of variable funding certificates (“VFC”). On May 7, 2009, the Company and Ares Capital CP entered into an amendment that, among other things, converted the CP Funding Facility from a revolving facility to an amortizing facility, extended the maturity from July 21, 2009 to May 7, 2012, reduced the availability from $350,000 to $225,000 (with a reduction in the outstanding balance required by each of December 31, 2010 and December 31, 2011)and decreased the advance rates applicable to certain types of eligible loans.  In addition, the interest rate charged on the CP Funding Facility was increased from the commercial paper rate plus 2.50% to the commercial paper, Eurodollar or adjusted Eurodollar rate, as applicable, plus 3.50% and the commitment fee requirement was removed.  The Company also paid a renewal fee of 1.25% of the total facility amount, or $2,813. As of June 30, 2009, there was $225,000 outstanding under the CP Funding Facility and the Company continues to be in compliance with all of the limitations and requirements of the CP Funding Facility. As of December 31, 2008, there was $114,300 outstanding under the CP Funding Facility.

 

The CP Funding Facility is secured by all of the assets held by Ares Capital CP, which as of June 30, 2009 consisted of 43 investments.

 

The interest charged on the VFC is payable quarterly and as of June 30, 2009, the rate in effect was one month LIBOR, which was 0.31%. As of December 31, 2008, the rate in effect was the commercial paper rate which was 2.3271%. For the three and six months ended June 30, 2009, the average interest rates (i.e. rate in effect plus the spread) were 3.70% and 3.66%, respectively. For the three and six months ended June 30, 2009, the average outstanding balances were $177,932 and $135,495, respectively. For the three and six months ended June 30, 2008, the average interest rates (i.e. rate in effect plus the spread) were 3.77% and 4.33%, respectively. For the three and six months ended June 30, 2008, the average outstanding balances were $27,315 and $69,815, respectively.

 

For the three and six months ended June 30, 2009, the interest expense incurred on the CP Funding Facility was $1,648 and $2,480, respectively. For the three and six months ended June 30, 2008, the interest expense incurred on the CP Funding Facility was $271 and $1,324, respectively. Cash paid for interest expense during the six months ended June 30, 2009 and 2008 was $2,701 and $2,391, respectively.

 

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Prior to May 7, 2009, the Company was required to pay a commitment fee for any unused portion of the CP Funding Facility equal to 0.5% per annum for any unused portion of the CP Funding Facility.  Prior to July 22, 2008, the commitment fee was 0.125% per annum calculated based on an amount equal to $200,000 less the borrowings outstanding under the CP Funding Facility. For the three and six months ended June 30, 2009, the commitment fees incurred on the CP Funding Facility were $122 and $443, respectively. For the three and six months ended June 30, 2008, the commitment fees incurred on the CP Funding Facility were $55 and $91, respectively.

 

Revolving Credit Facility

 

In December 2005, we entered into a senior secured revolving credit facility referred to as “Revolving Credit Facility”, under which, as amended, the lenders have agreed to extend credit to the Company in an aggregate principal amount not exceeding $525,000 at any one time outstanding. The Revolving Credit Facility expires on December 28, 2010 and with certain exceptions is secured by substantially all of the assets in our portfolio (other than investments held by Ares Capital CP under the CP Funding Facility and those held as a part of the Debt Securitization, discussed below) which as of June 30, 2009 consisted of 177 investments.

 

The Revolving Credit Facility also includes an “accordion” feature that allows us to increase the size of the Revolving Credit Facility to a maximum of $765,000 under certain circumstances. The Revolving Credit Facility also includes usual and customary events of default for senior secured revolving credit facilities of this nature. As of June 30, 2009, there was $375,045 outstanding under the Revolving Credit Facility and the Company continues to be in compliance with all of the limitations and requirements of the Revolving Credit Facility. As of December 31, 2008, there was $480,486 outstanding under the Revolving Credit Facility.

 

The interest charged under the Revolving Credit Facility is generally based on LIBOR (one, two, three or six month) plus 1.00%. As of June 30, 2009, the one, two, three and six month LIBOR were 0.31%, 0.41%, 0.60% and 1.11%, respectively. As of December 31, 2008, the one, two, three and six month LIBOR were 0.44%, 1.10%, 1.43% and 1.75%, respectively. For the three and six months ended June 30, 2009, the average interest rate was 1.83% and 2.19%, respectively, the average outstanding balance was $423,069 and $457,590, respectively, and the interest expense incurred was $1,939 and $5,012, respectively. For the three and six months ended June 30, 2008, the average interest rate was 4.11% and 4.68%, respectively, the average outstanding balance was $402,063 and $371,597, respectively, and the interest expense incurred was $4,117 and $8,677, respectively. Cash paid for interest expense during the six months ended June 30, 2009 and 2008 was $6,311 and $9,518, respectively. The Company is also required to pay a commitment fee of 0.20% for any unused portion of the Revolving Credit Facility. For the three and six months ended June 30, 2009, the commitment fee incurred was $101 and $202, respectively. For the three and six months ended June 30, 2008, the commitment fee incurred was $185 and $257, respectively.

 

The amount available for borrowing under the Revolving Credit Facility is reduced by any standby letters of credit issued through the Revolving Credit Facility. As of June 30, 2009 and December 31, 2008, the Company had $21,600 and $16,700, respectively, in standby letters of credit issued through the Revolving Credit Facility.

 

As of June 30, 2009, the Company had a non-U.S. borrowing on the Revolving Credit Facility denominated in Canadian dollars. As of June 30, 2009 and December 31, 2008, unrealized appreciation on this borrowing was $2,805 and $3,365, respectively.

 

Debt Securitization

 

In July 2006, through our wholly owned subsidiary, ARCC CLO 2006 LLC (“ARCC CLO”), we completed a $400,000 debt securitization (the “Debt Securitization”) and issued approximately $314,000 principal amount of asset-backed notes (including $50,000 of revolving notes, all of which were drawn down as of June 30, 2009) (the “CLO Notes”) to third parties that were secured by a pool of middle market loans that have been purchased or originated by the Company. The CLO Notes are included in the June 30, 2009 consolidated balance sheet. We retained approximately $86,000 of aggregate principal amount of certain BBB and non-rated securities in the Debt Securitization (the “Retained Notes”). During the six months ended June 30, 2009, we repurchased, in several open market transactions, $34,790 of CLO Notes consisting of $14,000 of the Class B and $20,790 of the Class C notes for a total purchase price of $8,247.   As a result of these purchases, we recognized a $26,543 gain on the extinguishment of debt and as of June 30, 2009, we held an aggregate principal amount of $120,790 of CLO Notes, in total. The CLO Notes mature on December 20, 2019, and, as of June 30, 2009, there is $279,210 outstanding under the Debt Securitization (excluding the Retained Notes). The blended pricing of the CLO Notes, excluding fees, is approximately 3-month LIBOR plus 27 basis points.

 

The classes, amounts, ratings and interest rates (expressed as a spread to 3-month LIBOR) of the CLO Notes are as follows:

 

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Class

 

Amount

 

Rating
(S&P/Moody’s)

 

LIBOR Spread
(basis points)

 

A-1A

 

$

75,000

 

AAA/Aaa

 

25

 

A-1A VFN

 

50,000

(1)

AAA/Aaa

 

28

 

A-1B

 

14,000

 

AAA/Aaa

 

37

 

A-2A

 

75,000

 

AAA/Aaa

 

22

 

A-2B

 

33,000

 

AAA/Aaa

 

35

 

B

 

9,000

 

AA/Ba1

 

43

 

C

 

23,210

 

A/B1

 

70

 

Total

 

$

279,210

 

 

 

 

 

 


(1)                                  Revolving class, all of which was drawn as of June 30, 2009.

 

As of June 30, 2009, there were 69 investments securing the notes. The interest charged under the Debt Securitization is based on 3-month LIBOR, which as of June 30, 2009 was 0.60% and as of December 31, 2008 was 1.43%. For the three and six months ended June 30, 2009, the effective average interest rate was 1.59% and 1.63%, respectively, the average outstanding balance was $279,210 and $289,638, respectively, and the interest expense incurred was $1,107 and $2,356, respectively. For the three and six months ended June 30, 2008, the effective average interest rate was 2.93% and 4.00%, respectively, and the interest expense incurred was $2,295 and $6,265, respectively. Cash paid for interest expense during the six months ended June 30, 2009 and 2008 was $2,629 and $6,492, respectively. The Company is also required to pay a commitment fee of 0.175% for any unused portion of the Class A-1A VFN Notes. There were no commitment fees incurred for the three and six months ended June 30, 2009 and 2008 on these notes.

 

8.                               FAIR VALUE OF FINANCIAL INSTRUMENTS

 

Effective January 1, 2008, the company adopted SFAS No. 159, the Fair Value Option for Financial Assets and Liabilities (“SFAS 159”), which provides companies the option to report selected financial assets and liabilities at fair value. SFAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities and to more easily understand the effect of the company’s choice to use fair value on its earnings. SFAS 159 also requires entities to display the fair value of the selected assets and liabilities on the face of the balance sheet.  The Company has not elected the SFAS 159 option to report selected financial assets and liabilities at fair value. As a result, with the exception of the line items entitled “other assets” and “debt,” which are reported at cost, all assets and liabilities approximate fair value on the balance sheet.  The carrying value of the line items entitled “interest receivable,” “receivable for open trades,” “payable for open trades,” “accounts payable and accrued expenses,” “management and incentive fees payable” and “interest and facility fees payable” approximate fair value due to their short maturity.

 

Effective January 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements (“SFAS 157”), which expands the application of fair value accounting. SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure of fair value measurements. SFAS 157 determines fair value to be the price that would be received for an investment in a current sale, which assumes an orderly transaction between market participants on the measurement date. SFAS 157 requires the Company to assume that the portfolio investment is sold in a principal market to market participants, or in the absence of a principal market, the most advantageous market, which may be a hypothetical market. Market participants are defined as buyers and sellers in the principal or most advantageous market that are independent, knowledgeable, and willing and able to transact. In accordance with SFAS 157, the Company has considered its principal market as the market in which the Company exits its portfolio investments with the greatest volume and level of activity. SFAS 157 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. In accordance with SFAS 157, these inputs are summarized in the three broad levels listed below:

 

·               Level 1 — Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.

 

·               Level 2 — Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

 

·               Level 3 — Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

 

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In addition to using the above inputs in investment valuations, we continue to employ the valuation policy approved by our board of directors that is consistent with SFAS 157 (see Note 2).  Consistent with our valuation policy, we evaluate the source of inputs, including any markets in which our investments are trading (or any markets in which securities with similar attributes are trading), in determining fair value. Our valuation policy considers the fact that because there is not a readily available market value for most of the investments in our portfolio, the fair value of the investments must typically be determined using unobservable inputs.

 

Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of 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 may realize significantly less than the value at which we have recorded it.

 

In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the valuations currently assigned.

 

The following table presents fair value measurements of cash and cash equivalents and investments as of June 30, 2009:

 

 

 

 

 

Fair Value Measurements Using

 

 

 

Total

 

Level 1

 

Level 2

 

Level 3

 

Cash and cash equivalents

 

$

46,297

 

$

46,297

 

$

 

$

 

Investments

 

$

1,962,471

 

$

 

$

26,035

 

$

1,936,436

 

 

The following tables present changes in investments that use Level 3 inputs for the three and six months ended June 30, 2009:

 

 

 

Three months ended
June 30, 2009

 

Balance as of March 31, 2009

 

$

1,945,464

 

Net realized and unrealized gains (losses)

 

1,230

 

Net purchases, sales or redemptions

 

(10,258

)

Net transfers in and/or out of Level 3

 

 

Balance as of June 30, 2009

 

$

1,936,436

 

 

 

 

Six months ended
June 30, 2009

 

Balance as of December 31, 2008

 

$

1,862,462

 

Net realized and unrealized gains (losses)

 

(19,431

)

Net purchases, sales or redemptions

 

7,905

 

Net transfers in and/or out of Level 3

 

85,500

 

Balance as of June 30, 2009

 

$

1,936,436

 

 

As of June 30, 2009, the net unrealized loss on the investments that use Level 3 inputs was $301,383.

 

Following are the carrying and fair values of our debt instruments as of June 30, 2009 and December 31, 2008. Fair value is estimated by discounting remaining payment using applicable current market rates which take into account changes in the Company’s marketplace credit ratings.

 

 

 

June 30, 2009

 

December 31, 2008

 

 

 

Carrying Value

 

Fair Value

 

Carrying Value

 

Fair Value

 

Revolving Credit Facility

 

$

375,045

 

$

362,000

 

$

480,486

 

$

462,000

 

CP Funding Facility

 

225,000

 

225,000

 

114,300

 

113,000

 

Debt Securitization

 

279,210

 

192,000

 

314,000

 

148,000

 

 

 

$

879,255

 

$

779,000

 

$

908,786

 

$

723,000

 

 

9.                               RELATED PARTY TRANSACTIONS

 

In accordance with the investment advisory and management agreement, we bear all costs and expenses of the operation of the Company and reimburse the investment adviser for all such costs and expenses incurred in the operation of the Company. For the three and six months ended June 30, 2009, the investment adviser incurred such expenses totaling $527 and $944,

 

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respectively. For the three and six months ended June 30, 2008, the investment adviser incurred such expenses totaling $605 and $1,006, respectively. As of June 30, 2009, $48 was unpaid and included in accounts payable and accrued expenses in the accompanying consolidated balance sheet.

 

We rent office space directly from a third party pursuant to a lease that expires on February 27, 2011. In addition, we have entered into a sublease agreement with Ares Management whereby Ares Management subleases approximately 25% of certain office space for a fixed rent equal to 25% of the basic annual rent payable by us under this lease, plus certain additional costs and expenses. For the three and six months ended June 30, 2009, such amounts payable to the Company totaled $67 and $134, respectively. For the three and six months ended June 30, 2008, such amounts payable to the Company totaled $51 and $120, respectively. As of June 30, 2009, there were no unpaid amounts.

 

As of June 30, 2009, Ares Investments, an affiliate of Ares Management (the sole member of our investment adviser) owned 2,859,882 shares of the Company’s common stock representing approximately 2.9% of the total shares outstanding as of June 30, 2009.

 

See Notes 3 and 10 for descriptions of other related party transactions.

 

10.                        IVY HILL FUNDS

 

On November 19, 2007, we established a middle market credit fund, Ivy Hill Middle Market Credit Fund, Ltd. (“Ivy Hill I”), which is managed by our affiliate, Ivy Hill Asset Management, L.P. (“IHAM”). IHAM receives a 0.50% management fee on the average total assets of Ivy Hill I as compensation for managing this fund. As of June 30, 2009, the total assets of Ivy Hill I were approximately $370,000.  For the three and six months ended June 30, 2009, the Company earned $395 and $883, respectively, in management fees. For the three and six months ended June 30, 2008, the Company earned $384 and $581, respectively, in management fees. Ivy Hill I primarily invests in first and second lien bank debt of middle market companies. Ivy Hill I was initially funded with $404,000 of capital, including a $56,000 investment by the Company consisting of $40,000 of Class B notes and $16,000 of subordinated notes. For the three and six months ended June 30, 2009, the Company earned $1,369 and $3,022, respectively, from its investments in Ivy Hill I. For the three and six months ended June 30, 2008, the Company earned $1,581 and $2,593, respectively, from its investments in Ivy Hill I.

 

Ivy Hill I purchased investments from the Company of $3,980 and $12,980 during the three and six months ended June 30, 2009, respectively, and may from time to time buy additional investments from the Company. There was a loss of $20 recognized by the Company on these transactions.

 

On November 5, 2008, the Company established a second middle market credit fund, Ivy Hill Middle Market Credit Fund II, Ltd. (“Ivy Hill II”), which is also managed by IHAM. IHAM receives a 0.50% management fee on the average total assets of Ivy Hill II as compensation for managing this fund. Ivy Hill II primarily invests in second lien and subordinated bank debt of middle market companies. Ivy Hill II was established with an initial commitment of $250,000 of subordinated notes, of which $125,000 has been funded, and may grow over time with leverage. Ivy Hill II purchased $27,500 of investments from the Company during the six months ended June 30, 2009. The Company recorded a loss of $1,388 on these transactions. As of June 30, 2009, the total assets of Ivy Hill II were approximately $123,000. For the three and six months ended June 30, 2009, the Company earned $274 and $353, respectively, in management fees.

 

Our affiliate, IHAM, is party to a separate services agreement, referred to herein as the “services agreement,” with Ares Capital Management. Pursuant to the services agreement, Ares Capital Management provides IHAM with office facilities, equipment, clerical, bookkeeping and record keeping services, services of investment professionals and others to perform investment advisory, research and related services, services of, and oversight of, custodians, depositories, accountants, attorneys, underwriters and such other persons in any other capacity deemed to be necessary. Under the services agreement, IHAM will reimburse Ares Capital Management for all of the costs associated with such services, including Ares Capital Management’s allocable portion of overhead and the cost of its officers and respective staff in performing its obligations under the services agreement. The services agreement may be terminated by either party without penalty upon 60-days’ written notice to the other party. For the three and six months ended June 30, 2009, IHAM incurred such expenses payable to the investment adviser of $282 and $538, respectively. No such expenses were payable for the three and six months ended June 30, 2008.

 

During the three months ended June 30, 2009, because of a shift in activity from being primarily a manager with no dedicated employees and of funds in which the Company has invested debt and equity, to a manager with individuals dedicated to managing an increasing number of third party funds for which the Company has limited or no investment, we have concluded that GAAP requires the financial results of IHAM to be reported as a portfolio company in our schedule of investments rather than as a consolidated subsidiary in the Company’s financial results.  For the three months ended June 30, 2009, the Company made an initial equity investment of $3,816 into IHAM and also recognized an unrealized gain of $8,000.

 

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11.                        DERIVATIVE INSTRUMENTS

 

In October 2008, we entered into a two-year interest rate swap agreement to mitigate our exposure to adverse fluctuations in interest rates for a total notional amount of $75 million. Under the interest rate swap agreement, we will pay a fixed interest rate of 2.985% and receive a floating rate based on the prevailing three-month LIBOR. As of June 30, 2009 and December 31, 2008, the 3-month LIBOR was 0.60% and 1.43%, respectively. For the three and six months ended June 30, 2009, we recognized $132 and $121, respectively, in unrealized appreciation related to this swap agreement. As of June 30, 2009 and December 31, 2008, this swap agreement had a fair value of $(2,043) and $(2,164), respectively, which is included in the “accounts payable and other liabilities” in the accompanying consolidated balance sheet.

 

12.                        STOCKHOLDERS’ EQUITY

 

There were no sales of equity securities during the six months ended June 30, 2009.

 

The following table summarizes the total shares issued and proceeds we received net of underwriter, dealer manager and offering costs for the six months ended June 30, 2008 (in millions, except per share data):

 

 

 

Shares issued

 

Offering price
per share

 

Proceeds net of
dealer
manager and
offering costs

 

April 2008 public offering

 

24.2

 

$

11.00

 

$

260.0

 

Total for the six months ended June 30, 2008

 

24.2

 

 

 

$

260.0

 

 

13.                        DIVIDENDS

 

The following table summarizes our dividends declared during the six months ended June 30, 2009 and 2008 (in millions, except per share data):

 

Date Declared

 

Record Date

 

Payment Date

 

Amount
Per Share

 

Total
Amount

 

May 7, 2009

 

June 15, 2009

 

June 30, 2009

 

$

0.35

 

$

34.1

 

March 2, 2009

 

March 16, 2009

 

March 31, 2009

 

$

0.42

 

$

40.8

 

Total declared for the six months ended June 30, 2009

 

 

 

 

 

$

0.77

 

$

74.9

 

 

 

 

 

 

 

 

 

 

 

May 8, 2008

 

June 16, 2008

 

June 30, 2008

 

$

0.42

 

$

40.8

 

February 28, 2008

 

March 17, 2008

 

March 31, 2008

 

$

0.42

 

$

30.5

 

Total declared for the six months ended June 30, 2008

 

 

 

 

 

$

0.84

 

$

71.3

 

 

During the six months ended June 30, 2009, as part of the Company’s dividend reinvestment plan for our common stockholders, we purchased 1,209,869 shares of our common stock at an average price of $5.94 in the open market in order to satisfy part of the reinvestment portion of our dividends.

 

14.                               FINANCIAL HIGHLIGHTS

 

The following is a schedule of financial highlights for the six months ended June 30, 2009 and 2008:

 

 

 

For the six months ended

 

Per Share Data:

 

June 30, 2009

 

June 30, 2008

 

Net asset value, beginning of period(1)

 

$

11.27

 

$

15.47

 

 

 

 

 

 

 

Issuance of common stock

 

 

(1.19

)

 

 

 

 

 

 

Effect of antidilution

 

 

0.08

 

 

 

 

 

 

 

Net investment income for period(2)

 

0.63

 

0.76

 

 

 

 

 

 

 

Net realized and unrealized gains for period(2)

 

0.09

 

(0.61

)

 

 

 

 

 

 

Net increase in stockholders’ equity

 

0.72

 

0.15

 

 

 

 

 

 

 

Distributions from net investment income

 

(0.65

)

(0.82

)

 

 

 

 

 

 

Distributions from net realized capital gains on securities

 

(0.13

)

(0.02

)

 

 

 

 

 

 

Total distributions to stockholders

 

(0.78

)

(0.84

)

 

 

 

 

 

 

Net asset value at end of period(1)

 

$

11.21

 

$

13.67

 

 

 

 

 

 

 

Per share market value at end of period

 

$

8.06

 

$

10.08

 

Total return based on market value(3)

 

39.65

%

(25.36

)%

Total return based on net asset value(4)

 

6.37

%

0.98

%

Shares outstanding at end of period

 

97,152,820

 

97,152,820

 

Ratio/Supplemental Data:

 

 

 

 

 

Net assets at end of period

 

$

1,088,722

 

$

1,328,548

 

Ratio of operating expenses to average net assets(5)(6)

 

9.77

%

8.75

%

Ratio of net investment income to average net assets(5)(7)

 

11.52

%

10.09

%

Portfolio turnover rate(5)

 

17

%

47

%

 

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(1) The net assets used equals the total stockholders’ equity on the consolidated balance sheets.

 

(2) Weighted average basic per share data.

 

(3) For the six months ended June 30, 2009, the total return based on market value equals the decrease of the ending market value at June 30, 2009 of $8.06 per share over the ending market value at December 31, 2008 of $6.33 per share, plus the declared dividends of $0.77 per share for the six months ended June 30, 2009, divided by the market value at December 31, 2008. For the six months ended June 30, 2008, the total return based on market value equals the decrease of the ending market value at June 30, 2008 of $10.08 per share over the ending market value at December 31, 2007 of $14.63 per share, plus the declared dividends of $0.84 per share for the six months ended June 30, 2008, divided by the market value at December 31, 2007. Total return based on market value is not annualized. The Company’s shares fluctuate in value. The Company’s performance changes over time and currently may be different than that shown. Past performance is no guarantee of future results.

 

(4) For the six months ended June 30, 2009, the total return based on net asset value equals the change in net asset value during the period plus the declared dividends of $0.77 per share for the six months ended June 30, 2009, divided by the beginning net asset value during the period. For the six months ended June 30, 2008, the total return based on net asset value equals the change in net asset value during the period plus the declared dividends of $0.84 per share for the six months ended June 30, 2008, divided by the beginning net asset value during the period. These calculations are adjusted for shares issued in connection with the dividend reinvestment plan and the issuance of common stock in connection with any equity offerings. Total return based on net asset value is not annualized. The Company’s performance changes over time and currently may be different than that shown. Past performance is no guarantee of future results.

 

(5) The ratios reflect an annualized amount.

 

(6) For the six months ended June 30, 2009, the ratio of operating expenses to average net assets consisted of 2.78% of base management fees, 2.87% of incentive management fees, 2.39% of the cost of borrowing and other operating expenses of 1.74%. For the six months ended June 30, 2008, the ratio of operating expenses to average net assets consisted of 2.40% of base management fees, 2.52% of incentive management fees, 2.78% of the cost of borrowing and other operating expenses of 1.05%. These ratios reflect annualized amounts.

 

(7) The ratio of net investment income to average net assets excludes income taxes related to realized gains.

 

15.                        SUBSEQUENT EVENTS

 

On July 21, 2009, we entered into an agreement with Wachovia Bank N.A. (“Wachovia”) to establish a new revolving facility (the “CP Funding II Facility”) whereby Wachovia agreed to extend credit to us in an aggregate principal amount not exceeding $200,000 at any one time outstanding.  The CP Funding II Facility is scheduled to expire on July 21, 2012 (plus two one-year extension options, subject to mutual consent) and the interest charged on the CP Funding II Facility is based on LIBOR plus 4.00%.  We are required to pay a commitment fee on any unused portion of the CP Funding II Facility of between 0.50% and 2.50% depending on the usage level and paid a structuring fee of 1.5% of the total facility amount, or $3,000.

 

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Item 2. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations.

 

The information contained in this section should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this quarterly report. In addition, some of the statements in this report constitute forward-looking statements, which relate to future events or the future performance or financial condition of Ares Capital Corporation (the “Company,” “ARCC,” “we,” “us,” or “our”). The forward-looking statements contained in this report involve risks and uncertainties, including statements as to:

 

·                  our future operating results;

 

·                  our business prospects and the prospects of our portfolio companies;

 

·                  the return or impact of investments that we expect to make;

 

·                  the impact of a protracted decline in the liquidity of credit markets on our business;

 

·                  the impact of fluctuations in interest rates on our business;

 

·                  the valuation of our investments in portfolio companies, particularly those having no liquid trading market;

 

·                  our ability to recover unrealized losses;

 

·                  our ability to access alternative debt markets and additional capital;

 

·                  our contractual arrangements and relationships with third parties;

 

·                  the dependence of our future success on the general economy and its impact on the industries in which we invest;

 

·                  the ability of our portfolio companies to achieve their objectives;

 

·                  our expected financings and investments;

 

·                  the adequacy of our cash resources and working capital;

 

·                  the timing, form and amount of any dividend distributions;

 

·                  the timing of cash flows, if any, from the operations of our portfolio companies; and

 

·                  the ability of our investment adviser to locate suitable investments for us and to monitor and administer our investments.

 

We use words such as “anticipates,” “believes,” “expects,” “intends,” “will,” “should,” “may” and similar expressions to identify forward-looking statements. Our actual results could differ materially from those projected in the forward-looking statements for any reason, including the risk factors included in our annual report on Form 10-K for the fiscal year ended December 31, 2008.

 

We have based the forward-looking statements included in this report on information available to us on the date of this report, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we have filed or in the future may file with the SEC, including annual reports on Form 10-K, registration statements on Form N-2, quarterly reports on Form 10-Q and current reports on Form 8-K.

 

OVERVIEW

 

We are a specialty finance company that is a closed-end, non-diversified management investment company incorporated in Maryland. We have elected to be regulated as a business development company (a “BDC”) under the Investment Company Act of 1940 (the “Investment Company Act”). We were founded on April 16, 2004 and were initially funded on June 23, 2004 and on October 8, 2004 completed our initial public offering (the “IPO”).

 

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 loans and mezzanine debt, which in some cases includes an equity component like warrants. To a lesser extent we make equity investments.

 

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We are externally managed by Ares Capital Management LLC (the “Investment Adviser” or the “investment adviser”), an affiliate of Ares Management LLC, an independent international investment management firm, pursuant to an investment advisory and management agreement (the “Advisory Agreement”). Ares Operations LLC (“Ares Administration”), an affiliate of Ares Management LLC, provides the administrative services necessary for us to operate.

 

As a BDC, we are required to comply with certain regulatory requirements. For instance, we generally have to invest at least 70% of our total assets in “qualifying assets,” including securities and indebtedness of private U.S. companies, cash, cash equivalents, U.S. government securities and high-quality debt investments that mature in one year or less.

 

The Company has elected to be treated as a regulated investment company, or a RIC, under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”) and operates in a manner so as to qualify for the tax treatment applicable to RICs. To qualify as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements and timely distribute to our stockholders at least 90% of our investment company taxable income, as defined by the Code, for each year. Pursuant to this election, we generally will not have to pay corporate level taxes on any income that we distribute to our stockholders.

 

PORTFOLIO AND INVESTMENT ACTIVITY

(in millions, except number of new investment commitments, terms and percentages)

 

 

 

Three months ended

 

 

 

June 30, 2009

 

June 30, 2008

 

New investment commitments (1):

 

 

 

 

 

New portfolio companies

 

$

8.6

 

$

243.2

 

Existing portfolio companies

 

34.5

 

99.1

 

Total new investment commitments

 

43.1

 

342.3

 

Less:

 

 

 

 

 

Investment commitments exited

 

81.4

 

43.4

 

Net investment commitments

 

$

(38.3

$

298.9

 

Principal amount of investments purchased:

 

 

 

 

 

Senior term debt

 

$

63.0

 

$

92.8

 

Senior subordinated debt

 

 

141.0

 

Equity and other

 

6.5

 

18.4

 

Total

 

$

64.5

 

$

252.2

 

Principal amount of investments sold or repaid:

 

 

 

 

 

Senior term debt

 

$

82.5

 

$

71.2

 

Senior subordinated debt

 

4.0

 

 

Equity and other

 

0.2

 

 

Total

 

$

86.7

 

$

71.2

 

Number of new investment commitments (2)

 

9

 

10

 

Average new investment commitments amount

 

$

4.8

 

$

34.2

 

Weighted average term for new investment commitments (in months)

 

49

 

66

 

Percentage of new investment commitments at floating rates

 

74

%

47

%

Percentage of new investment commitments at fixed rates

 

12

%

44

%

Weighted average yield of debt and income producing securities at fair value funded during the period (3)

 

8.65

%

13.07

%

Weighted average yield of debt and income producing securities at amortized cost funded during the period (3)

 

8.89

%

13.07

%

Weighted average yield of debt and income producing securities at fair value sold or repaid during the period (3)

 

7.85

%

9.11

%

Weighted average yield of debt and income producing securities at amortized cost sold or repaid during the period (3)

 

7.76

%

9.11

%

 


(1)          New investment commitments includes new agreements to fund revolving credit facilities or delayed draw loans.

 

(2)          Number of new investments represents each commitment to a particular portfolio company.

 

(3)          When we refer to the “weighted average yield at fair value” in this report, we compute it with respect to particular securities by taking the (a) annual stated interest rate or yield earned plus the net annual amortization of original issue discount and market discount earned on accruing debt included in such securities, and dividing it by (b) total debt and income producing securities at fair value included in such securities. When we refer to the “weighted average yield at amortized cost” in this report, we compute it with respect to particular securities by taking the (a) annual stated interest rate or yield earned plus the net annual amortization

 

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of original issue discount and market discount earned on accruing debt included in such securities, and dividing it by (b) total debt and income producing securities at amortized cost included in such securities.

 

The investment adviser employs an investment rating system to categorize our investments. In addition to various risk management and monitoring tools, the investment adviser grades the credit status of all investments on a scale of 1 to 4 no less frequently than quarterly. This system is intended to reflect the performance of the portfolio company’s business, the collateral coverage of the investment and other relevant factors. Under this system, investments with a grade of 4 involve the least amount of risk in our portfolio. This portfolio company is performing above expectations and the trends and risk factors are generally favorable, including a potential exit. Investments graded 3 involve a level of risk that is similar to the risk at the time of origination. This portfolio company is performing as expected and the risk factors are neutral to favorable. All new investments are initially assessed a grade of 3. Investments graded 2 involve a portfolio company performing below expectations and indicates that the investment’s risk has increased materially since origination. This portfolio company may be out of compliance with debt covenants, however, payments are generally not more than 120 days past due. For investments graded 2, our investment adviser increases procedures to monitor the portfolio company and will write down the fair value of the investment if it is deemed to be impaired. An investment grade of 1 indicates that the portfolio company is performing materially below expectations and that the investment risk has substantially increased since origination. Most or all of the debt covenants are out of compliance and payments are substantially delinquent. Investments graded 1 are not anticipated to be repaid in full. Our investment adviser employs half-point increments to reflect underlying trends in portfolio company operating or financial performance, as well as the general outlook. As of June 30, 2009, the weighted average investment grade of the investments in our portfolio was 2.9 with 6.2% of total investments at amortized cost (or 2.1% at fair value) on non-accrual status. The weighted average investment grade of the investments in our portfolio as of December 31, 2008 was 2.9. The distribution of the grades of our portfolio companies as of June 30, 2009 and December 31, 2008 is as follows (dollar amounts in thousands):

 

 

 

June 30, 2009

 

December 31, 2008

 

 

 

Fair Value

 

Number of
Companies

 

Fair Value

 

Number of
Companies

 

Grade 1

 

$

41,525

 

9

 

$

48,192

 

8

 

Grade 2

 

162,259

 

9

 

180,527

 

9

 

Grade 3

 

1,648,063

 

70

 

 1,632,136

 

68

 

Grade 4

 

110,624

 

6

 

112,122

 

6

 

 

 

$

1,962,471

 

94

 

$

1,972,977 

 

91

 

 

The weighted average yields of the following portions of our portfolio as of June 30, 2009 and December 31, 2008 were as follows:

 

 

 

June 30, 2009

 

December 31, 2008

 

 

 

Fair
Value

 

Amortized
Cost

 

Fair
Value

 

Amortized
Cost

 

Debt and income producing securities

 

12.60

%

11.68

%

12.79

%

11.73

%

Total portfolio

 

10.99

%

9.49

%

11.24

%

9.78

%

Senior term debt

 

11.62

%

10.82

%

12.01

%

10.85

%

Senior subordinated debt

 

14.71

%

13.45

%

14.78

%

13.69

%

Income producing equity securities

 

10.29

%

10.84

%

8.42

%

9.30

%

First lien senior term debt

 

10.10

%

9.61

%

10.80

%

9.99

%

Second lien senior term debt

 

13.84

%

12.51

%

13.75

%

12.04

%

 

RESULTS OF OPERATIONS

 

For the three and six months ended June 30, 2009 and 2008

 

Operating results for the three and six ended June 30, 2009 and 2008 are as follows (in thousands):

 

 

 

For the three months ended

 

For the six months ended

 

 

 

June 30, 2009

 

June 30, 2008

 

June 30, 2009

 

June 30, 2008

 

Total investment income

 

$

59,111

 

$

63,464

 

$

115,127

 

$

115,671

 

Total expenses

 

27,085

 

27,265

 

52,870

 

53,821

 

Net investment income before income taxes

 

32,026

 

36,199

 

62,257

 

61,850

 

Income tax expense (benefit), including excise tax

 

78

 

138

 

109

 

(184

)

Net investment income

 

31,948

 

36,061

 

62,148

 

62,034

 

Net realized gains (losses)

 

(741

)

17

 

23,967

 

216

 

Net unrealized gains (losses)

 

3,546

 

(32,806

)

(16,328

)

(49,812

)

Net increase in stockholders’ equity resulting from operations

 

$

34,753

 

$

3,272

 

$

69,787

 

$

12,438

 

 

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Net income can vary substantially from period to period for various factors, including the recognition of realized gains and losses and unrealized appreciation and depreciation.  As a result, quarterly comparisons of net income may not be meaningful.

 

Investment Income

 

For the three months ended June 30, 2009, total investment income decreased $4.4 million, or 7%, over the three months ended June 30, 2008.  For the three months ended June 30, 2009, total investment income consisted of $54.0 million in interest income from investments, $0.6 million in capital structuring service fees, $0.7 million in dividend income, $1.8 million in other income and $1.9 million in management fees. Interest income from investments increased $4.3 million, or 9%, to $54.0 million for the three months ended June 30, 2009 from $49.7 million for the comparable period in 2008. The increase in interest income from investments was primarily due to the increase in the size of the portfolio as well as increases in the weighted average yield on the portfolio. The average investments, at amortized cost, for the quarter increased from $2.1 billion for the three months ended June 30, 2008 to $2.3 billion for the comparable period in 2009. Capital structuring service fees decreased $10.7 million, or 95%, to $0.6 million for the three months ended June 30, 2009 from $11.3 million for the comparable period in 2008. The decrease in capital structuring service fees was primarily due to the significant decrease in new investment commitments for the three months ended June 30, 2009 as compared to the three months ended June 30, 2008.

 

For the six months ended June 30, 2009, total investment income decreased $0.5 million, or 1%, over the six months ended June 30, 2008.  For the six months ended June 30, 2009, total investment income consisted of $106.3 million in interest income from investments, $1.8 million in capital structuring service fees, $1.2 million in dividend income, $3.0 million in other income and $2.6 million in management fees. Interest income from investments increased $10.7 million, or 11%, to $106.3 million for the six months ended June 30, 2009 from $95.6 million for the comparable period in 2008. The increase in interest income from investments was primarily due to the increase in the size of the portfolio. The average investments, at amortized cost, for the period increased from $2.0 billion for the six months ended June 30, 2008 to $2.3 billion for the comparable period in 2009. Capital structuring service fees decreased $13.4 million, or 88%, to $1.8 million for the six months ended June 30, 2009 from $15.2 million for the comparable period in 2008. The decrease in capital structuring service fees was primarily due to the decrease in new investment commitments for the six months ended June 30, 2009 as compared to the six months ended June 30, 2008.

 

Operating Expenses

 

For the three months ended June 30, 2009, total expenses decreased $0.2 million, or 1%, over the three months ended June 30, 2008. Interest expense and credit facility fees decreased $0.9 million, or 12%, to $6.3 million for the three months ended June 30, 2009 from $7.2 million for the comparable period in 2008, primarily due to the lower average cost of debt. The average cost of debt for the three months ended June 30, 2009 was 2.91% compared to the average cost of debt of 3.59% for the comparable period in 2008 due to the significant decrease in LIBOR over the period. There were $880.2 million in average outstanding borrowings during the three months ended June 30, 2009 compared to average outstanding borrowings of $745.9 million in the comparable period in 2008. Incentive fees related to pre-incentive fee net investment income decreased $1.0 million, or 11%, to $8.0 million for the three months ended June 30, 2009 from $9.0 million for the comparable period in 2008, due to the decline in net investment income.

 

For the six months ended June 30, 2009, total expenses decreased $1.0 million, or 2%, over the six months ended June 30, 2008. Interest expense and credit facility fees decreased $4.2 million, or 25%, to $12.9 million for the six months ended June 30, 2009 from $17.1 million for the comparable period in 2008, primarily due to the lower average cost of debt. The average cost of debt for the six months ended June 30, 2009 was 2.94% compared to the average cost of debt of 4.35% for the comparable period in 2008 due to the significant decrease in LIBOR over the period. There were $882.7 million in average outstanding borrowings during the six months ended June 30, 2009 compared to average outstanding borrowings of $749.4 million in the comparable period in 2008. The decrease in total expenses was partially offset by the increase in administrative expense, which increased $1.2 million, or 133%, to $2.1 million for the six months ended June 30, 2009 from $0.9 million for the comparable period in 2008.  This increase was primarily due to the expenses incurred by IHAM pursuant to the separate services agreement between Ares Capital Management LLC.  There was no such agreement in place in 2008.  Additionally, professional fees increased $0.8 million, or 29%, to $3.7 million for the six months ended June 30, 2009 from $2.9 million for the comparable period in 2008.  This increase was primarily due to a rise in legal and valuation costs.

 

Income Tax Expense, Including Excise Tax

 

The Company has elected to be treated as a RIC under Subchapter M of the Code and operates in a manner so as to qualify

 

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for the tax treatment applicable to RICs. Among other things, the Company has, in order to maintain its RIC status, made and intends to continue to make the requisite distributions to its stockholders which will generally relieve the Company from U.S. federal income taxes.

 

Depending on the level of taxable income earned in a tax year, we may choose to carry forward taxable income in excess of current year dividend distributions into the next tax year and pay a 4% 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 dividend distributions, the Company accrues excise tax, if any, on estimated excess taxable income as taxable income is earned. For the three months ended June 30, 2009, the Company recorded no amounts for U.S. Federal excise tax. For the six months ended June 30, 2009, the Company recognized $0.1 million of benefits for U.S. Federal excise tax. For the three months ended June 30, 2008, the Company recorded a $0.1 million provision for U.S. Federal excise tax. For the six months ended June 30, 2008, the Company recorded a benefit of $0.3 million for U.S. Federal excise tax.

 

Certain of our wholly owned subsidiaries are subject to U.S. federal and state income taxes. For the three and six months ended June 30, 2009, we recorded tax provisions of approximately $0.1 million for these subsidiaries. For the three and six months ended June 30, 2008, we recorded tax provisions of approximately $0.1 million for these subsidiaries.

 

Net Unrealized Gains/Losses

 

For the three months ended June 30, 2009, the Company had net unrealized gains of $3.5 million, which was primarily comprised of $37.4 million in unrealized depreciation, $40.9 million in unrealized appreciation. The most significant changes in net unrealized appreciation and depreciation during the three months ended June 30, 2009 were as follows (in millions):

 

 

 

For the three months
ended June 30, 2009

 

Portfolio Company

 

Unrealized
Appreciation
(Depreciation)

 

Ivy Hill Asset Management, LP (1)

 

$

8.0

 

Waste Pro USA, Inc.

 

3.1

 

DSI Renal, Inc.

 

2.9

 

Apple & Eve, LLC

 

2.7

 

Capella Healthcare, Inc.

 

2.6

 

Best Brands Corp.

 

2.5

 

ADF Restaurant Group, LLC

 

2.1

 

Booz Allen & Hamilton, Inc.

 

1.8

 

Savers, Inc.

 

1.7

 

Wyle Laboratories, Inc.

 

1.4

 

Encanto Restaurants, Inc.

 

1.2

 

Wear Me Apparel, LLC

 

1.2

 

Carador PLC

 

(1.1

)

MPBP Holdings, Inc.

 

(1.3

)

Wastequip, Inc.

 

(1.3

)

Vistar Corporation

 

(1.5

)

DirectBuy Investors, LP

 

(1.5

)

Courtside Acquisition Corp.

 

(1.7

)

Vantage Oncology, Inc

 

(1.8

)

Sigma International Group, Inc.

 

(1.8

)

Reflexite Corporation

 

(2.5

)

National Print Group, Inc.

 

(2.8

)

Summit Business Media, LLC

 

(3.0

)

LVCG Holdings LLC

 

(3.7

)

Firstlight Financial Corporation

 

(10.9

)

Other

 

7.2

 

Total

 

$

3.5

 

 


(1)          See Note 10 to the consolidated financial statements.

 

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Table of Contents

 

For the three months ended June 30, 2008, the Company had net unrealized losses of $32.8 million, which primarily consisted of $48.8 million of unrealized depreciation from investments less $16.4 million of unrealized appreciation from investments. The most significant changes in net unrealized appreciation and depreciation during the three months ended June 30, 2008 were as follows (in millions):

 

 

 

For the three months ended
June 30, 2008

 

Portfolio Company

 

Unrealized
Appreciation
(Depreciation)

 

Prommis Solutions, LLC

 

$

2.5

 

LVCG Holdings LLC

 

1.9

 

Daily Candy, Inc.

 

1.9

 

Instituto de Banca y Commercio, Inc.

 

1.5

 

Pillar Holdings LLC

 

1.5

 

Savers, Inc.

 

1.3

 

Diversified Collection Services, Inc.

 

1.2

 

Industrial Container Services, LLC

 

0.9

 

Wastequip, Inc.

 

(1.3

)

HB&G Building Products, Inc.

 

(1.4

)

Ivy Hill Middle Market Credit Fund, Ltd.

 

(1.6

)

MPBP Holdings, Inc.

 

(1.6

)

Wear Me Apparel, LLC

 

(4.4

)

Firstlight Financial Corporation

 

(5.0

)

Making Memories, Inc.

 

(7.3

)

Reflexite Corporation

 

(10.0

)

Courtside Acquisition Corp.

 

(13.8

)

Other

 

0.9

 

Total

 

$

(32.8

)

 

For the six months ended June 30, 2009, the Company had net unrealized losses of $16.3 million, which was primarily comprised of $71.3 million in unrealized depreciation and $53.6 million in unrealized appreciation and $1.4 million relating to the reversal of prior period net unrealized depreciation. The most significant changes in net unrealized appreciation and depreciation during the six months ended June 30, 2009 were as follows (in millions):

 

 

 

For the six months ended
June 30, 2009

 

Portfolio Company

 

Unrealized
Appreciation
(Depreciation)

 

Apple & Eve, LLC

 

$

8.2

 

Ivy Hill Asset Management, LP (1)

 

8.0

 

Best Brands Corp.

 

6.3

 

Capella Healthcare, Inc.

 

4.3

 

Waste Pro USA, Inc.

 

3.2

 

Booz Allen Hamilton, Inc.

 

3.0

 

DSI Renal, Inc.

 

2.2

 

Prommis Solutions, LLC

 

2.1

 

ADF Restaurant Group

 

2.1

 

Magnacare Holdings, Inc.

 

1.4

 

Wyle Laboratories, Inc.

 

1.4

 

Diversified Collections Services, Inc.

 

1.3

 

Encanto Restaurants, Inc.

 

1.2

 

Wear Me Apparel, LLC

 

1.2

 

OTG Management, Inc.

 

(1.1

)

MPBP Holdings, Inc.

 

(1.3

)

Vistar Corporation

 

(1.5

)

Sigma International Group, Inc.

 

(1.8

)

Things Remembered, Inc.

 

(1.8

)

HB&G Building Products

 

(1.8

)

Carador PLC

 

(2.6

)

Wastequip, Inc.

 

(2.7

)

AWTP, LLC

 

(2.7

)

VOTC Acquisition Corp.

 

(2.8

)

Growing Family, Inc.

 

(3.4

)

Courtside Acquisition Corp.

 

(3.4

)

Summit Business Media, LLC

 

(4.0

)

Direct Buy Holdings, Inc.

 

(4.1

)

National Print Group, Inc.

 

(4.3

)

LVCG Holdings LLC

 

(4.5

)

Reflexite Corporation

 

(10.6

)

Firstlight Financial Corporation

 

(11.0

)

Other

 

1.8

 

Total

 

$

(17.7

)

 

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Table of Contents

 


(1)                                  See Note 10 to the consolidated financial statements.

 

For the six months ended June 30, 2008, the Company had net unrealized losses of $49.8 million, which primarily consisted of $78.9 million of unrealized depreciation from investments less $29.4 million of unrealized appreciation from investments. The most significant changes in net unrealized appreciation and depreciation during the three months ended June 30, 2008 were as follows (in millions):

 

 

 

For the six months ended
June 30, 2008

 

Portfolio Company

 

Unrealized
Appreciation
(Depreciation)

 

Equinox EIC Partners, LLC

 

$

5.0

 

Prommis Solutions, LLC

 

2.5

 

LVCG Holdings LLC

 

1.9

 

Daily Candy, Inc.

 

1.9

 

Instituto de Banca y Commercio, Inc.

 

1.5

 

Pillar Holdings LLC

 

1.5

 

Savers, Inc.

 

1.3

 

Industrial Container Services, LLC

 

1.3

 

Diversified Collection Services, Inc.

 

1.2

 

Summit Business Media, LLC

 

(1.0

)

National Print Group, Inc.

 

(1.0

)

PRA International, Inc.

 

(1.4

)

Abingdon Investment Limited, Ltd.

 

(1.4

)

Ivy Hill Middle Market Credit Fund, Ltd.

 

(1.6

)

Wastequip, Inc.

 

(2.0

)

HB&G Building Products, Inc.

 

(2.0

)

Apple & Eve, Inc.

 

(2.3

)

Growing Family Inc.

 

(2.5

)

CT Technologies Holding, LLC

 

(2.5

)

Reflexite Corporation

 

(2.7

)

Primis Marketing Group, Inc.

 

(3.5

)

Wear Me Apparel, LLC

 

(4.4

)

Firstlight Financial Corporation

 

(5.0

)

MPBP Holdings, Inc.

 

(7.3

)

Making Memories, Inc.

 

(8.2

)

Courtside Acquisition Corp.

 

(17.1

)

Other

 

(2.0

)

Total

 

$

(49.8

)

 

Net Realized Gains/Losses

 

During the three months ended June 30, 2009, the Company had $85.8 million of sales and repayments resulting in $0.9 million of net realized losses. These sales and repayments included $4.0 million of loans sold to the Ivy Hill Funds, the two middle market credit funds managed by our affiliate, Ivy Hill Asset Management L.P. (“IHAM,” see Note 10 to the consolidated financial

 

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statements for more detail on IHAM and the Ivy Hill Funds). Net realized losses on investments were comprised of $0.1 million of gross realized gains and $1.0 of gross realized losses. The most significant realized gains and losses on investments for the three months ended June 30, 2009 were as follows (in millions):

 

Portfolio Company

 

Realized
Gain (Loss)

 

Diversified Collection Services, Inc.

 

$

0.1

 

Instituto de Banca y Commercio, Inc.

 

(0.9

)

Other

 

(0.1

)

Total

 

$

(0.9

)

 

During the three months ended June 30, 2008, the Company had $71.2 million of sales and repayments resulting in no significant net realized gains.

 

During the six months ended June 30, 2009, the Company repurchased $34.8 million of the CLO Notes (as defined below) resulting in a $26.5 million realized gain on the extinguishment of debt. The Company also had $163.2 million of sales and repayments resulting in $2.7 million of net realized losses. These sales and repayments included $40.5 million of loans sold to the Ivy Hill Funds. Net realized losses on investments were comprised of $0.2 million of gross realized gains and $2.9 of gross realized losses. The most significant realized gains and losses on investments for the six months ended June 30, 2009 were as follows (in millions):

 

Portfolio Company

 

Realized
Gain (Loss)

 

Diversified Collection Services, Inc.

 

$

0.2

 

Heartland Dental Care, Inc.

 

(0.2

)

Bumble Bee Foods, LLC

 

(0.2

)

Campus Management Corp.

 

(0.5

)

Instituto de Banca y Commercio, Inc.

 

(0.9

)

Capella Healthcare, Inc.

 

(1.0

)

Other

 

(0.1

)

Total

 

$

(2.7

)

 

During the six months ended June 30, 2008, the Company had $226.3 million of sales and repayments resulting in $0.2 million of net realized gains.

 

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

 

Since the Company’s inception, the Company’s liquidity and capital resources have been generated primarily from the net proceeds of public offerings of common stock, the Debt Securitization, advances from the CP Funding Facility and Revolving Credit Facility, each as defined below (together, the “Facilities”), as well as cash flows from operations.

 

As of June 30, 2009, the Company had $46.3 million in cash and cash equivalents and $879.3 million in total indebtedness outstanding. Subject to leverage restrictions, the Company had approximately $149.9 million available for additional borrowings under the Facilities as of June 30, 2009.

 

Due to volatility in global markets, the availability of capital and access to capital markets has been limited.  Until constraints on raising new capital ease, we intend to pursue other avenues of liquidity such as adjusting the pace of our investments, becoming more selective in evaluating investment opportunities to ensure appropriate risk-adjusted returns, pursuing asset sales, and/or recycling lower yielding investments. As the global liquidity situation evolves, we will continue to monitor and adjust our funding approach accordingly.  However, given the unprecedented nature of the volatility in the global markets, there can be no assurances that these activities will be successful. Moreover, if current levels of market disruption and volatility continue or worsen, we could face materially higher financing costs.  Consequently, our operating strategy could be materially and adversely affected. The illiquidity of our investments may make it difficult for us to sell such investments if required. As a result, we may realize significantly less than the value at which we have recorded our investments. A failure to enter into definitive documentation on the Revolving Facility (as defined below) could have a material adverse impact on our business, financial condition and results of operations.

 

Equity Offerings

 

There were no sales of equity securities during the six months ended June 30, 2009.

 

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The following table summarizes the total shares issued and proceeds we received net of underwriter, dealer manager and offering costs for the six months ended June 30, 2008 (in millions, except per share data):

 

 

 

Shares issued

 

Offering price
per share

 

Proceeds net of
dealer
manager and
offering costs

 

April 2008 public offering

 

24.2

 

$

11.00

 

$

260.0

 

Total for the six months ended June 30, 2008

 

24.2

 

 

 

$

260.0

 

 

Debt Capital Activities

 

Our debt obligations consisted of the following as of June 30, 2009 and December 31, 2008 (in millions):

 

 

 

June 30, 2009

 

December 31, 2008

 

 

 

Outstanding

 

Total Available(1)

 

Outstanding

 

Total Available(1)

 

 

 

 

 

 

 

 

 

 

 

Revolving Credit Facility

 

$

375.1

 

$

525.0

 

$

480.5

 

$

510.0

 

CP Funding Facility

 

225.0

 

225.0

 

114.3

 

350.0

 

Debt Securitization

 

279.2

 

279.2

 

314.0

 

314.0

 

 

 

$

879.3

 

$

1,029.2

 

$

908.8

 

$

1,174.0

 

 


(1)          Subject to borrowing base and leverage restrictions.

 

The weighted average interest rate and weighted average maturity of all our outstanding borrowings as of June 30, 2009 were 1.98% and 4.7 years, respectively. The weighted average interest rate and weighted average maturity of all our outstanding borrowings as of December 31, 2008 were 3.03% and 4.9 years, respectively.

 

The ratio of total debt outstanding to stockholders’ equity as of June 30, 2009 was 0.81:1.00 compared to 0.83:1.00 as of December 31, 2008.

 

In December 2005, we entered into a senior secured revolving credit facility, referred to as the “Revolving Credit Facility,” under which, as amended, the lenders have agreed to extend credit to the Company in an aggregate principal amount not exceeding $525.0 million at any one time outstanding. As of June 30, 2009, there was $375.1 million outstanding under the Revolving Credit Facility (see Note 7 to the consolidated financial statements for more detail on the Revolving Credit Facility arrangement). The Revolving Credit Facility also includes an “accordion” feature that allows us to increase the size of the Revolving Credit Facility to a maximum of $765.0 million under certain circumstances.

 

In October 2004, we formed Ares Capital CP Funding LLC (“Ares Capital CP”), a wholly owned subsidiary of the Company, through which we established a revolving facility, referred to as the “CP Funding Facility,” that, as amended, allows Ares Capital CP to issue up to $350.0 million of variable funding certificates. On May 7, 2009, as part of the amendment to the CP Funding Facility we reduced the total availability of the CP Funding Facility to $225.0 million, of which the entire amount was outstanding as of June 30, 2009 (see Notes 7 and 15 to the consolidated financial statements for more detail on the CP Funding Facility arrangement).

 

In July 2006, through our wholly owned subsidiary, ARCC CLO 2006 LLC, we completed a $400.0 million debt securitization, referred to as the “Debt Securitization.” As part of the Debt Securitization, $314.0 million principal amount of asset-backed notes (including $50 million of revolving notes, all of which had been drawn as of June 30, 2009) (the “CLO Notes”) were issued to third parties and secured by a pool of middle market loans that had been purchased or originated by the Company. As of June 30, 2009, we also owned approximately $120.8 million aggregate principal amount of certain AA, A, BBB and non-rated securities that we retained in the Debt Securitization or purchased in the open market.  As of June 30, 2009, there was $279.2 million aggregate principal amount of CLO Notes outstanding.  The CLO Notes mature on December 20, 2019.

 

The CP Funding Facility was initially scheduled to expire on July 21, 2009. On May 7, 2009, as part of the amendment to the CP Funding Facility, we extended the maturity of the CP Funding Facility to May 7, 2012. The Revolving Credit Facility expires on December 28, 2010.  Our ability to execute on our business plan relies to a certain extent on our ability to refinance/renew these facilities.  However, there can be no assurance that we will be able to renew or refinance these facilities on acceptable terms or at all.

 

As of June 30, 2009, we had a long-term issuer rating of Ba1 from Moody’s Investor Service and a long-term counterparty credit rating from Standard & Poor’s Ratings Service of BBB.

 

Portfolio Valuation

 

Investments for which market quotations are readily available are typically valued at such market quotations. In order to

 

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validate market quotations, we look at a number of factors to determine if the quotations are representative of fair value, including the source and nature of the quotations. Debt and equity securities that are not publicly traded or whose market prices are not readily available (i.e., substantially all of our investments) are valued at fair value as determined in good faith by our board of directors, based on the input of our management and audit committee and independent valuation firms that have been engaged at the direction of the board to assist in the valuation of each portfolio investment without a readily available market quotation at least once during a trailing 12 month period and under a valuation policy and a consistently applied valuation process. The valuation process is conducted at the end of each fiscal quarter, with approximately 50% (based on value) of our valuations of portfolio companies without readily available market quotations subject to review by an independent valuation firm.

 

As part of the valuation process, we may take into account the following types of factors, if relevant, in determining the fair value of our investments: the enterprise value of a portfolio company (an estimate of the total fair value of the portfolio company’s debt and equity), the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings and discounted cash flow, the markets in which the portfolio company does business, a comparison of the portfolio company’s securities to publicly traded securities, changes in the interest rate environment and the credit markets generally that may affect the price at which similar investments may be made in the future and other relevant factors. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, we use the pricing indicated by the external event to corroborate our valuation.

 

Because there is not a readily available market value for most of the investments in our portfolio, we value substantially all of our portfolio investments at fair value as determined in good faith by our board of directors, based on the input of our management and audit committee and independent valuation firms under a valuation policy and a consistently applied valuation process. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may 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 may realize significantly less than the value at which we have recorded it.

 

In addition, changes in the market environment, such as inflation, and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the valuations currently assigned. See the risk factors included in our annual report on Form 10-K for the fiscal year ended December 31, 2008, including the Risk Factor entitled “Risk Factors—Risks Relating to our Investments—Price declines and illiquidity in the corporate debt markets have adversely affected, and may continue to adversely affect, the fair value of our portfolio investments, reducing our net asset value through increased net unrealized depreciation.”

 

With respect to investments for which market quotations are not readily available, our board of directors undertakes a multi-step valuation process each quarter, as described below:

 

·                  Our quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals responsible for the portfolio investment in conjunction with our portfolio management team.

 

·                  Preliminary valuation conclusions are then documented and discussed by our management.

 

·                  The audit committee of our board of directors reviews these preliminary valuations, as well as the input of independent valuation firms with respect to the valuations of approximately 50% (based on value) of our portfolio companies without readily available market quotations.

 

·                  The board of directors discusses valuations and determines the fair value of each investment in our portfolio without a readily available market quotation in good faith based on the input of our management and audit committee and independent valuation firms.

 

Effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”), which expands the application of fair value accounting for investments (see Note 8 to the consolidated financial statements).

 

OFF BALANCE SHEET ARRANGEMENTS

 

As of June 30, 2009 and December 31, 2008, the Company had the following commitments to fund various revolving senior secured and subordinated loans (in millions):

 

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June 30, 2009

 

December 31, 2008

 

Total revolving commitments

 

$

287.2

 

$

419.0

 

Less: funded commitments

 

(89.0

)

(139.6

)

Total unfunded commitments

 

198.2

 

279.4

 

Less: commitments substantially at discretion of the Company

 

(16.0

)

(32.4

)

Less: unavailable commitments due to borrowing base or other covenant restriction

 

(60.1

)

(64.5

)

Total net adjusted unfunded revolving commitments

 

$

122.1

 

$

182.5

 

 

Of the total commitments as of June 30, 2009, $160.4 million extend beyond the maturity date for our Revolving Credit Facility. Additionally, $109.0 million of the total commitments or $34.0 million of the net adjusted unfunded commitments are scheduled to expire in 2009. Included within the total commitments as of June 30, 2009 are commitments to issue up to $15.6 million in standby letters of credit through a financial intermediary on behalf of certain portfolio companies.

 

Under these arrangements, the Company would be required to make payments to third parties if the portfolio companies were to default on their related payment obligations. As of June 30, 2009, the Company had $10.3 million in standby letters of credit issued and outstanding on behalf of the portfolio companies, of which no amounts were recorded as a liability.  Of these letters of credit, $4.9 million expire on September 30, 2009, $0.3 million expire on January 31, 2010, $0.2 million expire on February 28, 2010, $1.5 million expire on March 31, 2010 and $3.4 million expire on July 31, 2010.  These letters of credit may be extended under substantially similar terms for additional one-year terms at the Company’s option until the Revolving Credit Facility, under which the letters of credit were issued, matures on December 28, 2010.

 

As of June 30, 2009 and December 31, 2008, the Company was subject to subscription agreements to fund equity investments in private equity investment partnerships, substantially all at the discretion of the Company, as follows (in millions):

 

 

 

June 30, 2009

 

December 31, 2008

 

Total private equity commitments

 

$

428.3

 

$

428.3

 

Total unfunded private equity commitments

 

$

421.8

 

$

423.6

 

 

RECENT DEVELOPMENTS

 

As of August 5, 2009, we had made one equity investment of $0.1 million since June 30, 2009. As of August 5, 2009, we exited $12.7 million of investments since June 30, 2009. Of these investments, 21% were senior secured debt and 79% were senior subordinated debt. The weighted average yield at amortized cost on these investments was 15.5%, and 96% of the investments were at a fixed rate.

 

On July 21, 2009, we entered into an agreement with Wachovia Bank N.A. (“Wachovia”) to establish a new revolving facility (the “CP Funding II Facility”) whereby Wachovia has agreed to extend credit to us in an aggregate principal amount not exceeding $200 million at any one time outstanding.  The CP Funding II Facility will expire three years after the closing thereof (plus two one-year options, subject to mutual consent) and the interest charged on the CP Funding II Facility will be based on LIBOR plus 4.00%.  We are required to pay a commitment fee on any unused portion of the CP Funding II Facility of between 0.50% and 2.50% depending on the usage level and we paid a structuring fee of 1.5% of the total facility amount, or $3.0 million.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

We are subject to financial market risks, including changes in interest rates and the valuations of our investment portfolio.

 

Interest Rate Risk

 

Interest rate sensitivity refers to the change in earnings that may result from changes in the level of interest rates. Because we fund a portion of our investments with borrowings, our net investment income is affected by the spread between the rate at which we invest and the rate at which we borrow. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income.

 

As of June 30, 2009, approximately 58% of the investments at fair value in our portfolio were at fixed rates while approximately 29% were at variable rates and 13% were non-interest earning. Additionally, 11% of the investments at fair value or 39% of the investments at fair value with variable rates contain interest rate floor features. The Debt Securitization, the CP Funding Facility and the Revolving Credit Facility all feature variable rates.

 

We regularly measure our exposure to interest rate risk. We assess interest rate risk and manage our interest rate exposure on an ongoing basis by comparing our interest rate sensitive assets to our interest rate sensitive liabilities. Based on that review, we

 

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determine whether or not any hedging transactions are necessary to mitigate exposure to changes in interest rates.

 

In October 2008, we entered into a two-year interest rate swap agreement for a total notional amount of $75 million. Under the interest rate swap agreement, we will pay a fixed interest rate of 2.985% and receive a floating rate based on the prevailing three-month LIBOR. We believe that this agreement will enable us to mitigate interest rate risk and remain match funded.

 

While hedging activities may mitigate our exposure to adverse fluctuations in interest rates, certain hedging transactions that we may enter into in the future, such as interest rate swap agreements, may also limit our ability to participate in the benefits of lower interest rates with respect to our portfolio investments.

 

Based on our June 30, 2009 balance sheet, the following table shows the impact on net income of base rate changes in interest rates assuming no changes in our investment and borrowing structure and reflecting the effect of our interest rate swap agreement described above and in Note 11 of the consolidated financial statements (in millions):

 

Basis Point Change

 

Interest Income

 

Interest Expense

 

Net Income

 

Up 300 basis points

 

$

15.5

 

$

24.1

 

$

(8.6

)

Up 200 basis points

 

$

9.4

 

$

16.1

 

$

(6.7

)

Up 100 basis points

 

$

4.0

 

$

8.0

 

$

(4.0

)

Down 100 basis points

 

$

(2.6

)

$

(3.7

)

$

1.1

 

Down 200 basis points

 

$

(3.8

)

$

(3.7

)

$

(0.1

)

Down 300 basis points

 

$

(4.8

)

$

(3.7

)

$

(1.1

)

 

Based on our December 31, 2008 balance sheet, the following table shows the impact on net income of base rate changes in interest rates assuming no changes in our investment and borrowing structure and reflecting the effect of our interest rate swap agreement described above and in Note 11 of the consolidated financial statements (in millions):

 

Basis Point Change

 

Interest Income

 

Interest Expense

 

Net Income

 

Up 300 basis points

 

$

21.4

 

$

25.0

 

$

(3.6

)

Up 200 basis points

 

$

14.2

 

$

16.7

 

$

(2.5

)

Up 100 basis points

 

$

7.1

 

$

8.3

 

$

(1.2

)

Down 100 basis points

 

$

(6.2

)

$

(8.3

)

$

2.1

 

Down 200 basis points

 

$

(11.2

)

$

(15.1

)

$

3.9

 

Down 300 basis points

 

$

(14.7

)

$

(17.0

)

$

2.3

 

 

Item 4. Controls and Procedures.

 

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our President and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15 of the Securities Exchange Act of 1934). Based on that evaluation, our President and our Chief Financial Officer have concluded that our current disclosure controls and procedures are effective in timely alerting them of material information relating to the Company that is required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934.

 

There have been no changes in our internal control over financial reporting that occurred during the three months ended June 30, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II — OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

We are not subject to any material pending legal proceedings, and no such proceedings are known to be contemplated by governmental authorities.

 

Item 1A. Risk Factors.

 

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008, which could materially affect our business, financial condition and/or operating results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

We did not sell any securities during the period covered in this report that were not registered under the Securities Act of 1933.

 

Issuer Purchases of Equity Securities

 

In June 2009, as a part of the Company’s dividend reinvestment plan for our common stockholders, we purchased 364,990 shares of our common stock for $2.9 million in the open market in order to satisfy the reinvestment portion of our dividends. The following chart outlines repurchases of our common stock during the quarter ended June 30, 2009.

 

Period

 

Total Number
of Shares
Purchased

 

Average
Price Paid
per Share

 

Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs

 

Maximum (or
Approximate Dollar
Value) of Shares that
May Yet Be
Purchased Under the
Plans or Programs

 

April 1, 2009 through April 30, 2009

 

 

 

 

 

May 1, 2009 through May 31, 2009

 

 

 

 

 

June 1, 2009 through June 30, 2009

 

364,990

(1)

$

8.06

 

 

 

Total

 

364,990

 

$

8.06

 

 

 

 


(1)          Pursuant to our dividend reinvestment plan, we directed our plan administrator to purchase 364,990 shares in the open market in order to satisfy our obligations to deliver shares of common stock to our stockholders with respect to our dividend for the second quarter of 2009.

 

Item 3. Defaults Upon Senior Securities.

 

Not applicable.

 

Item 4.  Submission of Matters to a Vote of Security Holders.

 

None.

 

Item 5.  Other Information.

 

None.

 

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Table of Contents

 

Item 6.  Exhibits.

 

EXHIBIT INDEX

 

Number

 

Description

3.1

 

Articles of Amendment and Restatement, as amended(1)

 

 

 

3.2

 

Second Amended and Restated Bylaws(2)

 

 

 

4.1

 

Form of Stock Certificate(3)

 

 

 

10.1

 

Amended and Restated Custodian Agreement between the Registrant and U.S. Bank National Association(4)

 

 

 

10.2

 

Amendment No. 1 to the Purchase and Sale Agreement, dated as of May 7, 2009, by and between Ares Capital CP Funding LLC as buyer and the Registrant as seller(4)

 

 

 

10.3

 

Amendment No. 13 to Sale and Servicing Agreement, dated as of May 7, 2009, by and among Ares Capital CP Funding LLC as borrower, the Registrant as originator and servicer, each of the conduit purchasers and institutional purchasers from time to time party thereto, each of the purchaser agents from time to time party thereto, Wachovia Capital Markets, LLC, as administrative agent and purchaser agent with respect to Variable Funding Capital Company LLC, as conduit purchaser, U.S. Bank National Association, as trustee, and Lyon Financial Services, Inc. (D/B/A U.S. Bank Portfolio Services), as the backup servicer(5)

 

 

 

10.4

 

Amendment No. 1 to the Commercial Loan Sale Agreement, dated as of July 17, 2009, between the Registrant and ARCC CLO 2006 LLC*

 

 

 

10.5

 

Note Purchase Agreement, dated as of July 21, 2009, among Ares Capital Corporation, as servicer and transferor, Ares Capital CP Funding II LLC, as borrower, Ares Capital CP Funding LLC, as guarantor, Wachovia Bank, National Association, as note purchaser and agent, Wells Fargo Bank, National Association, as collateral custodian, and U.S. Bank National Association, as trustee and bank(6)

 

 

 

10.6

 

First Tier Purchase and Sale Agreement, dated as of July 21, 2009, among Ares Capital Corporation, as seller, and Ares Capital CP Funding Holdings II LLC, as purchaser(6)

 

 

 

10.7

 

Second Tier Purchase and Sale Agreement, dated as of July 21, 2009, among Ares Capital CP Funding Holdings II LLC, as seller, and Ares Capital CP Funding II LLC, as purchaser(6)

 

 

 

31.1

 

Certification by President pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

 

 

 

31.2

 

Certification by Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

 

 

 

32.1

 

Certification by President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

 


*

 

Filed herewith

 

 

 

(1)

 

Incorporated by reference to Exhibit (a) to the Registrant’s pre-effective Amendment No. 1 to the Registration Statement under the Securities Act of 1933, as amended, on Form N-2 (File No. 333-149109), filed on March 14, 2008.

 

 

 

(2)

 

Incorporated by reference to Exhibit 3.1 to the Registrant’s Form 8-K (File No. 814-00663), filed on February 27, 2009.

 

 

 

(3)

 

Incorporated by reference to Exhibit (d) to the Registrant’s pre-effective Amendment No. 2 to the Registration Statement under the Securities Act of 1933, as amended, on Form N-2 (File No. 333-114656), filed on September 28, 2004.

 

 

 

(4)

 

Incorporated by reference to Exhibits (j) and (k)(6), as applicable, to the Registrant’s pre-effective Amendment No. 1 to the Registration Statement under the Securities Act of 1933, as amended, on Form N-2 (File No. 333-158211), filed on May 28, 2009.

 

 

 

(5)

 

Incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K (File No. 814-00663), filed on May 11, 2009.

 

 

 

(6)

 

Incorporated by reference to Exhibit 10.1, 10.2 and 10.3, as applicable, to the Registrant’s Form 8-K (File No. 814-00663), filed on July 27, 2009.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

ARES CAPITAL CORPORATION

 

 

 

 

 

 

Dated: August 6, 2009

By

/s/ Michael J. Arougheti

 

 

Michael J. Arougheti

 

 

President

 

 

 

Dated: August 6, 2009

By

/s/ Richard S. Davis

 

 

Richard S. Davis

 

 

Chief Financial Officer

 

60