UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________
 FORM 10-Q
(Mark One)
 
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2018
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from               to
 
Commission file number: 814-00939
________________
HMS Income Fund, Inc.
(Exact Name of Registrant as Specified in its Charter)
Maryland
(State or Other Jurisdiction of Incorporation or Organization)
45-3999996
(I.R.S. Employer Identification No.)
 
 
2800 Post Oak Boulevard, Suite 5000
Houston, Texas
(Address of Principal Executive Offices)
77056-6118
(Zip Code)
 
(888) 220-6121
(Registrant’s telephone number, including area code)

Not applicable
(Former name, former address and formal 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 þ No o
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one):
Large accelerated filer o 
Accelerated filer o 
Non-accelerated filer þ 
Smaller reporting company o
Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The issuer had 79,147,572 shares of common stock outstanding as of November 13, 2018.




TABLE OF CONTENTS
 
PART I — FINANCIAL INFORMATION 
Item 1.
Condensed Consolidated Financial Statements:
 
 
Condensed Consolidated Balance Sheets
 
Condensed Consolidated Statements of Operations
 
Condensed Consolidated Statements of Changes in Net Assets
 
Condensed Consolidated Statements of Cash Flows
 
Condensed Consolidated Schedules of Investments
 
Notes to the Condensed Consolidated Financial Statements
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Item 4.
Controls and Procedures
 
 
 
PART II — OTHER INFORMATION 
 
 
 
Item 1.
Legal Proceedings
Item 1A.
Risk Factors
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.
Defaults Upon Senior Securities
Item 4.
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
 
 
 
Signatures
 
  



PART I — FINANCIAL INFORMATION

Item 1.    Condensed Consolidated Financial Statements

HMS Income Fund, Inc.
Condensed Consolidated Balance Sheets
(dollars in thousands, except share and per share amounts)
 
September 30, 2018
 
December 31, 2017
 
(Unaudited)
 
 
ASSETS
 
 
 
Portfolio investments at fair value:
 
 
 
Non-Control/Non-Affiliate investments (amortized cost: $944,195 and $948,029 as of September 30, 2018 and December 31, 2017, respectively)
$
933,953

 
$
922,898

Affiliate investments (amortized cost: $131,355 and $71,708 as of September 30, 2018 and December 31, 2017, respectively)
140,798

 
76,862

Control investments (amortized cost: $45,493 and $44,592 as of September 30, 2018 and December 31, 2017, respectively)
55,571

 
49,679

Total portfolio investments (amortized cost: $1,121,043 and $1,064,329 as of September 30, 2018 and December 31, 2017, respectively)
1,130,322

 
1,049,439

 
 
 
 
Cash and cash equivalents
23,728

 
45,791

Interest receivable
9,204

 
8,638

Receivable for securities sold
17,347

 
4,959

Prepaid and other assets
3,647

 
4,072

Deferred financing costs (net of accumulated amortization of $1,309 and $309 as of September 30, 2018 and December 31, 2017, respectively)
5,169

 
6,163

Total assets
$
1,189,417

 
$
1,119,062

 
 
 
 
LIABILITIES
 

 
 

Accounts payable and other liabilities
$
1,329

 
$
1,459

Stockholder distributions payable
4,527

 
4,772

Base management fees payable
5,904

 
5,682

Due to affiliates
38

 
59

Directors’ fees payable
27

 
17

Payable for securities purchased
16,857

 
29,284

Credit facilities payable
510,000

 
430,000

Total liabilities
538,682

 
471,273

 
 
 
 
Commitments and Contingencies (Note 12)
 
 
 
 
 
 
 
NET ASSETS
 

 
 

Common stock, $.001 par value; 150,000,000 shares authorized, 78,616,770 and 79,511,731 issued and outstanding as of September 30, 2018 and December 31, 2017, respectively
79

 
80

Additional paid-in capital
678,579

 
685,593

Accumulated distributions in excess of net investment income
(36,653
)
 
(22,660
)
Net unrealized depreciation on investments
8,730

 
(15,224
)
Total net assets
650,735

 
647,789

 
 
 
 
Total liabilities and net assets
$
1,189,417

 
$
1,119,062

 
 
 
 
Net asset value per share
$
8.28

 
$
8.15


See notes to the condensed consolidated financial statements.

1


HMS Income Fund, Inc.
Condensed Consolidated Statements of Operations
(dollars in thousands, except share and per share amounts)
(Unaudited) 
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2018
 
September 30, 2017
 
September 30, 2018
 
September 30, 2017
INVESTMENT INCOME:
 

 
 

 
 

 
 

From non-control/non-affiliate investments:
 
 
 
 
 
 
 
Interest income
$
25,753

 
$
22,752

 
$
71,635

 
$
67,852

Fee income
748

 
145

 
1,669

 
1,682

Dividend income
268

 
188

 
797

 
572

From affiliate investments:
 
 
 
 
 
 
 
Interest income
2,359

 
1,307

 
6,312

 
3,408

Fee income
16

 
53

 
118

 
156

Dividend income
843

 
582

 
1,870

 
1,563

From control investments:
 
 
 
 
 
 
 
Interest income
151

 
164

 
463

 
502

Fee income
17

 
15

 
52

 
56

Dividend income
709

 
125

 
2,057

 
452

Total interest, fee and dividend income
30,864

 
25,331

 
84,973

 
76,243

EXPENSES:
 

 
 

 
 

 
 

Interest expense
6,626

 
5,004

 
17,861

 
13,342

Base management and incentive fees
9,135

 
5,648

 
20,720

 
18,419

Internal administrative services expenses
623

 
694

 
2,044

 
2,228

Offering costs
101

 
881

 
308

 
1,679

Professional fees
124

 
141

 
539

 
465

Insurance
47

 
47

 
143

 
143

Other general and administrative
511

 
509

 
1,447

 
1,128

Expenses before fee and expense waivers
17,167

 
12,924

 
43,062

 
37,404

Waiver of incentive fees
(3,231
)
 
—

 
(3,385
)
 
(2,318
)
Waiver of internal administrative services expenses
(623
)
 
(694
)
 
(2,044
)
 
(2,228
)
Total expenses, net of fee and expense waivers
13,313

 
12,230

 
37,633

 
32,858

Net investment income before taxes
17,551

 
13,101

 
47,340

 
43,385

Income tax expense (benefit), including excise tax
(226
)
 
61

 
(29
)
 
139

NET INVESTMENT INCOME
17,777

 
13,040

 
47,369

 
43,246

NET REALIZED GAIN (LOSS) ON INVESTMENTS
 

 
 

 
 

 
 

Non-Control/Non-Affiliate investments
(8,845
)
 
(227
)
 
(20,668
)
 
2,408

Affiliate investments
(9
)
 
951

 
903

 
951

Control investments
—

 
—

 
—

 
—

Total realized gain (loss) on investments
(8,854
)
 
724

 
(19,765
)
 
3,359

NET REALIZED INCOME
8,923

 
13,764

 
27,604

 
46,605

NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS
 

 
 

 
 

 
 

Non-Control/Non-Affiliate investments
7,391

 
(5,533
)
 
14,707

 
(9,663
)
Affiliate investments
3,378

 
(48
)
 
4,258

 
1,824

Control investments
4,088

 
531

 
4,990

 
674

Total net change in unrealized appreciation (depreciation) on investments
14,857

 
(5,050
)
 
23,955

 
(7,165
)
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
$
23,780

 
$
8,714

 
$
51,559

 
$
39,440

PER SHARE INFORMATION - BASIC AND DILUTED
 
 
 
 
 
 
 
NET INVESTMENT INCOME PER SHARE
$
0.23

 
$
0.16

 
$
0.60

 
$
0.56

NET REALIZED INCOME PER SHARE
$
0.12

 
$
0.18

 
$
0.35

 
$
0.61

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS PER SHARE (EARNINGS PER SHARE)
$
0.30

 
$
0.11

 
$
0.65

 
$
0.51

DISTRIBUTIONS DECLARED PER SHARE
$
0.17

 
$
0.17

 
$
0.52

 
$
0.52

WEIGHTED AVERAGE SHARES OUTSTANDING – BASIC AND DILUTED
78,982,226

 
78,807,225

 
79,383,151

 
76,899,096

See notes to the condensed consolidated financial statements.

2


HMS Income Fund, Inc.
Condensed Consolidated Statements of Changes in Net Assets
(dollars in thousands, except share and per share amounts)
(Unaudited) 
 
 
Nine Months Ended September 30, 2018
 
Nine Months Ended September 30, 2017
Change in Net Assets from Operations:
 
 
 
 
Net investment income
 
$
47,369

 
$
43,246

Net realized gain (loss) on investments
 
(19,765
)
 
3,359

Net change in unrealized appreciation (depreciation) on investments
 
23,955

 
(7,165
)
Net increase in net assets resulting from operations
 
51,559

 
39,440

 
 
 
 
 
Change in Net Assets from Stockholders’ Distributions:
 
 
 
 
Distributions from net investment income
 
(41,596
)
 
(36,911
)
Distributions from net realized gain on investments
 
—

 
(3,359
)
Net decrease in net assets resulting from stockholders’ distributions
 
(41,596
)
 
(40,270
)
 
 
 
 
 
Change in Net Assets from Capital Share Transactions:
 
 
 
 
Issuance of common stock, net of issuance costs
 
—

 
42,366

Reinvestment of stockholder distributions
 
20,550

 
20,594

Repurchase of common stock
 
(27,567
)
 
(14,018
)
Net increase (decrease) in net assets resulting from capital share transactions
 
(7,017
)
 
48,942

 
 
 
 
 
Total Increase in Net Assets
 
2,946

 
48,112

Net Assets at beginning of the period
 
647,789

 
597,833

Net Assets at end of the period
 
$
650,735

 
$
645,945

 
 
 
 
 
NAV per share at end of the period
 
$
8.28

 
$
8.16

 
 
 
 
 
Common shares outstanding, beginning of the period
 
79,511,731

 
73,382,971

Issuance of common shares
 
—

 
5,063,398

Issuance of common shares pursuant to distribution reinvestment plan
 
2,477,245

 
2,466,862

Repurchase of common shares
 
(3,372,206
)
 
(1,708,271
)
Common shares outstanding, end of the period
 
78,616,770

 
79,204,960


See notes to the condensed consolidated financial statements.


3


HMS Income Fund, Inc.
Condensed Consolidated Statements of Cash Flows
(dollars in thousands)
(Unaudited) 
 
Nine Months Ended 
 September 30, 2018
 
Nine Months Ended 
 September 30, 2017
CASH FLOWS FROM OPERATING ACTIVITIES
 

 
 

Net increase in net assets resulting from operations
$
51,559

 
$
39,440

Adjustments to reconcile net increase in net assets resulting from operations to net cash used in operating activities:
 
 
 
Principal repayments received and proceeds from sales of investments in portfolio companies
386,110

 
370,941

Investments in portfolio companies
(476,524
)
 
(470,875
)
Net change in unrealized (appreciation) depreciation on portfolio investments
(23,955
)
 
7,165

Net realized (gain) loss on sale of portfolio investments
19,765

 
(3,359
)
Amortization of deferred financing costs
1,000

 
1,013

Amortization of deferred offering costs
308

 
1,679

Accretion of unearned income
(11,429
)
 
(10,793
)
Net payment-in-kind interest accrual
(977
)
 
(897
)
Changes in other assets and liabilities:
 
 
 

Interest receivable
(566
)
 
(2,448
)
Prepaid and other assets
1,949

 
(390
)
Base management fees payable
222

 
628

Due to affiliates
(21
)
 
(83
)
Directors’ fees payable
10

 
12

Accounts payable and other liabilities
(348
)
 
285

Payable for unsettled trades
—

 
(780
)
Net cash used in operating activities
(52,897
)
 
(68,462
)
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
 

 
 

Proceeds from issuance of common stock
—

 
46,041

Redemption of common stock
(27,567
)
 
(14,018
)
Payment of selling commissions and dealer manager fees
—

 
(3,511
)
Payment of offering costs
(308
)
 
(959
)
Payment of stockholder distributions
(21,291
)
 
(19,465
)
Repayments on credit facilities payable
(279,000
)
 
(339,000
)
Proceeds from credit facilities payable
359,000

 
416,000

Payment of deferred financing costs
—

 
(636
)
Net cash generated from financing activities
30,834

 
84,452

 
 
 
 
Net increase (decrease) in cash and cash equivalents
(22,063
)
 
15,990

 
 
 
 
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD
45,791

 
23,719

 
 
 
 
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD
$
23,728

 
$
39,709

 
See notes to the condensed consolidated financial statements.


4

HMS Income Fund, Inc.
Consolidated Schedule of Investments
As of September 30, 2018
(dollars in thousands)
Portfolio Company (1) (3)
Business Description
Type of Investment (2) (3)
Index Rate (22)
Principal (7)
Cost (7)
Fair Value (26)
 
 
 
 
 
 
 
Control Investments (6)
Copper Trail Energy Fund I, LP (9) (15)
Investment Partnership
LP Interests (Copper Trail Energy Fund I, LP) (Fully diluted 30.1%) (16)
—
$
—

$
3,246

$
3,473

CTMH, LP (9) (15)
Investment Partnership
LP Interests (CTMH, LP) (Fully diluted 38.8%)
—
—

872

872

GRT Rubber Technologies, LLC (10) (13)
Manufacturer of Engineered Rubber Products
LIBOR Plus 9.00% (Floor 1.00%), Current Coupon 11.10%, Secured Debt (Maturity - December 19, 2019) (8)
1 month LIBOR
4,975

4,940

4,975

 
 
Member Units (2,896 units)
—
—

6,435

15,781

 
 
 
 
 
11,375

20,756

HMS-ORIX SLF LLC (9) (15)
Investment Partnership
Membership Interests (Fully diluted 60.00%) (16)
—
—

30,000

30,470

 
 
 
 
 
 
 
Subtotal Control Investments (6) (5% of total investments at fair value)
 
 
$
45,493

$
55,571

Affiliate Investments (4)
AFG Capital Group, LLC (10) (13)
Provider of Rent-to-Own Financing Solutions and Services
Member Units (46 units) (16)
—
$
—

$
300

$
985

 
 
Warrants (10 equivalent units, Expiration - November 7, 2024)
—
—

65

235

 
 
 
 
 
365

1,220

Brewer Crane Holdings, LLC (10) (13)
Provider of Crane Rental and Operating Services
LIBOR Plus 10.00% (Floor 1.00%), Current Coupon 12.10%, Secured Debt (Maturity - January 9, 2023) (8)
1 month LIBOR
2,417

2,376

2,376

 
 
Preferred Member Units (737 units)
—
—

1,070

1,070

 
 
 
 
 
3,446

3,446

Chamberlin HoldCo, LLC (10) (13)
Roofing and waterproofing specialty subcontractor
LIBOR Plus 10.00% (Floor 1.00%), Current Coupon 12.38%, Secured Debt (Maturity - February 23, 2023) (8)
1 month LIBOR
5,400

5,277

5,277

 
 
Member Units (1,087 units)
—
—

2,860

4,448

 
 
 
 
 
8,137

9,725

Charlotte Russe, Inc.
Fast-Fashion Retailer to Young Women
8.50% Secured Debt (Maturity - February 2, 2023)
None
6,253

6,253

5,555

 
 
Common Stock (14,973 shares)
—
—

2,470

2,470

 
 
 
 
 
8,723

8,025

Charps, LLC (10) (13)
Pipeline Maintenance and Construction
12.00% Secured Debt (Maturity - January 31, 2022)
None
3,975

3,901

3,901

 
 
LIBOR Plus 7.00% (Floor 1.00%), Current Coupon 9.10% Secured Debt (Maturity - February 3, 2022) (8)
1 month LIBOR
400

399

399

 
 
Preferred Member Units (400 units)
—
—

100

263

 
 
 
 
 
4,400

4,563

Clad-Rex Steel, LLC (10) (13)
Specialty Manufacturer of Vinyl-Clad Metal
LIBOR Plus 9.50% (Floor 1.00%), Current Coupon 11.60%, Secured Debt (Maturity - December 20, 2021) (8)
1 month LIBOR
3,120

3,075

3,120

 
 
Member Units (179 units) (16)
—
—

1,820

2,595

 
 
10.00% Secured Debt (Clad-Rex Steel RE Investor, LLC) (Maturity - December 19, 2036)
None
292

289

289

 
 
Member Units (Clad-Rex Steel RE Investor, LLC) (200 units)
—
—

53

70

 
 
 
 
 
5,237

6,074

Digital Products Holdings LLC (10) (13)
Designer and Distributor of Consumer Electronics
LIBOR Plus 10.00% (Floor 1.00%), Current Coupon 12.13%, Secured Debt (Maturity - March 31, 2023) (8)
1 month LIBOR
6,517

6,396

6,396

 
 
Preferred Member Units (863 units)
—
—

2,116

2,116

 
 
 
 
 
8,512

8,512

Direct Marketing Solutions, Inc. (10) (13)
Provider of Omni-Channel Direct Marketing Services
LIBOR Plus 11.00% (Floor 1.00%), Current Coupon 13.13%, Secured Debt (Maturity - February 13, 2023) (8)
1 month LIBOR
4,563

4,448

4,457

 
 
Preferred Stock (2,100 shares)
—
—

2,100

2,945

 
 
 
 
 
6,548

7,402

Freeport Financial Funds (9) (15)
Investment Partnership
LP Interests (Freeport First Lien Loan Fund III, LP) (Fully diluted 6.0%) (16)
—
$
—

$
8,558

$
8,383

Gamber-Johnson Holdings, LLC (10) (13)
Manufacturer of Ruggedized Computer Mounting Systems
LIBOR Plus 8.00% (Floor 2.00%), Current Coupon 10.10%, Secured Debt (Maturity - June 24, 2021) (8)
1 month LIBOR
5,631

5,550

5,631

 
 
Member Units (2,155 units) (16)
—
—

3,711

10,030

 
 
 
 
 
9,261

15,661

Guerdon Modular Holdings, Inc. (10) (13)
Multi-Family and Commercial Modular Construction Company
13.00% Secured Debt (Maturity - March 1, 2019)
None
3,147

3,118

2,996

 
 
Common Stock (53,008 shares)
—
—

746

—

 
 
Class B Preferred Stock (101,250 shares)
—
—

285

—

 
 
 
 
 
4,149

2,996

Gulf Publishing Holdings, LLC (10) (13)
Energy Industry Focused Media and Publishing
12.50% Secured Debt (Maturity - April 29, 2021)
None
3,166

3,127

3,127

 
 
LIBOR Plus 9.50% (Floor 1.00%), Current Coupon 11.60%, Secured Debt (Maturity - September 30, 2020) (8)
1 month LIBOR
40

40

40

 
 
Member Units (781 units)
—
—

920

1,142

 
 
 
 
 
4,087

4,309

Harris Preston Fund Investments (9) (15) (16)
Investment Partnership
LP Interests (HPEP 3, LP) (Fully diluted 8.2%)
—
—

1,733

1,733

 
 
LP Interests (2717 MH, LP) (Fully diluted 49.3%)
—
—

1,040

1,133

 
 
 
 
 
2,773

2,866

Hawk Ridge Systems, LLC (9) (10) (13)
Value-Added Reseller of Engineering Design and Manufacturing Solutions
10.50% Secured Debt (Maturity - December 2, 2021)
None
3,575

3,523

3,575

 
 
Preferred Member Units (56 units) (16)
—
—

713

1,752

 
 
Preferred Member Units (HRS Services, ULC) (56 units) (16)
—
—

38

93

 
 
 
 
 
4,274

5,420

HW Temps LLC (10) (13)
Temporary Staffing Solutions
LIBOR Plus 13.00% (Floor 1.00%), Current Coupon 15.10%, Secured Debt (Maturity - July 2, 2020) (8)
1 month LIBOR
2,494

2,465

2,483

 
 
Preferred Member Units (800 units) (16)
—
—

986

986

 
 
 
 
 
3,451

3,469

Market Force Information, Inc. (10) (13)
Provider of Customer Experience Management Services
LIBOR Plus 11.00% (Floor 1.00%), Current Coupon 13.32%, Secured Debt (Maturity - July 28, 2022) (8)
1 month LIBOR
5,700

5,611

5,611

 
 
LIBOR Plus 7.00% (Floor 1.00%), Current Coupon 9.32%, Secured Debt (Maturity - July 28, 2022) (8)
1 month LIBOR
100

100

100

 
 
Member Units (170,000 units)
—
—

3,675

3,563

 
 
 
 
 
9,386

9,274

M.H. Corbin Holding LLC (10) (13)
Manufacturer and Distributor of Traffic Safety Products
10.00% Current / 3.00% PIK Secured Debt (Maturity - August 31, 2020)
None
3,019

2,981

2,982

 
 
Preferred Member Units (1,000 units)
—
—

1,500

1,125

 
 
 
 
 
4,481

4,107

Mystic Logistics Holdings, LLC (10) (13)
Logistics and Distribution Services Provider for Large Volume Mailers
12.00% Secured Debt (Maturity - August 15, 2019)
None
1,884

1,868

1,875

 
 
Common Stock (1,468 shares) (16)
—
—

680

178

 
 
 
 
 
2,548

2,053

NexRev, LLC (10) (13)
Provider of Energy Efficiency Products & Services
10.00% Secured Debt (Maturity - February 28, 2023)
None
4,360

4,272

4,281

 
 
Preferred Member Units (21,600,000 units)
—
—

1,720

1,972

 
 
 
 
 
5,992

6,253

 
 
 
 
 
 
 
NuStep, LLC (10) (13)
Designer, Manufacturer and Distributor of Fitness Equipment
12.00% Secured Debt (Maturity - January 31, 2022)
None
$
5,150

$
5,066

$
5,067

 
 
Preferred Member Units (102 units)
—
—

2,550

2,550

 
 
 
 
 
7,616

7,617

SI East, LLC (10) (13)
Rigid Industrial Packaging Manufacturing
10.25% Secured Debt (Maturity - August 31, 2023)
None
11,750

11,564

11,576

 
 
Preferred Member Units (52 units)
—
—

2,000

2,000

 
 
 
 
 
13,564

13,576

Tedder Acquisition, LLC (10) (13)
Manufacturer of Firearm Holsters and Accessories
12.00% Secured Debt (Maturity - August 31, 2023)
None
4,100

3,978

3,978

 
 
Preferred Member Units (110 units)
—
—

1,869

1,869

 
 
 
 
 
5,847

5,847

 
 
 
 
 
 
 
Subtotal Affiliate Investments (4) (12% of total investments at fair value)
 
 
$
131,355

$
140,798

 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (5)
AAC Holdings Inc. (8)
Substance Abuse Treatment Service Provider
LIBOR Plus 6.75% (Floor 1.00%), Current Coupon 9.09%, Secured Debt (Maturity - June 30, 2023)
3 month LIBOR
$
14,594

$
14,325

$
14,813

Adams Publishing Group, LLC (8) (11)
Local Newspaper Operator
LIBOR Plus 7.50% (Floor 1.00%), Current Coupon 9.84%, Secured Debt (Maturity - July 3, 2023)
3 month LIBOR
8,321

8,145

8,144

 
 
PRIME Plus 4.00% (Floor 1.00%), Current Coupon 9.00%, Secured Debt (Maturity - July 3, 2023)
PRIME
2,950

2,855

2,855

 
 
 
 
 
11,000

10,999

ADS Tactical, Inc. (8) (11)
Value-Added Logistics and Supply Chain Solutions Provider to the Defense Industry
LIBOR Plus 6.25% (Floor 0.75%), Current Coupon 8.49%, Secured Debt (Maturity - July 26, 2023)
1 month LIBOR
16,458

16,308

16,308

Aethon United BR, LP (8) (11)
Oil & Gas Exploration & Production
LIBOR Plus 6.75% (Floor 1.00%), Current Coupon 8.88%, Secured Debt (Maturity - September 8, 2023) (14)
1 month LIBOR
4,062

4,009

4,009

Allen Media, LLC (8) (12)
Operator of Cable Television Networks
LIBOR Plus 6.50% (Floor 1.00%), Current Coupon 8.81%, Secured Debt (Maturity - August 30, 2023)
3 month LIBOR
17,143

16,647

16,693

Allflex Holdings III Inc. (8)
Manufacturer of Livestock Identification Products
LIBOR Plus 7.00% (Floor 1.00%), Current Coupon 9.35%, Secured Debt (Maturity - July 19, 2021) (14)
3 month LIBOR
13,232

13,321

13,311

American Nuts, LLC (8) (11)
Roaster, Mixer and Packager of Bulk Nuts and Seeds
LIBOR Plus 8.00% (Floor 1.00%), Current Coupon 10.34%, Secured Debt (Maturity - April 10, 2023)
3 month LIBOR
11,221

11,011

11,012

 
 
LIBOR Plus 8.00% (Floor 1.00%), Current Coupon 10.34%, Secured Debt (Maturity - October 10, 2018)
3 month LIBOR
422

414

414

 
 
 
 
 
11,425

11,426

American Scaffold Holdings, Inc. (8) (11)
Marine Scaffolding Service Provider
LIBOR Plus 6.50% (Floor 1.00%), Current Coupon 8.89%, Secured Debt (Maturity - March 31, 2022)
3 month LIBOR
6,750

6,682

6,716

American Teleconferencing Services, Ltd. (8)
Provider of Audio Conferencing and Video Collaboration Solutions
LIBOR Plus 6.50% (Floor 1.00%), Current Coupon 8.84%, Secured Debt (Maturity - December 8, 2021)
2 month LIBOR
14,798

14,064

14,327

Apex Linen Service, Inc. (10) (13)
Industrial Launderers
16.00% Secured Debt (Maturity - October 30, 2022)
None
3,604

3,558

3,558

 
 
LIBOR Plus 9.00% (Floor 1.00%), Current Coupon 11.10%, Secured Debt (Maturity - October 30, 2022) (8)
1 month LIBOR
600

600

600

 
 
 
 
 
4,158

4,158

APTIM Corp
Engineering, Construction and Procurement
7.75% Secured Debt (Maturity - June 15, 2025)
None
6,952

6,141

5,979

Arcus Hunting, LLC (8) (11)
Manufacturer of Bowhunting and Archery Products and Accessories
LIBOR Plus 7.00% (Floor 1.00%), Current Coupon 9.34%, Secured Debt (Maturity - November 13, 2019)
1 month LIBOR
8,559

8,512

8,556

Arise Holdings, Inc. (11)
Tech-enabled business process outsourcing
Preferred Stock (1,000,000 shares)
—
—

1,000

1,264

ASC Ortho Management Company, LLC (11)
Provider of Orthopedic Services
LIBOR Plus 7.50% (Floor 1.00%), Current Coupon 9.81%, Secured Debt (Maturity - August 31, 2023) (8)
1 month LIBOR
$
4,660

$
4,553

$
4,568

 
 
13.25% PIK Secured Debt (Maturity - December 1, 2023) (14)
None
1,553

1,514

1,514

 
 
 
 
 
6,067

6,082

ATI Investment Sub, Inc. (8)
Manufacturer of Solar Tracking Systems
LIBOR Plus 7.25% (Floor 1.00%), Current Coupon 9.49%, Secured Debt (Maturity - June 22, 2021)
1 month LIBOR
5,624

5,524

5,556

ATX Networks Corp. (8) (9)
Provider of Radio Frequency Management Equipment
LIBOR Plus 6.00% (Floor 1.00%), Current Coupon 8.39%, Current Coupon plus PIK 9.39%, Secured Debt (Maturity - June 11, 2021)
3 month LIBOR
14,133

13,961

13,426

BarFly Ventures, LLC (11)
Casual Restaurant Group
12.00% Secured Debt (Maturity - August 31, 2020)
None
3,272

3,237

3,270

 
 
Warrants (.410 equivalent units, Expiration - August 31, 2025)
—
—

158

137

 
 
Options (.731 equivalent units)
—
—

133

245

 
 
 
 
 
3,528

3,652

BBB Tank Services, LLC (10) (13)
Maintenance, Repair and Construction Services to the Above-Ground Storage Tank Market
17.00% Secured Debt (Maturity - April 8, 2021)
None
1,000

991

974

 
 
LIBOR Plus 10.00% (Floor 1.00%), Current Coupon 11.98%, Secured Debt (Maturity - April 9, 2018) (8)
1 month LIBOR
163

163

163

 
 
Member Units (200,000 units)
—
—

200

118

 
 
 
 
 
1,354

1,255

Berry Aviation, Inc. (11)
Airline Charter Service Operator
10.50% Current / 1.50% PIK, Secured Debt (Maturity - January 6, 2024) (14)
None
4,463

4,398

4,398

 
 
Preferred Member Units (Berry Acquisition, LLC) (1,548,387 units, 8.00% cumulative)
—
—
1,548

1,548

 
 
 
 
 
5,946

5,946

BigName Commerce, LLC (8) (11)
Provider of Envelopes and Complimentary Stationery Products
LIBOR Plus 7.25% (Floor 1.00%), Current Coupon 9.59%, Secured Debt (Maturity - May 11, 2022)
3 month LIBOR
2,493

2,470

2,470

Binswanger Enterprises, LLC (8) (11)
Glass Repair and Installation Service Provider
LIBOR Plus 8.00% (Floor 1.00%), Current Coupon 10.32%, Secured Debt (Maturity - March 9, 2022)
3 month LIBOR
14,368

14,155

14,368

 
 
Member Units (1,050,000 units)
—
—

1,050

1,330

 
 
 
 
 
15,205

15,698

Bluestem Brands, Inc. (8)
Multi-Channel Retailer of General Merchandise
LIBOR Plus 7.50% (Floor 1.00%), Current Coupon 9.74%, Secured Debt (Maturity - November 6, 2020)
3 month LIBOR
12,398

12,274

8,277

Boccella Precast Products, LLC (10) (13)
Manufacturer of Precast Hollow Core Concrete
LIBOR Plus 10.00% (Floor 1.00%), Current Coupon 12.34%, Secured Debt (Maturity - June 30, 2022) (8)
1 month LIBOR
4,071

3,992

4,063

 
 
Member Units (540,000 units)
—
—

540

1,240

 
 
 
 
 
4,532

5,303

Brightwood Capital Fund Investments (9) (15)
Investment Partnership
LP Interests (Brightwood Capital Fund III, LP) (Fully diluted 1.60%) (16)
—
—

4,075

3,517

 
 
LP Interests (Brightwood Capital Fund IV, LP) (Fully diluted 0.80%) (16)
—
—

3,037

3,126

 
 
 
 
 
7,112

6,643

Brundage-Bone Concrete Pumping, Inc.
Construction Services Provider
10.38% Secured Debt (Maturity - September 1, 2023) (14)
None
12,000

12,066

12,750

Buca C, LLC (10) (13)
Casual Restaurant Group
LIBOR Plus 9.25% (Floor 1.00%), Current Coupon 11.36%, Secured Debt (Maturity - June 30, 2020) (8)
1 month LIBOR
12,936

12,832

12,832

 
 
Preferred Member Units (4 units, 6.00% cumulative) (16)
—
—

2,866

2,909

 
 
 
 
 
15,698

15,741

BW NHHC Holdco, Inc. (8)
Full-Continuum Provider of Home Health Services
LIBOR Plus 5.00%, Current Coupon 7.16%, Secured Debt (Maturity - May 15, 2025)
1 month LIBOR
$
7,481

$
7,373

$
7,373

Cadence Aerospace, LLC (8) (11)
Aerospace Manufacturing
LIBOR Plus 6.50% (Floor 1.00%), Current Coupon 8.82%, Secured Debt (Maturity - November 14, 2023)
3 month LIBOR
19,517

19,343

19,480

CAI Software, LLC (10) (13)
Provider of Specialized Enterprise Resource Planning Software
12.00% Secured Debt (Maturity - October 10, 2019)
None
821

814

821

 
 
Member Units (16,339 units) (16)
—
—

163

655

 
 
 
 
 
977

1,476

Cenveo Corporation
Provider of Commercial Printing, Envelopes, Labels, Printed Office Products
LIBOR Plus 9.00% (Floor 1.00%), Current Coupon 11.12%, Secured Debt (Maturity - June 7, 2023) (8)
1 month LIBOR
4,995

4,599

4,895

 
 
Common Stock (138,889 shares)
—
—
4,163

4,340

 
 
 
 
 
8,762

9,235

Clarius BIGS, LLC (11) (18)
Prints & Advertising Film Financing
15.00% PIK Secured Debt (Maturity - January 5, 2015) (18)
None
2,140

1,882

60

 
 
20.00% PIK Secured Debt (Maturity - January 5, 2015) (18)
None
773

680

22

 
 
 
 
 
2,562

82

Clickbooth.com, LLC (8) (11)
Provider of Digital Advertising Performance Marketing Solutions
LIBOR Plus 8.50% (Floor 1.00%), Current Coupon 10.84%, Secured Debt (Maturity - December 5, 2022)
3 month LIBOR
2,944

2,892

2,892

Construction Supply Investments, LLC (11)
Distribution Platform of Specialty Construction Materials to Professional Concrete and Masonry Contractors
LIBOR Plus 6.00% (Floor 1.00%), Current Coupon 8.25%, Secured Debt (Maturity - June 30, 2023) (8)
1 month LIBOR
10,583

10,533

10,556

 
 
Member units (42,207 units)
—
—

4,221

4,290

 
 
 
 
 
14,754

14,846

CTVSH, PLLC (8) (11) (13)
Emergency Care and Specialty Service Animal Hospital
LIBOR Plus 8.00% (Floor 1.00%), Current Coupon 10.32%, Secured Debt (Maturity - August 3, 2022)
1 month LIBOR
2,850

2,803

2,827

Datacom, LLC (10) (13) (18)
Technology and Telecommunications Provider
5.25% Current / 5.25% PIK, Current Coupon 10.50% Secured Debt (Maturity - May 30, 2019) (18)
None
1,384

1,377

1,168

 
 
8.00% Secured Debt (Maturity - May 30, 2018) (18)
None
200

200

188

 
 
Class A Preferred Member Units (1,530 units) (16)
—
—

144

—

 
 
Class B Preferred Member Units (717 units)
—
—

670

—

 
 
 
 
 
2,391

1,356

Digital River, Inc. (8)
Provider of Outsourced e-Commerce Solutions and Services
LIBOR Plus 6.25% (Floor 1.00%), Current Coupon 8.59%, Secured Debt (Maturity - February 12, 2021)
3 month LIBOR
9,779

9,701

9,779

DTE Enterprises, LLC (11)
Industrial Powertrain Repair and Services
LIBOR Plus 7.50% (Floor 1.00%), Current Coupon 9.84%, Secured Debt (Maturity - April 13, 2023) (8)
1 month LIBOR
13,242

12,987

13,001

 
 
Class AA Preferred Member Units (non-voting)
—
—

724

724

 
 
Class A Preferred Member Units (776,316 units)
—
—

776

776

 
 
 
 
 
14,487

14,501

Dynamic Communities, LLC (8) (11)
Developer of Business Events and Online Community Groups
LIBOR Plus 8.00% (Floor 1.00%), Current Coupon 10.39%, Secured Debt (Maturity - July 17, 2023)
3 month LIBOR
5,600

5,490

5,492

Elite SEM, Inc. (8) (11)
Provider of Digital Marketing Agency Services
LIBOR Plus 8.50% (Floor 1.00%), Current Coupon 10.82%, Secured Debt (Maturity - February 1, 2022)
3 month LIBOR
6,875

6,740

6,740

Epic Y-Grade Services, LP (8)
NGL Transportation & Storage
LIBOR Plus 5.50% (Floor 1.00%), Current Coupon 7.74%, Secured Debt (Maturity - June 13, 2024)
1 month LIBOR
17,500

17,161

17,084

Evergreen Skills Lux S.á r.l.
(d/b/a Skillsoft) (8) (9)
Technology-Based Performance Support Solutions
LIBOR Plus 8.25% (Floor 1.00%), Current Coupon 10.49%, Secured Debt (Maturity - April 28, 2022) (14)
1 month LIBOR
10,901

10,566

9,300

Extreme Reach, Inc. (8)
Integrated TV and Video Advertising Platform
LIBOR Plus 6.25% (Floor 1.00%), Current Coupon 8.50%, Secured Debt (Maturity - February 7, 2020)
1 month LIBOR
$
16,915

$
16,906

$
16,961

Felix Investments Holdings II, LLC (8) (11)
Oil and Gas Exploration and Production
LIBOR Plus 6.50% (Floor 1.00%), Current Coupon 8.84%, Secured Debt (Maturity - August 9, 2022)
3 month LIBOR
3,333

3,276

3,276

Flavors Holdings, Inc. (8)
Global Provider of Flavoring and Sweetening Products and Solutions
LIBOR Plus 5.75% (Floor 1.00%), Current Coupon 8.14%, Secured Debt (Maturity - April 3, 2020)
3 month LIBOR
11,714

11,355

10,952

GoWireless Holdings, Inc. (8)
Provider of Wireless Telecommunications Carrier Services
LIBOR Plus 6.50% (Floor 1.00%), Current Coupon 8.74%, Secured Debt (Maturity - December 22, 2024)
3 month LIBOR
15,947

15,812

15,628

Hojeij Branded Foods, LLC (8) (11)
Multi-Airport, Multi-Concept Restaurant Operator
LIBOR Plus 6.00% (Floor 1.00%), Current Coupon 8.35%, Secured Debt (Maturity - July 20, 2022)
1 month LIBOR
12,352

12,253

12,352

Hoover Group, Inc. (8) (9) (11)
Provider of Storage Tanks and Related Products to the Energy and Petrochemical Markets
LIBOR Plus 7.25% (Floor 1.00%), Current Coupon 9.56%, Secured Debt (Maturity - January 28, 2021)
3 month LIBOR
14,735

14,062

14,586

 
 
LIBOR Plus 6.00% (Floor 1.00%), Current Coupon 8.31%, Secured Debt (Maturity - January 28, 2020)
3 month LIBOR
5,388

4,818

5,289

 
 
 
 
 
18,880

19,875

Hunter Defense Technologies, Inc. (8) (11)
Provider of Military and Commercial Shelters and Systems
LIBOR Plus 7.00% (Floor 1.00%), Current Coupon 9.39%, Secured Debt (Maturity - March 29, 2023)
3 month LIBOR
16,005

15,710

15,845

Hydrofarm Holdings, LLC (8) (11)
Wholesaler of Horticultural Products
LIBOR Plus 10.00%, Current Coupon 3.62% / 8.45 PIK, Current Coupon Plus PIK 12.07%, Secured Debt (Maturity - May 12, 2022)
1 month LIBOR
6,623

6,522

5,926

iEnergizer Limited (8) (9) (12)
Provider of Business Outsourcing Solutions
LIBOR Plus 6.00% (Floor 1.25%), Current Coupon 8.25%, Secured Debt (Maturity - May 1, 2019)
1 month LIBOR
12,927

12,845

12,943

Implus Footcare, LLC (8) (11)
Provider of Footwear and Related Accessories
LIBOR Plus 6.75% (Floor 1.00%), Current Coupon 9.14%, Secured Debt (Maturity - April 30, 2021)
3 month LIBOR
17,198

17,032

17,127

Industrial Services Acquisitions, LLC (11)
Industrial Cleaning Services
6.00% Current / 7.00% PIK, Current Coupon 13.00%, Unsecured Debt (Maturity - December 17, 2022) (17)
None
11,001

10,844

10,512

 
 
Member Units (Industrial Services Investments, LLC) (336 units; 10.00% cumulative)
—
—

202

202

 
 
Member Units (Industrial Services Investments, LLC) (2,100,000 units)
—
—

2,100

490

 
 
 
 
 
13,146

11,204

Inn of the Mountain Gods Resort and Casino
Hotel & Casino Owner & Operator
9.25% Secured Debt (Maturity - November 30, 2020) (14)
None
8,254

8,254

7,944

Intermedia Holdings, Inc. (8)
Unified Communications as a Service
LIBOR Plus 6.00% (Floor 1.00%), Current Coupon 8.36%, Secured Debt (Maturity July 19, 2025)
3 month LIBOR
11,571

11,457

11,626

IronGate Energy Services, LLC (18)
Oil and Gas Services
11.00% Secured Debt (Maturity - July 1, 2018) (18)
None
5,825

5,827

2,097

Isagenix International, LLC (8)
Direct Marketer of Health and Wellness Products
LIBOR Plus 5.75% (Floor 1.00%), Current Coupon 8.14%, Secured Debt (Maturity - June 14, 2025)
3 month LIBOR
6,348

6,286

6,364

Jackmont Hospitality, Inc. (8) (11)
Franchisee of Casual Dining Restaurants
LIBOR Plus 6.75% (Floor 1.00%), Current Coupon 8.99%, Secured Debt (Maturity - May 26, 2021)
1 month LIBOR
8,382

8,365

8,382

Jacuzzi Brands LLC (8)
Manufacturer of Bath and Spa Products
LIBOR Plus 7.00% (Floor 1.00%), Current Coupon 9.24%, Secured Debt (Maturity - June 28, 2023)
1 month LIBOR
5,813

5,714

5,871

Joerns Healthcare, LLC (8)
Manufacturer and Distributor of Health Care Equipment & Supplies
LIBOR Plus 6.00% (Floor 1.00%), Current Coupon 8.31%, Secured Debt (Maturity - May 9, 2020)
3 month LIBOR
11,119

10,998

10,341

Kellermeyer Bergensons Services, LLC (8)
Outsourced Janitorial Services to Retail/Grocery Customers
LIBOR Plus 8.50% (Floor 1.00%), Current Coupon 10.84%, Secured Debt (Maturity - April 29, 2022) (14)
3 month LIBOR
14,700

14,630

14,902

LaMi Products, LLC (8) (11)
General Merchandise Distribution
LIBOR Plus 7.50% (Floor 1.00%), Current Coupon 9.83%, Secured Debt (Maturity -September 16, 2020)
3 month LIBOR
10,779

10,667

10,727

Larchmont Resources, LLC
Oil & Gas Exploration & Production
LIBOR Plus 9.00% (Floor 1.00%), Current Coupon 11.33%, Secured Debt (Maturity - August 7, 2020) (8)
3 month LIBOR
$
4,362

$
4,362

$
4,318

 
 
Member units (Larchmont Intermediate Holdco, LLC) (4,806 units)
—
—

601

1,322

 
 
 
 
 
4,963

5,640

LJ Host Merger Sub, Inc. (8)
Managed Services and Hosting Provider
LIBOR Plus 5.25% (Floor 1.25%), Current Coupon 7.29% / 0.50% PIK, Current Coupon Plus PIK 7.59%, Secured Debt (Maturity - December 13, 2019)
3 month LIBOR
17,231

16,993

16,843

Logix Acquisition Company, LLC (8) (11)
Competitive Local Exchange Carrier
LIBOR Plus 5.75% (Floor 1.00%), Current Coupon 7.99%, Secured Debt (Maturity - December 22, 2024) (23)
1 month LIBOR
9,654

9,565

9,726

LSF9 Atlantis Holdings, LLC (8)
Provider of Wireless Telecommunications Carrier Services
LIBOR Plus 6.00% (Floor 1.00%), Current Coupon 8.12%, Secured Debt (Maturity - May 1, 2023)
1 month LIBOR
13,563

13,473

13,139

Lulu’s Fashion Lounge, LLC (8)(11)
Fast Fashion E-Commerce Retailer
LIBOR Plus 7.00% (Floor 1.00%), Current Coupon 9.24%, Secured Debt (Maturity - August 28, 2022)
1 month LIBOR
6,307

6,146

6,433

Meisler Operating, LLC (10) (13)
Provider of Short Term Trailer and Container Rental
LIBOR Plus 8.50% (Floor 1.00%), Current Coupon 10.84%, Secured Debt (Maturity - June 7, 2022) (8)
1 month LIBOR
5,120

5,010

5,017

 
 
Member Units (Milton Meisler Holdings, LLC) (12,139 units)
—
—

1,214

1,393

 
 
 
 
 
6,224

6,410

MHVC Acquisition Corp. (8)
Provider of Differentiated Information Solutions, Systems Engineering and Analytics
LIBOR Plus 5.25% (Floor 1.00%), Current Coupon 7.64%, Secured Debt (Maturity - April 29, 2024)
3 month LIBOR
7,880

7,835

7,851

New Era Technology, Inc. (8) (11)
Managed Services and Hosting Provider
LIBOR Plus 6.50% (Floor 1.00%), Current Coupon 8.74%, Secured Debt (Maturity - June 22, 2023)
1 month LIBOR
6,153

6,035

6,092

New Media Holdings II LLC (8) (9)
Local Newspaper Operator
LIBOR Plus 6.25% (Floor 1.00%), Current Coupon 8.49%, Secured Debt (Maturity - July 14, 2022)
1 month LIBOR
9,138

9,034

9,221

NNE Partners, LLC (8) (11)
Oil & Gas Exploration & Production
LIBOR Plus 8.00%, Current Coupon 10.32%, Secured Debt (Maturity - March 2, 2022)
3 month LIBOR
18,375

18,238

18,229

North American Lifting Holdings, Inc. (8)
Crane Service Provider
LIBOR Plus 4.50% (Floor 1.00%), Current Coupon 6.89%, Secured Debt (Maturity - November 27, 2020)
3 month LIBOR
6,261

5,767

6,112

Novetta Solutions, LLC (8)
Provider of Advanced Analytics Solutions for Defense Agencies
LIBOR Plus 5.00% (Floor 1.00%), Current Coupon 7.25%, Secured Debt (Maturity - October 17, 2022)
1 month LIBOR
15,016

14,668

14,584

NTM Acquisition Corp. (8)
Provider of B2B Travel Information Content
LIBOR Plus 6.25% (Floor 1.00%), Current Coupon 8.49%, Secured Debt (Maturity - June 7, 2022)
1 month LIBOR
4,149

4,114

4,154

Pasha Group (8)
Diversified Logistics and Transportation Provided
LIBOR Plus 7.50% (Floor 1.00%), Current Coupon 9.70%, Secured Debt (Maturity - January 26, 2023)
2 month LIBOR
11,328

11,007

11,491

Permian Holdco 2, Inc.
Storage Tank Manufacturer
14.00% PIK Unsecured Debt (Maturity - October 15, 2021) (17)
None
955

955

955

 
 
Series A Preferred Shares (Permian Holdco 1, Inc.) (386,255 shares) (16)
—
—

1,997

2,299

 
 
Common Shares (Permian Holdco 1, Inc.) (386,255 shares)
—
—

—

—

 
 
 
 
 
2,952

3,254

Pernix Therapeutics Holdings, Inc. (11)
Pharmaceutical Royalty
12.00% Secured Debt (Maturity - August 1, 2020)
None
2,652

2,637

1,782

Pier 1 Imports, Inc. (8)
Decorative Home Furnishings Retailer
LIBOR Plus 3.50% (Floor 1.00%), Current Coupon 5.89%, Secured Debt (Maturity - April 30, 2021)
3 month LIBOR
7,494

7,154

6,129

PricewaterhouseCoopers Public Sector LLP (8) (14)
Provider of Consulting Services to Governments
LIBOR Plus 7.50%, Current Coupon 9.74%, Secured Debt (Maturity - May 1, 2026)
1 month LIBOR
12,000

11,942

12,060

Prowler Acquisition Corporation (8)
Specialty Distributor to the Energy Sector
LIBOR Plus 4.50% (Floor 1.00%), Current Coupon 6.79%, Secured Debt (Maturity - January 28, 2020)
2 month LIBOR
12,313

11,510

12,251

Resolute Industrial, LLC (11)
HVAC Equipment Rental and Remanufacturing
Class A units (601 units)
—
—

750

920

RGL Reservoir Operations, Inc. (9)
Oil & Gas Equipment & Services
1.00% Current / 9.00% PIK Secured Debt (Maturity - December 21, 2024)
None
$
772

$
467

$
386

Rise Broadband (8) (11)
Fixed Wireless Broadband Provider
LIBOR Plus 8.00% (Floor 1.00%), Current Coupon 10.12%, Secured Debt (Maturity - May 2, 2023)
1 month LIBOR
14,925

14,784

14,784

RM Bidder, LLC (11)
Scripted and Unscripted TV and Digital Programming Provider
Common Stock (1,854 shares)
—
—

31

12

 
 
Series A Warrants (124,915 equivalent units, Expiration - October 20, 2025)
—
—

284

—

 
 
Series B Warrants (93,686 equivalent units, Expiration - October 20, 2025)
—
—

—

—

 
 
 
 
 
315

12

Salient Partners, LP (8) (11)
Provider of Asset Management Services
LIBOR Plus 5.75% (Floor 1.00%), Current Coupon 7.99%, Secured Debt (Maturity - June 9, 2021)
1 month LIBOR
7,500

7,468

7,468

Slick Software Holdings LLC (10) (13)
Text Messaging Marketing Platform
14.00% Secured Debt (Maturity - September 13, 2023)
—
1,800

1,701

1,701

 
 
Member units (17,500 units)
—
—

175

175

 
 
Warrants (4,521 equivalent units, Expiration - September 13, 2028)
—
—

45

45

 
 
 
 
 
1,921

1,921

Smart Modular Technologies, Inc. (8) (9) (11) (12)
Provider of Specialty Memory Solutions
LIBOR Plus 6.25%, (Floor 1.00%), Current Coupon 8.60%, Secured Debt (Maturity - August 9, 2022)
3 month LIBOR
19,000

18,776

19,095

Sorenson Communications, Inc. (8)
Manufacturer of Communication Products for Hearing Impaired
LIBOR Plus 5.75% (Floor 2.25%), Current Coupon 8.14%, Secured Debt (Maturity - April 30, 2020)
3 month LIBOR
2,924

2,914

2,939

Strike, LLC (8)
Pipeline Construction and Maintenance Services
LIBOR Plus 8.00% (Floor 1.00%), Current Coupon 10.59%, Secured Debt (Maturity - November 30, 2022)
3 month LIBOR
9,125

8,915

9,262

Synagro Infrastructure Company, Inc. (8)
Waste Management Services
LIBOR Plus 5.50% (Floor 1.00%), Current Coupon 7.74%, Secured Debt (Maturity - August 22, 2020)
1 month LIBOR
8,291

8,041

7,254

TE Holdings, LLC
Oil & Gas Exploration & Production
Common Units (72,785 units)
—
—

728

76

Teleguam Holdings, LLC (8)
Cable and Telecom Services Provider
LIBOR Plus 8.50% (Floor 1.00%), Current Coupon 10.74%, Secured Debt (Maturity - April 12, 2024) (14)
1 month LIBOR
7,750

7,615

7,808

TGP Holdings III LLC (8) (12)
Outdoor Cooking & Accessories
LIBOR Plus 8.50% (Floor 1.00%), Current Coupon 10.89%, Secured Debt (Maturity - September 25, 2025) (14)
3 month LIBOR
5,000

5,000

4,969

TMC Merger Sub Corp (8)
Refractory & Maintenance Services Provider
LIBOR Plus 6.25% (Floor 1.00%), Current Coupon 8.50%, Secured Debt (Maturity - October 31, 2022) (25)
1 month LIBOR
18,779

18,653

18,920

TOMS Shoes, LLC (8)
Global Designer, Distributor, and Retailer of Casual Footwear
LIBOR Plus 5.50% (Floor 1.00%), Current Coupon 7.81%, Secured Debt (Maturity - October 30, 2020)
3 month LIBOR
4,825

4,631

3,846

Turning Point Brands, Inc. (8) (9) (11)
Marketer/Distributor of Tobacco Products
LIBOR Plus 7.00%, Current Coupon 9.15%, Secured Debt (Maturity - March 7, 2024) (14)
1 month LIBOR
8,500

8,421

8,670

TVG-I-E CMN Acquisition, LLC (8) (11)
Organic Lead Generation for Online Postsecondary Schools
LIBOR Plus 6.25%, (Floor 1.00%), Current Coupon 8.49%, Secured Debt (Maturity - November 3, 2021)
1 month LIBOR
15,920

15,664

15,920

U.S. Telepacific Corp. (8)
Provider of Communications and Managed Services
LIBOR Plus 5.00% (Floor 1.00%), Current Coupon 7.39%, Secured Debt (Maturity - May 2, 2023)
3 month LIBOR
16,453

16,093

16,227

VIP Cinema Holdings, Inc. (8)
Supplier of Luxury Seating to the Cinema Industry
LIBOR Plus 6.00% (Floor 1.00%), Current Coupon 8.25%, Secured Debt (Maturity - March 1, 2023)
1 month LIBOR
9,250

9,213

9,314

Vistar Media, Inc. (11)
Operator of Digital Out-of-Home Advertising Platform
LIBOR Plus 10.00% (Floor 1.00%), Current Coupon 12.39%, Secured Debt (Maturity - February 16, 2022) (8)
3 month LIBOR
3,263

3,032

3,088

 
 
Warrants (70,207 equivalent units, Expiration - February 17, 2027)
—
—

331

790

 
 
 
 
 
3,363

3,878

 
 
 
 
 
 
 
Volusion, LLC (10) (13)
Provider of Online Software-as-a-Service eCommerce Solutions
11.50% Secured Debt (Maturity - January 24, 2020)
None
$
7,172

$
6,674

$
6,740

 
 
11.50% Secured Debt (Maturity - January 26, 2020)
None
1,088

1,088

1,022

 
 
8.00% Unsecured Convertible Debt (Maturity - November 16, 2023)
None
127

127

127

 
 
Preferred Member Units (2,090,001 units)
—
—

6,000

6,000

 
 
Warrants (784,866.80 equivalent units, Expiration - January 26, 2025)
—
—

1,104

810

 
 
 
 
 
14,993

14,699

Wireless Vision Holdings, LLC (8) (11)
Provider of Wireless Telecommunications Carrier Services
LIBOR Plus 8.91% (Floor 1.00%), Current Coupon 10.99%, Secured Debt (Maturity - September 29, 2022) (23)
1 month LIBOR
12,803

12,521

12,595

YS Garments (8)
Designer and Provider of Branded Activewear
LIBOR Plus 6.00% (Floor 1.00%), Current Coupon 8.17%, Secured Debt (Maturity - August 9, 2024)
1 month LIBOR
7,500

7,426

7,425

Subtotal Non-Control/Non-Affiliate Investments (5) (83% of total portfolio investments at fair value)
 
 
$
944,195

$
933,953

 
 
 
 
 
 
 
Total Portfolio Investments
 
 
 
 
$
1,121,043

$
1,130,322

 
 
 
 
 
 
 
Short Term Investments (20)
 
 
 
 
 
 
Fidelity Institutional Money Market Funds (21)
—
Prime Money Market Portfolio, Class III Shares
—
—

$
4,450

$
4,450

US Bank Money Market Account (21)
—
—
—
—

15,574

15,574

 
 
 
 
 
 
 
Total Short Term Investments
 
 
 
 
$
20,024

$
20,024


(1) All investments are Middle Market (as defined in the notes to the financial statements) portfolio investments, unless otherwise noted. All of the assets of HMS Income Fund, Inc. (together with its consolidated subsidiaries, the “Company”) are encumbered as security for the Company’s credit agreements. See Note 5 - Borrowings.
(2) Debt investments are income producing, unless otherwise noted. Equity investments and warrants are non-income producing, unless otherwise noted.
(3) See Note 3 - Fair Value Hierarchy for Investments for summary geographic location of portfolio companies.
(4) Affiliate investments are generally defined by the Investment Company Act of 1940, as amended (the “1940 Act”), as investments in which between 5% and 25% of the voting securities are owned, or an investment in an investment company’s investment adviser, and the investments are not classified as Control investments. Fair value as of December 31, 2017 and September 30, 2018 along with transactions during the nine months ended September 30, 2018 in these affiliated investments were as follows (in thousands):
 
 
 
 
Nine Months Ended September 30, 2018
 
 
 
Nine Months Ended September 30, 2018
Portfolio Company
 
Fair Value at December 31, 2017
 
Gross Additions (Cost)*
 
Gross Reductions (Cost)**
 
Net Unrealized Gain (Loss)
 
Fair Value at September 30, 2018
 
Net Realized Gain (Loss)
Interest Income
Fee Income
Dividend Income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Affiliate Investments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AFG Capital Group, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Member units
 
$
897

 
$
1

 
$
—

 
$
87

 
$
985

 
$
—

$
—

$
—

$
8

Warrants
 
215

 
—

 
—

 
20

 
235

 
—

—

—

—

Brewer Crane Holdings, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Term loan
 
—

 
2,487

 
(111
)
 
—

 
2,376

 
—

220

—

—

Preferred member units
 
—

 
1,070

 
—

 
—

 
1,070

 
—

—

—

22

Chamberlin HoldCo, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Term loan
 
—

 
5,412

 
(135
)
 
—

 
5,277

 
—

414

2

—

Member units
 
—

 
2,861

 
—

 
1,587

 
4,448

 
—

—

21

306

Charlotte Russe, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Term loan
 
—

 
6,285

 
(32
)
 
(698
)
 
5,555

 
—

357

—

—

Common stock
 
—

 
2,470

 
—

 
—

 
2,470

 
—

—

—

—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Charps, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Term loan
 
4,500

 
28

 
(627
)
 
—

 
3,901

 
—

403

—

—

Term loan
 
—

 
401

 
(2
)
 
—

 
399

 
—

9

1

—

Preferred member units
 
163

 
1

 
—

 
99

 
263

 
—

—

—

—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Clad-Rex Steel, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Term loan
 
$
3,320

 
$
12

 
$
(200
)
 
$
(12
)
 
$
3,120

 
$
—

$
292

$
—

$
—

Member units
 
2,375

 
1

 
(1
)
 
220

 
2,595

 
—

—

—

—

Term loan (Clad-Rex Steel RE Investor, LLC)
 
293

 
—

 
(4
)
 
—

 
289

 
—

22

—

—

Member units (Clad-Rex Steel RE Investor, LLC)
 
70

 
—

 
—

 
—

 
70

 
—

—

—

128

Digital Products Holdings LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Term loan
 
—

 
6,611

 
(215
)
 
—

 
6,396

 
—

411

—

13

Preferred member units
 
—

 
2,200

 
(84
)
 
—

 
2,116

 
—

—

13

—

Direct Marketing Solutions, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Term loan
 
—

 
4,722

 
(264
)
 
(1
)
 
4,457

 
—

407

3

—

Preferred stock
 
—

 
2,100

 
—

 
845

 
2,945

 
—

—

—

—

Freeport Financial Funds
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LP interests
 
8,506

 
—

 
—

 
(123
)
 
8,383

 
—

—

—

805

Gamber-Johnson Holdings, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Term loan
 
5,850

 
19

 
(220
)
 
(18
)
 
5,631

 
—

508

—

104

Common stock
 
5,843

 
—

 
—

 
4,187

 
10,030

 
—

—

12

231

Guerdon Modular Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Term loan
 
2,660

 
511

 
(37
)
 
(138
)
 
2,996

 
—

302

—

—

Term loan
 
—

 
70

 
(70
)
 
—

 
—

 
—

2

—

—

Common stock
 
—

 
—

 
—

 
—

 
—

 
—

—

—

—

Class B preferred units
 
—

 
—

 
—

 
—

 
—

 
—

—

—

—

Gulf Publishing Holdings, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Term loan
 
3,151

 
9

 
(33
)
 
—

 
3,127

 
—

311

—

—

Term loan
 
20

 
40

 
(20
)
 
—

 
40

 
—

2

—

—

Member units
 
1,210

 
—

 
(1
)
 
(67
)
 
1,142

 
—

—

—

—

Harris Preston Fund Investments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LP interests (HPEP 3, LP)
 
943

 
790

 
—

 
—

 
1,733

 
—

—

—

—

LP interests (2717 HM, LP)
 
536

 
504

 
—

 
93

 
1,133

 
—

—

—

—

Hawk Ridge Systems, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Term loan
 
3,574

 
11

 
—

 
(10
)
 
3,575

 
—

296

—

—

Preferred member units
 
950

 
—

 
—

 
802

 
1,752

 
—

—

—

109

Preferred member units (HRS Services, ULC)
 
50

 
1

 
—

 
42

 
93

 
—

—

—

—

HWT, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Term loan
 
2,454

 
10

 
—

 
19

 
2,483

 
—

265

—

—

Member units
 
985

 
1

 
—

 
—

 
986

 
—

—

26

—

Market Force Information, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Term loan
 
5,732

 
19

 
(140
)
 
—

 
5,611

 
—

592

—

—

Term loan
 
—

 
170

 
(70
)
 
—

 
100

 
—

4

—

—

Member units
 
3,675

 
—

 
—

 
(112
)
 
3,563

 
—

—

—

—

M.H. Corbin Holding, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Term loan
 
3,130

 
13

 
(162
)
 
1

 
2,982

 
—

348

—

—

Member units
 
1,500

 
—

 
—

 
(375
)
 
1,125

 
—

—

26

—

Mystic Logistics Holdings, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Term loan
 
1,916

 
10

 
(57
)
 
6

 
1,875

 
—

185

—

—

Common stock
 
1,705

 
1

 
—

 
(1,528
)
 
178

 
—

—

—

—

NexRev, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Term loan
 
—

 
4,378

 
(98
)
 
1

 
4,281

 
—

288

—

—

Preferred member units
 
—

 
1,720

 
—

 
252

 
1,972

 
—

—

3

10

NuStep, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Term loan
 
5,048

 
19

 
—

 
—

 
5,067

 
—

489

—

—

Preferred member units
 
2,550

 
1

 
(1
)
 
—

 
2,550

 
—

—

—

—

SI East, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Term loan
 
—

 
11,765

 
(189
)
 
—

 
11,576

 
—

107

—

—

Preferred member units
 
—

 
2,000

 
—

 
—

 
2,000

 
—

—

—

—

SoftTouch Medical Holdings, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Term loan
 
1,260

 
10

 
(1,260
)
 
(10
)
 
—

 
—

26

—

—

Member units
 
1,781

 
—

 
(870
)
 
(911
)
 
—

 
903

—

11

134

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Tedder Acquisition, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Term loan
 
$
—

 
$
4,101

 
$
(123
)
 
$
—

 
$
3,978

 
$
—

$
52

$
—

$
—

Preferred member units
 
—

 
1,869

 
—

 
—

 
1,869

 
—

—

—

—

 
 
$
76,862

 
$
64,704

 
$
(5,026
)
 
$
4,258

 
$
140,798

 
$
903

$
6,312

$
118

$
1,870

* Gross additions include increases in the cost basis of investments resulting from new portfolio investments, payment-in-kind (“PIK”) interest, the amortization of unearned income, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company into this category from a different category.
** Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, the exchange of one or more new securities and the movement of an existing portfolio company out of this category into a different category.
(5) Non-Control/Non-Affiliate investments are generally investments that are neither Control investments nor Affiliate investments.
(6) Control investments are generally defined by the 1940 Act as investments in which more than 25% of the voting securities are owned or where the ability to nominate greater than 50% of the board representation is maintained. Fair value as of December 31, 2017 and September 30, 2018 along with transactions during the nine months ended September 30, 2018 in these Control investments were as follows (in thousands):
 
 
 
 
Nine Months Ended September 30, 2018
 
 
 
Nine Months Ended September 30, 2018
Portfolio Company
 
Fair Value at December 31, 2017
 
Gross Additions (Cost)**
 
Gross Reductions (Cost)***
 
Net Unrealized Gain (Loss)
 
Fair Value at September 30, 2018
 
Net Realized Gain (Loss)
Interest Income
Fee Income
Dividend Income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Control Investments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Copper Trail Energy Fund I, LP
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LP interests
 
$
2,500

 
$
746

 
$
—

 
$
227

 
$
3,473

 
$
—

$
—

$
—

$
34

CTMH, LP
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LP interests
 
—

 
872

 
—

 
—

 
872

 
—

—

—

—

GRT Rubber Technologies, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Term loan
 
5,715

 
23

 
(739
)
 
(24
)
 
4,975

 
—

463

—

—

Member units
 
10,821

 
—

 
—

 
4,960

 
15,781

 
—

—

52

432

HMS-ORIX SLF LLC*
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Membership interests
 
30,643

 
—

 
—

 
(173
)
 
30,470

 
—

—

—

1,591

 
 
$
49,679

 
$
1,641

 
$
(739
)
 
$
4,990

 
$
55,571

 
$
—

$
463

$
52

$
2,057

* Together with ORIX Funds Corp. (“Orix”), the Company co-invests through HMS-ORIX SLF LLC (“HMS-ORIX”), which is organized as a Delaware limited liability company. Pursuant to the terms of the limited liability company agreement and through representation on the HMS-ORIX Board of Managers, the Company and Orix each have 50% voting control of HMS-ORIX and together will agree on all portfolio and investment decisions as well as all other significant actions for HMS-ORIX. Although the Company owns more than 25% of the voting securities of HMS-ORIX, the Company does not have sole control over significant actions of HMS-ORIX for purposes of the 1940 Act or otherwise.
** Gross additions include increases in the cost basis of investments resulting from new portfolio investments, PIK interest, the amortization of unearned income, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company into this category from a different category.
*** Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, the exchange of one or more new securities and the movement of an existing portfolio company out of this category into a different category.
(7) Principal is net of repayments. Cost represents amortized cost which is net of repayments and adjusted for the amortization of premiums and/or accretion of discounts, as applicable.
(8) Index based floating interest rate is subject to contractual minimum interest rates, or floors.
(9) The investment is not a qualifying asset in an eligible portfolio company under Section 55(a) of the 1940 Act. A business development company (“BDC”) may not acquire any asset other than qualifying assets in eligible portfolio companies unless, at the time the acquisition is made, qualifying assets represent at least 70% of the BDC’s total assets. As of September 30, 2018, approximately 12.7% of the Company’s total assets were considered non-qualifying.
(10) Investment is classified as a LMM (as defined in the notes to the financial statements) portfolio investment.
(11) Investment is classified as a Private Loan (as defined in the notes to the financial statements) portfolio investment.
(12) Investment or portion of investment is under contract to purchase and met trade date accounting criteria as of September 30, 2018. Settlement occurred or is scheduled to occur after September 30, 2018.
(13) Investment serviced by Main Street Capital Corporation (“Main Street”) pursuant to servicing arrangements with the Company.
(14) Second lien secured debt investment.
(15) Investment is classified as an Other Portfolio (as defined in the notes to the financial statements) investment.
(16) Income producing through dividends or distributions.
(17) Unsecured debt investment.
(18) Investment is on non-accrual status as of September 30, 2018.
(19) [Reserved]
(20) Short term investments represent an investment in a fund that invests in highly liquid investments with average original maturity dates of three months or less.
(21) Effective yield as of September 30, 2018 was approximately 0.30% at US Bank Money Market Account and 1.74% at Fidelity Institutional Money Market Funds.
(22) The 1, 2, 3, and 6-month London Interbank Offered Rate (“LIBOR”) rates were 2.26%, 2.31%, 2.40% and 2.60%, respectively, as of September 30, 2018. The actual LIBOR rate for each loan listed may not be the applicable LIBOR rate as of September 30, 2018, as the loan may have been priced or repriced based on a LIBOR rate prior to September 30, 2018. The prime rate was 5.25% as of September 30, 2018.
(23) The Company has entered into an intercreditor agreement that entitles the Company to the "last out" tranche of the first lien secured loans, whereby the "first out" tranche receives priority over the "last out" tranche with respect to payments of principal, interest and any other amounts due thereunder. Therefore, the Company receives a higher interest rate than the contractual stated interest rate of LIBOR plus 7.50% (Floor 1.00%) per the credit agreement and the Condensed Consolidated Schedule of Investments above reflects such higher rate.
(24) [Reserved]
(25) The Company has entered into an intercreditor agreement that entitles the Company to the "first out" tranche of the first lien secured loans, whereby the "first out" tranche receives priority over the "last out" tranche with respect to payments of principal, interest and any other amounts due thereunder. Therefore, the Company receives a lower interest rate than the contractual stated interest rate of LIBOR plus 6.64% (Floor 1.00%) per the credit agreement and the Condensed Consolidated Schedule of Investments above reflects such lower rate.
(26) The fair value of the investment was determined using significant unobservable inputs. See Note 3 - Fair Value Hierarchy for Investments.

See notes to the condensed consolidated financial statements.

5


HMS Income Fund, Inc.
Consolidated Schedule of Investments
As of December 31, 2017
(dollars in thousands)
Portfolio Company (1) (3)
Business Description
Type of Investment (2) (3)
Index Rate (22)
Principal (7)
Cost (7)
Fair Value (26)
 
 
 
 
 
 
 
Control Investments (6)
Copper Trail Energy Fund I, LP (9)(15)(16)
Investment Partnership
LP Interests (Copper Trail Energy Fund I, LP) (Fully diluted 30.1%)
—
$
—

$
2,500

$
2,500

GRT Rubber Technologies, LLC (8) (10) (13)
Engineered Rubber Product Manufacturer
LIBOR Plus 9.00% (Floor 1.00%), Current Coupon 10.36%, Secured Debt (Maturity - December 19, 2019)
1 month LIBOR
5,715

5,657

5,715

 
 
Member Units (2,896 shares) (16)
—
—

6,435

10,821

 
 
 
 
 
12,092

16,536

HMS-ORIX SLF LLC (9) (15)
Investment Partnership
Membership Interests (Fully diluted 60.00%) (16)
—
—

30,000

30,643

 
 
 
 
 
 
 
Subtotal Control Investments (6) (5% of total investments at fair value)
 
 
$
44,592

$
49,679

Affiliate Investments (4)
AFG Capital Group, LLC (10) (13)
Provider of Rent-to-Own Financing Solutions and Services
Member Units (46 shares) (16)
—
$
—

$
300

$
897

 
 
Warrants (10 equivalent shares, Expiration - November 7, 2024)
—
—

65

215

 
 
 
 
 
365

1,112

Charps, LLC (10) (13)
Pipeline Maintenance and Construction
12.00% Secured Debt (Maturity - January 31, 2022)
None
4,600

4,497

4,500

 
 
Preferred Member Units (400 units)
—
—

100

163

 
 
 
 
 
4,597

4,663

Clad-Rex Steel, LLC (10) (13)
Specialty Manufacturer of Vinyl-Clad Metal
LIBOR Plus 9.50% (Floor 1.00%), Current Coupon 10.86%, Secured Debt (Maturity - December 20, 2021) (8)
1 month LIBOR
3,320

3,264

3,320

 
 
Member Units (179 units) (16)
—
—

1,820

2,375

 
 
10.00% Secured Debt (Clad-Rex Steel RE Investor, LLC) (Maturity - December 19, 2036)
None
296

293

293

 
 
Member Units (Clad-Rex Steel RE Investor, LLC) (200 units)
—
—

53

70

 
 
 
 
 
5,430

6,058

Freeport First Lien Loan Fund III, LP (9) (15)
Investment Partnership
LP Interests (Freeport First Lien Loan Fund III, LP) (Fully diluted 5.60%) (16)
—
—

8,558

8,506

Gamber-Johnson Holdings, LLC (8) (10) (13)
Manufacturer of Ruggedized Computer Mounting Systems
LIBOR Plus 11.00% (Floor 1.00%), Current Coupon 12.36%, Secured Debt (Maturity - June 24, 2021)
1 month LIBOR
5,850

5,750

5,850

 
 
Member Units (2,155 units) (16)
—
—

3,711

5,843

 
 
 
 
 
9,461

11,693

Guerdon Modular Holdings, Inc. (10) (13)
Multi-Family and Commercial Modular Construction Company
13.00% Secured Debt (Maturity - August 13, 2019)
None
2,677

2,644

2,660

 
 
Common Stock (53,008 shares)
—
—

746

—

 
 
Class B Preferred Stock (101,250 shares)
—
—

285

—

 
 
 
 
 
3,675

2,660

Gulf Publishing Investor, LLC (10) (13)
Energy Focused Media and Publishing
12.50% Secured Debt (Maturity - April 29, 2021)
None
3,200

3,151

3,151

 
 
LIBOR Plus 9.50% (Floor 1.00%), Current Coupon 10.86%, Secured Debt (Maturity - September 30, 2020) (8)
1 month LIBOR
20

20

20

 
 
Member Units (781 units)
—
—

920

1,210

 
 
 
 
 
4,091

4,381

Harris Preston Fund Investments (15) (16)
Investment Partnership
LP Interests (HPEP 3, LP) (Fully diluted 9.60%) (9)
—
—

943

943

 
 
LP Interests (2717 MH, LP) (Fully diluted 7.00%)
—
—

536

536

 
 
 
 
 
1,479

1,479

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Hawk Ridge Systems, LLC (9) (10) (13)
Value-Added Reseller of Engineering Design and Manufacturing Solutions
11.00% Secured Debt (Maturity - December 2, 2021)
None
$
3,575

$
3,513

$
3,574

 
 
Preferred Member Units (56 units) (16)
—
—

713

950

 
 
Preferred Member Units (HRS Services, ULC) (56 units) (16)
—
—

38

50

 
 
 
 


4,264

4,574

HW Temps LLC (8) (10) (13)
Temporary Staffing Solutions
LIBOR Plus 11.00% (Floor 1.00%), Current Coupon 12.36%, Secured Debt (Maturity - July 2, 2020)
1 month LIBOR
2,494

2,454

2,454

 
 
Preferred Member Units (800 units) (16)
—
—

986

985

 
 
 
 
 
3,440

3,439

Market Force Information, Inc. (8)(10)(13)
Provider of Customer Experience Management Services
LIBOR Plus 11.00% (Floor 1.00%), Current Coupon 12.48%, Secured Debt (Maturity - July 28, 2022)
3 month LIBOR
5,840

5,732

5,732

 
 
Member Units (170,000 units)
—
—

3,675

3,675

 
 
 
 
 
9,407

9,407

M.H. Corbin, Inc. (10) (13)
Manufacturer and Distributor of Traffic Safety Products
13.00% Secured Debt (Maturity - August 31, 2020)
None
3,150

3,130

3,130

 
 
Preferred Member Units (1,000 units)
—
—

1,500

1,500

 
 
 
 
 
4,630

4,630

Mystic Logistics, Inc. (10) (13)
Logistics and Distribution Services Provider for Large Volume Mailers
12.00% Secured Debt (Maturity - August 15, 2019)
None
1,942

1,914

1,916

 
 
Common Stock (1,468 shares) (16)
—
—

680

1,705

 
 
 
 
 
2,594

3,621

NuStep, LLC (10) (13)
Designer, Manufacturer and Distributor of Fitness Equipment
12.00% Secured Debt (Maturity - January 31, 2022)
None
5,150

5,047

5,048

 
 
Preferred Member Units (102 units)
—
—

2,550

2,550

 
 
 
 
 
7,597

7,598

SoftTouch Medical Holdings LLC (8) (10) (13)
Home Provider of Pediatric Durable Medical Equipment
LIBOR Plus 9.00% (Floor 1.00%), Current Coupon 10.36%, Secured Debt (Maturity - October 31, 2019)
1 month LIBOR
1,260

1,250

1,260

 
 
Member Units (785 units) (16)
—
—

870

1,781

 
 
 
 
 
2,120

3,041

 
 
 
 
 
 
 
Subtotal Affiliate Investments (4) (7% of total investments at fair value)
 
 
$
71,708

$
76,862

 
 
 
 
 




Non-Control/Non-Affiliate Investments (5)
AAC Holding Corp. (8)
Substance Abuse Treatment Service Provider
LIBOR Plus 6.75% (Floor 1.00%), Current Coupon 8.13%, Secured Debt (Maturity - June 30, 2023)
3 month LIBOR
$
11,751

$
11,475

$
11,810

Adams Publishing Group, LLC (8) (11)
Local Newspaper Operator
LIBOR Plus 7.00% (Floor 1.00%), Current Coupon 8.69%, Secured Debt (Maturity - November 3, 2020)
3 month LIBOR
10,341

10,123

10,147

ADS Tactical, Inc. (8) (11)
Value-Added Logistics and Supply Chain Solutions Provider
LIBOR Plus 7.50% (Floor 0.75%), Current Coupon 9.19%, Secured Debt (Maturity - December 31, 2022)
3 month LIBOR
12,981

12,671

12,801

Aethon United BR, LP (8)(11)
Oil & Gas Exploration & Production
LIBOR Plus 6.75% (Floor 1.00%), Current Coupon 8.16%, Secured Debt (Maturity - September 8, 2023) (14)
1 month LIBOR
3,438

3,388

3,388

Ahead, LLC (8) (11)
IT Infrastructure Value Added Reseller
LIBOR Plus 6.50%, Current Coupon 8.20%, Secured Debt (Maturity - November 2, 2020)
3 month LIBOR
7,374

7,233

7,420

Allflex Holdings III Inc. (8)
Manufacturer of Livestock Identification Products
LIBOR Plus 7.00% (Floor 1.00%), Current Coupon 8.36%, Secured Debt (Maturity - July 19, 2021) (14)
3 month LIBOR
13,964

14,054

14,075

American Scaffold Holdings, Inc. (8) (11)
Marine Scaffolding Service Provider
LIBOR Plus 6.50% (Floor 1.00%), Current Coupon 8.19%, Secured Debt (Maturity - March 31, 2022)
3 month LIBOR
7,031

6,948

6,996

 
 
 
 
 
 
 
 
 
 
 
 
 
 
American Teleconferencing Services, Ltd. (8)
Provider of Audio Conferencing and Video Collaboration Solutions
LIBOR Plus 6.50% (Floor 1.00%), Current Coupon 7.90%, Secured Debt (Maturity - December 8, 2021)
2 month LIBOR
$
9,532

$
8,684

$
9,407

 
 
LIBOR Plus 9.50% (Floor 1.00%), Current Coupon 10.85%, Secured Debt (Maturity - June 6, 2022) (14)
3 month LIBOR
5,571

5,335

5,260

 
 
 
 
 
14,019

14,667

Apex Linen Service, Inc. (10) (13)
Industrial Launderers
16.00% Secured Debt (Maturity - October 30, 2022)
None
3,604

3,552

3,552

 
 
LIBOR Plus 9.00% (Floor 1.00%), Current Coupon 10.36%, Secured Debt (Maturity - October 30, 2022) (8)
1 month LIBOR
600

600

600

 
 
 
 
 
4,152

4,152

Arcus Hunting, LLC (8) (11)
Manufacturer of Bowhunting and Archery Products and Accessories
LIBOR Plus 7.00% (Floor 1.00%), Current Coupon 8.34%, Secured Debt (Maturity - November 13, 2019)
1 month LIBOR
7,696

7,618

7,690

ATI Investment Sub, Inc. (8)
Manufacturer of Solar Tracking Systems
LIBOR Plus 7.25% (Floor 1.00%), Current Coupon 8.82%, Secured Debt (Maturity - June 22, 2021)
1 month LIBOR
7,364

7,221

7,346

ATX Networks Corp. (8) (9)
Provider of Radio Frequency Management Equipment
LIBOR Plus 6.00% (Floor 1.00%), Current Coupon 7.33%, Current Coupon plus PIK 8.33%, Secured Debt (Maturity - June 11, 2021)
3 month LIBOR
14,474

14,253

14,384

BarFly Ventures, LLC (11)
Casual Restaurant Group
12.00% Secured Debt (Maturity - August 31, 2020)
None
2,905

2,863

2,905

 
 
Warrants (.410 equivalent units, Expiration - August 31, 2025)
—
—

158

175

 
 
Options (.731 equivalent units)
—
—

133

309

 
 
 
 
 
3,154

3,389

BBB Tank Services, LLC (10) (13)
Maintenance, Repair and Construction Services to the Above-Ground Storage Tank Market
15.00% Secured Debt (Maturity - April 8, 2021)
None
1,000

987

969

 
 
LIBOR Plus 9.50% (Floor 1.00%), Current Coupon 10.74%, Secured Debt (Maturity - April 9, 2018) (8)
1 month LIBOR
200

200

200

 
 
Member Units (200,000 units)
—
—

200

125

 
 
 
 
 
1,387

1,294

Berry Aviation, Inc. (11)
Airline Charter Service Operator
Current Coupon 13.75%, Secured Debt (Maturity - January 30, 2020) (14)
None
1,407

1,395

1,407

 
 
Common Stock (138 shares)
—
—

100

252

 
 
 
 
 
1,495

1,659

BigName Commerce, LLC (8) (11)
Provider of Envelopes and Complimentary Stationery Products
LIBOR Plus 7.25% (Floor 1.00%), Current Coupon 8.59%, Secured Debt (Maturity - May 11, 2022)
1 month LIBOR
2,488

2,460

2,460

Binswanger Enterprises, LLC (8) (11)
Glass Repair and Installation Service Provider
LIBOR Plus 8.00% (Floor 1.00%), Current Coupon 9.49%, Secured Debt (Maturity - March 9, 2022)
3 month LIBOR
15,267

15,002

15,135

 
 
Member Units (1,050,000 Class A units)
—
—

1,050

1,000

 
 
 
 


16,052

16,135

Bluestem Brands, Inc. (8)
Multi-Channel Retailer of General Merchandise
LIBOR Plus 7.50% (Floor 1.00%), Current Coupon 9.07%, Secured Debt (Maturity - November 6, 2020)
3 month LIBOR
13,005

12,836

9,158

Boccella Precast Products, LLC (8) (10) (13)
Manufacturer of Precast Hollow Core Concrete
LIBOR Plus 10.00% (Floor 1.00%), Current Coupon 11.34%, Secured Debt (Maturity - June 30, 2022)
1 month LIBOR
4,100

4,005

4,100

 
 
Member Units (540,000 units)
—
—

540

860

 
 
 
 
 
4,545

4,960

Brightwood Capital Fund Investments (9) (15)
Investment Partnership
LP Interests (Brightwood Capital Fund III, LP) (Fully diluted 0.52%) (16)
—
—

4,075

3,443

 
 
LP Interests (Brightwood Capital Fund IV, LP) (Fully diluted 1.58%) (16)
—
—

2,037

2,037

 
 
 
 
 
6,112

5,480

Brundage-Bone Concrete Pumping, Inc.
Construction Services Provider
10.38% Secured Debt (Maturity - September 1, 2023) (14)
None
12,000

12,074

12,720

Buca C, LLC (8) (10) (13)
Casual Restaurant Group
LIBOR Plus 7.25% (Floor 1.00%), Current Coupon 8.63%, Secured Debt (Maturity - June 30, 2020)
1 month LIBOR
$
13,536

$
13,386

$
13,386

 
 
Preferred Member Units (4 units, 6.00% cumulative) (16)
—
—

2,702

2,781

 
 
 
 
 
16,088

16,167

Cadence Aerospace, LLC (8) (11)
Aerospace and Defense
LIBOR Plus 6.50% (Floor 1.00%), Current Coupon 7.91%, Secured Debt (Maturity - November 14, 2023)
3 month LIBOR
15,000

14,853

14,853

CAI Software, LLC (10) (13)
Provider of Specialized Enterprise Resource Planning Software
12.00% Secured Debt (Maturity - October 10, 2019)
None
1,021

1,005

1,021

 
 
Member Units (16,339 units) (16)
—
—

163

807

 
 
 
 
 
1,168

1,828

CapFusion Holding, LLC (9) (10) (13)
Business Lender
13.00% Secured Debt (Maturity - March 25, 2021) (18)
None
1,669

1,394

468

CDHA Management, LLC (8) (11)
Dental Services
LIBOR Plus 7.25% (Floor 1.00%), Current Coupon 8.78%, Secured Debt (Maturity - December 5, 2021)
3 month LIBOR
5,365

5,270

5,365

Central Security Group, Inc. (8)
Security Alarm Monitoring Service Provider
LIBOR Plus 5.63% (Floor 1.00%), Current Coupon 7.19%, Secured Debt (Maturity - October 6, 2021)
1 month LIBOR
7,481

7,462

7,518

Cenveo Corporation
Provider of Commercial Printing, Envelopes, Labels, Printed Office Products
6.00% Secured Debt (Maturity - August 1, 2019)
None
15,000

13,706

10,650

Charlotte Russe, Inc. (8)
Fast-Fashion Retailer to Young Women
LIBOR Plus 5.50% (Floor 1.25%), Current Coupon 6.89%, Secured Debt (Maturity - May 22, 2019)
3 month LIBOR
14,972

14,863

6,045

Clarius BIGS, LLC (11) (18)
Prints & Advertising Film Financing
15.00% PIK Secured Debt (Maturity - January 5, 2015) (18)
None
2,140

1,882

62

 
 
20.00% PIK Secured Debt (Maturity - January 5, 2015) (18)
None
773

680

22

 
 
 
 
 
2,562

84

Clickbooth.com, LLC (8) (11)
Provider of Digital Advertising Performance Marketing Solutions
LIBOR Plus 8.50% (Floor 1.00%), Current Coupon 10.01%, Secured Debt (Maturity - December 5, 2022)
1 month LIBOR
3,000

2,941

2,941

Construction Supply Investments, LLC (11)
Distribution Platform of Specialty Construction Materials to Professional Concrete and Masonry Contractors
LIBOR Plus 6.00% (Floor 1.00%), Current Coupon 7.57%, Secured Debt (Maturity - June 30, 2023) (8)
1 month LIBOR
7,125

7,090

7,090

 
 
Member units (20,000 units)
—
—

3,723

3,723

 
 
 
 
 
10,813

10,813

ContextMedia Health, LLC (8)
Provider of Healthcare Media Content
LIBOR Plus 6.50% (Floor 1.00%), Current Coupon 8.13%, Secured Debt (Maturity - December 23, 2021)
1 month LIBOR
9,500

8,685

6,413

CTVSH, PLLC (8) (11) (13)
Emergency Care and Specialty Service Animal Hospital
LIBOR Plus 8.00% (Floor 1.00%), Current Coupon 9.48%, Secured Debt (Maturity - August 3, 2022)
1 month LIBOR
2,963

2,907

2,907

Datacom, LLC (10) (13)
Technology and Telecommunications Provider
5.25% Current / 5.25% PIK, Current Coupon 10.50% Secured Debt (Maturity - May 30, 2019)
None
1,366

1,357

1,229

 
 
8.00% Secured Debt (Maturity - May 30, 2018)
None
175

175

175

 
 
Class A Preferred Member Units (1,530 units, 15.00% cumulative) (16)
—
—

131

81

 
 
Class B Preferred Member Units (717 units)
—
—

670

—

 
 
 
 
 
2,333

1,485

Digital River, Inc. (8)
Provider of Outsourced e-Commerce Solutions and Services
LIBOR Plus 6.50% (Floor 1.00%), Current Coupon 8.08%, Secured Debt (Maturity - February 12, 2021)
3 month LIBOR
8,946

8,898

8,969

Evergreen Skills Lux S.á r.l.
(d/b/a Skillsoft) (8) (9)
Technology-Based Performance Support Solutions
LIBOR Plus 8.25% (Floor 1.00%), Current Coupon 9.82%, Secured Debt (Maturity - April 28, 2022) (14)
1 month LIBOR
10,901

10,510

9,725

Extreme Reach, Inc. (8)
Integrated TV and Video Advertising Platform
LIBOR Plus 6.25% (Floor 1.00%), Current Coupon 7.59%, Secured Debt (Maturity - February 7, 2020)
3 month LIBOR
10,411

10,397

10,398

Felix Investments Holdings II, LLC (8) (11)
Oil and Gas Exploration and Production
LIBOR Plus 6.50% (Floor 1.00%), Current Coupon 7.90%, Secured Debt (Maturity - August 9, 2022)
3 month LIBOR
$
3,333

$
3,267

$
3,267

Flavors Holdings, Inc. (8)
Global Provider of Flavoring and Sweetening Products and Solutions
LIBOR Plus 5.75% (Floor 1.00%), Current Coupon 7.44%, Secured Debt (Maturity - April 3, 2020)
3 month LIBOR
12,407

11,853

11,507

GoWireless Holdings, Inc. (8) (12)
Provider of Wireless Telecommunications Carrier Services
LIBOR Plus 6.50% (Floor 1.00%), Current Coupon 8.16%, Secured Debt (Maturity - December 22, 2024)
3 month LIBOR
15,000

14,850

14,888

GST Autoleather, Inc. (8)
Automotive Leather Manufacturer
Prime Plus 6.50% (Floor 2.00%), Current Coupon 11.00%, Secured Debt (Maturity - July 10, 2020)
PRIME
17,384

16,898

13,994

 
 
Prime Plus 6.50% (Floor 2.25%), Current Coupon 11.00%, Secured Debt (Maturity - April 5, 2018)
PRIME
3,377

3,299

3,326

 
 
 
 
 
20,197

17,320

Guitar Center, Inc.
Musical Instruments Retailer
6.50% Secured Debt (Maturity - April 15, 2019)
None
15,015

14,490

13,889

Hojeij Branded Foods, LLC (8) (11)
Multi-Airport, Multi-Concept Restaurant Operator
LIBOR Plus 6.00% (Floor 1.00%), Current Coupon 7.57%, Secured Debt (Maturity - July 20, 2022)
1 month LIBOR
12,107

12,000

12,107

Hoover Group, Inc. (8) (9) (11)
Provider of Storage Tanks and Related Products to the Energy and Petrochemical Markets
LIBOR Plus 7.25% (Floor 1.00%), Current Coupon 8.70%, Secured Debt (Maturity - January 28, 2021)
3 month LIBOR
14,848

14,030

13,656

Hunter Defense Technologies, Inc. (8)
Provider of Military and Commercial Shelters and Systems
LIBOR Plus 6.00% (Floor 1.00%), Current Coupon 7.35%, Secured Debt (Maturity - August 5, 2019)
3 month LIBOR
14,552

14,161

14,389

Hydrofarm Holdings, LLC (8) (11)
Wholesaler of Horticultural Products
LIBOR Plus 7.00%, Current Coupon 8.49%, Secured Debt (Maturity - May 12, 2022)
1 month LIBOR
6,666

6,546

6,657

iEnergizer Limited (8) (9)
Provider of Business Outsourcing Solutions
LIBOR Plus 6.00% (Floor 1.25%), Current Coupon 7.57%, Secured Debt (Maturity - May 1, 2019)
1 month LIBOR
10,644

10,408

10,618

Implus Footcare, LLC (8) (11)
Provider of Footwear and Other Accessories
LIBOR Plus 6.75% (Floor 1.00%), Current Coupon 8.44%, Secured Debt (Maturity - April 30, 2021)
3 month LIBOR
14,491

14,299

14,394

Industrial Services Acquisitions, LLC (11)
Industrial Cleaning Services
11.25% Current / 0.75% PIK, Current Coupon 12.00%, Unsecured Debt (Maturity - December 17, 2022) (17)
None
10,603

10,429

10,603

 
 
Member Units (Industrial Services Investments, LLC) (2,100,000 units)
—
—

2,100

1,890

 
 
 
 
 
12,529

12,493

Inn of the Mountain Gods Resort and Casino
Hotel & Casino Owner & Operator
9.25% Secured Debt (Maturity - November 30, 2020)
None
10,749

10,620

9,782

iPayment, Inc. (8)
Provider of Merchant Acquisition
LIBOR Plus 5.00% (Floor 1.00%), Current Coupon 6.62%, Secured Debt (Maturity - April 11, 2023)
3 month LIBOR
11,970

11,970

12,090

iQor US Inc. (8)
Business Process Outsourcing Services Provider
LIBOR Plus 5.00% (Floor 1.00%), Current Coupon 6.34%, Secured Debt (Maturity - April 1, 2021)
3 month LIBOR
7,678

7,338

7,649

IronGate Energy Services, LLC (18)
Oil and Gas Services
11.00% Secured Debt (Maturity - July 1, 2018) (18)
None
5,825

5,827

2,039

Joerns Healthcare, LLC (8)
Manufacturer and Distributor of Health Care Equipment & Supplies
LIBOR Plus 6.00% (Floor 1.00%), Current Coupon 7.48%, Secured Debt (Maturity - May 9, 2020)
3 month LIBOR
11,119

10,948

10,359

Kellermeyer Bergensons Services, LLC (8)
Outsourced Janitorial Services to Retail/Grocery Customers
LIBOR Plus 8.50% (Floor 1.00%), Current Coupon 9.88%, Secured Debt (Maturity - April 29, 2022) (14)
3 month LIBOR
14,700

14,618

14,241

Keypoint Government Solutions, Inc. (8) (11)
Provider of Pre-Employment Screening Services
LIBOR Plus 6.00% (Floor 1.00%), Current Coupon 7.35%, Secured Debt (Maturity - April 18, 2024)
3 month LIBOR
12,031

11,921

12,031

LaMi Products, LLC (8) (11)
General Merchandise Distribution
LIBOR Plus 6.50% (Floor 1.00%), Current Coupon 8.05%, Secured Debt (Maturity -September 16, 2020)
3 month LIBOR
11,110

10,988

11,085

Larchmont Resources, LLC (8)
Oil & Gas Exploration & Production
LIBOR Plus 9.00% (Floor 1.00%), Current Coupon 10.53%, Secured Debt (Maturity - August 7, 2020)
3 month LIBOR
4,118

4,118

4,076

 
 
Member units (Larchmont Intermediate Holdco, LLC) (4,806 units)
—
—

601

1,658

 
 
 
 
 
4,719

5,734

LJ Host Merger Sub, Inc. (8)
Managed Services and Hosting Provider
LIBOR Plus 6.75% (Floor 1.25%), Current Coupon 8.44%, Secured Debt (Maturity - December 13, 2019)
3 month LIBOR
$
16,137

$
15,744

$
15,714

 
 
LIBOR Plus 6.75% (Floor 1.25%), Current Coupon 8.44%, Secured Debt (Maturity - December 13, 2018)
3 month LIBOR
2,433

2,358

2,293

 
 
 
 
 
18,102

18,007

Logix Acquisition Company, LLC (8) (11)
Competitive Local Exchange Carrier
LIBOR Plus 5.75% (Floor 1.00%), Current Coupon 7.28%, Secured Debt (Maturity - August 9, 2024) (23)
1 month LIBOR
9,730

9,632

9,839

LSF9 Atlantis Holdings, LLC (8)
Provider of Wireless Telecommunications Carrier Services
LIBOR Plus 6.00% (Floor 1.00%), Current Coupon 7.36%, Secured Debt (Maturity - May 1, 2023)
1 month LIBOR
13,825

13,722

13,897

Lulu’s Fashion Lounge, LLC (8)(11)
Fast Fashion E-Commerce Retailer
LIBOR Plus 7.00% (Floor 1.00%), Current Coupon 8.57%, Secured Debt (Maturity - August 28, 2022)
1 month LIBOR
6,690

6,496

6,766

Meisler Operating, LLC (10) (13)
Provider of Short Term Trailer and Container Rental
LIBOR Plus 8.50% (Floor 1.00%), Current Coupon 9.84%, Secured Debt (Maturity - June 7, 2022) (8)
3 month LIBOR
4,200

4,095

4,104

 
 
Member Units (Milton Meisler Holdings, LLC) (8,000 units)
—
—

800

848

 
 
 
 
 
4,895

4,952

MHVC Acquisition Corp. (8)
Provider of Differentiated Information Solutions, Systems Engineering and Analytics
LIBOR Plus 5.25% (Floor 1.00%), Current Coupon 6.95%, Secured Debt (Maturity - April 29, 2024)
1 month LIBOR
10,448

10,399

10,578

Minute Key, Inc. (10) (13)
Operator of Automated Key Duplication Kiosk
Warrants (359,352 equivalent units, Expiration - May 20, 2025)
—
—

70

293

NBG Acquisition, Inc. (8)
Wholesaler of Home Decor Products
LIBOR Plus 5.50% (Floor 1.00%), Current Coupon 7.19%, Secured Debt (Maturity - April 26, 2024)
1 month LIBOR
4,402

4,336

4,452

New Media Holdings II LLC (8) (9)
Local Newspaper Operator
LIBOR Plus 6.25% (Floor 1.00%), Current Coupon 7.82%, Secured Debt (Maturity - July 14, 2022)
1 month LIBOR
17,033

16,762

17,176

NNE Issuer, LLC (8) (11)
Oil & Gas Exploration & Production
LIBOR Plus 8.00%, Current Coupon 9.49%, Secured Debt (Maturity - March 2, 2022)
3 month LIBOR
11,958

11,851

11,854

North American Lifting Holdings, Inc. (8)
Crane Service Provider
LIBOR Plus 4.50% (Floor 1.00%), Current Coupon 6.19%, Secured Debt (Maturity - November 27, 2020)
3 month LIBOR
6,310

5,666

5,912

Novetta Solutions, LLC (8)
Provider of Advanced Analytics Solutions for Defense Agencies
LIBOR Plus 5.00% (Floor 1.00%), Current Coupon 6.70%, Secured Debt (Maturity - October 17, 2022)
3 month LIBOR
9,625

9,382

9,364

NTM Acquisition Corp. (8)
Provider of B2B Travel Information Content
LIBOR Plus 6.25% (Floor 1.00%), Current Coupon 7.94%, Secured Debt (Maturity - June 7, 2022)
3 month LIBOR
10,908

10,797

10,853

Paris Presents, Inc. (8)
Branded Cosmetic and Bath Accessories
LIBOR Plus 8.75% (Floor 1.00%), Current Coupon 10.32%, Secured Debt (Maturity - December 31, 2021) (14)
1 month LIBOR
10,000

9,899

9,950

Parq Holdings, LP (8) (9)
Hotel and Casino Operator
LIBOR Plus 7.50% (Floor 1.00%), Current Coupon 9.19%, Secured Debt (Maturity - December 17, 2020)
3 month LIBOR
12,469

12,317

12,547

Permian Holdco 2, Inc.
Storage Tank Manufacturer
14.00% PIK Unsecured Debt (Maturity - October 15, 2021) (17)
None
765

765

765

 
 
Series A Preferred Shares (Permian Holdco 1, Inc.) (386,255 units) (12.00% Cumulative) (16)
—
—

1,997

2,449

 
 
Common Shares (Permian Holdco 1, Inc.) (386,255 units)
—
—

—

350

 
 
 
 
 
2,762

3,564

Permian Holdings, Inc.
Storage Tank Manufacturer
10.50% Secured Debt (Maturity - January 15, 2018)
None
1,000

968

290

Pernix Therapeutics Holdings, Inc. (11)
Pharmaceutical Royalty - Anti-Migraine
12.00% Secured Debt (Maturity - August 1, 2020)
None
2,737

2,717

1,725

PPC/Shift, LLC (8) (11)
Provider of Digital Solutions to Automotive Industry
LIBOR Plus 6.00% (Floor 1.00%), Current Coupon 7.69%, Secured Debt (Maturity - December 22, 2021)
3 month LIBOR
6,825

6,704

6,825

Prowler Acquisition Corporation (8)
Specialty Distributor to the Energy Sector
LIBOR Plus 4.50% (Floor 1.00%), Current Coupon 6.34%, Secured Debt (Maturity - January 28, 2020)
3 month LIBOR
12,412

11,199

11,854

Renaissance Learning, Inc. (8)
Technology-based K-12 Learning Solutions
LIBOR Plus 7.00% (Floor 1.00%), Current Coupon 8.69%, Secured Debt (Maturity - April 11, 2022) (14)
3 month LIBOR
$
12,695

$
12,359

$
12,767

Resolute Industrial, LLC (8) (11)
HVAC Equipment Rental and Remanufacturing
LIBOR Plus 7.62% (Floor 1.00%), Current Coupon 8.95%, Secured Debt (Maturity - July 26, 2022) (24)
3 month LIBOR
17,086

16,679

16,774

 
 
Common Stock (601 units)
—
—

750

750

 
 
 
 
 
17,429

17,524

RGL Reservoir Operations, Inc. (9) (11)
Oil & Gas Equipment & Services
1.00% Current / 9.00% PIK Secured Debt (Maturity - December 23, 2024)
None
721

407

407

RM Bidder, LLC (11)
Full-scale Film and Television Production and Distribution
Common Stock (1,854 units)
—
—

31

13

 
 
Series A Warrants (124,915 equivalent units, Expiration - October 20, 2025)
—
—

284

—

 
 
Series B Warrants (93,686 equivalent units, Expiration - October 20, 2025)
—
—

—

—

 
 
 
 
 
315

13

Salient Partners, LP (8)
Provider of Asset Management Services
LIBOR Plus 8.50% (Floor 1.00%), Current Coupon 9.85%, Secured Debt (Maturity - June 9, 2021)
3 month LIBOR
11,042

10,748

10,711

Smart Modular Technologies, Inc. (8) (9) (11)
Provider of Specialty Memory Solutions
LIBOR Plus 6.25%, (Floor 1.00%), Current Coupon 7.66%, Secured Debt (Maturity - August 9, 2022)
3 month LIBOR
14,625

14,351

14,552

Sorenson Communications, Inc.
Manufacturer of Communication Products for Hearing Impaired
9.00% Secured Debt (Maturity - October 31, 2020) (14)
None
6,616

6,457

6,599

 
 
LIBOR Plus 5.75% (Floor 2.25%), Current Coupon 8.00%, Secured Debt (Maturity - April 30, 2020) (8)
3 month LIBOR
2,947

2,932

2,971

 
 
 
 
 
9,389

9,570

Strike, LLC (8)
Pipeline Construction and Maintenance Services
LIBOR Plus 8.00% (Floor 1.00%), Current Coupon 9.50%, Secured Debt (Maturity - November 30, 2022)
3 month LIBOR
9,500

9,251

9,643

 
 
LIBOR Plus 8.00% (Floor 1.00%), Current Coupon 9.45%, Secured Debt (Maturity - May 30, 2019)
3 month LIBOR
2,500

2,480

2,513

 
 
 
 
 
11,731

12,156

Synagro Infrastructure Company, Inc. (8)
Waste Management Services
LIBOR Plus 5.50% (Floor 1.00%), Current Coupon 7.19%, Secured Debt (Maturity - August 22, 2020)
3 month LIBOR
6,411

6,235

6,023

TE Holdings, LLC
Oil & Gas Exploration & Production
Common Units (72,785 units)
—
—

728

118

Teleguam Holdings, LLC (8)
Cable and Telecom Services Provider
LIBOR Plus 8.50% (Floor 1.00%), Current Coupon 10.07%, Secured Debt (Maturity - April 12, 2024) (14)
1 month LIBOR
7,750

7,602

7,808

TMC Merger Sub Corp (8)
Refractory & Maintenance Services Provider
LIBOR Plus 6.25% (Floor 1.00%), Current Coupon 7.88%, Secured Debt (Maturity - October 31, 2022) (25)
1 month LIBOR
19,140

18,993

19,237

TOMS Shoes, LLC (8)
Global Designer, Distributor, and Retailer of Casual Footwear
LIBOR Plus 5.50% (Floor 1.00%), Current Coupon 6.98%, Secured Debt (Maturity - October 30, 2020)
3 month LIBOR
4,863

4,604

2,893

Turning Point Brands, Inc. (8) (9) (11)
Marketer/Distributor of Tobacco Products
LIBOR Plus 6.00% (Floor 1.00%), Current Coupon 7.61%, Secured Debt (Maturity - May 17, 2022) (24)
3 month LIBOR
8,436

8,364

8,605

TVG-I-E CMN Acquisition, LLC (8) (11)
Organic Lead Generation for Online Postsecondary Schools
LIBOR Plus 6.00%, (Floor 1.00%), Current Coupon 7.56%, Secured Debt (Maturity - November 3, 2021)
1 month LIBOR
8,170

8,031

8,170

U.S. Telepacific Corp. (8)
Provider of Communications and Managed Services
LIBOR Plus 5.00% (Floor 1.00%), Current Coupon 6.69%, Secured Debt (Maturity - May 2, 2023)
3 month LIBOR
16,421

16,027

15,754

USJ-IMECO Holding Company, LLC (8)
Marine Interior Design and Installation
LIBOR Plus 6.00% (Floor 1.00%), Current Coupon 7.70%, Secured Debt (Maturity - April 16, 2020)
3 month LIBOR
8,243

8,224

8,202

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Valley Healthcare Group, LLC (8) (10) (13)
Provider of Durable Medical Equipment
LIBOR Plus 12.50% (Floor 0.50%), Current Coupon 13.86%, Secured Debt (Maturity - December 29, 2020)
1 month LIBOR
$
2,942

$
2,901

$
2,901

 
 
Preferred Member Units (Valley Healthcare Holding, LLC) (400 units)
—
—

400

400

 
 
 
 
 
3,301

3,301

VIP Cinema Holdings, Inc. (8)
Supplier of Luxury Seating to the Cinema Industry
LIBOR Plus 6.00% (Floor 1.00%), Current Coupon 7.70%, Secured Debt (Maturity - March 1, 2023)
3 month LIBOR
9,625

9,582

9,721

Vistar Media, Inc. (8) (11)
Operator of Digital Out-of-Home Advertising Platform
LIBOR Plus 10.00% (Floor 1.00%), Current Coupon 11.69%, Secured Debt (Maturity - February 16, 2022)
3 month LIBOR
3,319

3,046

3,102

 
 
Warrants (70,207 equivalent units, Expiration - February 17, 2027)
—
—

331

500

 
 
 
 
 
3,377

3,602

Volusion, LLC (10) (13)
Provider of Online Software-as-a-Service eCommerce Solutions
11.50% Secured Debt (Maturity - January 24, 2020)
None
7,172

6,453

6,453

 
 
Preferred Member Units (2,090,001 units)
—
—

6,000

6,000

 
 
Warrants (784,866.80 equivalent units, Expiration - January 26, 2025)
—
—

1,104

891

 
 
 
 
 
13,557

13,344

Wellnext, LLC (8) (11)
Manufacturer of Supplements and Vitamins
LIBOR Plus 10.10% (Floor 1.00%), Current Coupon 11.67%, Secured Debt (Maturity - July 21, 2022) (23)
1 month LIBOR
9,930

9,856

9,930

Wireless Vision Holdings, LLC (8) (11)
Provider of Wireless Telecommunications Carrier Services
LIBOR Plus 8.91% (Floor 1.00%), Current Coupon 10.27%, Secured Debt (Maturity - September 29, 2022) (23)
1 month LIBOR
12,899

12,574

12,574

Wirepath, LLC (8)
E-Commerce Provider Into Connected Home Market
LIBOR Plus 5.25% (Floor 1.00%), Current Coupon 6.87%, Secured Debt (Maturity - August 5, 2024)
2 month LIBOR
11,471

11,416

11,629

 
 
 
 
 
 
 
Subtotal Non-Control/Non-Affiliate Investments (5) (88% of total portfolio investments at fair value)
 
 
$
948,029

$
922,898

 
 
 
 
 




Total Portfolio Investments
 
 
 
 
$
1,064,329

$
1,049,439

 
 
 
 
 




Short Term Investments (20)
 
 
 
 
 
 
Fidelity Institutional Money Market Funds (21)
—
Prime Money Market Portfolio, Class III Shares
—
—

$
11,335

$
11,335

US Bank Money Market Account (21)
—
—
—
—

18,613

18,613

 
 
 
 
 
 
 
Total Short Term Investments
 
 
 
 
$
29,948

$
29,948

(1) All investments are Middle Market portfolio investments, unless otherwise noted. All of the assets of the Company are encumbered as security for the Company’s credit agreements. See Note 6 - Borrowings.
(2) Debt investments are income producing, unless otherwise noted. Equity investments and warrants are non-income producing, unless otherwise noted.
(3) See Note 3 - Fair Value Hierarchy for Investments for summary geographic location of portfolio companies.
(4) Affiliate investments are defined by the 1940 Act, as investments in which between 5% and 25% of the voting securities are owned, or an investment in an investment company’s investment adviser, and the investments are not classified as Control investments. Fair value as of December 31, 2016 and December 31, 2017 along with transactions during the year ended December 31, 2017 in these affiliated investments were as follows (in thousands):
 
 
 
 
Twelve Months Ended December 31, 2017
 
 
 
Twelve Months Ended December 31, 2017
Portfolio Company
 
Fair Value at December 31, 2016
 
Gross Additions (Cost)*
 
Gross Reductions (Cost)**
 
Net Unrealized Gain (Loss)
 
Fair Value at December 31, 2017
 
Net Realized Gain (Loss)
Interest Income
Fee Income
Dividend Income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Affiliate Investments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AFG Capital Group, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Member units
 
$
687

 
$
—

 
$
—

 
$
210

 
$
897

 
$
—

$
—

$
—

$
18

Warrants
 
167

 
—

 
—

 
48

 
215

 
—

—

—

—

Charps, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Term loan
 
—

 
4,817

 
(320
)
 
3

 
4,500

 
—

533

1

—

Preferred member units
 
—

 
101

 
—

 
62

 
163

 
—

—

—

—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Clad-Rex Steel, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Term loan
 
$
3,449

 
$
16

 
$
(201
)
 
$
56

 
$
3,320

 
$
—

$
392

$
—

$
—

Term loan
 
99

 
—

 
(99
)
 
—

 
—

 
—

—

—

—

Member units
 
1,820

 
—

 
—

 
555

 
2,375

 
—

—

—

103

Term loan (Clad-Rex Steel RE Investor, LLC)
 
298

 
—

 
(5
)
 
—

 
293

 
—

30

—

—

Member units (Clad-Rex Steel RE Investor, LLC)
 
53

 
—

 
—

 
17

 
70

 
—

—

—

—

EIG Traverse Co-Investment, LP
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LP interests
 
9,905

 
951

 
(10,756
)
 
(100
)
 
—

 
951

—

—

871

Freeport First Lien Loan Fund III, LP
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LP interests
 
4,763

 
3,795

 
—

 
(52
)
 
8,506

 
—

—

—

617

Gamber-Johnson Holdings, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Term loan
 
5,964

 
19

 
(170
)
 
37

 
5,850

 
—

755

—

—

Common stock
 
4,730

 
—

 
—

 
1,113

 
5,843

 
—

—

54

105

Guerdon Modular Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Term loan
 
2,642

 
22

 
(1
)
 
(3
)
 
2,660

 
—

366

—

—

Common stock
 
20

 
—

 
—

 
(20
)
 
—

 
—

—

—

—

Class B preferred units
 
285

 
—

 
—

 
(285
)
 
—

 
—

—

—

—

Gulf Publishing Holdings, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Term loan
 
2,455

 
710

 
(14
)
 
—

 
3,151

 
—

387

1

—

Term loan
 
—

 
20

 
—

 
—

 
20

 
—

—

—

—

Member units
 
781

 
142

 
—

 
287

 
1,210

 
—

—

10

—

Harris Preston Fund Investments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LP interests (HPEP 3, LP)
 
—

 
943

 
—

 
—

 
943

 
—

—

—

—

LP interests (2717 HM, LP)
 
—

 
536

 
—

 
—

 
536

 
—

—

—

—

Hawk Ridge Systems, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Term loan
 
2,451

 
1,212

 
(149
)
 
60

 
3,574

 
—

301

—

—

Preferred member units
 
713

 
—

 
—

 
237

 
950

 
—

—

—

65

Preferred member units (HRS Services, ULC)
 
38

 
—

 
—

 
12

 
50

 
—

—

—

1

HWT, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Term loan
 
2,591

 
13

 
(150
)
 
—

 
2,454

 
—

370

—

—

Member units
 
985

 
—

 
—

 
—

 
985

 
—

—

35

—

Market Force Information, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Term loan
 
—

 
6,018

 
(286
)
 
—

 
5,732

 
—

324

—

—

Member units
 
—

 
3,675

 
—

 
—

 
3,675

 
—

—

—

—

M.H. Corbin, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Term loan
 
3,299

 
8

 
(177
)
 
—

 
3,130

 
—

382

—

—

Member units
 
1,500

 
—

 
—

 
—

 
1,500

 
—

—

35

—

Mystic Logistics, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Term loan
 
2,294

 
21

 
(352
)
 
(47
)
 
1,916

 
—

272

2

—

Common stock
 
1,445

 
—

 
—

 
260

 
1,705

 
—

—

—

—

NuStep, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Term loan
 
—

 
5,179

 
(131
)
 
—

 
5,048

 
—

603

—

—

Preferred member units
 
—

 
2,550

 
—

 
—

 
2,550

 
—

—

—

—

SoftTouch Medical Holdings, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Term loan
 
1,260

 
5

 
—

 
(5
)
 
1,260

 
—

135

—

124

Member units
 
1,618

 
—

 
—

 
163

 
1,781

 
—

—

42

—

 
 
$
56,312

 
$
30,753

 
$
(12,811
)
 
$
2,608

 
$
76,862

 
$
951

$
4,850

$
180

$
1,904

* Gross additions include increases in the cost basis of investments resulting from new portfolio investments, PIK interest, the amortization of unearned income, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company into this category from a different category.
** Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, the exchange of one or more new securities and the movement of an existing portfolio company out of this category into a different category.
(5) Non-Control/Non-Affiliate investments are generally investments that are neither Control investments nor Affiliate investments.
(6) Control investments are defined by the 1940 Act as investments in which more than 25% of the voting securities are owned or where the ability to nominate greater than 50% of the board representation is maintained. Fair value as of December 31, 2016 and December 31, 2017 along with transactions during the year ended December 31, 2017 in these Control investments were as follows (in thousands):
 
 
 
 
Twelve Months Ended December 31, 2017
 
 
 
Twelve Months Ended December 31, 2017
Portfolio Company
 
Fair Value at December 31, 2016
 
Gross Additions (Cost)**
 
Gross Reductions (Cost)***
 
Net Unrealized Gain (Loss)
 
Fair Value at December 31, 2017
 
Net Realized Gain (Loss)
Interest Income
Fee Income
Dividend Income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Control Investments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Copper Trail Energy Fund I, LP
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LP interests
 
$
—

 
$
2,500

 
$
—

 
$
—

 
$
2,500

 
$
—

$
—

$
—

$
—

GRT Rubber Technologies, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Term loan
 
6,538

 
32

 
(824
)
 
(31
)
 
5,715

 
—

663

—

—

Member units
 
10,004

 
—

 
—

 
817

 
10,821

 
—

—

73

577

HMS-ORIX SLF LLC*
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Membership interests
 
—

 
30,000

 
—

 
643

 
30,643

 
—

—

—

450

 
 
$
16,542

 
$
32,532

 
$
(824
)
 
$
1,429

 
$
49,679

 
$
—

$
663

$
73

$
1,027

* Together with Orix, the Company co-invests through HMS-ORIX, which is organized as a Delaware limited liability company. Pursuant to the terms of the limited liability company agreement and through representation on the HMS-ORIX Board of Managers, the Company and Orix each have 50% voting control of HMS-ORIX and together will agree on all portfolio and investment decisions as well as all other significant actions for HMS-ORIX. Although the Company owns more than 25% of the voting securities of HMS-ORIX, the Company does not have sole control over significant actions of HMS-ORIX for purposes of the 1940 Act or otherwise.
** Gross additions include increases in the cost basis of investments resulting from new portfolio investments, PIK interest, the amortization of unearned income, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company into this category from a different category.
*** Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, the exchange of one or more new securities and the movement of an existing portfolio company out of this category into a different category.
(7) Principal is net of repayments. Cost represents amortized cost which is net of repayments and adjusted for the amortization of premiums and/or accretion of discounts, as applicable.
(8) Index based floating interest rate is subject to contractual minimum interest rates, or floors.
(9) The investment is not a qualifying asset under the 1940 Act. A BDC may not acquire any asset other than qualifying assets unless, at the time the acquisition is made, qualifying assets represent at least 70% of the BDC’s total assets. As of December 31, 2017, approximately 13.9% of the Company’s investments were considered non-qualifying.
(10) Investment is classified as a LMM portfolio investment.
(11) Investment is classified as a Private Loan portfolio investment.
(12) Investment or portion of investment is under contract to purchase and met trade date accounting criteria as of December 31, 2017. Settlement occurred or is scheduled to occur after December 31, 2017. See Note 2 - Basis of Presentation and Summary of Significant Accounting Policies for Summary of Security Transactions.
(13) Investment serviced by Main Street pursuant to servicing arrangements with the Company.
(14) Second lien secured debt investment.
(15) Investment is classified as an Other Portfolio investment.
(16) Income producing through dividends or distributions.
(17) Unsecured debt investment.
(18) Investment is on non-accrual status as of December 31, 2017.
(19) [Reserved]
(20) Short term investments represent an investment in a fund that invests in highly liquid investments with average original maturity dates of three months or less.
(21) Effective yield as of December 31, 2017 was approximately 0.01%.
(22) The 1, 2, 3 and 6 month LIBOR rates were 1.57%, 1.62%, 1.69% and 1.84%, respectively, as of December 31, 2017. The actual LIBOR rate for each loan listed may not be the applicable LIBOR rate as of December 31, 2017, as the loan may have been priced or repriced based on a LIBOR rate prior to December 31, 2017. The prime rate was 4.50% as of December 31, 2017.
(23) The Company has entered into an intercreditor agreement that entitles the Company to the "last out" tranche of the first lien secured loans, whereby the "first out" tranche receives priority over the "last out" tranche with respect to payments of principal, interest and any other amounts due thereunder. Therefore, the Company receives a higher interest rate than the contractual stated interest rate of LIBOR plus 7.50% (Floor 1.00%) per the credit agreement and the Condensed Consolidated Schedule of Investments above reflects such higher rate.
(24) As part of the credit agreement with the portfolio company, the Company is entitled to the "last out" tranche of the first lien secured loans, whereby the "first out" tranche receives priority over the "last out" tranche with respect to payments of principal, interest and any other amounts due thereunder. The rate the Company receives per the credit agreement is the same as the rate reflected in the Condensed Consolidated Schedule of Investments above.
(25) The Company has entered into an intercreditor agreement that entitles the Company to the "first out" tranche of the first lien secured loans, whereby the "first out" tranche receives priority over the "last out" tranche with respect to payments of principal, interest and any other amounts due thereunder. Therefore, the Company receives a lower interest rate than the contractual stated interest rate of LIBOR plus 6.64% (Floor 1.00%) per the credit agreement and the Condensed Consolidated Schedule of Investments above reflects such lower rate.
(26) The fair value of the investment was determined using significant unobservable inputs. See Note 3 - Fair Value Hierarchy for Investments.


See notes to the consolidated financial statements.



6


HMS Income Fund, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

Note 1 – Principal Business and Organization

HMS Income Fund, Inc. (together with its consolidated subsidiaries, the “Company”) was formed as a Maryland corporation on November 28, 2011 under the General Corporation Law of the State of Maryland. The Company is an externally managed, non-diversified closed-end management investment company that has elected to be treated as a BDC under the 1940 Act. The Company has elected to be treated for U.S. federal income tax purposes as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).

The Company’s primary investment objective is to generate current income through debt and equity investments. A secondary objective of the Company is to generate long-term capital appreciation through equity and equity-related investments including warrants, convertible securities and other rights to acquire equity securities. The Company’s portfolio strategy is to invest primarily in illiquid debt and equity securities issued by lower middle market (“LMM”) companies, which generally have annual revenues between $10 million and $150 million, and middle market (“Middle Market”) companies that are generally larger in size than the LMM companies, with annual revenues typically between $10 million and $3 billion. The Company’s LMM and Middle Market portfolio investments generally range in size from $1 million to $15 million. The Company categorizes some of its investments in LMM companies and Middle Market companies as private loan (“Private Loan”) portfolio investments. Private Loan investments, often referred to in the debt markets as “club deals,” are investments, generally in debt instruments, that the Company originates on a collaborative basis with other investment funds. Private Loan investments are typically similar in size, structure, terms and conditions to investments the Company holds in its LMM portfolio and Middle Market portfolio. The Company’s portfolio also includes other portfolio (“Other Portfolio”) investments primarily consisting of the Company’s investment in HMS-ORIX (see Note 4 - Investment in HMS-ORIX SLF LLC) and investments managed by third parties, which differ from the typical profiles for the Company’s other types of investments.

The Company previously registered for sale up to 150,000,000 shares of common stock pursuant to a registration statement on Form N-2 (File No. 333-178548) which was initially declared effective by the Securities and Exchange Commission (the “SEC”) on June 4, 2012 (the “Initial Offering”). The Initial Offering terminated on December 1, 2015. The Company raised approximately $601.2 million under the Initial Offering, including proceeds from the dividend reinvestment plan of approximately $22.0 million. The Company also registered for sale up to $1,500,000,000 worth of shares of common stock (the “Offering”) pursuant to a new registration statement on Form N-2 (File No. 333-204659), as amended. With the approval of the Company’s board of directors, the Company closed the Offering to new investors effective September 30, 2017. Through September 30, 2018, the Company raised approximately $204.7 million in the Offering, including proceeds from the distribution reinvestment plan of approximately $73.0 million.

HMS Funding I LLC (“HMS Funding”) and HMS Equity Holding, LLC (“HMS Equity Holding”) are both wholly owned subsidiaries of the Company that were organized as Delaware limited liability companies. HMS Equity Holding II, Inc. (“HMS Equity Holding II”) is a wholly owned subsidiary of the Company that was organized as a Delaware corporation. HMS Funding was created for the Deutsche Bank Credit Facility (as defined below in Note 5 - Borrowings) in order to function as a “Structured Subsidiary,” which is permitted to incur debt outside of the TIAA Credit Facility (as defined below in Note 5 - Borrowings) since it is not a guarantor under the TIAA Credit Facility. HMS Equity Holding and HMS Equity Holding II, which have elected to be taxable entities, primarily hold equity investments in certain portfolio companies which are “pass through” entities for tax purposes.

The business of the Company is managed by HMS Adviser LP (the “Adviser”), a Texas limited partnership and affiliate of Hines Interests Limited Partnership (“Hines”), under an Investment Advisory and Administrative Services Agreement dated May 31, 2012 (as amended, the “Investment Advisory Agreement”). The Company and the Adviser have retained MSC Adviser I, LLC (the “Sub-Adviser”), a wholly owned subsidiary of Main Street Capital Corporation (“Main Street”), a New York Stock Exchange listed BDC, as the Company’s investment sub-adviser, pursuant to an Investment Sub-Advisory Agreement (the “Sub-Advisory Agreement”), to identify, evaluate, negotiate and structure prospective investments, make investment and portfolio management recommendations for approval by the Adviser, monitor the Company’s investment portfolio and provide certain ongoing administrative services to the Adviser. The Adviser and the Sub-Adviser are collectively referred to as the “Advisers,” and each is registered as an investment adviser under the Investment Advisers Act of 1940, as amended. Upon the execution of the Sub-Advisory Agreement, Main Street became an affiliate of the Company. The Company’s board of directors most recently reapproved the Investment Advisory Agreement and Sub-Advisory Agreement on May 10, 2018. The Company engaged Hines Securities, Inc. (the “Dealer Manager”), an affiliate of the Adviser, to serve as the Dealer Manager for our offerings, if any.


7


Note 2 – Basis of Presentation and Summary of Significant Accounting Policies
 
Basis of Presentation and Consolidation
 
The accompanying condensed consolidated financial statements of the Company have been prepared in accordance with the instructions to Form 10-Q and accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company’s wholly owned consolidated subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Under the 1940 Act rules, regulations pursuant to Articles 6, 10 and 12 of Regulation S-X and Topic 946, Financial Services - Investment Companies, of the Accounting Standards Codification, as amended (the “ASC”), of the Financial Accounting Standards Board (the “FASB”), the Company is precluded from consolidating portfolio company investments, including those in which the Company has a controlling interest, unless the portfolio company is a wholly-owned investment company. An exception to this general principle occurs if the Company owns a controlled operating company whose purpose is to provide services to the Company such as an investment adviser or transfer agent. None of the Company’s investments qualifies for this exception. Therefore, the Company’s portfolio company investments, including those in which the Company has a controlling interest, are carried on the Condensed Consolidated Balance Sheet at fair value, as discussed below, with changes to fair value recognized as “Net Change in Unrealized Appreciation (Depreciation) on Investments” on the Condensed Consolidated Statements of Operations until the investment is realized, usually upon exit, resulting in any gain or loss on exit being recognized as a realized gain or loss. However, in the event that any controlled subsidiary exceeds the tests of significance set forth in Rules 3-09 or 4-08(g) of Regulation S-X, the Company will include required financial information for such subsidiary in the notes or as an attachment to its condensed consolidated financial statements.

The unaudited condensed consolidated financial statements reflect all normal recurring adjustments, which are, in the opinion of management, necessary for the fair presentation of the Company’s results for the interim periods presented. The results of operations for interim periods are not indicative of results to be expected for the full year.

Amounts as of December 31, 2017 included in the unaudited condensed consolidated financial statements have been derived from the Company’s audited consolidated financial statements as of that date. All intercompany accounts and transactions have been eliminated in consolidation. Certain financial information that is normally included in annual financial statements, including certain financial statement footnotes, prepared in accordance with GAAP, is not required for interim reporting purposes and has been condensed or omitted herein. The current period’s results of operations are not necessarily indicative of results that ultimately may be achieved for the year. Therefore, these financial statements should be read in conjunction with the Company’s financial statements and notes related thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, which was filed with the SEC on March 21, 2018.
 
Interest, Fee and Dividend Income
 
Interest and dividend income are recorded on the accrual basis to the extent amounts are expected to be collected. Prepayment penalties received by the Company are recorded as income upon receipt. Dividend income is recorded when dividends are declared by the portfolio company or at the point an obligation exists for the portfolio company to make a distribution. Accrued interest and dividend income are evaluated quarterly for collectability. When a debt security becomes 90 days or more past due and the Company does not expect the debtor to be able to service all of its debt or other obligations, it will generally be placed on non-accrual status and the Company will cease recognizing interest income on that debt security until the borrower has demonstrated the ability and intent to pay contractual amounts due. If there is reasonable doubt that the Company will receive any previously accrued interest, then the interest income will be written off. Additionally, if a debt security has deferred interest payment terms and the Company becomes aware of a deterioration in credit quality, the Company will evaluate the collectability of the deferred interest payment. If it is determined that the deferred interest is unlikely to be collected, the Company will place the security on non-accrual status and cease recognizing interest income on that debt security until the borrower has demonstrated the ability and intent to pay the contractual amounts due. Payments received on non-accrual investments may be recognized as income or applied to principal depending upon the collectability of the remaining principal and interest. If a debt security’s status significantly improves with respect to the debtor’s ability to service the debt or other obligations, or if a debt security is fully impaired, sold or written off, it will be removed from non-accrual status.

As of September 30, 2018, the Company had five debt investments in three portfolio companies that were on non-accrual status, all of which were more than 90 days past due. Each of these portfolio companies experienced a significant decline in credit quality raising doubt regarding the Company’s ability to collect the principal and interest contractually due. Given the credit deterioration of these portfolio companies, the Company ceased accruing interest income on the non-accrual debt investments and wrote off any previously accrued interest deemed uncollectible. As of September 30, 2018, the Company is not aware of any other material changes to the creditworthiness of the borrowers underlying its debt investments.


8


As of December 31, 2017, the Company had four debt investments in three portfolio companies that were more than 90 days past due, all of which were on non-accrual status. Each of these portfolio companies experienced a significant decline in credit quality raising doubt regarding the Company’s ability to collect the principal and interest contractually due. Given the credit deterioration, the Company ceased accruing interest income on the non-accrual debt investments and wrote off any previously accrued interest deemed uncollectible.

From time to time, the Company may hold debt instruments in its investment portfolio that contain a payment-in-kind (“PIK”) interest provision. If these borrowers elect to pay or are obligated to pay interest under the optional PIK provision and, if deemed collectible in management’s judgment, then the interest would be computed at the contractual rate specified in the investment’s credit agreement, recorded as interest income and periodically added to the principal balance of the investment. Thus, the actual collection of this interest may be deferred until the time of debt principal repayment. The Company stops accruing PIK interest and writes off any accrued and uncollected interest in arrears when it determines that such PIK interest in arrears is no longer collectible.

As of September 30, 2018 and December 31, 2017, the Company held 18 and 19 investments, respectively, which contained a PIK provision. As of September 30, 2018, three of the 18 investments with PIK provisions were on non-accrual status. No PIK interest was recorded on these three non-accrual investments during the three and nine months ended September 30, 2018. As of December 31, 2017, three of the 19 investments with PIK provisions were on non-accrual status. No PIK interest was recorded on these investments during the year ended December 31, 2017. For the three months ended September 30, 2018 and 2017, the Company capitalized $494,000 and $58,000, respectively, of PIK interest income. For the nine months ended September 30, 2018 and 2017, the Company capitalized $977,000 and $897,000, respectively, of PIK interest income. The Company stops accruing PIK interest and writes off any accrued and uncollected interest in arrears when it determines that such PIK interest in arrears is no longer collectible.

The Company may periodically provide services, including structuring and advisory services, to its portfolio companies or other third parties. The income from such services is non-recurring. For services that are separately identifiable and evidence exists to substantiate fair value, income is recognized as earned, which is generally when the investment or other applicable transaction closes. For the three months ended September 30, 2018 and 2017, the Company recognized $781,000 and $213,000, respectively, of non-recurring fee income received from its portfolio companies or other third parties, which accounted for approximately 2.5% and 0.8%, respectively, of the Company’s total investment income during such period. For the nine months ended September 30, 2018 and 2017, the Company recognized $1.8 million and $1.9 million, respectively, of non-recurring fee income received from its portfolio companies or other third parties, which accounted for approximately 2.2% and 2.5%, respectively, of the Company’s total investment income during such period. Fees received in connection with debt financing transactions for services that do not meet these criteria are treated as debt origination fees and are deferred and accreted into interest income over the life of the financing.

Recent Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014‑09, Revenue from Contracts with Customers (Topic 606). ASU 2014‑09 supersedes the revenue recognition requirements under ASC 605, Revenue Recognition, and most industry‑specific guidance throughout the Industry Topics of the ASC. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. Under the new guidance, an entity is required to perform the following five steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation. The new guidance will significantly enhance comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets. Additionally, the guidance requires improved disclosures as to the nature, amount, timing and uncertainty of revenue that is recognized. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarified the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which clarified the implementation guidance regarding performance obligations and licensing arrangements. In May 2016, the FASB issued ASU No. 2016‑12, Revenue from Contracts with Customers (Topic 606)-Narrow‑Scope Improvements and Practical Expedients, which clarified guidance on assessing collectability, presenting sales tax, measuring non-cash consideration, and certain transition matters. The new guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Substantially all of the Company’s income is not within the scope of ASU 2014-09. For those income items that are within the scope of ASU 2014-09 (primarily fee income), the Company has similar performance obligations as compared with deliverables and separate units of account previously identified. As a result,

9


the Company’s timing of its revenue recognition remains the same and the adoption of the standard did not have a material impact on the Company’s condensed consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities, which amends the guidance related to the classification and measurement of investments in equity securities. The guidance requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. The ASU will also amend the guidance related to the presentation of certain fair value changes for financial liabilities measured at fair value and certain disclosure requirements associated with the fair value of financial instruments. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The impact of the adoption of this new accounting standard did not have a material impact on the Company’s condensed consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,” which addresses eight specific cash flow issues including, among other things, the classification of debt prepayment or debt extinguishment costs. ASU 2016-15 is effective for fiscal years, and the interim periods within those periods, beginning after December 15, 2017. The impact of the adoption of this new accounting standard did not have a material impact on the Company’s condensed consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230),” which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The new guidance is effective for fiscal years beginning after December 15, 2017 and the interim periods within those years. The amendment should be adopted retrospectively. The impact of the adoption of this new accounting standard did not have a material impact on the Company’s condensed consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820)”, which is intended to improve fair value disclosure requirements by removing disclosures that are not cost-beneficial, clarifying disclosures' specific requirements, and adding relevant disclosure requirements. The amendments take effect for all organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements and related disclosures.
From time to time, new accounting pronouncements are issued by the FASB or other standards setting bodies that are adopted by the Company as of the specified effective date. The Company believes that the impact of recently issued standards and any that are not yet effective will not have a material impact on its financial statements upon adoption.

Note 3 — Fair Value Hierarchy for Investments

Fair Value Hierarchy
 
ASC Topic 820, Fair Value Measurement and Disclosures (“ASC 820”), establishes a hierarchal disclosure framework which prioritizes and ranks the level of market price observability of inputs used in measuring investments at fair value. Market price observability is affected by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.
 
Based on the observability of the inputs used in the valuation techniques, the Company is required to provide disclosures on fair value measurements according to the fair value hierarchy. The fair value hierarchy ranks the observability of the inputs used to determine fair values. Investments carried at fair value are classified and disclosed in one of the following three categories:
 
•
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 inputs other than quoted prices in active markets, which are either directly or indirectly observable for essentially the full term of the investment. Level 2 inputs include quoted prices for similar assets in active markets, quoted prices for identical or similar assets in non-active markets (for example, thinly traded public companies), pricing models whose inputs are observable for substantially the full term of the investment, and pricing models whose inputs are derived principally from or corroborated by, observable market data through correlation or other means for substantially the full term of the investment.

10


•
Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement. Such information may be the result of consensus pricing information or broker quotes for which sufficient observable inputs were not available.

As required by ASC 820, when the inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement in its entirety. For example, a Level 3 fair value measurement may include inputs that are observable (Levels 1 and 2) and unobservable (Level 3). Therefore, gains and losses for such investments categorized within the Level 3 table below may include changes in fair value that are attributable to both observable inputs (Levels 1 and 2) and unobservable inputs (Level 3). The Company conducts reviews of fair value hierarchy classifications on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification for certain investments.

As of September 30, 2018 and December 31, 2017, the Company’s investment portfolio was comprised of debt securities, equity investments and Other Portfolio investments. The fair value determination for these investments primarily utilized unobservable (Level 3) inputs.

As of September 30, 2018 and December 31, 2017, all of the Company’s LMM portfolio investments consisted of illiquid securities issued by private companies. The fair value determination for the LMM portfolio investments primarily consisted of unobservable inputs. As a result, all of the Company’s LMM portfolio investments were categorized as Level 3 as of September 30, 2018 and December 31, 2017.

As of September 30, 2018 and December 31, 2017, the Company’s Middle Market portfolio investments consisted primarily of investments in secured and unsecured debt investments and independently rated debt investments. The fair value determination for these investments consisted of a combination of (1) observable inputs in non-active markets for which sufficient observable inputs were available to determine the fair value of these investments, (2) observable inputs in non-active markets for which sufficient observable inputs were not available to determine the fair value of these investments and (3) unobservable inputs. As a result, all of the Company’s Middle Market portfolio investments were categorized as Level 3 as of September 30, 2018 and December 31, 2017.

As of September 30, 2018 and December 31, 2017, the Company’s Private Loan portfolio investments consisted primarily of debt investments. The fair value determination for Private Loan investments consisted of a combination of observable inputs in non-active markets for which sufficient observable inputs were not available to determine the fair value of these investments and unobservable inputs. As a result, all of the Company’s Private Loan portfolio investments were categorized as Level 3 as of September 30, 2018 and December 31, 2017.

As of September 30, 2018 and December 31, 2017, the Company’s Other Portfolio investments consisted of illiquid securities issued by private companies. The Company relies primarily on information provided by managers of private investment funds in valuing these investments and considers whether it is appropriate, in light of all relevant circumstances, to value the Other Portfolio investments at the net asset value (“NAV”) reported by the private investment fund at the time of valuation or to adjust the value to reflect a premium or discount. The fair value determination for these investments primarily consisted of unobservable inputs. As a result, all of the Company’s Other Portfolio equity investments were categorized as Level 3 as of September 30, 2018 and December 31, 2017.

The fair value determination of the Level 3 securities required one or more of the following unobservable inputs:
 
•
Financial information obtained from each portfolio company, including unaudited statements of operations and balance sheets for the most recent period available as compared to budgeted numbers;
•
Current and projected financial condition of the portfolio company;
•
Current and projected ability of the portfolio company to service its debt obligations;
•
Type and amount of collateral, if any, underlying the investment;
•
Current financial ratios (e.g., fixed charge coverage ratio, interest coverage ratio, and net debt/earnings before interest, tax, depreciation and amortization (“EBITDA”) ratio) applicable to the investment;
•
Current liquidity of the investment and related financial ratios (e.g., current ratio and quick ratio);
•
Pending debt or capital restructuring of the portfolio company;
•
Projected operating results of the portfolio company;
•
Current information regarding any offers to purchase the investment;
•
Current ability of the portfolio company to raise any additional financing as needed;
•
Changes in the economic environment which may have a material impact on the operating results of the portfolio company;
•
Internal occurrences that may have an impact (both positive and negative) on the operating performance of the portfolio company;

11


•
Qualitative assessment of key management;
•
Contractual rights, obligations or restrictions associated with the investment;
•
Third party pricing for securities with limited observability of inputs determining the pricing; and
•
Other factors deemed relevant.

The following table presents fair value measurements of the Company’s investments, by type of investment, as of September 30, 2018 according to the fair value hierarchy (dollars in thousands):
 
Fair Value Measurements
 
Level 1
 
Level 2
 
Level 3
 
Total
First lien secured debt investments
$
—

 
$
—

 
$
870,165

 
$
870,165

Second lien secured debt investments
—

 
—

 
101,635

 
101,635

Unsecured debt investments
—

 
—

 
11,467

 
11,467

Equity investments (1)
—

 
—

 
147,055

 
147,055

Total
$
—

 
$
—

 
$
1,130,322

 
$
1,130,322

(1) Includes the Company’s investment in HMS-ORIX. (See Note 4 - Investment in HMS-ORIX SLF LLC)

The following table presents fair value measurements of the Company’s investments, by type of investment, as of December 31, 2017 according to the fair value hierarchy (dollars in thousands):
 
Fair Value Measurements
 
Level 1
 
Level 2
 
Level 3
 
Total
First lien secured debt investments
$
—

 
$
—

 
$
830,460

 
$
830,460

Second lien secured debt investments
—

 
—

 
97,940

 
97,940

Unsecured debt investments
—

 
—

 
11,368

 
11,368

Equity investments (1)
—

 
—

 
109,671

 
109,671

Total
$
—

 
$
—

 
$
1,049,439

 
$
1,049,439

(1) Includes the Company’s investment in HMS-ORIX. (See Note 4 - Investment in HMS-ORIX SLF LLC)

The following table presents fair value measurements of the Company’s investments, by investment classification, segregated by the level within the fair value hierarchy as of September 30, 2018 (dollars in thousands):
 
Fair Value Measurements
 
Level 1
 
Level 2
 
Level 3
 
Total
LMM portfolio investments
$
—

 
$
—

 
$
194,599

 
$
194,599

Private Loan investments
—

 
—

 
390,304

 
390,304

Middle Market investments
—

 
—

 
492,712

 
492,712

Other Portfolio investments (1)
—

 
—

 
52,707

 
52,707

Total
$
—

 
$
—

 
$
1,130,322

 
$
1,130,322

(1) Includes the Company’s investment in HMS-ORIX. (See Note 4 - Investment in HMS-ORIX SLF LLC)

The following table presents fair value measurements of the Company’s investments, by investment classification, segregated by the level within the fair value hierarchy as of December 31, 2017 (dollars in thousands):
 
Fair Value Measurements
 
Level 1
 
Level 2
 
Level 3
 
Total
LMM portfolio investments
$
—

 
$
—

 
$
135,657

 
$
135,657

Private Loan investments
—

 
—

 
315,382

 
315,382

Middle Market investments
—

 
—

 
549,792

 
549,792

Other Portfolio investments (1)
—

 
—

 
48,608

 
48,608

Total
$
—

 
$
—

 
$
1,049,439

 
$
1,049,439

(1) Includes the Company’s investment in HMS-ORIX. (See Note 4 - Investment in HMS-ORIX SLF LLC)

The significant unobservable inputs used in the fair value measurement of the Company’s LMM, Middle Market and Private Loan debt investments are (i) risk adjusted discount rates used in the yield-to-maturity valuation technique (described in Note 2 - Basis of Presentation and Summary of Significant Accounting Policies - Valuation of Portfolio Investments in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, which was filed with the SEC on March 21, 2018) and (ii) the percentage of expected principal recovery. Increases (decreases) in any of these discount rates in isolation could result in a significantly lower (higher) fair value measurement. Increases (decreases) in any of these expected principal recovery percentages

12


in isolation could result in a significantly higher (lower) fair value measurement. The significant unobservable inputs used in the fair value measurement of the Company’s LMM equity securities and Private Loan equity securities, which are generally valued through an average of the discounted cash flow technique and the market comparable/enterprise value technique (unless one of these approaches is not applicable), are (i) EBITDA multiples and (ii) the weighted average cost of capital (“WACC”). Increases (decreases) in EBITDA multiple inputs in isolation could result in a significantly higher (lower) fair value measurement. Conversely, increases (decreases) in WACC inputs in isolation could result in a significantly lower (higher) fair value measurement. However, due to the nature of certain investments, fair value measurements may be based on other criteria, such as third-party appraisals of collateral and fair values as determined by independent third parties, which are not presented in the table below.

The following table, which is not intended to be all inclusive, presents the significant unobservable inputs of the Company’s Level 3 investments as of September 30, 2018 (dollars in thousands):
 
Fair Value
Valuation
Technique
Significant Unobservable Inputs
Range
 
Weighted
Average (2)
LMM equity investments
$
71,113

Discounted Cash Flows
WACC
12.2% - 17.6%
 
13.9%
 
 
Market Approach/Enterprise Value
EBITDA Multiples (1)
4.0x - 8.5x
 
6.6x
LMM debt investments
123,486

Discounted Cash Flows
Expected Principal Recovery
97.0% - 100.0%
 
99.9%
 
 
 
Risk Adjusted Discount Factor
10.0% - 23.0%
 
13.5%
Private Loan debt investments
274,568

Discounted Cash Flows
Expected Principal Recovery
2.9% - 100.0%
 
99.8%
 
 
 
Risk Adjusted Discount Factor
4.9% - 28.7%
 
8.4%
 
103,008

Market Approach
Third Party Quotes
98.2% - 102.0%
 
98.5%
Private Loan equity investments
12,728

Market Approach/Enterprise Value
EBITDA Multiples (1)
6.2x - 9.5x
 
7.5x
 
 
Discounted Cash Flows
WACC
11.4% - 13.8%
 
12.2%
Middle Market debt investments
482,205

Market Approach
Third Party Quotes
36.0% - 106.3%
 
97.2%
Middle Market equity investments
10,507

Market Approach
Third Party Quotes
$1.1 - $275.0
 
$87.0
 
 
Discounted Cash Flows
WACC
15.3% - 16.1%
 
15.7%
 
 
Market Approach/Enterprise Value
EBITDA Multiples (1)
3.9x - 5.5x
 
4.7x
Other Portfolio investments(3)
52,707

Market Approach
NAV (1)
87.9% - 108.9%
 
99.5%
 
$
1,130,322

 
 
 
 
 
(1) May include pro forma adjustments and/or other add-backs based on specific circumstances related to each investment.
(2) Weighted average excludes investments for which the significant unobservable input was not utilized in the fair value determination.
(3) Includes the Company’s investment in HMS-ORIX. (See Note 4 - Investment in HMS-ORIX SLF LLC)

The following table, which is not intended to be all inclusive, presents the significant unobservable inputs of the Company’s Level 3 investments as of December 31, 2017 (dollars in thousands):
 
Fair Value
Valuation
Technique
Significant Unobservable Inputs
Range
 
Weighted
Average (2)
LMM equity investments
$
47,876

Discounted Cash Flows
WACC
12.6% - 17.4%
 
13.9%
 
 
Market Approach/Enterprise Value
EBITDA Multiples (1)
4.0x - 10.0x
 
7.1x
LMM debt investments
87,781

Discounted Cash Flows
Expected Principal Recovery
28.0% - 100.0%
 
98.9%
 
 

 
Risk Adjusted Discount Factor
10.6% - 20.5%
 
12.3%
Private Loan debt investments
228,789

Discounted Cash Flows
Expected Principal Recovery
2.9% - 100.0%
 
99.7%
 
 
 
Risk Adjusted Discount Factor
4.5% - 28.3%
 
7.9%
 
77,981

Market Approach
Third Party Quotes
92.0% - 102.0%
 
98.8%
Private Loan equity investments
8,612

Market Approach/Enterprise Value
EBITDA Multiples (1)
5.0x - 9.5x
 
8.0x
 
 
Discounted Cash Flows
WACC
9.9% - 14.0%
 
11.8%
Middle Market debt investments
545,217

Market Approach
Third Party Quotes
29.0% - 106.0%
 
96.1%
Middle Market equity investments
4,575

Market Approach
Third Party Quotes
$1.6 - $345.0
 
$322.2
 
 
Discounted Cash Flows
WACC
15.3% - 15.3%
 
15.3%
 
 
Market Approach/Enterprise Value
EBITDA Multiples (1)
5.5x - 5.5x
 
5.5x
Other Portfolio investments (3)
48,608

Market Approach
NAV (1)
86.1% - 102.1%
 
100.3%
 
$
1,049,439

 
 
 
 
 
(1) May include pro forma adjustments and/or other add-backs based on specific circumstances related to each investment.
(2) Weighted average excludes investments for which the significant unobservable input was not utilized in the fair value determination.
(3) Includes the Company’s investment in HMS-ORIX. (See Note 4 - Investment in HMS-ORIX SLF LLC)

13


The following table provides a summary of changes in fair value of the Company’s Level 3 portfolio investments for the nine months ended September 30, 2018 (dollars in thousands):
Type of Investment
January 1, 2018 Fair Value
 
PIK 
Interest
Accrual
 
New Investments(1)
 
Sales/ Repayments
 
Net Change in Unrealized
Appreciation
(Depreciation) (2)
 
Net Realized Gain (Loss)
 
September 30, 2018 Fair Value
LMM Equity
$
47,876

 
$
—

 
$
14,630

 
$
(3,106
)
 
$
10,029

 
$
1,684

 
$
71,113

LMM Debt
87,781

 
18

 
45,121

 
(8,936
)
 
642

 
(1,140
)
 
123,486

Private Loan Equity
8,612

 
—

 
4,748

 
(450
)
 
(534
)
 
352

 
12,728

Private Loan Debt
306,770

 
411

 
216,372

 
(146,276
)
 
17

 
282

 
377,576

Middle Market Debt
545,217

 
548

 
184,110

 
(241,254
)
 
14,527

 
(20,943
)
 
482,205

Middle Market Equity
4,575

 
—

 
6,633

 
—

 
(701
)
 
—

 
10,507

Other Portfolio(3)
48,608

 
—

 
3,912

 
—

 
187

 
—

 
52,707

Total
$
1,049,439

 
$
977

 
$
475,526

 
$
(400,022
)
 
$
24,167

 
$
(19,765
)
 
$
1,130,322

(1) Column includes changes to investments due to the net accretion of discounts/premiums and amortization of fees.
(2) Column does not include unrealized appreciation (depreciation) on unfunded commitments.
(3) Includes the Company’s investment in HMS-ORIX. (See Note 4 - Investment in HMS-ORIX SLF LLC)

The following table provides a summary of changes in fair value of the Company’s Level 3 portfolio investments for the nine months ended September 30, 2017 (dollars in thousands):
Type of Investment
January 1, 2017 Fair Value
 
PIK 
Interest
Accrual
 
New Investments(1)
 
Sales/ Repayments
 
Net Change in Unrealized
Appreciation
(Depreciation) (2)
 
Net Realized Gain (Loss)
 
September 30, 2017 Fair Value
LMM Equity
$
37,616

 
$
154

 
$
8,276

 
$
(622
)
 
$
1,170

 
$
(445
)
 
$
46,149

LMM Debt
78,444

 
102

 
25,191

 
(9,057
)
 
(1,886
)
 
—

 
92,794

Private Loan Equity
6,323

 
—

 
3,855

 
(2,917
)
 
(1,528
)
 
2,548

 
8,281

Private Loan Debt
205,034

 
181

 
169,214

 
(68,482
)
 
(494
)
 
—

 
305,453

Middle Market Debt
638,374

 
377

 
236,193

 
(284,372
)
 
(3,180
)
 
306

 
587,698

Middle Market Equity
5,090

 
83

 
33

 
—

 
(1,221
)
 
—

 
3,985

Other Portfolio (3)
18,366

 
—

 
37,677

 
(10,756
)
 
109

 
950

 
46,346

Total
$
989,247

 
$
897

 
$
480,439

 
$
(376,206
)
 
$
(7,030
)
 
$
3,359

 
$
1,090,706

(1) Column includes changes to investments due to the net accretion of discounts/premiums and amortization of fees.
(2) Column does not include unrealized appreciation (depreciation) on unfunded commitments.
(3) Includes the Company’s investment in HMS-ORIX. (See Note 4 - Investment in HMS-ORIX SLF LLC)

The total net change in unrealized appreciation (depreciation) for the nine months ended September 30, 2018 and 2017 included in the Condensed Consolidated Statement of Operations that related to Level 3 assets still held as of September 30, 2018 and 2017 was approximately $12.6 million and $(652,000), respectively. For the nine months ended September 30, 2018 and 2017, there were no transfers between Level 2 and Level 3 portfolio investments.

Portfolio Investment Composition

The composition of the Company’s investments as of September 30, 2018, at cost and fair value, was as follows (dollars in thousands):
 
Investments at Cost
 
Cost Percentage of Total Portfolio
 
Investments at Fair Value
 
Fair Value
Percentage of
Total Portfolio
First lien secured debt investments
$
880,247

 
78.5
%
 
$
870,165

 
77.0
%
Second lien secured debt investments
101,736

 
9.1

 
101,635

 
9.0

Unsecured debt investments
11,799

 
1.0

 
11,467

 
1.0

Equity investments(1)
125,274

 
11.2

 
145,038

 
12.8

Equity warrants
1,987

 
0.2

 
2,017

 
0.2

Total
$
1,121,043

 
100.0
%
 
$
1,130,322

 
100.0
%
(1) Includes the Company’s investment in HMS-ORIX. (See Note 4 - Investment in HMS-ORIX SLF LLC)
 

14


The composition of the Company’s investments as of December 31, 2017, at cost and fair value, was as follows (dollars in thousands):
 
Investments at Cost
 
Cost Percentage of Total Portfolio
 
Investments at Fair Value
 
Fair Value
Percentage of
Total Portfolio
First lien secured debt investments
$
856,582

 
80.5
%
 
$
830,460

 
79.1
%
Second lien secured debt investments
97,691

 
9.2

 
97,940

 
9.3

Unsecured debt investments
11,194

 
1.0

 
11,368

 
1.1

Equity investments (1)
96,850

 
9.1

 
107,597

 
10.3

Equity warrants
2,012

 
0.2

 
2,074

 
0.2

Total
$
1,064,329

 
100.0
%
 
$
1,049,439

 
100.0
%
(1) Includes the Company’s investment in HMS-ORIX. (See Note 4 - Investment in HMS-ORIX SLF LLC)

The composition of the Company’s investments by geographic region as of September 30, 2018, at cost and fair value, was as follows (dollars in thousands) (since the Other Portfolio investments do not represent a single geographic region, this information excludes Other Portfolio investments):
 
Investments at Cost
 
Cost Percentage of Total Portfolio
 
Investments at Fair Value
 
Fair Value
Percentage of
Total Portfolio
Northeast
$
154,631

 
14.5
%
 
$
153,565

 
14.3
%
Southeast
183,534

 
17.1

 
194,827

 
18.1

West
230,295

 
21.6

 
228,705

 
21.2

Southwest
246,982

 
23.1

 
245,042

 
22.7

Midwest
218,152

 
20.4

 
220,913

 
20.5

Non-United States
34,888

 
3.3

 
34,563

 
3.2

Total
$
1,068,482

 
100.0
%
 
$
1,077,615

 
100.0
%
 
The composition of the Company’s investments by geographic region as of December 31, 2017, at cost and fair value, was as follows (dollars in thousands) (since the Other Portfolio investments do not represent a single geographic region, this information excludes Other Portfolio investments):
 
Investments at Cost
 
Cost Percentage of Total Portfolio
 
Investments at Fair Value
 
Fair Value
Percentage of
Total Portfolio
Northeast
$
155,908


15.4
%

$
154,098


15.4
%
Southeast
180,946


17.8


188,290


18.8

West
190,615


18.8


177,422


17.7

Southwest
193,219


19.0


190,926


19.1

Midwest
250,005


24.6


244,331


24.4

Non-United States
44,987


4.4


45,764


4.6

Total
$
1,015,680


100.0
%

$
1,000,831


100.0
%

15


The composition of the Company’s total investments by industry as of September 30, 2018 and December 31, 2017, at cost and fair value was as follows (since the Other Portfolio investments do not represent a single industry, this information excludes Other Portfolio investments):
 
Cost
 
Fair Value
 
September 30, 2018
 
December 31, 2017
 
September 30, 2018
 
December 31, 2017
Commercial Services and Supplies
7.4
%
 
7.9
%
 
7.2
%
 
7.7
%
IT Services
7.1

 
4.6

 
7.1

 
4.6

Construction and Engineering
6.1

 
5.4

 
6.3

 
5.5

Aerospace and Defense
5.4

 
4.8

 
5.4

 
4.9

Media
5.4

 
4.0

 
5.2

 
3.9

Oil, Gas, and Consumable Fuels
4.6

 
2.4

 
4.6

 
2.5

Internet Software and Services
4.6

 
3.3

 
4.5

 
3.3

Hotels, Restaurants, and Leisure
4.5

 
6.2

 
4.5

 
6.3

Diversified Telecommunication Services
4.5

 
5.3

 
4.3

 
5.3

Communications Equipment
4.1

 
4.3

 
4.1

 
4.5

Energy Equipment and Services
3.7

 
3.5

 
3.5

 
3.2

Health Care Providers and Services
3.5

 
1.5

 
3.5

 
1.6

Leisure Equipment and Products
3.5

 
3.0

 
3.5

 
3.1

Distributors
3.2

 
3.1

 
3.1

 
3.2

Machinery
3.0

 
3.5

 
3.9

 
4.0

Food Products
2.9

 
2.6

 
2.8

 
2.6

Computers and Peripherals
2.6

 
2.3

 
3.2

 
2.6

Diversified Consumer Services
2.3

 
3.6

 
2.1

 
3.7

Construction Materials
1.8

 
1.5

 
1.9

 
1.6

Internet and Catalog Retail
1.7

 
1.9

 
1.4

 
1.6

Professional Services
1.6

 
3.5

 
1.6

 
3.6

Specialty Retail
1.5

 
2.9

 
1.3

 
2.0

Trading Companies and Distributors
1.5

 
1.2

 
1.5

 
1.3

Wireless Telecommunication Services
1.4

 
—

 
1.4

 
—

Containers and Packaging
1.3

 
—

 
1.3

 
—

Household Durables
1.3

 
1.6

 
1.2

 
1.6

Food & Staples Retailing
1.1

 
1.0

 
1.1

 
1.0

Textiles, Apparel & Luxury Goods
1.1

 
0.4

 
1.0

 
0.3

Health Care Equipment and Supplies
1.0

 
2.0

 
1.0

 
2.1

Transportation Infrastructure
1.0

 
—

 
1.1

 
—

Capital Markets
0.7

 
1.1

 
0.7

 
1.1

Personal Products
—

 
1.0

 
—

 
1.0

Auto Components
—

 
2.7

 
—

 
2.4

Diversified Financial Services
—

 
1.3

 
—

 
1.2

Other (1)
4.6

 
6.6

 
4.7

 
6.7

Total
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
(1) Includes various industries with each industry individually less than 1.0% of the total combined LMM, Middle Market and Private Loan portfolio investments.

Note 4 — Investment in HMS-ORIX SLF LLC

On April 4, 2017, the Company and ORIX Funds Corp. (“Orix”), entered into a limited liability company agreement to co-manage HMS-ORIX SLF LLC (“HMS-ORIX”), which invests primarily in broadly-syndicated loans. Pursuant to the terms of the limited liability agreement and through representation on the HMS-ORIX Board of Managers, the Company and Orix each have 50% voting control of HMS-ORIX and together are required to agree on all portfolio and investment decisions as well as all other significant actions for HMS-ORIX. The Company does not operationally control HMS-ORIX and, accordingly, does not consolidate the operations of HMS-ORIX within the consolidated financial statements. The Company and Orix have committed to provide, and have funded, an aggregate of $50.0 million of equity to HMS-ORIX, with the Company providing $30.0 million (60% of the equity) and Orix providing $20.0 million (40% of the equity).

As of September 30, 2018 and December 31, 2017, HMS-ORIX had total assets of $151.5 million and $142.9 million, respectively, and HMS-ORIX’s portfolio consisted of 85 and 74 broadly-syndicated loans, respectively, all of which were secured by first-

16


priority liens, generally in industries similar to those in which the Company may directly invest. As of both September 30, 2018 and December 31, 2017, there were no loans in HMS-ORIX’s portfolio that were on non-accrual status.

On April 5, 2017, HMS-ORIX closed on a $100.0 million credit facility with Bank of America, N.A. The facility has a maturity date of April 5, 2020. Borrowings under the facility bear interest at a rate equal to LIBOR plus 1.65% per annum. As of September 30, 2018 and December 31, 2017, $93.3 million and $86.5 million, respectively, was outstanding under this facility. Borrowings under the facility are secured by substantially all of the assets of HMS-ORIX.

The following table presents a summary of HMS-ORIX’s portfolio as of September 30, 2018 and December 31, 2017 (dollars in thousands):
 
As of September 30, 2018
As of December 31, 2017
 
 
 
Total debt investments (1)
$
143,895

$
138,908

Weighted average effective yield on loans(2)
5.49
%
4.95
%
Largest loan to a single borrower(1)
$
3,470

$
3,496

Total of 10 largest loans to borrowers(1)
$
30,960

$
30,790

(1) At principal amount.
(2) Weighted average effective yield is calculated based on the investments at the end of each period and includes accretion of original issue discounts and amortization of premiums, and the amortization of fees received in connection with transactions. Investments, if any, on non-accrual status are assumed to have a zero yield in the calculation of weighted average effective yield.

The following table presents a listing of HMS-ORIX’s individual loan investments as of September 30, 2018:
HMS-ORIX
Loan Portfolio
As of September 30, 2018
(dollars in thousands)
Portfolio Company
Industry
Type of Investment
Principal
Cost
Fair Value
 
 
 
 
 
 
Acrisure, LLC
Insurance
LIBOR (2 months) + 4.25%, Current Coupon 6.59%, Secured Debt (Maturity - November 22, 2023)
$
2,099

$
2,104

$
2,110

Advantage Sales & Marketing Inc.
Commercial Services & Supplies
LIBOR (1 month) + 3.25%, Current Coupon 5.49%, Secured Debt (Maturity - July 23, 2021)
1,975

1,934

1,824

Air Medical Group Holdings, Inc.
Health Care Providers & Services
LIBOR (1 month) + 3.25%, Current Coupon 5.38%, Secured Debt (Maturity - April 28, 2022)
1,975

1,966

1,947

AlixPartners, LLP
Asset Management
LIBOR (3 months) + 2.75%, Current Coupon 4.99%, Secured Debt (Maturity - April 4, 2024)
995

995

1,001

American Seafoods Group LLC
Food Products
LIBOR (1 month) + 2.75%, Current Coupon 5.00%, Secured Debt (Maturity - August 21, 2023)
1,456

1,450

1,451

Ancestry.com Operations Inc.
Internet Software & Services
LIBOR (1 month) + 3.25%, Current Coupon 5.50%, Secured Debt (Maturity - October 19, 2023)
1,300

1,311

1,307

Arch Coal, Inc.
Metals & Mining
LIBOR (1 month) + 2.75%, Current Coupon 4.99%, Secured Debt (Maturity - March 7, 2024)
1,970

1,976

1,974

Asurion, LLC
Insurance
LIBOR (1 month) + 3.00%, Current Coupon 5.08%, Secured Debt (Maturity - November 3, 2023)
1,264

1,264

1,275

 
 
LIBOR (1 month) + 3.00%, Current Coupon 5.08%, Secured Debt (Maturity - November 4, 2024)
324

323

327

 
 
LIBOR (1 month) + 3.00%, Current Coupon 4.97%, Secured Debt (Maturity - December 22, 2023)
2,955

2,971

2,973

 
 
 
4,543

4,558

4,575


17


HMS-ORIX
Loan Portfolio
As of September 30, 2018
(dollars in thousands)
Portfolio Company
Industry
Type of Investment
Principal
Cost
Fair Value
 
 
 
 
 
 
BCP Renaissance Parent L.L.C.
Oil, Gas & Consumable Fuels
LIBOR (3 months) + 3.50%, Current Coupon 5.84%, Secured Debt (Maturity - October 31, 2024)
$
600

$
601

$
605

BMC Software Finance, Inc.
Software
LIBOR (3 months) + 4.25%, Current Coupon 6.55%, Secured Debt (Maturity - September 1, 2025)
2,800

2,772

2,831

 
 
LIBOR (1 month) + 3.25%, Current Coupon 5.49%, Secured Debt (Maturity - September 12, 2022)
3,132

3,153

3,167

 
 
 
5,932

5,925

5,998

Builders FirstSource, Inc.
Building Products
LIBOR (1 month) + 3.00%, Current Coupon 5.39%, Secured Debt (Maturity - February 29, 2024)
2,955

2,952

2,964

Calpine Corporation
Independent Power and Renewable Electricity Producers
LIBOR (3 months) + 2.50%, Current Coupon 4.89%, Secured Debt (Maturity - January 15, 2023)
1,975

1,981

1,977

CDS U.S. Intermediate Holdings, Inc.
Recreation Facilities & Services
LIBOR (1 month) + 3.75%, Current Coupon 6.14%, Secured Debt (Maturity - July 8, 2022)
975

977

961

CHS/Community Health Systems, Inc.
Healthcare Providers & Services
LIBOR (3 months) + 3.25%, Current Coupon 5.56%, Secured Debt (Maturity - January 27, 2021)
1,460

1,457

1,444

ClubCorp Holdings, Inc.
Real Estate Management & Development
LIBOR (3 months) + 2.75%, Current Coupon 5.14%, Secured Debt (Maturity - September 18, 2024)
1,959

1,950

1,953

CPI International, Inc.
Aerospace & Defense
LIBOR (1 month) + 3.50%, Current Coupon 5.74%, Secured Debt (Maturity - July 26, 2024)
1,980

1,980

1,987

Cyxtera DC Holdings, Inc.
Communications
LIBOR (3 months) + 3.00%, Current Coupon 5.11%, Secured Debt (Maturity - May 1, 2024)
2,963

2,972

2,971

Deerfield Holdings Corporation
Diversified Financial Services
LIBOR (1 month) + 3.25%, Current Coupon 5.49%, Secured Debt (Maturity - February 13, 2025)
2,985

2,981

2,991

Diamond Resorts International, Inc.
Hotels, Restaurants & Leisure
LIBOR (1 month) + 3.75%, Current Coupon 5.99%, Secured Debt (Maturity - September 1, 2023)
2,136

2,163

2,089

EFS Cogen Holdings I LLC
Utilities
LIBOR (3 months) + 3.25%, Current Coupon 5.64%, Secured Debt (Maturity - June 28, 2023)
1,835

1,845

1,831

Encapsys LLC
Chemicals
LIBOR (1 month) + 3.25%, Current Coupon 5.49%, Secured Debt (Maturity - November 7, 2024)
995

996

1,002

Endo Luxembourg Finance Company I S.a.r.l.
Pharmaceuticals
LIBOR (1 month) + 4.25%, Current Coupon 6.50%, Secured Debt (Maturity - April 29, 2024)
1,975

1,991

1,991

Envision Healthcare Corporation
Healthcare Providers & Services
LIBOR (1 month) + 3.00%, Current Coupon 5.25%, Secured Debt (Maturity - December 1, 2023)
1,415

1,415

1,410

Everi Payments Inc.
Leisure Products
LIBOR (3 months) + 3.00%, Current Coupon 5.24%, Secured Debt (Maturity - May 9, 2024)
1,975

1,969

1,989

Exgen Renewables IV, LLC
Electrical Production
LIBOR (3 months) + 3.00%, Current Coupon 5.32%, Secured Debt (Maturity - November 29, 2024)
294

294

297

Financial & Risk
Diversified Financial Services
LIBOR (1 month) + 3.75%, Current Coupon 6.07%, Secured Debt (Maturity - October 1, 2025)
1,425

1,424

1,424

First American Payment Systems, L.P.
Diversified Financial Services
LIBOR (1 month) + 4.75%, Current Coupon 6.87%, Secured Debt (Maturity - January 5, 2024)
904

913

911


18


HMS-ORIX
Loan Portfolio
As of September 30, 2018
(dollars in thousands)
Portfolio Company
Industry
Type of Investment
Principal
Cost
Fair Value
 
 
 
 
 
 
Fitness International, LLC
Hotels, Restaurants & Leisure
LIBOR (1 month) + 3.25%, Current Coupon 5.49%, Secured Debt (Maturity - April 18, 2025)
$
1,584

$
1,606

$
1,590

Flex Acquisition Company Inc
Containers & Packaging
LIBOR (3 months) + 3.00%, Current Coupon 5.34%, Secured Debt (Maturity - December 29, 2023)
1,980

1,988

1,981

Flexera Software LLC
Software
LIBOR (1 month) + 3.25%, Current Coupon 5.50%, Secured Debt (Maturity - February 26, 2025)
1,522

1,518

1,528

Gardner Denver, Inc.
Machinery
LIBOR (1 month) + 2.75%, Current Coupon 4.99%, Secured Debt (Maturity - July 30, 2024)
1,596

1,603

1,606

Golden Nugget, Inc.
Hotels, Restaurants & Leisure
LIBOR (1 month) + 2.75%, Current Coupon 4.90%, Secured Debt (Maturity - October 4, 2023)
1,951

1,951

1,960

GrafTech Finance Inc.
Diversified Financial Services
LIBOR (1 month) + 3.50%, Current Coupon 5.74%, Secured Debt (Maturity - February 12, 2025)
1,975

1,956

1,991

Greatbatch Ltd.
Health Care Equipment & Supplies
LIBOR (1 month) + 3.00%, Current Coupon 5.14%, Secured Debt (Maturity - October 27, 2022)
2,083

2,093

2,099

GYP Holdings III Corp.
Trading Companies & Distributors
LIBOR (1 month) + 2.75%, Current Coupon 4.99%, Secured Debt (Maturity - June 2, 2025)
3,456

3,481

3,453

Harbor Freight Tools USA, Inc.
Specialty Retail
LIBOR (1 month) + 2.50%, Current Coupon 4.74%, Secured Debt (Maturity - August 18, 2023)
1,945

1,952

1,949

HD Supply Waterworks, Ltd.
Trading Companies & Distributors
LIBOR (6 months) + 3.00%, Current Coupon 5.31%, Secured Debt (Maturity - August 1, 2024)
139

139

140

Horizon Pharma, Inc.
Pharmaceuticals
LIBOR (1 month) + 3.25%, Current Coupon 5.50%, Secured Debt (Maturity - March 29, 2024)
1,925

1,941

1,943

Huntsman Holdings LLC
Chemicals
LIBOR (3 months) + 5.00%, Current Coupon 7.24%, Secured Debt (Maturity - September 25, 2024)
1,980

1,941

2,002

IG Investments Holdings, LLC
Construction
LIBOR (1 month) + 3.50%, Current Coupon 5.74%, Secured Debt (Maturity - May 23, 2025)
1,980

1,992

2,000

IRB Holding Corp.
Hotels, Restaurants & Leisure
LIBOR (1 month) + 3.25%, Current Coupon 5.46%, Secured Debt (Maturity - February 5, 2025)
398

398

399

KBR, Inc.
Construction
LIBOR (1 month) + 3.75%, Current Coupon 5.99%, Secured Debt (Maturity - April 25, 2025)
1,247

1,241

1,262

KMG Chemicals, Inc.
Chemicals
LIBOR (1 month) + 2.75%, Current Coupon 4.99%, Secured Debt (Maturity - June 17, 2024)
737

734

741

KUEHG Corp.
Educational Services
LIBOR (1 month) + 3.75%, Current Coupon 6.14%, Secured Debt (Maturity - February 21, 2025)
2,464

2,471

2,481

LANDesk Group, Inc.
Software
LIBOR (1 month) + 4.25%, Current Coupon 6.33%, Secured Debt (Maturity - January 22, 2024)
986

991

995

Learfield Communications LLC
Media
LIBOR (1 month) + 3.25%, Current Coupon 5.50%, Secured Debt (Maturity - December 1, 2023)
1,975

1,991

2,000

MA FinanceCo., LLC
Electric Equipment, Instruments & Components
LIBOR (1 month) + 2.50%, Current Coupon 4.74%, Secured Debt (Maturity - June 21, 2024)
385

385

384

Mallinckrodt International Finance S.A.
Pharmaceuticals
LIBOR (6 months) + 3.00%, Current Coupon 5.52%, Secured Debt (Maturity - February 24, 2025)
995

993

997


19


HMS-ORIX
Loan Portfolio
As of September 30, 2018
(dollars in thousands)
Portfolio Company
Industry
Type of Investment
Principal
Cost
Fair Value
 
 
 
 
 
 
McDermott International, Inc.
Oil, Gas & Consumable Fuels
LIBOR (1 month) + 5.00%, Current Coupon 7.08%, Secured Debt (Maturity - May 12, 2025)
$
995

$
976

$
1,010

Mohegan Tribal Gaming Authority
Hotels, Restaurants & Leisure
LIBOR (1 month) + 4.00%, Current Coupon 6.24%, Secured Debt (Maturity - October 13, 2023)
1,919

1,934

1,816

MPH Acquisition Holdings LLC
Health Care Technology
LIBOR (3 months) + 2.75%, Current Coupon 5.14%, Secured Debt (Maturity - June 7, 2023)
2,664

2,695

2,672

NAB Holdings, LLC
IT Services
LIBOR (3 months) + 3.00%, Current Coupon 5.39%, Secured Debt (Maturity - July 1, 2024)
1,980

1,971

1,961

Ortho-Clinical Diagnostics, Inc
Life Sciences Tools & Services
LIBOR (1 month) + 3.25%, Current Coupon 5.49%, Secured Debt (Maturity - June 30, 2025)
1,955

1,950

1,964

PI UK Holdco II Limited
Specialty Finance
LIBOR (1 month) + 3.50%, Current Coupon 5.74%, Secured Debt (Maturity - January 3, 2025)
2,985

2,964

2,982

Rackspace Hosting, Inc.
Internet Software & Services
LIBOR (3 months) + 3.00%, Current Coupon 5.35%, Secured Debt (Maturity - November 3, 2023)
3,259

3,281

3,221

Radiate Holdco, LLC
Media
LIBOR (1 month) + 3.00%, Current Coupon 5.24%, Secured Debt (Maturity - February 1, 2024)
2,551

2,528

2,550

Red Ventures, LLC
Direct Marketing Services
LIBOR (1 month) + 4.00%, Current Coupon 6.24%, Secured Debt (Maturity - November 8, 2024)
1,635

1,624

1,656

Savage Enterprises, LLC
Transportation and Logistics
LIBOR (1 month) + 4.50%, Current Coupon 6.60%, Secured Debt (Maturity - August 1, 2025)
1,129

1,107

1,146

Scientific Games International, Inc.
Leisure Products
LIBOR (1 month) + 2.75%, Current Coupon 4.99%, Secured Debt (Maturity - August 14, 2024)
895

896

894

Seattle SpinCo, Inc.
Electric Equipment, Instruments & Components
LIBOR (3 months) + 2.50%, Current Coupon 4.74%, Secured Debt (Maturity - June 21, 2024)
2,600

2,603

2,596

SeaWorld Parks & Entertainment, Inc.
Hotels, Restaurants & Leisure
LIBOR (3 months) + 3.00%, Current Coupon 5.24%, Secured Debt (Maturity - April 1, 2024)
1,970

1,972

1,970

SRS Distribution Inc.
Trading Companies & Distributors
LIBOR (3 months) + 3.25%, Current Coupon 5.44%, Secured Debt (Maturity - May 23, 2025)
1,200

1,197

1,193

SS&C Technologies, Inc.
Software
LIBOR (1 month) + 2.25%, Current Coupon 4.49%, Secured Debt (Maturity - April 16, 2025)
560

559

561

 
 
LIBOR (1 month) + 2.25%, Current Coupon 4.49%, Secured Debt (Maturity - April 16, 2025)
217

217

218

 
 
 
777

776

779

Staples, Inc.
Distributors
LIBOR (3 months) + 4.00%, Current Coupon 6.34%, Secured Debt (Maturity - September 12, 2024)
1,985

1,981

1,990

Starfruit Finco B.V.
Chemicals
LIBOR (1 month) + 3.25%, Current Coupon 5.57%, Secured Debt (Maturity - October 1, 2025)
1,250

1,247

1,257

Telenet Financing USD LLC
Diversified Telecommunications Services
LIBOR (1 month) + 2.25%, Current Coupon 4.41%, Secured Debt (Maturity - August 17, 2026)
1,655

1,653

1,650

 
 
 
 
 
 

20


HMS-ORIX
Loan Portfolio
As of September 30, 2018
(dollars in thousands)
Portfolio Company
Industry
Type of Investment
Principal
Cost
Fair Value
 
 
 
 
 
 
Transdigm, Inc.
Aerospace & Defense
LIBOR (1 month) + 2.50%, Current Coupon 4.74%, Secured Debt (Maturity - June 9, 2023)
$
1,970

$
1,977

$
1,980

 
 
LIBOR (1 month) + 2.50%, Current Coupon 4.74%, Secured Debt (Maturity - August 22, 2024)
993

990

997

 
 
 
2,963

2,967

2,977

Travelport Finance (Luxembourg) S.A.R.L.
Internet Software & Services
LIBOR (3 months) + 2.50%, Current Coupon 4.81%, Secured Debt (Maturity - March 17, 2025)
1,243

1,238

1,245

Traverse Midstream Partners LLC
Oil, Gas & Consumable Fuels
LIBOR (3 months) + 4.00%, Current Coupon 6.34%, Secured Debt (Maturity - September 27, 2024)
781

784

788

UFC Holdings, LLC
Media
LIBOR (3 months) + 3.25%, Current Coupon 5.50%, Secured Debt (Maturity - August 18, 2023)
1,975

1,985

1,989

Ultra Resources, Inc.
Oil, Gas & Consumable Fuels
LIBOR (1 month) + 3.00%, Current Coupon 5.17%, Secured Debt (Maturity - April 12, 2024)
2,000

2,002

1,808

Utz Quality Foods, LLC
Commercial Services & Supplies
LIBOR (1 month) + 3.50%, Current Coupon 5.74%, Secured Debt (Maturity - November 21, 2024)
1,588

1,587

1,595

Valeant Pharmaceuticals International, Inc.
Pharmaceuticals
LIBOR (1 month) + 3.00%, Current Coupon 5.10%, Secured Debt (Maturity - June 2, 2025)
1,420

1,426

1,429

Vertafore, Inc.
Software
LIBOR (1 month) + 3.25%, Current Coupon 5.49%, Secured Debt (Maturity - June 4, 2025)
2,500

2,488

2,514

Vertiv Group Corporation
Electrical Equipment
LIBOR (3 months) + 4.00%, Current Coupon 6.31%, Secured Debt (Maturity - November 30, 2023)
1,555

1,567

1,547

Vistra Operations Company LLC
Electric Utilities
LIBOR (1 month) + 2.25%, Current Coupon 4.49%, Secured Debt (Maturity - December 14, 2023)
1,970

1,980

1,977

Web.com Group, Inc.
Internet Software and Services
LIBOR (3 months) + 3.75%, Current Coupon 6.07%, Secured Debt (Maturity - September 17, 2025)
1,000

1,000

1,008

West Corporation
Diversified Telecommunications Services
LIBOR (1 month) + 3.50%, Current Coupon 5.74%, Secured Debt (Maturity - October 10, 2024)
648

648

644

 
 
LIBOR (1 month) + 4.00%, Current Coupon 6.24%, Secured Debt (Maturity - October 10, 2024)
1,024

1,015

1,022

 
 
 
1,672

1,663

1,666

WideOpenWest Finance, LLC
Diversified Telecommunications Services
LIBOR (1 month) + 3.25%, Current Coupon 5.41%, Secured Debt (Maturity - August 18, 2023)
3,470

3,478

3,410

Total Loan Portfolio
 
 
 
$
143,965

$
143,745



21


The following table presents a listing of HMS-ORIX’s individual loan investments as of December 31, 2017:
HMS-ORIX
Loan Portfolio
As of December 31, 2017
(dollars in thousands)
Portfolio Company
Industry
Type of Investment
Principal
Cost
Fair Value
 
 
 
 
 
 
Acosta, Inc.
Commercial Services and Supplies
LIBOR (1 month) + 3.25%, Current Coupon 4.82%, Secured Debt (Maturity - September 26, 2021)
$
2,000

$
1,881

$
1,766

Acrisure, LLC
Insurance
LIBOR (2 months) + 4.25%, Current Coupon 5.65%, Secured Debt (Maturity - November 22, 2023)
2,115

2,122

2,139

Advantage Sales & Marketing Inc.
Commercial Services and Supplies
LIBOR (1 month) + 3.25%, Current Coupon 4.63%, Secured Debt (Maturity - July 23, 2021)
1,990

1,938

1,945

Air Medical Group Holdings Inc
Health Care Providers & Services
LIBOR (6 months) + 4.00%, Current Coupon 5.67%, Secured Debt (Maturity - April 28, 2022)
1,990

1,981

1,993

Albany Molecular Research, Inc.
Life Sciences Tools & Services
LIBOR (1 month) + 3.25%, Current Coupon 4.82%, Secured Debt (Maturity - August 28, 2024)
100

100

99

Alphabet Holding Company, Inc.
Food Products
LIBOR (1 month) + 3.50%, Current Coupon 5.07%, Secured Debt (Maturity - September 26, 2024)
1,995

1,985

1,935

American Seafoods Group LLC
Food Products
Prime + 2.25%, Current Coupon 6.75%, Secured Debt (Maturity - August 21, 2023)
1,500

1,493

1,513

Ancestry.com Operations Inc.
Internet Software & Services
LIBOR (1 month) + 3.25%, Current Coupon 4.66%, Secured Debt (Maturity - October 19, 2023)
1,995

2,013

2,007

Arch Coal, Inc.
Metals & Mining
LIBOR (1 month) + 3.25%, Current Coupon 4.82%, Secured Debt (Maturity - March 7, 2024)
1,985

1,992

2,004

AshCo, Inc.
Specialty Retail
LIBOR (3 months) + 5.00%, Current Coupon 6.57%, Secured Debt (Maturity - September 25, 2024)
1,995

1,951

1,993

Asurion, LLC
Insurance
LIBOR (1 month) + 3.00%, Current Coupon 4.57%, Secured Debt (Maturity - November 3, 2023)
1,312

1,312

1,320

Atkore International, Inc.
Electric Equipment, Instruments & Components
LIBOR (3 months) + 3.00%, Current Coupon 4.70%, Secured Debt (Maturity - December 22, 2023)
2,977

3,005

2,999

BCP Renaissance Parent L.L.C.
Oil, Gas & Consumable Fuels
LIBOR (3 months) + 4.00%, Current Coupon 5.38%, Secured Debt (Maturity - October 31, 2024)
600

602

608

BMC Software Finance, Inc.
Software
LIBOR (1 month) + 3.25%, Current Coupon 4.82%, Secured Debt (Maturity - September 12, 2022)
3,156

3,181

3,163

Builders FirstSource, Inc.
Building Products
LIBOR (1 month) + 3.00%, Current Coupon 4.69%, Secured Debt (Maturity - February 29, 2024)
2,977

2,974

2,993

Calpine Corporation
Independent Power and Renewable Electricity Producers
LIBOR (3 months) + 2.50%, Current Coupon 4.20%, Secured Debt (Maturity - January 15, 2023)
1,990

1,997

1,991

CHS/Community Health Systems, Inc.
Health Care Providers & Services
LIBOR (3 months) + 3.00%, Current Coupon 4.48%, Secured Debt (Maturity - January 27, 2021)
1,613

1,608

1,543

ClubCorp Holdings, Inc.
Real Estate Management & Development
LIBOR (3 months) + 3.25%, Current Coupon 4.94%, Secured Debt (Maturity - September 18, 2024)
1,959

1,949

1,969

Colorado Buyer Inc
Technology Hardware, Storage & Peripherals
LIBOR (3 months) + 3.00%, Current Coupon 4.38%, Secured Debt (Maturity - May 1, 2024)
2,985

2,995

3,008

Confie Seguros Holding II Co.
Insurance
LIBOR (1 month) + 5.25%, Current Coupon 6.73%, Secured Debt (Maturity - April 19, 2022)
1,985

1,992

1,987


22


HMS-ORIX
Loan Portfolio
As of December 31, 2017
(dollars in thousands)
Portfolio Company
Industry
Type of Investment
Principal
Cost
Fair Value
 
 
 
 
 
 
CPI International, Inc.
Aerospace & Defense
LIBOR (1 month) + 3.50%, Current Coupon 5.07%, Secured Debt (Maturity - July 26, 2024)
$
1,995

$
1,995

$
2,011

Diamond Resorts International, Inc.
Hotels, Restaurants & Leisure
LIBOR (1 month) + 4.50%, Current Coupon 6.07%, Secured Debt (Maturity - September 1, 2023)
2,152

2,179

2,173

Duff & Phelps Corporation
Diversified Financial Services
LIBOR (3 months) + 3.25%, Current Coupon 4.94%, Secured Debt (Maturity - October 15, 2024)
491

494

493

 
 
LIBOR (3 months) + 3.25%, Current Coupon 4.63%, Secured Debt (Maturity - December 4, 2024)
2,728

2,724

2,737

 
 
 
3,219

3,218

3,230

EFS Cogen Holdings I LLC
Electric Utilities
LIBOR (3 months) + 3.25%, Current Coupon 4.95%, Secured Debt (Maturity - June 28, 2023)
1,904

1,917

1,925

Encapsys LLC
Chemicals
LIBOR (1 month) + 3.25%, Current Coupon 4.82%, Secured Debt (Maturity - November 7, 2024)
1,000

1,001

1,006

Endo Luxembourg Finance Company I S.a.r.l.
Pharmaceuticals
LIBOR (1 month) + 4.25%, Current Coupon 5.88%, Secured Debt (Maturity - April 29, 2024)
1,990

2,009

2,005

Envision Healthcare Corporation
Health Care Providers & Services
LIBOR (1 month) + 3.00%, Current Coupon 4.57%, Secured Debt (Maturity - December 1, 2023)
2,481

2,481

2,491

Everi Payments Inc.
Leisure Products
LIBOR (3 months) + 3.50%, Current Coupon 4.98%, Secured Debt (Maturity - May 9, 2024)
1,990

1,983

2,013

Exgen Renewables IV, LLC
Electrical Production
LIBOR (3 months) + 3.00%, Current Coupon 4.47%, Secured Debt (Maturity - November 29, 2024)
300

299

304

First American Payment Systems, L.P.
Diversified Financial Services
LIBOR (1 month) + 5.75%, Current Coupon 7.14%, Secured Debt (Maturity - January 5, 2024)
952

963

958

Fitness International, LLC
Hotels, Restaurants & Leisure
LIBOR (1 month) + 3.50%, Current Coupon 5.19%, Secured Debt (Maturity - July 1, 2020)
1,735

1,757

1,760

Flex Acquisition Company Inc
Containers & Packaging
LIBOR (3 months) + 3.00%, Current Coupon 4.34%, Secured Debt (Maturity - December 29, 2023)
1,995

2,004

2,008

Flexera Software LLC
Software
LIBOR (1 month) + 3.50%, Current Coupon 4.83%, Secured Debt (Maturity - April 2, 2020)
1,995

2,013

2,008

Gardner Denver, Inc.
Machinery
LIBOR (1 month) + 2.75%, Current Coupon 4.44%, Secured Debt (Maturity - July 30, 2024)
1,995

2,005

2,004

Golden Nugget, Inc.
Hotels, Restaurants & Leisure
LIBOR (1 month) + 3.25%, Current Coupon 4.66%, Secured Debt (Maturity - October 4, 2023)
1,990

1,990

2,008

Greatbatch Ltd.
Health Care Equipment & Supplies
LIBOR (1 month) + 3.25%, Current Coupon 4.66%, Secured Debt (Maturity - October 27, 2022)
2,763

2,780

2,788

GYP Holdings III Corp.
Trading Companies & Distributors
LIBOR (1 month) + 3.00%, Current Coupon 4.38%, Secured Debt (Maturity - March 31, 2023)
3,483

3,506

3,502

Harbor Freight Tools USA, Inc.
Specialty Retail
LIBOR (1 month) + 3.25%, Current Coupon 4.82%, Secured Debt (Maturity - August 18, 2023)
1,980

1,987

1,996

HD Supply Waterworks, Ltd.
Trading Companies & Distributors
LIBOR (6 months) + 3.00%, Current Coupon 4.46%, Secured Debt (Maturity - August 1, 2024)
140

140

141


23


HMS-ORIX
Loan Portfolio
As of December 31, 2017
(dollars in thousands)
Portfolio Company
Industry
Type of Investment
Principal
Cost
Fair Value
 
 
 
 
 
 
Horizon Pharma, Inc.
Pharmaceuticals
LIBOR (1 month) + 3.25%, Current Coupon 4.75%, Secured Debt (Maturity - March 29, 2024)
$
1,990

$
2,009

$
2,001

IG Investments Holdings, LLC
Professional Services
LIBOR (1 month) + 3.50%, Current Coupon 5.19%, Secured Debt (Maturity - October 29, 2021)
1,990

2,002

1,992

Jackson Hewitt Tax Service Inc.
Diversified Financial Services
LIBOR (1 month) + 7.00%, Current Coupon 8.38%, Secured Debt (Maturity - July 30, 2020)
1,939

1,868

1,922

KMG Chemicals, Inc.
Chemicals
LIBOR (1 month) + 2.75%, Current Coupon 4.32%, Secured Debt (Maturity - June 17, 2024)
863

859

868

KUEHG Corp.
Educational Services
LIBOR (1 month) + 3.75%, Current Coupon 5.44%, Secured Debt (Maturity - August 12, 2022)
2,482

2,489

2,493

LANDesk Group, Inc.
Software
LIBOR (1 month) + 4.25%, Current Coupon 5.82%, Secured Debt (Maturity - January 22, 2024)
993

999

947

Learfield Communications LLC
Media
LIBOR (1 month) + 3.25%, Current Coupon 4.82%, Secured Debt (Maturity - December 1, 2023)
1,990

2,009

2,007

MA FinanceCo., LLC
Electric Equipment, Instruments & Components
LIBOR (1 month) + 2.75%, Current Coupon 4.32%, Secured Debt (Maturity - June 21, 2024)
387

387

388

Mohegan Tribal Gaming Authority
Hotels, Restaurants & Leisure
LIBOR (1 month) + 4.00%, Current Coupon 5.57%, Secured Debt (Maturity - October 13, 2023)
1,985

2,003

2,006

MPH Acquisition Holdings LLC
Health Care Technology
LIBOR (3 months) + 3.00%, Current Coupon 4.69%, Secured Debt (Maturity - June 7, 2023)
2,896

2,935

2,905

NAB Holdings, LLC
IT Services
LIBOR (3 months) + 3.25%, Current Coupon 4.82%, Secured Debt (Maturity - July 1, 2024)
1,990

1,981

2,000

Ortho-Clinical Diagnostics, Inc
Life Sciences Tools & Services
LIBOR (1 month) + 3.75%, Current Coupon 5.44%, Secured Debt (Maturity - June 30, 2021)
1,985

1,980

1,992

PODS, LLC
Transportation & Logistics
LIBOR (1 month) + 3.00%, Current Coupon 4.40%, Secured Debt (Maturity - December 6, 2024)
1,995

1,994

2,010

Rackspace Hosting, Inc.
Electric Equipment, Instruments & Components
LIBOR (3 months) + 3.00%, Current Coupon 4.38%, Secured Debt (Maturity - November 3, 2023)
3,284

3,309

3,286

Radiate Holdco, LLC
Media
LIBOR (3 months) + 3.00%, Current Coupon 4.38%, Secured Debt (Maturity - February 1, 2024)
2,570

2,544

2,547

Red Ventures, LLC
Direct Marketing Services
LIBOR (1 month) + 4.00%, Current Coupon 5.57%, Secured Debt (Maturity - November 8, 2024)
1,995

1,981

1,996

Scientific Games International, Inc.
Leisure Products
LIBOR (1 month) + 3.25%, Current Coupon 4.67%, Secured Debt (Maturity - August 14, 2024)
399

401

403

Seattle Spin Co.
Electric Equipment, Instruments & Components
LIBOR (3 months) + 2.75%, Current Coupon 4.32%, Secured Debt (Maturity - June 21, 2024)
2,613

2,616

2,618

SeaWorld Parks & Entertainment, Inc.
Hotels, Restaurants & Leisure
LIBOR (3 months) + 3.00%, Current Coupon 4.69%, Secured Debt (Maturity - April 1, 2024)
1,985

1,987

1,966

Signode Industrial Group US Inc.
Machinery
LIBOR (1 month) + 2.75%, Current Coupon 4.32%, Secured Debt (Maturity - April 30, 2021)
2,773

2,792

2,785

Staples, Inc.
Distributors
LIBOR (3 months) + 4.00%, Current Coupon 5.49%, Secured Debt (Maturity - September 12, 2024)
2,000

1,995

1,965


24


HMS-ORIX
Loan Portfolio
As of December 31, 2017
(dollars in thousands)
Portfolio Company
Industry
Type of Investment
Principal
Cost
Fair Value
 
 
 
 
 
 
Telenet Financing USD LLC
Diversified Telecommunications Services
LIBOR (1 month) + 2.50%, Current Coupon 3.92%, Secured Debt (Maturity - March 2, 2026)
$
1,655

$
1,655

$
1,663

Transdigm, Inc.
Aerospace & Defense
LIBOR (1 month) + 2.75%, Current Coupon 4.32%, Secured Debt (Maturity - June 9, 2023)
1,985

1,992

1,990

 
 
LIBOR (1 month) + 3.00%, Current Coupon 4.57%, Secured Debt (Maturity - August 22, 2024)
1,000

998

1,006

 
 
 
2,985

2,990

2,996

Travelport Finance (Luxembourg) S.A.R.L.
Internet Software & Services
LIBOR (3 months) + 2.75%, Current Coupon 4.17%, Secured Debt (Maturity - September 2, 2021)
1,901

1,901

1,903

Traverse Midstream Partners LLC
Oil, Gas & Consumable Fuels
LIBOR (3 months) + 4.00%, Current Coupon 5.85%, Secured Debt (Maturity - September 27, 2024)
781

784

793

UFC Holdings, LLC
Media
LIBOR (3 months) + 3.25%, Current Coupon 4.81%, Secured Debt (Maturity - August 18, 2023)
1,990

2,002

2,003

Ultra Resources, Inc.
Oil, Gas & Consumable Fuels
LIBOR (1 month) + 3.00%, Current Coupon 4.41%, Secured Debt (Maturity - April 12, 2024)
2,000

2,002

2,002

Utz Quality Foods, LLC
Commercial Services and Supplies
LIBOR (1 month) + 3.50%, Current Coupon 5.01%, Secured Debt (Maturity - November 21, 2024)
1,600

1,599

1,616

Valeant Pharmaceuticals International, Inc.
Pharmaceuticals
LIBOR (1 month) + 3.50%, Current Coupon 4.94%, Secured Debt (Maturity - April 1, 2022)
1,546

1,553

1,570

Vertiv Group Corporation
Electrical Equipment
LIBOR (3 months) + 4.00%, Current Coupon 5.35%, Secured Debt (Maturity - November 30, 2023)
1,555

1,569

1,556

Vistra Operations Company LLC
Electric Utilities
LIBOR (2 months) + 2.75%, Current Coupon 4.08%, Secured Debt (Maturity - December 14, 2023)
1,985

1,996

2,001

West Corporation
Diversified Telecommunications Services
LIBOR (1 month) + 4.00%, Current Coupon 5.35%, Secured Debt (Maturity - October 10, 2024)
1,032

1,022

1,036

WideOpenWest Finance, LLC
Diversified Telecommunications Services
LIBOR (1 month) + 3.25%, Current Coupon 4.75%, Secured Debt (Maturity - August 18, 2023)
3,496

3,506

3,470

Total Loan Portfolio
 
 
 
$
139,017

$
139,012


For the three months ended September 30, 2018 and 2017, the Company recognized approximately $536,000 and $0, respectively, of dividend income in respect of its investment in HMS-ORIX. For the nine months ended September 30, 2018 and for the period from inception (April 4, 2017) to September 30, 2017, the Company recognized approximately $1.6 million and $0, respectively, of dividend income in respect of its investment in HMS-ORIX.


25


The following tables show the summarized financial information for HMS-ORIX (dollars in thousands):
HMS-ORIX SLF LLC
Balance Sheet (Unaudited)
(dollars in thousands)
 
 
 
 
 
As of September 30, 2018
 
As of December 31, 2017
Assets
 
 
 
Portfolio investments at fair value (amortized cost: $143,965 and $139,017 as of September 30, 2018 and December 31, 2017, respectively)
$
143,745

 
$
139,012

Cash and cash equivalents
3,967

 
2,681

Receivable for securities sold
2,891

 
—

Interest receivable
268

 
306

Deferred financing costs, net
596

 
890

Other assets
31

 
15

Total assets
$
151,498

 
$
142,904

Liabilities
 
 
 
Credit facilities payable
$
93,300

 
$
86,500

Payable for securities purchased
6,443

 
5,268

Distributions payable
893

 
—

Accounts payable and accrued expenses
79

 
64

Total liabilities
100,715

 
91,832

Net assets
 
 
 
Members’ equity
50,783

 
51,072

Total net assets
50,783

 
51,072

Total liabilities and net assets
$
151,498

 
$
142,904

HMS-ORIX SLF LLC
Statement of Operations (Unaudited)
(dollars in thousands)
 
Three Months Ended
 
Nine Months Ended 
 September 30, 2018
 
For the Period from Inception (April 4, 2017) through September 30, 2017
 
September 30, 2018
 
September 30, 2017
 
 
Investment income
 
 
 
 
 
 
 
Interest income
$
1,944

 
$
1,554

 
$
5,566

 
$
2,048

Dividend income
—

 
—

 
—

 
—

Fee income
—

 
—

 
—

 
—

Other income
—

 
—

 
—

 
—

Total investment income
1,944

 
1,554

 
5,566

 
2,048

Expenses
 
 
 
 
 
 
 
Interest expense
988

 
615

 
2,759

 
866

Other expenses
—

 
2

 
1

 
34

General and administrative expenses
20

 
24

 
67

 
45

Total expenses
1,008

 
641

 
2,827

 
945

Net investment income
936

 
913

 
2,739

 
1,103

Net realized loss from investments
(17
)
 
(16
)
 
(392
)
 
(17
)
Net realized income
919

 
897

 
2,347

 
1,086

Net change in unrealized appreciation (depreciation) on investments
1,013

 
—

 
15

 
(226
)
Net increase in net assets resulting from operations
$
1,932

 
$
897

 
$
2,362

 
$
860


Note 5 — Borrowings
 
A BDC has historically been able to issue “senior securities,” including borrowing money from banks or other financial institutions, only in amounts such that its asset coverage, as defined in the 1940 Act, equals at least 200% after such incurrence or issuance. In March 2018, the Small Business Credit Availability Act (the “SBCAA”) was enacted into law. The SBCAA amended the 1940 Act to reduce the asset coverage requirement applicable to BDCs from 200% to 150% so long as the BDC meets certain disclosure

26


requirements, obtains certain approvals and, in the case of unlisted BDCs, makes an offer to repurchase shares held by its stockholders as of the date of the requisite approval. Effectiveness of the reduced asset coverage requirements to a BDC requires approval by either (1) a “required majority” (as defined in Section 57(o) of the 1940 Act) of such BDC’s board of directors with effectiveness one year after the date of such approval or (2) a majority of the votes cast at a special or annual meeting of such BDC’s stockholders at which a quorum is present, which is effective the day after such stockholder approval. The Company has not requested or obtained any such approval.

On March 6, 2017, the Company entered into an amended and restated senior secured revolving credit agreement (the “TIAA Credit Facility”) with TIAA, FSB (formerly EverBank Commercial Finance, Inc. prior to June 18, 2018) (“TIAA Bank”), as administrative agent, and with TIAA Bank and other financial institutions as lender. The TIAA Credit Facility, as amended, features aggregate revolver commitments of $120.0 million. Borrowings under the TIAA Credit Facility bear interest, subject to the Company’s election, on a per annum basis equal to (i) the adjusted LIBOR rate plus 2.75% or (ii) the base rate plus 1.75%. The base rate is defined as the higher of (a) the prime rate, (b) the Federal Funds Rate (as defined in the credit agreement) plus 0.5% or (c) the adjusted LIBOR rate plus 1.0%. The adjusted LIBOR rate is defined in the credit agreement for the TIAA Credit Facility as the one-month LIBOR rate plus an adjustment for statutory reserve requirements for Eurocurrency liabilities as described in the credit agreement. As of September 30, 2018, the one-month LIBOR rate was 2.26%. Additionally, the Company pays an annual unused commitment fee of 0.300% on the unused revolver commitments if more than 50% of the revolver commitments are being used and an annual unused commitment fee of 0.625% on the unused revolver commitments if less than 50% of the revolver commitments are being used. As of September 30, 2018, the Company was not aware of any instances of noncompliance with covenants related to the TIAA Credit Facility.

On May 18, 2015, HMS Funding entered into an amended and restated credit agreement (the “Deutsche Bank Credit Facility”) among HMS Funding, the Company, as equityholder and as servicer, Deutsche Bank AG, New York Branch (“Deutsche Bank”), as administrative agent, the financial institutions party thereto as lenders (together with Deutsche Bank, the “HMS Funding Lenders”), and U.S. Bank National Association, as collateral agent and collateral custodian. As of September 30, 2018, the Deutsche Bank Credit Facility, as amended, provided a borrowing capacity of $450.0 million, with an accordion provision allowing increases in aggregate commitments, not to exceed $550.0 million, with lender consent. Under the Deutsche Bank Credit Facility, interest is calculated as the sum of the index plus the applicable margin of 2.35%. The index will be equal to one-month LIBOR, or, in the event that LIBOR is not reasonably available, the higher of Deutsche Bank’s base commercial lending rate and the interest rate equal to 0.5% above the federal funds rate. As of September 30, 2018, the one-month LIBOR rate was 2.26%. The Deutsche Bank Credit Facility provides for a revolving period until November 20, 2020, unless otherwise extended with the consent of the HMS Funding Lenders. The amortization period begins the day after the last day of the revolving period and ends on November 20, 2022, the maturity date. During the amortization period, the applicable margin will increase by 0.25%. During the revolving period, HMS Funding will pay a utilization fee equal to 2.50% of the undrawn amount of the required utilization, which is 75% of the loan commitment amount. HMS Funding will incur an undrawn fee equal to 0.40% per annum of the difference between the aggregate commitments and the outstanding advances under the facility, provided that the undrawn fee relating to any utilization shortfall will not be payable to the extent that the utilization fee relating to such utilization shortfall is incurred. Additionally, under the terms of a fee letter executed on November 20, 2017, HMS Funding pays Deutsche Bank an administrative agent fee of 0.25% of the aggregate revolver commitments.As of September 30, 2018, the Company was not aware of any instances of noncompliance with covenants related to the Deutsche Bank Credit Facility.

As of September 30, 2018, the Company had borrowings of $120.0 million outstanding on the TIAA Credit Facility and had borrowings of $390.0 million outstanding on the Deutsche Bank Credit Facility, both of which the Company estimated approximated fair value.

A summary of the Company’s significant contractual payment obligations for the repayment of outstanding borrowings at September 30, 2018 is as follows:
 
Payments Due By Period (dollars in thousands)
 
Total
 
Less than 1 year
 
1-3 years
 
3-5 years
 
After 5 years
TIAA Credit Facility (1)
$
120,000

 
$
—

 
$
120,000

 
$
—

 
$
—

Deutsche Bank Credit Facility (2)
390,000

 
—

 
—

 
390,000

 
—

Total Credit Facilities
$
510,000

 
$
—

 
$
120,000

 
$
390,000

 
$
—

(1)
At September 30, 2018, the Company had no availability under the TIAA Credit Facility.
(2)
At September 30, 2018, $60.0 million remained available under the Deutsche Bank Credit Facility; however, the Company’s borrowing ability is limited to the asset coverage ratio restrictions imposed by the 1940 Act, as discussed above.


27


Note 6 – Financial Highlights
 
The following is a schedule of financial highlights of the Company for the nine months ended September 30, 2018 and 2017.
Per Share Data:
Nine Months Ended 
 September 30, 2018
 
Nine Months Ended 
 September 30, 2017
NAV at beginning of period
$
8.15

 
$
8.15

Results from Operations
 
 
 
Net investment income (1) (2)
0.60

 
0.56

Net realized appreciation (depreciation) (1) (2)
(0.25
)
 
0.04

Net change in unrealized appreciation (depreciation) on investments (1) (2)
0.30

 
(0.09
)
Net increase in net assets resulting from operations
0.65

 
0.51

Stockholder distributions (1) (3)
 
 
 
Distributions from net investment income (1) (2)
(0.52
)
 
(0.48
)
Distributions from realized appreciation (1) (2)
—

 
(0.04
)
Net decrease in net assets resulting from stockholder distributions
(0.52
)
 
(0.52
)
Capital share transactions
 
 
 
Issuance of common stock above NAV, net of offering costs (1)
—

 
0.02

Net increase in net assets resulting from capital share transactions
—

 
0.02

NAV at end of the period
$
8.28

 
$
8.16

Shares of common stock outstanding at end of period
78,616,770

 
79,204,960

Weighted average shares of common stock outstanding
79,383,151

 
76,899,096

(1)
Based on weighted average number of shares of common stock outstanding for the period.
(2)
Changes in net investment income and realized and unrealized appreciation (depreciation) on investments can change significantly from period to period.
(3)
The stockholder distributions represent the stockholder distributions declared for the period.

 
Nine Months Ended 
 September 30, 2018
 
Nine Months Ended 
 September 30, 2017
 
(dollars in thousands)
Net assets at end of period
$
650,735

 
$
645,945

Average net assets
$
646,940

 
$
625,272

Average Credit Facilities borrowings
$
475,500

 
$
426,500

 
 
 
 
Ratios to average net assets:
 
 
 
Ratio of total expenses to average net assets (1)
5.81
%
 
5.28
%
Ratio of net investment income to average net assets (1)
7.32
%
 
6.92
%
Portfolio turnover ratio
36.77
%
 
36.85
%
Total return (2)
7.98
%
 
6.50
%
(1)
For the nine months ended September 30, 2018 and 2017, the Advisers did not waive base management fees but waived subordinated incentive fees of approximately $3.4 million and $2.3 million, respectively, and internal administrative services expenses of approximately $2.0 million and $2.2 million, respectively. The ratio is calculated by reducing the expenses to reflect the waiver of expenses and reimbursement of internal administrative services in both periods presented. Excluding interest expense, the ratio of total expenses to average net assets for the nine months ended September 30, 2018 and September 30, 2017 was 3.05% and 3.14%, respectively. See Note 10 - Related Party Transactions and Arrangements for further discussion of fee waivers provided by the Advisers.
(2)
Total return is calculated on the change in NAV per share and stockholder distributions declared per share over the reporting period. The total return does not reflect the sales load from the sale of the Company’s common stock.


28


Note 7 – Stockholder Distributions

The following table reflects the cash distributions per share that the Company declared on its common stock during the nine months ended September 30, 2018 and 2017 (dollars in thousands except per share amounts).
 
Distributions
 
Per Share
 
Amount
2018
 
 
 
Three months ended September 30, 2018
$
0.17

 
$
13,938

Three months ended June 30, 2018
$
0.18

 
$
13,855

Three months ended March 31, 2018
$
0.17

 
$
13,803

2017
 
 
 
Three months ended September 30, 2017
$
0.17

 
$
13,910

Three months ended June 30, 2017
$
0.18

 
$
13,438

Three months ended March 31, 2017
$
0.17

 
$
12,922


On September 14, 2018, with the authorization of the Company’s board of directors, the Company declared distributions to its stockholders for the period of October 2018 through December 2018. These distributions have been, or will be, calculated based on stockholders of record each day from October 1, 2018 through December 31, 2018 in an amount equal to $0.00191781 per share, per day. Distributions are paid on the first business day following the completion of each month to which they relate.

The Company has adopted an “opt in” distribution reinvestment plan for its stockholders. As a result, if the Company makes a distribution, its stockholders will receive distributions in cash unless they specifically “opt in” to the distribution reinvestment plan so as to have their cash distributions reinvested in additional shares of the Company’s common stock.

The following table reflects the sources of the cash distributions that the Company declared and, in some instances, paid on its common stock during the nine months ended September 30, 2018 and 2017.
 
Nine Months Ended 
 September 30, 2018
 
Nine Months Ended 
 September 30, 2017
 
(dollars in thousands)
Source of Distribution
Distribution
Amount
 
Percentage
 
Distribution
Amount
 
Percentage
Net realized income from operations (before waiver of incentive fees)
$
24,219

 
58.2
%
 
$
40,270

 
100.0
%
Waiver of incentive fees
3,386

 
8.2

 
—

 
—

Distributions in excess of net realized income from operations (1)
13,991

 
33.6

 
—

 
—

Total
$
41,596

 
100.0
%
 
$
40,270

 
100.0
%
(1)
Includes adjustments made to GAAP-basis net investment income to arrive at taxable income available for distributions. See Note 8 for the sources of the Company’s cash distributions on a tax basis.

The Company may fund its cash distributions from all sources of funds legally available, including stock offering proceeds, if any, borrowings, net investment income from operations, capital gains proceeds from the sale of assets, non-capital gains proceeds from the sale of assets, dividends or other distributions paid to it on account of preferred and common equity investments in portfolio companies, and fee and expense waivers from its Advisers. The Company has not established limits on the amount of funds that the Company may use from legally available sources to make distributions. The Company expects that for the foreseeable future, a portion of the distributions may be paid from sources other than net realized income from operations, which may include stock offering proceeds, if any, borrowings, and fee and expense waivers from the Advisers. See Note 10 - Related Party Transactions and Arrangements - Advisory Agreements and Conditional Fee Waiver and Expense Reimbursement Waivers.

The Company’s distributions may exceed its earnings and, as a result, a portion of the distributions it makes may represent a return of capital for U.S. federal income tax purposes. The timing and amount of any future distributions to stockholders are subject to applicable legal restrictions and the sole discretion of the Company’s board of directors. 

Note 8 – Taxable Income

The Company has elected to be treated for U.S. federal income tax purposes as a RIC. As a RIC, the Company generally will not incur corporate-level U.S. federal income taxes on net ordinary income or capital gains that the Company timely distributes each taxable year as dividends to its stockholders. To qualify as a RIC in any taxable year, the Company must, among other things, satisfy certain source-of-income and asset diversification requirements. In addition, the Company must distribute an amount in

29


each taxable year generally at least equal to 90% of its investment company taxable income, determined without regard to any deduction for dividends paid, in order to maintain its ability to be subject to taxation as a RIC. As a part of maintaining its RIC status, undistributed taxable income (subject to a 4% nondeductible, U.S. federal excise tax) pertaining to a given taxable year may be distributed up to 12 months subsequent to the end of that taxable year, provided such distributions are declared prior to the earlier of eight-and-one-half months after the close of that taxable year or the filing of the U.S. federal income tax return for such prior taxable year. In order to avoid the imposition of the 4% nondeductible, U.S. federal excise tax, the Company needs to distribute, in respect of each calendar year, dividends of an amount at least equal to the sum of: (1) 98.0% of its net ordinary income (taking into account certain deferrals and elections) for the calendar year, (2) 98.2% of its capital gain in excess of capital loss, or capital gain net income, (adjusted for certain ordinary losses) for the one-year period generally ending on October 31 of that calendar year (or, if the Company so elects for that calendar year) and (3) any net ordinary income and capital gain net income for preceding years that was not distributed with respect to such years and on which the Company incurred no U.S. federal income tax. For the taxable year ended December 31, 2016, the Company distributed $7.1 million, or $0.096753 per share, of its taxable income in 2017, prior to the filing of its U.S. federal income tax return for the 2016 taxable year. As a result, the Company was subject to a 4% nondeductible, U.S federal excise tax liability for the 2016 taxable year of approximately $239,000. For the taxable year ended December 31, 2017, the Company distributed $14.9 million, or $0.187394 per share, of its taxable income in 2018, prior to the filing of its U.S. federal income tax return for the 2017 taxable year. As a result, the Company was subject to a 4% nondeductible, U.S. federal excise tax liability of approximately $392,000.

The Company accounts for income taxes in conformity with ASC Topic 740 - Income Taxes, which provides guidelines for how uncertain tax positions should be recognized, measured, presented and disclosed in financial statements. ASC Topic 740 requires the evaluation of tax positions taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the Company’s financial statements is the largest benefit or expense that has a greater than 50% likelihood of being realized upon its ultimate settlement with the relevant tax authority. Positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. It is the Company’s policy to recognize accrued interest and penalties related to uncertain tax benefits, if any, in income tax expense. Conclusions regarding tax positions are subject to review and may be adjusted at a later date based on factors including, but not limited to, on-going analyses of tax laws, regulations and interpretations thereof. Management has analyzed the Company’s tax positions, and has concluded that there were no material uncertain income tax positions through September 30, 2018. The Company identifies its major tax jurisdiction as the United States, and the Company is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months. Tax returns for the 2014 through 2017 taxable years remain subject to examination by U.S. federal and most state tax authorities.

The Company’s wholly owned subsidiaries, HMS Equity Holding and HMS Equity Holding II, have elected to be taxable entities for U.S. tax purposes. HMS Equity Holding and HMS Equity Holding II primarily hold equity investments in portfolio companies which are treated as “pass through” entities for U.S. tax purposes. HMS Equity Holding and HMS Equity Holding II are consolidated for financial reporting purposes, and the portfolio investments held by each entity are included in the condensed consolidated financial statements as portfolio investments recorded at fair value. HMS Equity Holding and HMS Equity Holding II are not consolidated with the Company for U.S. federal income tax purposes and may generate income tax expense, or benefit, and the related tax assets and liabilities, as a result of its ownership of certain portfolio investments. This income tax expense, or benefit, if any, and the related tax assets and liabilities, are reflected in the Company’s condensed consolidated financial statements.

Listed below is a reconciliation of “Net increase (decrease) in net assets resulting from operations” to taxable income and to total distributions declared to common stockholders for the nine months ended September 30, 2018 and 2017 (dollars in thousands).
 
Nine Months Ended September 30, 2018
 
Nine Months Ended September 30, 2017
 
 
 
 
Net increase in net assets resulting from operations
$
51,559

 
$
39,440

Net change in unrealized (appreciation) depreciation
(23,955
)
 
7,165

Income tax provision
(29
)
 
139

Pre-tax book loss not consolidated for tax purposes
16,018

 
755

Book income and tax income differences, including debt origination, structuring fees, dividends, realized gains and changes in estimates
(45
)
 
1,526

Estimated taxable income (1)
43,548

 
49,025

 
 
 
 
Taxable income earned in prior year and carried forward for distribution in current year
15,005

 
7,238

 
 
 
 
Taxable income earned prior to period end and carried forward for distribution next period
(21,484
)
 
(20,558
)
Dividend accrued as of period end and paid-in the following period
4,527

 
4,565


30


 
Nine Months Ended September 30, 2018
 
Nine Months Ended September 30, 2017
 
 
 
 
Taxable income earned to be carried forward
$
(16,957
)
 
$
(15,993
)
 
 
 
 
Total distributions accrued or paid to common stockholders
$
41,596

 
$
40,270

(1)
The Company’s taxable income for each period is an estimate and will not be finally determined until the Company files its tax return for each year. Therefore, the final taxable income, and the taxable income earned in each period and carried forward for distribution in the following period, may be different than this estimate.

The income tax expense, or benefit, and the related tax assets and liabilities generated by HMS Equity Holding and HMS Equity Holding II, if any, are reflected in the Company’s Condensed Consolidated Statement of Operations. For the nine months ended September 30, 2018 and 2017, the Company recognized a net income tax (benefit) provision of $(29,000) and $139,000, respectively, related to deferred taxes (benefit) of $(1.6) million and $1.5 million, respectively, and other taxes (benefit) of $(29,000) and $139,000, respectively, offset by a valuation allowance of $1.6 million and $(1.5) million, respectively. For the nine months ended September 30, 2018 and 2017, the other taxes (benefit) included $(29,000) and $139,000, respectively, related to accruals for state and other taxes.

As of September 30, 2018, the cost basis of investments for tax purposes was $1.1 billion, with such investments having an estimated net unrealized appreciation of $9.3 million, composed of gross unrealized appreciation of $36.0 million and gross unrealized depreciation of $26.7 million. As of December 31, 2017, the cost basis of investments for tax purposes was $1.0 billion, with such investments having an estimated net unrealized depreciation of $14.9 million, composed of gross unrealized appreciation of $25.2 million and gross unrealized depreciation of $40.1 million.

The net deferred tax assets at both September 30, 2018 and December 31, 2017 was $0, primarily related to loss carryforwards, timing differences in net unrealized depreciation of portfolio investments, and basis differences of portfolio investments held by HMS Equity Holding and HMS Equity Holding II offset by a valuation allowance. Based on HMS Equity Holding’s and HMS Equity Holding II’s short operating history, management believes it is more likely than not that there will be inadequate profits in HMS Equity Holding and HMS Equity Holding II against which the deferred tax assets can be offset. Accordingly, the Company recorded a full valuation allowance against such deferred tax assets.

The following table sets forth the significant components of net deferred tax assets and liabilities as of September 30, 2018 and December 31, 2017 (amounts in thousands):
 
 
September 30, 2018
 
December 31, 2017
Deferred tax assets:
 
 
 
 
Net operating loss carryforwards
 
$
1,663

 
$
1,901

Foreign tax credit carryforwards
 
10

 
10

Capital loss carryforwards
 
9,933

 
5,390

Net basis differences in portfolio investments
 
—

 
—

Net unrealized depreciation of portfolio investments
 
—

 
—

    Total deferred tax assets
 
11,606

 
7,301

Deferred tax liabilities:
 
 
 
 
Net basis differences in portfolio investments
 
(1,343
)
 
(703
)
Net unrealized appreciation of portfolio investments
 
(2,466
)
 
(426
)
Other
 
—

 
—

    Total deferred tax liabilities
 
(3,809
)
 
(1,129
)
Valuation allowance
 
(7,797
)
 
(6,172
)
    Total net deferred tax assets (liabilities)
 
$
—

 
$
—


On December 22, 2017, the Tax Cuts and Jobs Act (the “TCJA”) was signed into law. The TCJA significantly changed the U.S. federal income tax laws applicable to businesses and their owners. Technical corrections or other amendments to the TCJA or administrative guidance interpreting the TCJA may be forthcoming at any time. Under the TCJA, the corporate income tax rate is reduced to 21%, and the corporate alternative minimum tax was repealed. The reduced corporate income tax rate, which is effective for taxable years beginning after December 31, 2017, apples to income earned by HMS Equity Holding and HMS Equity Holding II.

For federal income tax purposes, the net operating loss carryforwards generated prior to December 31, 2017 expire in various taxable years from 2034 through 2037. Under the TCJA, any net operating losses generated in 2018 and future periods will have

31


an indefinite carryforward. The net capital loss carryforwards expire in taxable years 2020 and 2023. The timing and manner in which HMS Equity Holding and HMS Equity Holding II will utilize any net loss carryforwards in such taxable years, or in total, may be limited in the future under the provisions of the Code.

For the years ending December 31, 2017, 2016 and 2015, respectively, the tax characteristics of distributions paid to shareholders were as follows (amounts in thousands):
 
Year Ended December 31,
Tax Characteristics of Distributions
2017
 
2016
 
2015
 
 
 
 
 
 
 
 
 
Ordinary income
$
52,473

96.43
%
 
$
44,848

93.90
%
 
$
34,085

99.68
%
Capital gain distributions
1,941

3.57

 
2,913

6.10

 
110

0.32

Total distributions
$
54,414

100.00
%
 
$
47,761

100.00
%
 
$
34,195

100.00
%

The determination of the tax attributes of the Company’s distributions is made annually at the end of the Company’s taxable year based upon the Company’s taxable income for the full taxable year and distributions paid for the full taxable year. Therefore, a determination made on an interim basis may not be representative of the actual tax attributes of distributions for a full year. If the Company had determined the tax attributes of its distributions taxable year-to-date as of September 30, 2018, 100% would be from its current and accumulated earnings and profits. However, there can be no certainty to stockholders that this determination is representative of what the actual tax attributes of the Company’s anticipated fiscal and taxable years ending December 31, 2018 distributions to stockholders will be. The actual tax characteristics of distributions to stockholders will be reported to the Internal Revenue Service and stockholders subject to information reporting shortly after the close of each calendar year on Form 1099-DIV.

Dividends from net investment income and distributions from net realized capital gains are determined in accordance with U.S. federal tax regulations, which may differ from amounts determined in accordance with GAAP and those differences could be material. These book-to-tax differences are either temporary or permanent in nature. Reclassifications due to permanent book-to-tax differences, such as the non-deductible excise tax, have no impact on net assets.

Note 9 – Supplemental Cash Flow Disclosures
 
Listed below are the supplemental cash flow disclosures for the nine months ended September 30, 2018 and 2017 (dollars in thousands):
Supplemental Disclosure of Cash Flow Information
 
Nine Months Ended September 30, 2018
 
Nine Months Ended September 30, 2017
Cash paid for interest
 
$
16,764

 
$
12,296

Cash paid for income taxes
 
690

 
358

 
 
 
 
 
Supplemental Disclosure of Non-Cash Flow Information
 
 

 
 

Stockholder distributions declared and unpaid
 
4,527

 
4,565

Stockholder distributions reinvested
 
20,550

 
20,594

Change in unpaid deferred offering costs
 
—

 
(40
)
Unpaid deferred financing costs
 
6

 
25

Unpaid sales commissions and dealer manager fee
 
—

 
251


Note 10 — Related Party Transactions and Arrangements
 
Advisory Agreements and Conditional Fee and Expense Reimbursement Waivers
 
The Company and the Adviser may enter into an agreement pursuant to which the Adviser could pay the Company up to 100% of its operating expenses an “Expense Support Payment”) in order to achieve a reasonable level of expenses relative to its investment income.

The Company and the Advisers entered into a conditional fee waiver agreement (as amended from time to time, the “Conditional Fee Waiver Agreement”), pursuant to which the Advisers could waive certain fees through December 31, 2015 upon the occurrence of any event that, in the Advisers’ sole discretion, caused such waivers to be deemed necessary.


32


The Company and the Advisers entered into conditional income incentive fee waiver agreements (the “2016-2018 Conditional Income Incentive Fee Waiver Agreements”), most recently on October 31, 2018, pursuant to which, for a period from January 1, 2016 through September 30, 2018, the Advisers would waive payments in respect of the “subordinated incentive fee on income,” as such term is defined in the Investment Advisory Agreement, upon the occurrence of any event that, in the Advisers’ sole discretion, causes such waiver to be deemed necessary. The 2016-2018 Conditional Income Incentive Fee Waiver Agreements may require the Company to repay previously waived reimbursement of Expense Support Payments or base management fees or incentive fees previously waived by the Advisers under certain circumstances and to the extent eligible for repayment.

Previously waived fees and Expense Support Payments are potentially subject to repayment by the Company, if at all, within a period not to exceed three years from the date of each respective fee waiver or Expense Support Payment. Thus, in any quarter where a surplus exists and the conditions described below are satisfied, the surplus will be available, subject to approval of the Company’s board of directors, to reimburse waived fees and Expense Support Payments as follows:

1.
First, to reimburse Expense Support Payments, beginning with the earliest expenses eligible for reimbursement; and
2.
Second, to reimburse all waived fees, beginning with the earliest fees eligible for reimbursement.

Reimbursement of previously waived fees will only be permitted with the approval of the Company’s board of directors and if the operating expense ratio is equal to or less than the operating expense ratio at the time the corresponding fees were waived or Expense Support Payments were made and if the annualized rate of regular cash distributions to stockholders is equal to or greater than the annualized rate of the regular cash distributions at the time the corresponding fees were waived.

For the three months ended September 30, 2018 and 2017, the Company incurred base management fees of approximately $5.9 million and $5.6 million, respectively, and the Advisers did not waive any base management fees in either period. For each of the three months ended September 30, 2018 and 2017, the Company did not incur any capital gains incentive fees in either period, and incurred subordinated incentive fees on income of approximately $3.2 million and $0, respectively, all of which were waived by the Advisers.

For the nine months ended September 30, 2018 and 2017, the Company incurred base management fees of approximately $17.3 million and $16.1 million, respectively, and the Advisers did not waive any base management fees in either period. For the nine months ended September 30, 2018 and 2017, the Company did not incur any capital gains incentive fees in either period, and incurred subordinated incentive fees on income of approximately $3.4 million and $2.3 million, respectively, all of which were waived by the Advisers.

For the nine months ended September 30, 2018 and 2017, the Company did not record an accrual for any previously waived fees. Any future reimbursement of previously waived fees to the Advisers will not be accrued until the reimbursement of the waived fees becomes probable and estimable, which will be upon approval of the Company’s board of directors. To date, none of the previously waived fees has been approved by the Company’s board of directors for reimbursement.

The table below presents the fees waived by the Advisers and the timing of potential reimbursement of waived fees (dollars in thousands). Previously waived fees will only be reimbursed with the approval of the Company’s board of directors and if the “Operating Expense Ratio” (as described in footnote 3 to the table below) is equal to or less than the Company’s operating expense ratio at the time the corresponding fees were waived and if the annualized rate of the Company’s regular cash distributions to stockholders is equal to or greater than the annualized rate of the Company’s regular cash distributions at the time the corresponding fees were waived.
 
Management Fee (1)
 
Subordinated Incentive Fee (1)
 
Capital Gain Incentive Fee (1)
 
Expense Support (1)
 
 
 
 
Quarter Ended
Waivers
Repaid to Adviser (2)
 
Waivers
Repaid to Adviser (2)
 
Waivers
Repaid to Adviser (2)
 
Payments
Repaid to Adviser (2)
 
Operating Expense Ratio (3)
Annualized Distribution Rate (4)
Eligible to be Repaid Through (5)
12/31/2015
$
—

$
—

 
$
1,159

$
—

 
$
—

$
—

 
$
—

$
—

 
2.27%
$0.70
12/31/2018
3/31/2016
$
—

$
—

 
$
493

$
—

 
$
—

$
—

 
$
—

$
—

 
1.83%
$0.70
3/31/2019
6/30/2016
$
—

$
—

 
$
—

$
—

 
$
—

$
—

 
$
—

$
—

 
1.76%
$0.70
6/30/2019
9/30/2016
$
—

$
—

 
$
—

$
—

 
$
—

$
—

 
$
—

$
—

 
1.73%
$0.70
9/30/2019
12/31/2016
$
—

$
—

 
$
1,196

$
—

 
$
—

$
—

 
$
—

$
—

 
1.68%
$0.70
12/31/2019
3/31/2017
$
—

$
—

 
$
1,495

$
—

 
$
—

$
—

 
$
—

$
—

 
1.68%
$0.70
3/31/2020
6/30/2017
$
—

$
—

 
$
823

$
—

 
$
—

$
—

 
$
—

$
—

 
1.67%
$0.70
6/30/2020
9/30/2017
$
—

$
—

 
$
—

$
—

 
$
—

$
—

 
$
—

$
—

 
1.91%
$0.70
9/30/2020

33


 
Management Fee (1)
 
Subordinated Incentive Fee (1)
 
Capital Gain Incentive Fee (1)
 
Expense Support (1)
 
 
 
 
Quarter Ended
Waivers
Repaid to Adviser (2)
 
Waivers
Repaid to Adviser (2)
 
Waivers
Repaid to Adviser (2)
 
Payments
Repaid to Adviser (2)
 
Operating Expense Ratio (3)
Annualized Distribution Rate (4)
Eligible to be Repaid Through (5)
12/31/2017
$
—

$
—

 
$
711

$
—

 
$
—

$
—

 
$
—

$
—

 
1.82%
$0.70
12/31/2020
3/31/2018
$
—

$
—

 
$
15

$
—

 
$
—

$
—

 
$
—

$
—

 
1.80%
$0.70
3/31/2021
6/30/2018
$
—

$
—

 
$
139

$
—

 
$
—

$
—

 
$
—

$
—

 
1.96%
$0.70
6/30/2021
9/30/2018
$
—

$
—

 
$
3,231

$
—

 
$
—

$
—

 
$
—

$
—

 
2.01%
$0.70
9/30/2021
(1)
Fees waived pursuant to the Conditional Fee Waiver Agreement and the 2016-2018 Conditional Income Incentive Fee Waiver Agreements.
(2)
Subject to the approval of the Company’s board of directors, in future periods previously waived fees may be paid to the Advisers, if the Company’s cumulative net increase in net assets resulting from operations exceeds the amount of cumulative distributions paid to stockholders. The previously waived fees are potentially subject to repayment by the Company, if at all, within a period not to exceed three years from the date of each respective fee waiver. To date, none of the previously waived fees and Expense Support Payments have been approved for reimbursement by the Company’s board of directors.
(3)
The “Operating Expense Ratio” is calculated on a quarterly basis as a percentage of average net assets and includes all expenses borne by the Company, except for base management and incentive fees and administrative expenses waived by the Advisers and organizational and offering expenses.
(4)
“Annualized Distribution Rate” equals $0.00191781 per share, per day based on the distributions declared by the Company’s board of directors.
(5)
Prior to December 31, 2015, the Advisers waived total management fees of $2.8 million, total subordinated incentive fees of $2.0 million and total capital gain incentive fees of $8,000. Due to the passage of time, such waived fees are not eligible for repayment under the applicable fee waiver agreements.

Pursuant to the Investment Advisory Agreement and Sub-Advisory Agreement, the Company is required to pay or reimburse the Advisers for administrative services expenses, which include all costs and expenses related to the Company’s day-to-day administration and management not related to advisory services, whether such administrative services were performed by a third party service provider or affiliates of the Advisers (“Internal Administrative Services”). The Advisers do not earn any profit under their provision of administrative services to the Company. For the three months ended September 30, 2018 and 2017, the Company incurred, and the Advisers waived the reimbursement of, Internal Administrative Services expenses of approximately $623,000 and $694,000, respectively. For the nine months ended September 30, 2018 and 2017, the Company incurred, and the Advisers waived the reimbursements of, Internal Administrative Services expenses of approximately $2.0 million and $2.2 million, respectively. The Company and the Advisers entered into an expense support and conditional reimbursement agreement, as amended from time to time, which extends the period for waiver of reimbursement of Internal Administrative Services expenses accrued pursuant to the Investment Advisory Agreement and the Sub-Advisory Agreement through December 31, 2018. Since inception, the Advisers waived the reimbursement of total Internal Administrative Services expenses of $12.4 million. Waived Internal Administrative Services expenses are not subject to future reimbursement.

The table below outlines fees incurred and expense reimbursements payable to the Adviser, the Sub-Adviser and their respective affiliates for the three and nine months ended September 30, 2018 and 2017 and amounts unpaid as of September 30, 2018 and December 31, 2017 (dollars in thousands).
 
Incurred
 
Incurred
 
Unpaid as of
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
September 30, 2018
 
December 31, 2017
Type and Recipient
2018
 
2017
 
2018
 
2017
 
Incentive Fees on Income - the Adviser, Sub-Adviser (1)
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Offering Costs - the Adviser, Sub-Adviser
101

 
272

 
308

 
1,000

 
—

 
—

Other (2) - the Adviser
155

 
81

 
488

 
551

 
38

 
59

Selling Commissions - Dealer Manager
—

 
501

 
—

 
2,368

 
—

 
—

Dealer Manager Fee - Dealer Manager
—

 
307

 
—

 
1,307

 
—

 
—

Due to Affiliates
 
 
 

 
 

 
 

 
$
38

 
$
59

 
 
 
 
 
 
 
 
 
 
 
 
Base Management Fees - the Adviser, Sub-Adviser
$
5,904

 
$
5,648

 
$
17,335

 
$
16,101

 
$
5,904

 
$
5,682

(1)
Net of amounts waived by the Advisers.
(2)
Includes amounts the Adviser paid on behalf of the Company such as general and administrative services expenses.

Offering Costs

In accordance with the Investment Advisory Agreement and the Sub-Advisory Agreement, the Company reimburses the Advisers for any offering costs that are paid on the Company’s behalf, which consist of, among other costs, actual legal, accounting, bona fide out-of-pocket itemized and detailed due diligence costs, printing, filing fees, transfer agent costs, postage, escrow fees, advertising and sales literature and other costs incurred in connection with an offering of the Company including the Company’s distribution reinvestment plan. Pursuant to the terms of the Investment Advisory Agreement and the Sub-Advisory Agreement,

34


the Company expects to reimburse the Advisers for such costs incurred on the Company’s behalf on a monthly basis, up to a maximum aggregate amount of 1.5% of the gross stock offering proceeds. The Advisers are responsible for the payment of offering costs to the extent they exceed 1.5% of the aggregate gross stock offering proceeds.

As of September 30, 2018, the Company has reimbursed the Advisers approximately $12.1 million since inception for offering costs. As of September 30, 2018, the Advisers carried a balance of approximately $1.1 million for offering costs incurred on the Company’s behalf, net of reimbursement payments from the Company.

Note 11 – Share Repurchase Plan
 
Since inception of the share repurchase program, the Company funded the repurchase of $64.6 million in shares of common stock. For the nine months ended September 30, 2018 and 2017, the Company funded $27.6 million and $14.0 million, respectively, for shares of common stock tendered for repurchase under the plan approved by the board of directors. Since inception of the share repurchase program, the Company has funded all redemption requests validly tendered and not withdrawn.
For the Quarter Ended
 
Repurchase Date
 
Shares Repurchased
 
Percentage of Shares Tendered that were Repurchased
 
Repurchase Price
per Share
 
Aggregate Consideration for Repurchased Shares
March 31, 2018
 
March 22, 2018
 
1,147,067.15
 
100%
 
$
8.20

 
$
9,405,951

June 30, 2018
 
May 31, 2018
 
1,242,890.47
 
100%
 
$
8.17

 
$
10,154,415

September 30, 2018
 
August 31, 2018 / September 12, 2018 / October 25, 2018
 
982,248.25
 
100%
 
$
8.15

 
$
8,005,323


On August 10, 2018, the Company’s board of directors determined that it was desirable and in the best interest of the Company
to modify the manner in which the amount of shares to be repurchased pursuant to the Company’s share repurchase program during each calendar quarter is calculated. Beginning with the Company’s tender offer in its fourth fiscal quarter of 2018, the amount of shares of the Company’s common stock to be repurchased during any calendar quarter will be equal to the lesser of (i) the number of shares of common stock the Company can repurchase with the proceeds it received from the issuance of common stock under the Company’s distribution reinvestment plan during the prior calendar quarter or (ii) 2.5% of the weighted average number of shares of common stock outstanding in the prior four calendar quarters. All other provisions of the Company’s share repurchase program remained unchanged.

Note 12 – Commitments and Contingencies

As of September 30, 2018, the Company had a total of approximately $39.9 million in outstanding commitments comprising (i) 33 commitments to fund revolving loans that had not been fully drawn or term loans that had not been funded and (ii) four capital commitments that had not been fully called. The Company recognized unrealized depreciation of approximately $212,000 on the outstanding unfunded loan commitments and no unrealized appreciation or depreciation on the outstanding unfunded capital commitments during the nine months ended September 30, 2018. As of December 31, 2017, the Company had a total of approximately $45.4 million in outstanding commitments comprising (i) 28 commitments to fund revolving loans that had not been fully drawn or term loans that had not been funded and (ii) four capital commitments that had not been fully called. The Company recognized unrealized appreciation of $14,000 on the outstanding unfunded loan commitments and no unrealized appreciation or depreciation on the outstanding unfunded capital commitments during the year ended December 31, 2017.
 
Commitments and Contingencies
 
(dollars in thousands)
 
September 30, 2018
 
December 31, 2017
Unfunded Loan Commitments

 
 
Adams Publishing Group, LLC
$
3,035

 
$
—

American Nuts, LLC
1,266

 
—

Apex Linen Services, Inc.
403

 
403

Arcus Hunting, LLC
60

 
976

ASC Ortho Management Company, LLC
750

 
—

BarFly Ventures, LLC
245

 
613

BBB Tank Services
37


—

BigName Holdings, LLC
29


101

Boccella Precast Products, LLC
360

 
500

CDHA Management, LLC
—

 
2,343

Chamberlin HoldCo, LLC
400


—


35


 
Commitments and Contingencies
 
(dollars in thousands)
 
September 30, 2018
 
December 31, 2017
Unfunded Loan Commitments

 
 
Charps, LLC
$
600

 
$
1,000

Clad-Rex Steel, LLC
100


100

CTVSH, PLLC
200


200

Datacom, LLC
—

 
25

Direct Marketing Solutions, Inc.
400


—

DTE Enterprises, LLC
750

 
—

Dynamic Communities, LLC
250

 
—

Felix Investments Holdings II LLC
—


1,667

Gamber-Johnson Holdings, LLC
300

 
300

GST Autoleather Inc.
—

 
1,281

Guerdon Modular Holdings, Inc.
400

 
400

Hawk Ridge Systems, LLC
400

 
400

Hojeij Branded Foods, Inc.
1,588

 
1,923

Hoover Group, Inc.
2,113

 
—

Hostway Corporation
—


7

HW Temps LLC
200

 
200

Implus Footcare, LLC
42

 
—

LaMi Products, LLC
—

 
294

Market Force Information, Inc.
300


400

Meisler Operating, LLC
400


400

Mystic Logistics Holdings, LLC
200

 
200

New Era Technology, Inc.
479

 
—

NexRev, LLC
1,000


—

NNE Partners, LLC
2,042


5,542

NuStep, LLC
300


300

Permian Holdco 2, Inc.
—

 
97

PPC/Shift, LLC
—

 
500

Resolute Industrial LLC
—


5,750

SI East , LLC
2,500

 
—

Volusion LLC
1,961

 
—

Wireless Vision Holdings, LLC
2,100


2,084

Unfunded Capital Commitments
 
 
 
Brightwood Capital Fund III, LP
1,000

 
1,000

Brightwood Capital Fund IV, LP
8,000

 
9,000

Copper Trail Energy Fund I LP
1,754

 
2,500

Freeport Financial Funds
3,942

 
4,941

Total
$
39,906

 
$
45,447


Note 13 – Subsequent Events
 
On October 10, 2018, the Company filed a tender offer statement on Schedule TO with the SEC to commence an offer by the Company to purchase, as approved by its board of directors, an estimated 825,530.42 shares of the Company’s issued and outstanding common stock, par value $0.001 per share, up to approximately $6.7 million. The offer is for cash at a purchase price equal to the NAV per share to be determined within 48 hours of the repurchase date.

On October 31, 2018, the Company, the Adviser and the Sub-Adviser entered into a conditional income incentive fee agreement (the “Third Quarter 2018 Fee Waiver Agreement”), pursuant to which, for a period from July 1, 2018 through September 30, 2018, the Advisers would waive payments in respect of the “subordinated incentive fee on income,” as such term is defined in the Investment Advisory Agreement, upon the occurrence of any event that, in the Advisers’ sole discretion, causes such waiver to be deemed necessary. The Third Quarter 2018 Fee Waiver Agreement may require the Company to repay previously waived Expense Support Payments or waived base management fees or incentive fees under certain circumstances. The previously waived fees are potentially subject to repayment by the Company, if at all, within a period not to exceed three years from the date of each respective waiver.

36


Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
The following discussion is based on the condensed consolidated financial statements as of September 30, 2018 (unaudited) and December 31, 2017 and for the three and nine months ended September 30, 2018 and 2017. Amounts as of December 31, 2017 included in the unaudited condensed consolidated financial statements have been derived from the Company’s audited consolidated financial statements as of that date. This information should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and the notes thereto, as well as the audited consolidated financial statements, notes and management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, 2017. Capitalized terms used in this Item 2 have the same meaning as in the accompanying condensed consolidated financial statements in Item 1 unless otherwise defined in this Report.

We refer to HMS Income Fund, Inc. as the “Company,” and the use of “we,” “our,” “us” or similar pronouns in this Report refers to HMS Income Fund, Inc.

Forward-Looking Statements
 
Some of the statements in this Report constitute forward-looking statements because they relate to future events or our future performance or financial condition. The forward-looking statements contained in this Report may include statements as to:
 
•
our future operating results;
•
our business prospects and the prospects of our current and prospective portfolio companies;
•
the impact of the investments that we expect to make;
•
the ability of our portfolio companies to achieve their objectives;
•
our expected financings and investments;
•
the adequacy of our cash resources and working capital;
•
the timing of cash flows, if any, from the operations of our portfolio companies;
•
changes in political, economic or industry conditions, the interest rate environment or conditions affecting the financial and capital markets, which could result in changes to the value of our assets;
•
the impact of increased competition;
•
our contractual arrangements and relationships with third parties;
•
the dependence of our future success on the general economy, including general economic trends, and its impact on the industries in which we invest;
•
the relative and absolute performance of our investment adviser, HMS Adviser LP (the “Adviser”), a Texas limited partnership, including in identifying suitable investments for us;
•
our ability to make distributions to our stockholders;
•
the effects of applicable legislation and regulations and changes thereto; and
•
the impact of future acquisitions and divestitures.

In addition, words such as “anticipate,” “believe,” “expect” and “intend” indicate a forward-looking statement, although not all forward-looking statements include these words. The forward-looking statements contained in this Report involve risks and uncertainties.

Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth in “Part II-Item 1A. Risk Factors” and elsewhere in this Report and set forth in our annual report on Form 10-K for the year ended December 31, 2017 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2018. Other factors that could cause actual results to differ materially include:
 
•
changes in the economy;
•
risks associated with possible disruption in our operations or the economy generally; and
•
future changes in laws or regulations and conditions in our operating areas.

We have based the forward-looking statements included in this Report on information available to us on the date of this Report. Except as required by the federal securities laws, we assume 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 in the future may file with the Securities and Exchange Commission (the “SEC”), including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. The forward-looking statements and projections contained in this Report are excluded from the safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).


37


OVERVIEW

We are a specialty finance company sponsored by Hines Interests Limited Partnership (“Hines”) that makes debt and equity investments in middle market (“Middle Market”) companies, which we define as companies with annual revenues generally between $10 million and $3 billion and in lower middle market (“LMM”) companies, which we define as companies with annual revenues generally between $10 million and $150 million. We are an externally managed, non-diversified closed-end management investment company that has elected to be treated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). We are, therefore, required to comply with certain regulatory requirements. We have elected to be treated for U.S. federal income tax purposes as a regulated investment company (“RIC”), under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).
Our primary investment objective is to generate current income through debt and equity investments. A secondary objective is to generate long-term capital appreciation through equity and equity-related investments, including warrants, convertible securities and other rights to acquire equity securities. Our portfolio strategy is to invest primarily in illiquid debt and equity securities issued by LMM companies and Middle Market companies in private placements and negotiated transactions, which are traded in private over-the-counter markets for institutional investors. We will also invest in, and a significant portion of our assets are invested in, customized direct secured and unsecured loans to and equity securities of LMM companies, referred to as LMM securities. Typically, our investments in LMM companies require us to co-invest with Main Street Capital Corporation, a New York Stock Exchange listed BDC (“Main Street”), and/or its affiliates as a result of our sub-advisory relationship described below. We categorize some of our investments in LMM companies and Middle Market companies as private loan (“Private Loan”) portfolio investments. Private Loan investments, often referred to in the debt markets as “club deals,” are investments, generally in debt instruments, that we originate on a collaborative basis with other investment funds. Private Loan investments are typically similar in size, structure, terms and conditions to investments we hold in our LMM portfolio and Middle Market portfolio. Our portfolio also includes other portfolio (“Other Portfolio”) investments primarily consisting of our investment in HMS-ORIX SLF LLC (“HMS-ORIX”) and investments managed by third parties, which differ from the typical profiles for our other types of investments.

We previously registered for sale up to 150,000,000 shares of common stock pursuant to a registration statement on Form N-2 (File No. 333-178548) which was initially declared effective by the SEC on June 4, 2012 (the “Initial Offering”). The Initial Offering terminated on December 1, 2015. We raised approximately $601.2 million in the Initial Offering, including proceeds from the dividend reinvestment plan of approximately $22.0 million. We also registered for sale up to $1,500,000,000 worth of shares of common stock (the “Offering”) pursuant to a new registration statement on Form N-2 (File No. 333-204659), as amended. With the approval of our board of directors, we closed the Offering to new investors effective September 30, 2017. Through September 30, 2018, we raised approximately $204.7 million in the Offering, including proceeds from the distribution reinvestment plan of approximately $73.0 million.

Our business is managed by the Adviser, an affiliate of Hines, under an Investment Advisory and Administrative Services Agreement dated May 31, 2012 (as amended the “Investment Advisory Agreement”). We and the Adviser have retained MSC Adviser I, LLC (the “Sub-Adviser”), a wholly owned subsidiary of Main Street, as our investment sub-adviser pursuant to an Investment Sub-Advisory Agreement (the “Sub-Advisory Agreement”) to identify, evaluate, negotiate and structure prospective investments, make investment and portfolio management recommendations for approval by the Adviser, monitor our investment portfolio and provide certain ongoing administrative services to the Adviser. The Adviser and the Sub-Adviser are collectively referred to as the “Advisers,” and each is registered under the Investment Advisers Act of 1940, as amended. Upon the execution of the Sub-Advisory Agreement, Main Street became our affiliate. Our board of directors most recently reapproved the Investment Advisory Agreement and the Sub-Advisory Agreement on May 10, 2018. We have engaged Hines Securities, Inc. (the “Dealer Manager”), an affiliate of the Adviser, to serve as the Dealer Manager for our offerings, if any.

As part of our Other Portfolio investments, we co-invest in broadly-syndicated loans with ORIX Funds Corp. (“Orix”) through our investment in HMS-ORIX, which is organized as a Delaware limited liability company. Pursuant to the terms of the limited liability company agreement and through representation on the HMS-ORIX Board of Managers, we and Orix each have 50% voting control of HMS-ORIX and together will agree on all portfolio and investment decisions as well as all other significant actions for HMS-ORIX. We do not operationally control HMS-ORIX, and, accordingly, we do not consolidate the operations of HMS-ORIX within our consolidated financial statements.

As a BDC, we are subject to certain regulatory restrictions in making our investments, including limitations on our ability to co-invest with certain affiliates, including Main Street. However, we received exemptive relief from the SEC, that permits us, subject to certain conditions, to co-invest with Main Street and/or its affiliates in certain transactions originated by Main Street and/or our Advisers. The exemptive relief permits us, and certain of our directly or indirectly wholly owned subsidiaries on one hand, and Main Street and or/certain of its affiliates on the other hand, to co-invest in the same investment opportunities where such investment may otherwise be prohibited under Section 57(a)(4) of the 1940 Act. In addition, we may continue to co-invest with Main Street

38


and/or its affiliates in syndicated deals and secondary loan market purchases in accordance with applicable regulatory guidance or interpretations where price is the only negotiated point.

As of September 30, 2018, we had investments in 50 Middle Market debt investments, 45 Private Loan debt investments, 37 LMM debt investments, 35 LMM equity investments, six Middle Market equity investments, 15 Private Loan equity investments and eight Other Portfolio investments with an aggregate fair value of approximately $1,130.3 million, a cost basis of approximately $1,121.0 million and a weighted average effective annual yield of approximately 9.2%. The weighted average annual yield was calculated using the effective interest rates for all investments at September 30, 2018, including accretion of original issue discount and amortization of premium to par value, the amortization of fees received in connection with transactions, and assumes zero yield for investments on non-accrual status. Approximately 80.7% and 9.4% of our total portfolio investments (at fair value, excluding our Other Portfolio investments) were secured by first priority liens and second priority liens, respectively, on portfolio company assets with the remainder in unsecured debt investments and equity investments.
 
The level of new portfolio investment activity will fluctuate from period to period based upon our view of the current economic fundamentals, our ability to identify new investment opportunities that meet our investment criteria and our ability to close on the identified transactions. The level of new investment activity and associated interest and fee income will directly impact future investment income. While we intend to grow our investment income over the long-term, our operating results may be more limited during depressed economic periods. However, we intend to appropriately manage our cost structure and liquidity position based on applicable economic conditions and our investment outlook. The level of realized gains or losses and unrealized appreciation or depreciation will also fluctuate depending upon portfolio activity and the performance of our individual portfolio companies. The changes in realized gains and losses and unrealized appreciation or depreciation could have a material impact on our operating results.
 
Investment Income
 
We have generated, and plan to continue to generate, investment income primarily in the form of interest on the debt securities that we hold, dividends and other distributions with respect to any equity interests that we hold and capital gains, if any, on our investments. In addition, we may generate revenue in the form of commitment, origination, structuring or diligence fees, monitoring fees, and possibly consulting fees and performance-based fees. All such fees will be generated in connection with our investments and recognized as earned or as additional yield over the life of the debt investment. To date our investment income has been interest income on debt investments, accretion of original issue discounts, dividend income, amortization of premiums and fees received from transactions, net realized appreciation (depreciation) and net change in unrealized appreciation (depreciation).

Expenses
 
On both a short-term and long-term basis, our primary use of funds will be investments in portfolio companies and cash distributions to our stockholders. Our primary operating expenses will be debt service payments, general and administrative expenses, and payment of advisory fees under the Investment Advisory Agreement. The investment advisory fees paid to our Adviser (and the fees paid by our Adviser to our Sub-Adviser pursuant to the Sub-Advisory Agreement) will compensate our Advisers for their work in identifying, evaluating, negotiating, executing, monitoring and servicing our investments.
 
We bear all other expenses of our operations and transactions, including fees and expenses relating to:
  ●
 
corporate and organizational expenses relating to offerings of our common stock, subject to certain limitations;
  ●
 
the cost of calculating our net asset value (“NAV”), including the cost of any third-party valuation services;
  ●
 
the cost of effecting sales and repurchases of shares of our common stock and other securities;
  ●
 
fees payable to third parties relating to, or associated with, monitoring our financial and legal affairs, making investments, and valuing investments, including fees and expenses associated with performing due diligence reviews of prospective investments;
  ●
 
interest payable on debt, if any, including any hedging costs;
  ●
 
investment advisory fees;
  ●
 
transfer agent and custodial fees;
  ●
 
fees and expenses associated with marketing efforts;
  ●
 
federal and state registration fees;
  ●
 
federal, state and local taxes;
  ●
 
independent directors’ fees and expenses, including travel expenses;
  ●
 
costs of director and stockholder meetings, proxy statements, stockholders’ reports and notices;
  ●
 
cost of fidelity bond, directors and officers/errors and omissions liability insurance and other insurance premiums;

39


  ●
 
direct costs such as printing of stockholder reports and advertising or sales materials, mailing, long distance telephone, and staff;
  ●
 
fees and expenses associated with independent audits and outside legal costs, including compliance with the Sarbanes-Oxley Act of 2002, the 1940 Act, and other applicable federal and state securities laws and regulations;
  ●
 
costs associated with our reporting and compliance obligations under the 1940 Act and other applicable federal and state securities laws and regulations;
  ●
 
brokerage commissions for our investments;
  ●
 
all other expenses incurred by our Advisers in performing their obligations, subject to the limitations included in the Investment Advisory Agreement and Sub-Advisory Agreement; and
  ●
 
all other expenses incurred by us or any administrator in connection with administering our business, including payments under any administration agreement that will be based upon our allocable portion of overhead and other expenses incurred by any administrator in performing its obligations under any proposed administration agreement, including rent and our allocable portion of the costs of compensation and related expenses of our Chief Compliance Officer and Chief Financial Officer and their respective staffs.

During periods of asset growth, we expect our general and administrative expenses to be relatively stable or decline as a percentage of total assets and increase during periods of asset declines.

Base Management Fee, Incentive Fee Waiver Agreements and Administrative Services Expense Reimbursement Waiver Agreements

From time to time, our Advisers may waive certain fees and expense reimbursements accrued under the Investment Advisory Agreement and the Sub-Advisory Agreement, as applicable. Under certain circumstances, we may reimburse such waived fees within three years from the date of each respective fee reimbursement waiver. See Note 10 - Related Party Transactions and Arrangements - Advisory Agreements and Conditional Fee and Expense Reimbursement Waivers to our condensed consolidated financial statements included elsewhere in this Report for additional information on our fee and expense reimbursement waivers.

CRITICAL ACCOUNTING POLICIES
 
Each of our critical accounting policies involves the use of estimates that require management to make assumptions that are subjective in nature. Management relies on its experience, collects historical and current market data, and analyzes these assumptions in order to arrive at what it believes to be reasonable estimates. In addition, application of these accounting policies involves the exercise of judgments regarding assumptions as to future uncertainties. Actual results could materially differ from these estimates. A disclosure of our critical accounting policies is included in our Annual Report on Form 10-K for the year ended December 31, 2017 in Management’s Discussion and Analysis of Financial Condition and Results of Operations. There have been no changes to our critical accounting policies during 2018, except to the extent described below.

Basis of Presentation and Consolidation

Our condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and accounting principles generally accepted in the United States of America and include the accounts of our wholly owned consolidated subsidiaries: HMS Funding I LLC (“HMS Funding”), HMS Equity Holding, LLC (“HMS Equity Holding”) and HMS Equity Holding II, Inc. (“HMS Equity Holding II”). All intercompany accounts and transactions have been eliminated in consolidation. Under the 1940 Act rules, regulations pursuant to Articles 6, 10 and 12 of Regulation S-X and Topic 946, Financial Services - Investment Companies of the Accounting Standards Codification, as amended (the “ASC”), of the Financial Accounting Standards Board (“FASB”), we are precluded from consolidating portfolio company investments, including those in which we have a controlling interest, unless the portfolio company is a wholly owned investment company. An exception to this general principle occurs if we own a controlled operating company whose purpose is to provide services to us such as an investment adviser or transfer agent. None of our investments qualify for this exception. Therefore, our portfolio company investments, including those in which we have a controlling interest, are carried on the Consolidated Balance Sheet at fair value with changes to fair value recognized as “Net Change in Unrealized Appreciation (Depreciation)” on the Consolidated Statements of Operations until the investment is realized, usually upon exit, resulting in any gain or loss on exit being recognized as a realized gain or loss. However, in the event that any controlled subsidiary exceeds the tests of significance set forth in Rules 3-09 or 4-08(g) of Regulation S-X, we will include required financial information for such subsidiary in the notes or as an attachment to our condensed consolidated financial statements.


40


PORTFOLIO INVESTMENT COMPOSITION

Our Middle Market portfolio investments primarily consist of direct or secondary purchases of interest-bearing debt securities in companies that are generally larger in size than the LMM companies included in our LMM portfolio. While our Middle Market debt investments are generally secured by a first priority lien, 16.9% of the fair value of our Middle Market portfolio, as of September 30, 2018, is secured by second priority liens.
 
As of September 30, 2018, LMM portfolio consists of debt investments secured by a first priority lien (63.5% of the total fair value of the LMM portfolio) on the assets of the portfolio companies and equity investments (36.5% of the total fair value of the LMM portfolio) in privately held LMM companies. The LMM debt investments generally mature between five and seven years from the original investment date. The LMM equity investments represent an equity position or the right to acquire an equity position through warrants.

As of September 30, 2018, Private Loan portfolio primarily consists of debt investments secured by first and second priority liens (89.3% and 4.8% of the total fair value of the Private Loan portfolio, respectively) on the assets of the portfolio companies, unsecured debt investments (2.7% of the total fair value of the Private Loan portfolio) and equity investments (3.2% of the total fair value of the Private Loan portfolio) in Private Loan companies. The Private Loan debt investments typically have stated terms between three and seven years from the original investment date. The Private Loan equity investments represent an equity position or the right to acquire an equity position through warrants.

Our Other Portfolio investments primarily consist of our investment in HMS-ORIX (discussed in more detail below) and investments managed by third parties, which differ from the typical profiles for LMM, Middle Market and Private Loan portfolio investments. In the Other Portfolio investments, we may incur indirect fees and expenses in connection with investments managed by third parties, such as investments in other investment companies or private funds.

During the nine months ended September 30, 2018, we funded investment purchases of approximately $476.5 million and had four investments under contract to purchase as of September 30, 2018 for an aggregate purchase price of approximately $16.9 million, which settled or were scheduled to settle after September 30, 2018. We also received proceeds from sales and repayments of existing portfolio investments of approximately $386.1 million, including $175.3 million in sales. Additionally, we had three investments under contract to sell as of September 30, 2018, for approximately $17.3 million, which represented the contract sales price. The combined result of these transactions increased our portfolio, on a cost basis, by approximately $56.7 million, or 5.3%, and the number of portfolio investments by 20 or 11.4%, compared to the portfolio as of December 31, 2017. As of September 30, 2018, the largest investment in an individual portfolio company represented approximately 2.7% of our portfolio’s fair value, with remaining investments in any individual portfolio company ranging from 0.0% to 1.8%. The average investment in our portfolio is approximately $5.8 million or 0.5% of our total portfolio as of September 30, 2018. Our portfolio extends across individual portfolio investments, geographic regions, and industries. Further, our total portfolio’s investment composition (excluding our Other Portfolio investments) at fair value comprises 80.7% first lien debt securities and 9.4% second lien debt securities, with the remainder in unsecured debt investments and equity investments. First lien debt securities have priority over subordinated debt owed by the issuer with respect to the collateral pledged as security for the loan. Due to the relative priority of payment of first lien investments, these generally have lower yields than lower priority, less secured investments.

During the nine months ended September 30, 2017, we made investment purchases of approximately $470.9 million and had two investments under contract to purchase as of September 30, 2017 for an aggregate purchase price of approximately $9.8 million, which settled after September 30, 2017. We also received proceeds from sales and repayments of existing portfolio investments of approximately $370.9 million including $40.8 million in sales and had two investments under contract to sell as of September 30, 2017 for approximately $12.8 million, which represented the contract sales price.

The result of these transactions further diversified our geographic and industry concentrations and based upon our investment rating system, which is described further below, the weighted average rating of our LMM was approximately 2.5 and 2.7 as of September 30, 2018 and December 31, 2017, respectively. Lastly, the overall weighted average effective yield on our investment portfolio increased from 8.9% as of December 31, 2017 to 9.2% as of September 30, 2018.


41


Summaries of the composition of our total investment portfolio at cost and fair value are shown in the following tables (this information excludes Other Portfolio investments):
 
September 30, 2018
 
December 31, 2017
Cost:
LMM
 
Private Loan
 
Middle Market
 
Total
 
LMM
 
Private Loan
 
Middle Market
 
Total
First Lien Secured Debt
70.6
%
 
89.1
%
 
81.2
%
 
82.4
%
 
69.8
%
 
92.5
%
 
83.1
%
 
84.3
%
Second Lien Secured Debt
—

 
4.7

 
16.6

 
9.5

 
—

 
1.5

 
16.2

 
9.6

Unsecured Debt
—

 
2.8

 
0.2

 
1.1

 
—

 
3.3

 
0.1

 
1.1

Equity 
28.7

 
3.2

 
2.0

 
6.8

 
29.2

 
2.5

 
0.6

 
4.8

Equity warrants
0.7

 
0.2

 
—

 
0.2

 
1.0

 
0.2

 
—

 
0.2

Total
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%

 
September 30, 2018
 
December 31, 2017
Fair Value:
LMM
 
Private Loan
 
Middle Market
 
Total
 
LMM
 
Private Loan
 
Middle Market
 
Total
First Lien Secured Debt
63.5
%
 
89.3
%
 
80.8
%
 
80.7
%
 
64.7
%
 
92.4
%
 
82.1
%
 
83.0
%
Second Lien Secured Debt
—

 
4.8

 
16.9

 
9.4

 
—

 
1.5

 
17.0

 
9.8

Unsecured Debt
—

 
2.7

 
0.2

 
1.1

 
—

 
3.4

 
0.1

 
1.1

Equity
36.0

 
3.0

 
2.1

 
8.6

 
34.3

 
2.5

 
0.8

 
5.9

Equity warrants
0.5

 
0.2

 
—

 
0.2

 
1.0

 
0.2

 
—

 
0.2

Total
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%

For the tables showing our total investment portfolio composition by geographic region and by industry, see Note 3 - Fair Value Hierarchy for Investments - Portfolio Investment Composition to our condensed consolidated financial statements included elsewhere in this Report.

Investment in HMS-ORIX

We co-invest in broadly-syndicated loans with Orix through our investment in HMS-ORIX, which is organized as a Delaware limited liability company. Pursuant to the terms of the limited liability company agreement and through representation on the HMS-ORIX Board of Managers, we and Orix each have 50% voting control of HMS-ORIX and together will agree on all portfolio and investment decisions as well as all other significant actions for HMS-ORIX. We do not operationally control HMS-ORIX, and, accordingly, we do not consolidate the operations of HMS-ORIX within our consolidated financial statements. As of September 30, 2018, we and Orix have committed to provide, and have funded, an aggregate of $50.0 million of equity to HMS-ORIX, $30.0 million (60% of the equity) from us and $20.0 million (40% of the equity) from Orix.

As of September 30, 2018 and December 31, 2017, HMS-ORIX had total assets of $151.5 million and $142.9 million, respectively, and HMS-ORIX’s portfolio consisted of 85 and 74 broadly-syndicated loans, respectively, all of which were secured by first-priority liens, generally in industries similar to those in which we may directly invest.

On April 5, 2017, HMS-ORIX closed on a $100.0 million credit facility with Bank of America, N.A. The facility has a maturity date of April 5, 2020. Borrowings under the facility bear interest at a rate equal to LIBOR plus 1.65% per annum. As of September 30, 2018 and December 31, 2017, $93.3 million and $86.5 million, respectively, was outstanding under this facility. Borrowings under the facility are secured by substantially all of the assets of HMS-ORIX. If we were to include our pro-rata share of the borrowings under the HMS-ORIX credit facility as leverage on our balance sheet as of September 30, 2018, our asset coverage ratio as of such date would have been 207%, assuming our unfunded commitments are treated as senior securities.


42


The following table presents a summary of HMS-ORIX’s portfolio as of September 30, 2018 and December 31, 2017 (dollars in thousands):
 
As of September 30, 2018
As of December 31, 2017
 
 
 
Total debt investments (1)
$
143,895

$
138,908

Weighted average effective yield on loans(2)
5.49
%
4.95
%
Largest loan to a single borrower(1)
$
3,470

$
3,496

Total of 10 largest loans to borrowers(1)
$
30,960

$
30,790

(1) At principal amount.
(2) Weighted average effective yield is calculated based on the investments at the end of each period and includes accretion of original issue discounts and amortization of premiums, and the amortization of fees received in connection with transactions. Investments, if any, on non-accrual status are assumed to have a zero yield in the calculation of weighted average effective yield.

The following table presents a listing of HMS-ORIX’s individual loan investments as of September 30, 2018:
HMS-ORIX
Loan Portfolio
As of September 30, 2018
(dollars in thousands)
Portfolio Company
Industry
Type of Investment
Principal
Cost
Fair Value
 
 
 
 
 
 
Acrisure, LLC
Insurance
LIBOR (2 months) + 4.25%, Current Coupon 6.59%, Secured Debt (Maturity - November 22, 2023)
$
2,099

$
2,104

$
2,110

Advantage Sales & Marketing Inc.
Commercial Services & Supplies
LIBOR (1 month) + 3.25%, Current Coupon 5.49%, Secured Debt (Maturity - July 23, 2021)
1,975

1,934

1,824

Air Medical Group Holdings, Inc.
Health Care Providers & Services
LIBOR (1 month) + 3.25%, Current Coupon 5.38%, Secured Debt (Maturity - April 28, 2022)
1,975

1,966

1,947

AlixPartners, LLP
Asset Management
LIBOR (3 months) + 2.75%, Current Coupon 4.99%, Secured Debt (Maturity - April 4, 2024)
995

995

1,001

American Seafoods Group LLC
Food Products
LIBOR (1 month) + 2.75%, Current Coupon 5.00%, Secured Debt (Maturity - August 21, 2023)
1,456

1,450

1,451

Ancestry.com Operations Inc.
Internet Software & Services
LIBOR (1 month) + 3.25%, Current Coupon 5.50%, Secured Debt (Maturity - October 19, 2023)
1,300

1,311

1,307

Arch Coal, Inc.
Metals & Mining
LIBOR (1 month) + 2.75%, Current Coupon 4.99%, Secured Debt (Maturity - March 7, 2024)
1,970

1,976

1,974

Asurion, LLC
Insurance
LIBOR (1 month) + 3.00%, Current Coupon 5.08%, Secured Debt (Maturity - November 3, 2023)
1,264

1,264

1,275

 
 
LIBOR (1 month) + 3.00%, Current Coupon 5.08%, Secured Debt (Maturity - November 4, 2024)
324

323

327

 
 
LIBOR (1 month) + 3.00%, Current Coupon 4.97%, Secured Debt (Maturity - December 22, 2023)
2,955

2,971

2,973

 
 
 
4,543

4,558

4,575

BCP Renaissance Parent L.L.C.
Oil, Gas & Consumable Fuels
LIBOR (3 months) + 3.50%, Current Coupon 5.84%, Secured Debt (Maturity - October 31, 2024)
600

601

605

 
 
 
 
 
 

43


HMS-ORIX
Loan Portfolio
As of September 30, 2018
(dollars in thousands)
Portfolio Company
Industry
Type of Investment
Principal
Cost
Fair Value
 
 
 
 
 
 
BMC Software Finance, Inc.
Software
LIBOR (3 months) + 4.25%, Current Coupon 6.55%, Secured Debt (Maturity - September 1, 2025)
$
2,800

$
2,772

$
2,831

 
 
LIBOR (1 month) + 3.25%, Current Coupon 5.49%, Secured Debt (Maturity - September 12, 2022)
3,132

3,153

3,167

 
 
 
5,932

5,925

5,998

Builders FirstSource, Inc.
Building Products
LIBOR (1 month) + 3.00%, Current Coupon 5.39%, Secured Debt (Maturity - February 29, 2024)
2,955

2,952

2,964

Calpine Corporation
Independent Power and Renewable Electricity Producers
LIBOR (3 months) + 2.50%, Current Coupon 4.89%, Secured Debt (Maturity - January 15, 2023)
1,975

1,981

1,977

CDS U.S. Intermediate Holdings, Inc.
Recreation Facilities & Services
LIBOR (1 month) + 3.75%, Current Coupon 6.14%, Secured Debt (Maturity - July 8, 2022)
975

977

961

CHS/Community Health Systems, Inc.
Healthcare Providers & Services
LIBOR (3 months) + 3.25%, Current Coupon 5.56%, Secured Debt (Maturity - January 27, 2021)
1,460

1,457

1,444

ClubCorp Holdings, Inc.
Real Estate Management & Development
LIBOR (3 months) + 2.75%, Current Coupon 5.14%, Secured Debt (Maturity - September 18, 2024)
1,959

1,950

1,953

CPI International, Inc.
Aerospace & Defense
LIBOR (1 month) + 3.50%, Current Coupon 5.74%, Secured Debt (Maturity - July 26, 2024)
1,980

1,980

1,987

Cyxtera DC Holdings, Inc.
Communications
LIBOR (3 months) + 3.00%, Current Coupon 5.11%, Secured Debt (Maturity - May 1, 2024)
2,963

2,972

2,971

Deerfield Holdings Corporation
Diversified Financial Services
LIBOR (1 month) + 3.25%, Current Coupon 5.49%, Secured Debt (Maturity - February 13, 2025)
2,985

2,981

2,991

Diamond Resorts International, Inc.
Hotels, Restaurants & Leisure
LIBOR (1 month) + 3.75%, Current Coupon 5.99%, Secured Debt (Maturity - September 1, 2023)
2,136

2,163

2,089

EFS Cogen Holdings I LLC
Utilities
LIBOR (3 months) + 3.25%, Current Coupon 5.64%, Secured Debt (Maturity - June 28, 2023)
1,835

1,845

1,831

Encapsys LLC
Chemicals
LIBOR (1 month) + 3.25%, Current Coupon 5.49%, Secured Debt (Maturity - November 7, 2024)
995

996

1,002

Endo Luxembourg Finance Company I S.a.r.l.
Pharmaceuticals
LIBOR (1 month) + 4.25%, Current Coupon 6.50%, Secured Debt (Maturity - April 29, 2024)
1,975

1,991

1,991

Envision Healthcare Corporation
Healthcare Providers & Services
LIBOR (1 month) + 3.00%, Current Coupon 5.25%, Secured Debt (Maturity - December 1, 2023)
1,415

1,415

1,410

Everi Payments Inc.
Leisure Products
LIBOR (3 months) + 3.00%, Current Coupon 5.24%, Secured Debt (Maturity - May 9, 2024)
1,975

1,969

1,989

Exgen Renewables IV, LLC
Electrical Production
LIBOR (3 months) + 3.00%, Current Coupon 5.32%, Secured Debt (Maturity - November 29, 2024)
294

294

297

Financial & Risk
Diversified Financial Services
LIBOR (1 month) + 3.75%, Current Coupon 6.07%, Secured Debt (Maturity - October 1, 2025)
1,425

1,424

1,424

First American Payment Systems, L.P.
Diversified Financial Services
LIBOR (1 month) + 4.75%, Current Coupon 6.87%, Secured Debt (Maturity - January 5, 2024)
904

913

911

Fitness International, LLC
Hotels, Restaurants & Leisure
LIBOR (1 month) + 3.25%, Current Coupon 5.49%, Secured Debt (Maturity - April 18, 2025)
1,584

1,606

1,590


44


HMS-ORIX
Loan Portfolio
As of September 30, 2018
(dollars in thousands)
Portfolio Company
Industry
Type of Investment
Principal
Cost
Fair Value
 
 
 
 
 
 
Flex Acquisition Company Inc
Containers & Packaging
LIBOR (3 months) + 3.00%, Current Coupon 5.34%, Secured Debt (Maturity - December 29, 2023)
$
1,980

$
1,988

$
1,981

Flexera Software LLC
Software
LIBOR (1 month) + 3.25%, Current Coupon 5.50%, Secured Debt (Maturity - February 26, 2025)
1,522

1,518

1,528

Gardner Denver, Inc.
Machinery
LIBOR (1 month) + 2.75%, Current Coupon 4.99%, Secured Debt (Maturity - July 30, 2024)
1,596

1,603

1,606

Golden Nugget, Inc.
Hotels, Restaurants & Leisure
LIBOR (1 month) + 2.75%, Current Coupon 4.90%, Secured Debt (Maturity - October 4, 2023)
1,951

1,951

1,960

GrafTech Finance Inc.
Diversified Financial Services
LIBOR (1 month) + 3.50%, Current Coupon 5.74%, Secured Debt (Maturity - February 12, 2025)
1,975

1,956

1,991

Greatbatch Ltd.
Health Care Equipment & Supplies
LIBOR (1 month) + 3.00%, Current Coupon 5.14%, Secured Debt (Maturity - October 27, 2022)
2,083

2,093

2,099

GYP Holdings III Corp.
Trading Companies & Distributors
LIBOR (1 month) + 2.75%, Current Coupon 4.99%, Secured Debt (Maturity - June 2, 2025)
3,456

3,481

3,453

Harbor Freight Tools USA, Inc.
Specialty Retail
LIBOR (1 month) + 2.50%, Current Coupon 4.74%, Secured Debt (Maturity - August 18, 2023)
1,945

1,952

1,949

HD Supply Waterworks, Ltd.
Trading Companies & Distributors
LIBOR (6 months) + 3.00%, Current Coupon 5.31%, Secured Debt (Maturity - August 1, 2024)
139

139

140

Horizon Pharma, Inc.
Pharmaceuticals
LIBOR (1 month) + 3.25%, Current Coupon 5.50%, Secured Debt (Maturity - March 29, 2024)
1,925

1,941

1,943

Huntsman Holdings LLC
Chemicals
LIBOR (3 months) + 5.00%, Current Coupon 7.24%, Secured Debt (Maturity - September 25, 2024)
1,980

1,941

2,002

IG Investments Holdings, LLC
Construction
LIBOR (1 month) + 3.50%, Current Coupon 5.74%, Secured Debt (Maturity - May 23, 2025)
1,980

1,992

2,000

IRB Holding Corp.
Hotels, Restaurants & Leisure
LIBOR (1 month) + 3.25%, Current Coupon 5.46%, Secured Debt (Maturity - February 5, 2025)
398

398

399

KBR, Inc.
Construction
LIBOR (1 month) + 3.75%, Current Coupon 5.99%, Secured Debt (Maturity - April 25, 2025)
1,247

1,241

1,262

KMG Chemicals, Inc.
Chemicals
LIBOR (1 month) + 2.75%, Current Coupon 4.99%, Secured Debt (Maturity - June 17, 2024)
737

734

741

KUEHG Corp.
Educational Services
LIBOR (1 month) + 3.75%, Current Coupon 6.14%, Secured Debt (Maturity - February 21, 2025)
2,464

2,471

2,481

LANDesk Group, Inc.
Software
LIBOR (1 month) + 4.25%, Current Coupon 6.33%, Secured Debt (Maturity - January 22, 2024)
986

991

995

Learfield Communications LLC
Media
LIBOR (1 month) + 3.25%, Current Coupon 5.50%, Secured Debt (Maturity - December 1, 2023)
1,975

1,991

2,000

MA FinanceCo., LLC
Electric Equipment, Instruments & Components
LIBOR (1 month) + 2.50%, Current Coupon 4.74%, Secured Debt (Maturity - June 21, 2024)
385

385

384

Mallinckrodt International Finance S.A.
Pharmaceuticals
LIBOR (6 months) + 3.00%, Current Coupon 5.52%, Secured Debt (Maturity - February 24, 2025)
995

993

997

McDermott International, Inc.
Oil, Gas & Consumable Fuels
LIBOR (1 month) + 5.00%, Current Coupon 7.08%, Secured Debt (Maturity - May 12, 2025)
995

976

1,010


45


HMS-ORIX
Loan Portfolio
As of September 30, 2018
(dollars in thousands)
Portfolio Company
Industry
Type of Investment
Principal
Cost
Fair Value
 
 
 
 
 
 
Mohegan Tribal Gaming Authority
Hotels, Restaurants & Leisure
LIBOR (1 month) + 4.00%, Current Coupon 6.24%, Secured Debt (Maturity - October 13, 2023)
$
1,919

$
1,934

$
1,816

MPH Acquisition Holdings LLC
Health Care Technology
LIBOR (3 months) + 2.75%, Current Coupon 5.14%, Secured Debt (Maturity - June 7, 2023)
2,664

2,695

2,672

NAB Holdings, LLC
IT Services
LIBOR (3 months) + 3.00%, Current Coupon 5.39%, Secured Debt (Maturity - July 1, 2024)
1,980

1,971

1,961

Ortho-Clinical Diagnostics, Inc
Life Sciences Tools & Services
LIBOR (1 month) + 3.25%, Current Coupon 5.49%, Secured Debt (Maturity - June 30, 2025)
1,955

1,950

1,964

PI UK Holdco II Limited
Specialty Finance
LIBOR (1 month) + 3.50%, Current Coupon 5.74%, Secured Debt (Maturity - January 3, 2025)
2,985

2,964

2,982

Rackspace Hosting, Inc.
Internet Software & Services
LIBOR (3 months) + 3.00%, Current Coupon 5.35%, Secured Debt (Maturity - November 3, 2023)
3,259

3,281

3,221

Radiate Holdco, LLC
Media
LIBOR (1 month) + 3.00%, Current Coupon 5.24%, Secured Debt (Maturity - February 1, 2024)
2,551

2,528

2,550

Red Ventures, LLC
Direct Marketing Services
LIBOR (1 month) + 4.00%, Current Coupon 6.24%, Secured Debt (Maturity - November 8, 2024)
1,635

1,624

1,656

Savage Enterprises, LLC
Transportation and Logistics
LIBOR (1 month) + 4.50%, Current Coupon 6.60%, Secured Debt (Maturity - August 1, 2025)
1,129

1,107

1,146

Scientific Games International, Inc.
Leisure Products
LIBOR (1 month) + 2.75%, Current Coupon 4.99%, Secured Debt (Maturity - August 14, 2024)
895

896

894

Seattle SpinCo, Inc.
Electric Equipment, Instruments & Components
LIBOR (3 months) + 2.50%, Current Coupon 4.74%, Secured Debt (Maturity - June 21, 2024)
2,600

2,603

2,596

SeaWorld Parks & Entertainment, Inc.
Hotels, Restaurants & Leisure
LIBOR (3 months) + 3.00%, Current Coupon 5.24%, Secured Debt (Maturity - April 1, 2024)
1,970

1,972

1,970

SRS Distribution Inc.
Trading Companies & Distributors
LIBOR (3 months) + 3.25%, Current Coupon 5.44%, Secured Debt (Maturity - May 23, 2025)
1,200

1,197

1,193

SS&C Technologies, Inc.
Software
LIBOR (1 month) + 2.25%, Current Coupon 4.49%, Secured Debt (Maturity - April 16, 2025)
560

559

561

 
 
LIBOR (1 month) + 2.25%, Current Coupon 4.49%, Secured Debt (Maturity - April 16, 2025)
217

217

218

 
 
 
777

776

779

Staples, Inc.
Distributors
LIBOR (3 months) + 4.00%, Current Coupon 6.34%, Secured Debt (Maturity - September 12, 2024)
1,985

1,981

1,990

Starfruit Finco B.V.
Chemicals
LIBOR (1 month) + 3.25%, Current Coupon 5.57%, Secured Debt (Maturity - October 1, 2025)
1,250

1,247

1,257

Telenet Financing USD LLC
Diversified Telecommunications Services
LIBOR (1 month) + 2.25%, Current Coupon 4.41%, Secured Debt (Maturity - August 17, 2026)
1,655

1,653

1,650

Transdigm, Inc.
Aerospace & Defense
LIBOR (1 month) + 2.50%, Current Coupon 4.74%, Secured Debt (Maturity - June 9, 2023)
1,970

1,977

1,980

 
 
LIBOR (1 month) + 2.50%, Current Coupon 4.74%, Secured Debt (Maturity - August 22, 2024)
993

990

997

 
 
 
2,963

2,967

2,977


46


HMS-ORIX
Loan Portfolio
As of September 30, 2018
(dollars in thousands)
Portfolio Company
Industry
Type of Investment
Principal
Cost
Fair Value
 
 
 
 
 
 
Travelport Finance (Luxembourg) S.A.R.L.
Internet Software & Services
LIBOR (3 months) + 2.50%, Current Coupon 4.81%, Secured Debt (Maturity - March 17, 2025)
$
1,243

$
1,238

$
1,245

Traverse Midstream Partners LLC
Oil, Gas & Consumable Fuels
LIBOR (3 months) + 4.00%, Current Coupon 6.34%, Secured Debt (Maturity - September 27, 2024)
781

784

788

UFC Holdings, LLC
Media
LIBOR (3 months) + 3.25%, Current Coupon 5.50%, Secured Debt (Maturity - August 18, 2023)
1,975

1,985

1,989

Ultra Resources, Inc.
Oil, Gas & Consumable Fuels
LIBOR (1 month) + 3.00%, Current Coupon 5.17%, Secured Debt (Maturity - April 12, 2024)
2,000

2,002

1,808

Utz Quality Foods, LLC
Commercial Services & Supplies
LIBOR (1 month) + 3.50%, Current Coupon 5.74%, Secured Debt (Maturity - November 21, 2024)
1,588

1,587

1,595

Valeant Pharmaceuticals International, Inc.
Pharmaceuticals
LIBOR (1 month) + 3.00%, Current Coupon 5.10%, Secured Debt (Maturity - June 2, 2025)
1,420

1,426

1,429

Vertafore, Inc.
Software
LIBOR (1 month) + 3.25%, Current Coupon 5.49%, Secured Debt (Maturity - June 4, 2025)
2,500

2,488

2,514

Vertiv Group Corporation
Electrical Equipment
LIBOR (3 months) + 4.00%, Current Coupon 6.31%, Secured Debt (Maturity - November 30, 2023)
1,555

1,567

1,547

Vistra Operations Company LLC
Electric Utilities
LIBOR (1 month) + 2.25%, Current Coupon 4.49%, Secured Debt (Maturity - December 14, 2023)
1,970

1,980

1,977

Web.com Group, Inc.
Internet Software and Services
LIBOR (3 months) + 3.75%, Current Coupon 6.07%, Secured Debt (Maturity - September 17, 2025)
1,000

1,000

1,008

West Corporation
Diversified Telecommunications Services
LIBOR (1 month) + 3.50%, Current Coupon 5.74%, Secured Debt (Maturity - October 10, 2024)
648

648

644

 
 
LIBOR (1 month) + 4.00%, Current Coupon 6.24%, Secured Debt (Maturity - October 10, 2024)
1,024

1,015

1,022

 
 
 
1,672

1,663

1,666

WideOpenWest Finance, LLC
Diversified Telecommunications Services
LIBOR (1 month) + 3.25%, Current Coupon 5.41%, Secured Debt (Maturity - August 18, 2023)
3,470

3,478

3,410

Total Loan Portfolio
 
 
 
$
143,965

$
143,745


The following table presents a listing of HMS-ORIX’s individual loan investments as of December 31, 2017:
HMS-ORIX
Loan Portfolio
As of December 31, 2017
(dollars in thousands)
Portfolio Company
Industry
Type of Investment
Principal
Cost
Fair Value
 
 
 
 
 
 
Acosta, Inc.
Commercial Services and Supplies
LIBOR (1 month) + 3.25%, Current Coupon 4.82%, Secured Debt (Maturity - September 26, 2021)
$
2,000

$
1,881

$
1,766

Acrisure, LLC
Insurance
LIBOR (2 months) + 4.25%, Current Coupon 5.65%, Secured Debt (Maturity - November 22, 2023)
2,115

2,122

2,139

Advantage Sales & Marketing Inc.
Commercial Services and Supplies
LIBOR (1 month) + 3.25%, Current Coupon 4.63%, Secured Debt (Maturity - July 23, 2021)
1,990

1,938

1,945


47


HMS-ORIX
Loan Portfolio
As of December 31, 2017
(dollars in thousands)
Portfolio Company
Industry
Type of Investment
Principal
Cost
Fair Value
 
 
 
 
 
 
Air Medical Group Holdings Inc
Health Care Providers & Services
LIBOR (6 months) + 4.00%, Current Coupon 5.67%, Secured Debt (Maturity - April 28, 2022)
$
1,990

$
1,981

$
1,993

Albany Molecular Research, Inc.
Life Sciences Tools & Services
LIBOR (1 month) + 3.25%, Current Coupon 4.82%, Secured Debt (Maturity - August 28, 2024)
100

100

99

Alphabet Holding Company, Inc.
Food Products
LIBOR (1 month) + 3.50%, Current Coupon 5.07%, Secured Debt (Maturity - September 26, 2024)
1,995

1,985

1,935

American Seafoods Group LLC
Food Products
Prime + 2.25%, Current Coupon 6.75%, Secured Debt (Maturity - August 21, 2023)
1,500

1,493

1,513

Ancestry.com Operations Inc.
Internet Software & Services
LIBOR (1 month) + 3.25%, Current Coupon 4.66%, Secured Debt (Maturity - October 19, 2023)
1,995

2,013

2,007

Arch Coal, Inc.
Metals & Mining
LIBOR (1 month) + 3.25%, Current Coupon 4.82%, Secured Debt (Maturity - March 7, 2024)
1,985

1,992

2,004

AshCo, Inc.
Specialty Retail
LIBOR (3 months) + 5.00%, Current Coupon 6.57%, Secured Debt (Maturity - September 25, 2024)
1,995

1,951

1,993

Asurion, LLC
Insurance
LIBOR (1 month) + 3.00%, Current Coupon 4.57%, Secured Debt (Maturity - November 3, 2023)
1,312

1,312

1,320

Atkore International, Inc.
Electric Equipment, Instruments & Components
LIBOR (3 months) + 3.00%, Current Coupon 4.70%, Secured Debt (Maturity - December 22, 2023)
2,977

3,005

2,999

BCP Renaissance Parent L.L.C.
Oil, Gas & Consumable Fuels
LIBOR (3 months) + 4.00%, Current Coupon 5.38%, Secured Debt (Maturity - October 31, 2024)
600

602

608

BMC Software Finance, Inc.
Software
LIBOR (1 month) + 3.25%, Current Coupon 4.82%, Secured Debt (Maturity - September 12, 2022)
3,156

3,181

3,163

Builders FirstSource, Inc.
Building Products
LIBOR (1 month) + 3.00%, Current Coupon 4.69%, Secured Debt (Maturity - February 29, 2024)
2,977

2,974

2,993

Calpine Corporation
Independent Power and Renewable Electricity Producers
LIBOR (3 months) + 2.50%, Current Coupon 4.20%, Secured Debt (Maturity - January 15, 2023)
1,990

1,997

1,991

CHS/Community Health Systems, Inc.
Health Care Providers & Services
LIBOR (3 months) + 3.00%, Current Coupon 4.48%, Secured Debt (Maturity - January 27, 2021)
1,613

1,608

1,543

ClubCorp Holdings, Inc.
Real Estate Management & Development
LIBOR (3 months) + 3.25%, Current Coupon 4.94%, Secured Debt (Maturity - September 18, 2024)
1,959

1,949

1,969

Colorado Buyer Inc
Technology Hardware, Storage & Peripherals
LIBOR (3 months) + 3.00%, Current Coupon 4.38%, Secured Debt (Maturity - May 1, 2024)
2,985

2,995

3,008

Confie Seguros Holding II Co.
Insurance
LIBOR (1 month) + 5.25%, Current Coupon 6.73%, Secured Debt (Maturity - April 19, 2022)
1,985

1,992

1,987

CPI International, Inc.
Aerospace & Defense
LIBOR (1 month) + 3.50%, Current Coupon 5.07%, Secured Debt (Maturity - July 26, 2024)
1,995

1,995

2,011

Diamond Resorts International, Inc.
Hotels, Restaurants & Leisure
LIBOR (1 month) + 4.50%, Current Coupon 6.07%, Secured Debt (Maturity - September 1, 2023)
2,152

2,179

2,173

 
 
 
 
 
 

48


HMS-ORIX
Loan Portfolio
As of December 31, 2017
(dollars in thousands)
Portfolio Company
Industry
Type of Investment
Principal
Cost
Fair Value
 
 
 
 
 
 
Duff & Phelps Corporation
Diversified Financial Services
LIBOR (3 months) + 3.25%, Current Coupon 4.94%, Secured Debt (Maturity - October 15, 2024)
$
491

$
494

$
493

 
 
LIBOR (3 months) + 3.25%, Current Coupon 4.63%, Secured Debt (Maturity - December 4, 2024)
2,728

2,724

2,737

 
 
 
3,219

3,218

3,230

EFS Cogen Holdings I LLC
Electric Utilities
LIBOR (3 months) + 3.25%, Current Coupon 4.95%, Secured Debt (Maturity - June 28, 2023)
1,904

1,917

1,925

Encapsys LLC
Chemicals
LIBOR (1 month) + 3.25%, Current Coupon 4.82%, Secured Debt (Maturity - November 7, 2024)
1,000

1,001

1,006

Endo Luxembourg Finance Company I S.a.r.l.
Pharmaceuticals
LIBOR (1 month) + 4.25%, Current Coupon 5.88%, Secured Debt (Maturity - April 29, 2024)
1,990

2,009

2,005

Envision Healthcare Corporation
Health Care Providers & Services
LIBOR (1 month) + 3.00%, Current Coupon 4.57%, Secured Debt (Maturity - December 1, 2023)
2,481

2,481

2,491

Everi Payments Inc.
Leisure Products
LIBOR (3 months) + 3.50%, Current Coupon 4.98%, Secured Debt (Maturity - May 9, 2024)
1,990

1,983

2,013

Exgen Renewables IV, LLC
Electrical Production
LIBOR (3 months) + 3.00%, Current Coupon 4.47%, Secured Debt (Maturity - November 29, 2024)
300

299

304

First American Payment Systems, L.P.
Diversified Financial Services
LIBOR (1 month) + 5.75%, Current Coupon 7.14%, Secured Debt (Maturity - January 5, 2024)
952

963

958

Fitness International, LLC
Hotels, Restaurants & Leisure
LIBOR (1 month) + 3.50%, Current Coupon 5.19%, Secured Debt (Maturity - July 1, 2020)
1,735

1,757

1,760

Flex Acquisition Company Inc
Containers & Packaging
LIBOR (3 months) + 3.00%, Current Coupon 4.34%, Secured Debt (Maturity - December 29, 2023)
1,995

2,004

2,008

Flexera Software LLC
Software
LIBOR (1 month) + 3.50%, Current Coupon 4.83%, Secured Debt (Maturity - April 2, 2020)
1,995

2,013

2,008

Gardner Denver, Inc.
Machinery
LIBOR (1 month) + 2.75%, Current Coupon 4.44%, Secured Debt (Maturity - July 30, 2024)
1,995

2,005

2,004

Golden Nugget, Inc.
Hotels, Restaurants & Leisure
LIBOR (1 month) + 3.25%, Current Coupon 4.66%, Secured Debt (Maturity - October 4, 2023)
1,990

1,990

2,008

Greatbatch Ltd.
Health Care Equipment & Supplies
LIBOR (1 month) + 3.25%, Current Coupon 4.66%, Secured Debt (Maturity - October 27, 2022)
2,763

2,780

2,788

GYP Holdings III Corp.
Trading Companies & Distributors
LIBOR (1 month) + 3.00%, Current Coupon 4.38%, Secured Debt (Maturity - March 31, 2023)
3,483

3,506

3,502

Harbor Freight Tools USA, Inc.
Specialty Retail
LIBOR (1 month) + 3.25%, Current Coupon 4.82%, Secured Debt (Maturity - August 18, 2023)
1,980

1,987

1,996

HD Supply Waterworks, Ltd.
Trading Companies & Distributors
LIBOR (6 months) + 3.00%, Current Coupon 4.46%, Secured Debt (Maturity - August 1, 2024)
140

140

141

Horizon Pharma, Inc.
Pharmaceuticals
LIBOR (1 month) + 3.25%, Current Coupon 4.75%, Secured Debt (Maturity - March 29, 2024)
1,990

2,009

2,001

IG Investments Holdings, LLC
Professional Services
LIBOR (1 month) + 3.50%, Current Coupon 5.19%, Secured Debt (Maturity - October 29, 2021)
1,990

2,002

1,992


49


HMS-ORIX
Loan Portfolio
As of December 31, 2017
(dollars in thousands)
Portfolio Company
Industry
Type of Investment
Principal
Cost
Fair Value
 
 
 
 
 
 
Jackson Hewitt Tax Service Inc.
Diversified Financial Services
LIBOR (1 month) + 7.00%, Current Coupon 8.38%, Secured Debt (Maturity - July 30, 2020)
$
1,939

$
1,868

$
1,922

KMG Chemicals, Inc.
Chemicals
LIBOR (1 month) + 2.75%, Current Coupon 4.32%, Secured Debt (Maturity - June 17, 2024)
863

859

868

KUEHG Corp.
Educational Services
LIBOR (1 month) + 3.75%, Current Coupon 5.44%, Secured Debt (Maturity - August 12, 2022)
2,482

2,489

2,493

LANDesk Group, Inc.
Software
LIBOR (1 month) + 4.25%, Current Coupon 5.82%, Secured Debt (Maturity - January 22, 2024)
993

999

947

Learfield Communications LLC
Media
LIBOR (1 month) + 3.25%, Current Coupon 4.82%, Secured Debt (Maturity - December 1, 2023)
1,990

2,009

2,007

MA FinanceCo., LLC
Electric Equipment, Instruments & Components
LIBOR (1 month) + 2.75%, Current Coupon 4.32%, Secured Debt (Maturity - June 21, 2024)
387

387

388

Mohegan Tribal Gaming Authority
Hotels, Restaurants & Leisure
LIBOR (1 month) + 4.00%, Current Coupon 5.57%, Secured Debt (Maturity - October 13, 2023)
1,985

2,003

2,006

MPH Acquisition Holdings LLC
Health Care Technology
LIBOR (3 months) + 3.00%, Current Coupon 4.69%, Secured Debt (Maturity - June 7, 2023)
2,896

2,935

2,905

NAB Holdings, LLC
IT Services
LIBOR (3 months) + 3.25%, Current Coupon 4.82%, Secured Debt (Maturity - July 1, 2024)
1,990

1,981

2,000

Ortho-Clinical Diagnostics, Inc
Life Sciences Tools & Services
LIBOR (1 month) + 3.75%, Current Coupon 5.44%, Secured Debt (Maturity - June 30, 2021)
1,985

1,980

1,992

PODS, LLC
Transportation & Logistics
LIBOR (1 month) + 3.00%, Current Coupon 4.40%, Secured Debt (Maturity - December 6, 2024)
1,995

1,994

2,010

Rackspace Hosting, Inc.
Electric Equipment, Instruments & Components
LIBOR (3 months) + 3.00%, Current Coupon 4.38%, Secured Debt (Maturity - November 3, 2023)
3,284

3,309

3,286

Radiate Holdco, LLC
Media
LIBOR (3 months) + 3.00%, Current Coupon 4.38%, Secured Debt (Maturity - February 1, 2024)
2,570

2,544

2,547

Red Ventures, LLC
Direct Marketing Services
LIBOR (1 month) + 4.00%, Current Coupon 5.57%, Secured Debt (Maturity - November 8, 2024)
1,995

1,981

1,996

Scientific Games International, Inc.
Leisure Products
LIBOR (1 month) + 3.25%, Current Coupon 4.67%, Secured Debt (Maturity - August 14, 2024)
399

401

403

Seattle Spin Co.
Electric Equipment, Instruments & Components
LIBOR (3 months) + 2.75%, Current Coupon 4.32%, Secured Debt (Maturity - June 21, 2024)
2,613

2,616

2,618

SeaWorld Parks & Entertainment, Inc.
Hotels, Restaurants & Leisure
LIBOR (3 months) + 3.00%, Current Coupon 4.69%, Secured Debt (Maturity - April 1, 2024)
1,985

1,987

1,966

Signode Industrial Group US Inc.
Machinery
LIBOR (1 month) + 2.75%, Current Coupon 4.32%, Secured Debt (Maturity - April 30, 2021)
2,773

2,792

2,785

Staples, Inc.
Distributors
LIBOR (3 months) + 4.00%, Current Coupon 5.49%, Secured Debt (Maturity - September 12, 2024)
2,000

1,995

1,965

Telenet Financing USD LLC
Diversified Telecommunications Services
LIBOR (1 month) + 2.50%, Current Coupon 3.92%, Secured Debt (Maturity - March 2, 2026)
1,655

1,655

1,663

 
 
 
 
 
 

50


HMS-ORIX
Loan Portfolio
As of December 31, 2017
(dollars in thousands)
Portfolio Company
Industry
Type of Investment
Principal
Cost
Fair Value
 
 
 
 
 
 
Transdigm, Inc.
Aerospace & Defense
LIBOR (1 month) + 2.75%, Current Coupon 4.32%, Secured Debt (Maturity - June 9, 2023)
$
1,985

$
1,992

$
1,990

 
 
LIBOR (1 month) + 3.00%, Current Coupon 4.57%, Secured Debt (Maturity - August 22, 2024)
1,000

998

1,006

 
 
 
2,985

2,990

2,996

Travelport Finance (Luxembourg) S.A.R.L.
Internet Software & Services
LIBOR (3 months) + 2.75%, Current Coupon 4.17%, Secured Debt (Maturity - September 2, 2021)
1,901

1,901

1,903

Traverse Midstream Partners LLC
Oil, Gas & Consumable Fuels
LIBOR (3 months) + 4.00%, Current Coupon 5.85%, Secured Debt (Maturity - September 27, 2024)
781

784

793

UFC Holdings, LLC
Media
LIBOR (3 months) + 3.25%, Current Coupon 4.81%, Secured Debt (Maturity - August 18, 2023)
1,990

2,002

2,003

Ultra Resources, Inc.
Oil, Gas & Consumable Fuels
LIBOR (1 month) + 3.00%, Current Coupon 4.41%, Secured Debt (Maturity - April 12, 2024)
2,000

2,002

2,002

Utz Quality Foods, LLC
Commercial Services and Supplies
LIBOR (1 month) + 3.50%, Current Coupon 5.01%, Secured Debt (Maturity - November 21, 2024)
1,600

1,599

1,616

Valeant Pharmaceuticals International, Inc.
Pharmaceuticals
LIBOR (1 month) + 3.50%, Current Coupon 4.94%, Secured Debt (Maturity - April 1, 2022)
1,546

1,553

1,570

Vertiv Group Corporation
Electrical Equipment
LIBOR (3 months) + 4.00%, Current Coupon 5.35%, Secured Debt (Maturity - November 30, 2023)
1,555

1,569

1,556

Vistra Operations Company LLC
Electric Utilities
LIBOR (2 months) + 2.75%, Current Coupon 4.08%, Secured Debt (Maturity - December 14, 2023)
1,985

1,996

2,001

West Corporation
Diversified Telecommunications Services
LIBOR (1 month) + 4.00%, Current Coupon 5.35%, Secured Debt (Maturity - October 10, 2024)
1,032

1,022

1,036

WideOpenWest Finance, LLC
Diversified Telecommunications Services
LIBOR (1 month) + 3.25%, Current Coupon 4.75%, Secured Debt (Maturity - August 18, 2023)
3,496

3,506

3,470

Total Loan Portfolio
 
 
 
$
139,017

$
139,012


For the three months ended September 30, 2018 and 2017, we recognized approximately $536,000 and $0, respectively, of dividend income in respect of our investment in HMS-ORIX. For the nine months ended September 30, 2018 and for the period from inception (April 4, 2017) to September 30, 2017, we recognized approximately $1.6 million and $0, respectively, of dividend income in respect of our investment in HMS-ORIX.


51


The following tables show the summarized financial information for HMS-ORIX (dollars in thousands):
HMS-ORIX SLF LLC
Balance Sheet (Unaudited)
(dollars in thousands)
 
 
 
 
 
As of September 30, 2018
 
As of December 31, 2017
Assets
 
 
 
Portfolio investments at fair value (amortized cost: $143,965 and $139,017 as of September 30, 2018 and December 31, 2017, respectively)
$
143,745

 
$
139,012

Cash and cash equivalents
3,967

 
2,681

Receivable for securities sold
2,891

 
—

Interest receivable
268

 
306

Deferred financing costs, net
596

 
890

Other assets
31

 
15

Total assets
$
151,498

 
$
142,904

Liabilities
 
 
 
Credit facilities payable
$
93,300

 
$
86,500

Payable for securities purchased
6,443

 
5,268

Distributions payable
893

 
—

Accounts payable and accrued expenses
79

 
64

Total liabilities
100,715

 
91,832

Net assets
 
 
 
Members’ equity
50,783

 
51,072

Total net assets
50,783

 
51,072

Total liabilities and net assets
$
151,498

 
$
142,904


HMS-ORIX SLF LLC
Statement of Operations (Unaudited)
(dollars in thousands)
 
Three Months Ended
 
Nine Months Ended 
 September 30, 2018
 
For the Period from Inception (April 4, 2017) through September 30, 2017
 
September 30, 2018
 
September 30, 2017
 
 
Investment income
 
 
 
 
 
 
 
Interest income
$
1,944

 
$
1,554

 
$
5,566

 
$
2,048

Dividend income
—

 
—

 
—

 
—

Fee income
—

 
—

 
—

 
—

Other income
—

 
—

 
—

 
—

Total investment income
1,944

 
1,554

 
5,566

 
2,048

Expenses
 
 
 
 
 
 
 
Interest expense
988

 
615

 
2,759

 
866

Other expenses
—

 
2

 
1

 
34

General and administrative expenses
20

 
24

 
67

 
45

Total expenses
1,008

 
641

 
2,827

 
945

Net investment income
936

 
913

 
2,739

 
1,103

Net realized loss from investments
(17
)
 
(16
)
 
(392
)
 
(17
)
Net realized income
919

 
897

 
2,347

 
1,086

Net change in unrealized appreciation (depreciation) on investments
1,013

 
—

 
15

 
(226
)
Net increase in net assets resulting from operations
$
1,932

 
$
897

 
$
2,362

 
$
860



52


PORTFOLIO ASSET QUALITY
  
As of September 30, 2018, we owned a broad portfolio of 196 investments in 129 companies representing a wide range of industries. We believe that this broad portfolio adds to the structural protection of the portfolio, revenue sources, income, cash flows and dividends. The portfolio included the following:

▪
50 debt investments in 50 Middle Market portfolio companies with an aggregate fair value of approximately $482.2 million and a cost basis of approximately $491.8 million. The Middle Market debt investments had a weighted average annual effective yield of approximately 9.4%, which is calculated assuming the investments on non-accrual status have a zero yield, and 82.6% of the Middle Market debt investments were secured by first priority liens. Further, 92.9% of the Middle Market debt investments contain variable rates, though a majority of the investments with variable rates are subject to contractual minimum base interest rates between 100 and 150 basis points.

▪
45 debt investments in 40 Private Loan portfolio companies with an aggregate fair value of approximately $377.6 million and a cost basis of approximately $378.4 million. The Private Loan debt investments had a weighted average annual effective yield of approximately 9.9%, which is calculated assuming the investments on non-accrual status have a zero yield, and 92.3% of the Private Loan debt investments were secured by first priority liens. Further, 94.7% of the Private Loan debt investments contain variable rates, though a majority of the investments with variable rates are subject to contractual minimum base interest rates between 100 and 150 basis points.

▪
37 debt investments in 28 LMM portfolio companies with an aggregate fair value of approximately $123.5 million and a cost basis of approximately $123.5 million. The LMM debt investments had a weighted average annual effective yield of approximately 12.6%, and 100.0% of the debt investments were secured by first priority liens. Also, 44.0% of the LMM debt investments are fixed rate investments with fixed interest rates between 4.2% and 17.0%. Also, 29 LMM debt investments, representing approximately 56.0% of the LMM debt investments have variable rates subject to a contractual minimum base interest rate of 100 basis points.

▪
57 equity investments and seven equity warrant investments in 28 LMM portfolio companies, 10 Private Loan portfolio companies, five Middle Market portfolio companies and six Other Portfolio companies with an aggregate fair value of approximately $147.1 million and a cost basis of approximately $127.3 million.

Overall, as of September 30, 2018, our investment portfolio had a weighted average effective yield on our investments of approximately 9.2%, and 77.0% of our total portfolio’s investments (including our Other Portfolio investments) were secured by first priority liens.

As of September 30, 2018, we had five investments in three portfolio companies that were on non-accrual status, which comprised approximately 0.3% of our total investment portfolio at fair value and 0.9% of the total investment portfolio at cost. As of December 31, 2017, we had four investments in three portfolio companies that were on non-accrual status, which comprised approximately 0.2% of the total investment portfolio at fair value and 0.9% of the total investment portfolio at cost. For those investments in which S&P credit ratings are available, which represents approximately 34.8% of the portfolio as of September 30, 2018, the portfolio had a weighted average effective credit rating of B.

We utilize a rating system developed by our Sub-Adviser to rate the performance of each of our LMM portfolio companies. The investment rating system takes into consideration various factors, including each investment’s expected level of returns, collectability, comparisons to competitors and other industry participants, and the portfolio company’s future outlook.

•
Investment Rating 1 represents a LMM portfolio company that is performing in a manner which significantly exceeds expectations.
•
Investment Rating 2 represents a LMM portfolio company that, in general, is performing above expectations.
•
Investment Rating 3 represents a LMM portfolio company that is generally performing in accordance with expectations. All new LMM portfolio investments receive an initial Investment Rating 3.
•
Investment Rating 4 represents a LMM portfolio company that is underperforming expectations, requiring increased monitoring and scrutiny by us.
•
Investment Rating 5 represents a LMM portfolio company that is significantly underperforming, requiring heightened levels of monitoring and scrutiny by us and involves the recognition of significant unrealized depreciation on such investment.


53


The following table shows the distribution of our LMM portfolio investments on the 1 to 5 investment rating system of our Sub-Adviser at fair value as of September 30, 2018 and December 31, 2017 (dollars in thousands):
 
 
September 30, 2018
 
December 31, 2017
Investment Rating
 
Investments at Fair Value
 
Percentage of Total LMM Portfolio
 
Investments at Fair Value
 
Percentage of Total LMM Portfolio
1
 
$
50,607

 
26.0
%
 
$
2,940

 
2.2
%
2
 
5,303

 
2.7

 
47,155

 
34.8

3
 
123,453

 
63.5

 
79,655

 
58.7

4
 
15,236

 
7.8

 
5,439

 
4.0

5
 
—

 
—

 
468

 
0.3

Total
 
$
194,599

 
100.0
%
 
$
135,657

 
100.0
%
 
Based upon this investment rating system, the weighted average rating of our LMM portfolio at fair value was approximately 2.5 and 2.7 as of September 30, 2018 and December 31, 2017, respectively.
 
DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
 
RESULTS COMPARISONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2018 AND SEPTEMBER 30, 2017

Total Investment Income, Operating Expenses, Net Assets
 
For the three months ended September 30, 2018 and 2017, our total investment income was approximately $30.9 million and $25.3 million, respectively, consisting predominately of interest income. The increase in interest income was primarily due to (i) the growth in our total portfolio resulting from borrowings under our amended and restated senior secured revolving credit facility (the “TIAA Credit Facility”) entered into by us, HMS Equity Holding and HMS Equity Holding II, our wholly owned subsidiaries, with TIAA, FSB (formerly EverBank Commercial Finance, Inc. prior to June 18, 2018) (“TIAA Bank”) as administrative agent and certain financial institutions as lenders, and the amended and restated credit agreement entered into by HMS Funding I, our wholly owned subsidiary, with Deutsche Bank AG, New York Branch as administrative agent (the “Deutsche Bank Credit Facility,” and, together with our TIAA Credit Facility, the “Credit Facilities”) and (ii) an increase in the weighted average annual effective yield on investments. As of September 30, 2018, our portfolio had a weighted average annual effective yield on investments of approximately 9.2% compared to 8.5% as of September 30, 2017, and our average investment portfolio for the three months ended September 30, 2018 was $1,117.0 million compared to $1,067.8 million for the three months ended September 30, 2017. Additionally, during the three months ended September 30, 2018 and 2017, we accreted approximately $4.0 million and $2.9 million, respectively, of unearned income into interest income. For information on the Credit Facilities, see Note 5 - Borrowings to our condensed consolidated financial statements included elsewhere in this report.

For the three months ended September 30, 2018 and 2017, we recognized $781,000 and $213,000, respectively, of non-recurring fee income received from our portfolio companies or other third parties, which accounted for approximately 2.5% and 0.8%, respectively, of our total investment income during such periods.  Such fee income is transaction based and typically consists of prepayment fees, structuring fees, amendment and consent fees and other non-recurring fees. As such, future fee income is generally dependent on new direct origination investments and the occurrence of prepayments and other events at existing portfolio companies resulting in such fees.
 
For the three months ended September 30, 2018 and 2017, expenses, net of incentive fee and administrative services expense waivers, were approximately $13.1 million and $12.3 million, respectively. The increase in expenses is primarily due to an increase in interest expense of $1.6 million, offset by a decrease in offering costs of $0.8 million. Interest expense increased primarily due to an increase in our average borrowings of approximately $53.5 million during the period and an increase in our cost of borrowing on the Credit Facilities. Average borrowings under the Credit Facilities were $507.0 million for the three months ended September 30, 2018 compared to $453.5 million for the three months ended September 30, 2017. As of September 30, 2018 and 2017, the annualized interest rate on our borrowings was 4.8% and 4.0.%, respectively. Reimbursement of offering costs to our Adviser decreased due to the termination of our Offering effective September 30, 2017.

For the three months ended September 30, 2018, the net increase in net assets resulting from operations (gross of stockholder distributions declared) was approximately $23.8 million. The increase was attributable to (i) net investment income of approximately $17.8 million and (ii) net change in unrealized appreciation on investments of approximately $14.9 million, offset by realized losses on investments of approximately $8.9 million.


54


For the three months ended September 30, 2017, the net increase in net assets resulting from operations (gross of stockholder distributions declared) was approximately $8.7 million. The increase was primarily attributable to (i) net investment income of approximately $13.0 million and (ii) realized gains of approximately $0.7 million, offset by net change in unrealized depreciation on investments of approximately $5.1 million.

RESULTS COMPARISONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018 AND SEPTEMBER 30, 2017

Total Investment Income, Operating Expenses, Net Assets
 
For the nine months ended September 30, 2018 and 2017, our total investment income was approximately $85.0 million and $76.2 million, respectively, consisting predominately of interest income. The increase in interest income was primarily due to (i) the growth in our total portfolio resulting from borrowings under the Credit Facilities and (ii) an increase in the weighted average annual effective yield on investments. As of September 30, 2018, the portfolio had a weighted average annual effective yield on investments of approximately 9.2% compared to 8.5% as of September 30, 2017, and our average investment portfolio for the nine months ended September 30, 2018 was $1,087.8 million compared to $1,021.0 million for the nine months ended September 30, 2017. Additionally, during the nine months ended September 30, 2018 and 2017, we accreted approximately $11.4 million and $10.8 million, respectively, of unearned income into interest income.

For the nine months ended September 30, 2018 and 2017, we recognized $1.8 million and $1.9 million, respectively, of non-recurring fee income received from our portfolio companies or other third parties, which accounted for approximately 2.2% and 2.5%, respectively, of our total investment income during such period.  Such fee income is transaction based and typically consists of prepayment fees, structuring fees, amendment and consent fees and other non-recurring fees. As such, future fee income is generally dependent on new direct origination investments and the occurrence of prepayments and other events at existing portfolio companies resulting in such fees.
 
For the nine months ended September 30, 2018 and 2017, expenses, net of incentive fee and administrative services expense waivers, were approximately $37.6 million and $33.0 million, respectively. The increase in expenses is primarily due to (i) an increase in interest expense of $4.5 million and (ii) an increase in base management fees and incentive fees (net of fee waivers) of $1.2 million, offset by a decrease in offering costs of approximately $1.4 million. Base management fees and incentive fees (net of fee waivers) increased primarily due to an increase in our average gross assets. Interest expense increased primarily due to an increase in our average borrowings of approximately $49.0 million during the period and an increase in our cost of borrowing on the Credit Facilities. Average borrowings under the Credit Facilities were $475.5 million for the nine months ended September 30, 2018 compared to $426.5 million for the nine months ended September 30, 2017. As of September 30, 2018 and 2017, the annualized interest rate on borrowings was 4.8% and 4.0%, respectively.

For the nine months ended September 30, 2018, the net increase in net assets resulting from operations (gross of stockholder distributions declared) was approximately $51.6 million. The increase was attributable to (i) net investment income of approximately $47.4 million and (ii) net unrealized appreciation on investments of approximately $24.0 million, offset by realized losses on investments of approximately $19.8 million.

For the nine months ended September 30, 2017, the net increase in net assets resulting from operations (gross of stockholder distributions declared) was approximately $39.4 million. The increase was attributable to (i) net investment income of approximately $43.2 million and (ii) net realized gains of approximately $3.4 million, offset by unrealized depreciation on investments of approximately $7.2 million. The realized gains were primarily the result of the exit of one Private Loan equity investment and one Other Portfolio investment.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Overview

As of September 30, 2018, we had approximately $23.7 million in cash and cash equivalents, which we held in various custodial accounts. In addition, as of September 30, 2018, we had $60.0 million in capacity available under the Credit Facilities, in the aggregate. To seek to enhance our returns, we intend to continue to employ leverage as market conditions permit and at the discretion of our Adviser, but in no event will leverage employed exceed 50% of the value of our total assets, which is the maximum we are allowed to borrow under the 1940 Act. See “Financial Condition, Liquidity and Capital Resources - Financing Arrangements.”

As of September 30, 2018, we had 33 senior secured loan investments and four equity investments with aggregate unfunded commitments of $39.9 million. We believe that we maintain sufficient cash and cash equivalents on hand and available borrowings to fund such unfunded commitments should the need arise.

55



We currently generate cash primarily from interest and fees earned on our investments, principal repayments and proceeds from the sales of our investments and the net proceeds of the issuance of shares under our distribution reinvestment plan.

Prior to investing in securities of portfolio companies, we invest the net proceeds from the issuance of shares of common stock under our distribution reinvestment plan and from sales and pay-downs of existing investments primarily in cash, cash equivalents, U.S. government securities, repurchase agreements and high-quality debt instruments maturing in one year or less from the time of investment, consistent with our BDC election and our election to be taxed as a RIC. 

Liquidity and Capital Resources
 
Cash Flows

For the nine months ended September 30, 2018, we experienced a net decrease in cash and cash equivalents of approximately $22.1 million. During that period, approximately $52.9 million of cash was used in our operating activities, which principally consisted of the purchase of new portfolio investments of $476.5 million and accretion of unearned income of $11.4 million, offset by principal repayments from and sales of investments in portfolio companies of $386.1 million and a net increase in net assets resulting from operations of approximately $51.6 million. During the nine months ended September 30, 2018, approximately $30.8 million was generated from financing activities, which principally consisted of a net $80.0 million increase in borrowings under the Credit Facilities, offset by $27.6 million in cash used for the redemption of our common stock and $21.3 million in cash distributions paid to stockholders.

For the nine months ended September 30, 2017, we experienced a net increase in cash and cash equivalents of approximately $16.0 million. During that period, approximately $68.5 million of cash was used in our operating activities, which principally consisted of the purchase of new portfolio investments of $470.9 million and accretion of unearned income of $10.8 million, offset by principal repayments from and sales of investments in portfolio companies of $370.9 million and a net increase in net assets resulting from operations of approximately $39.4 million. During the nine months ended September 30, 2017, approximately $84.5 million was generated from financing activities, which principally consisted of $41.6 million in net stock offering proceeds received and a net $77.0 million increase in borrowings under the Credit Facilities, offset by $19.5 million in cash distributions paid to stockholders and $14.0 million in cash used for the redemption of our common stock.

Continuous Public Offering
 
With the approval of our board of directors, we closed the Offering to new investors effective September 30, 2017. During the nine months ended September 30, 2018, we raised proceeds of $20.5 million from our distribution reinvestment plan.

During the nine months ended September 30, 2017, we raised proceeds of $66.6 million from the Offering, including proceeds from our distribution reinvestment plan, and incurred $3.7 million for selling commissions and Dealer Manager fees. We also incurred an obligation for $1.0 million of costs related to the Offering during the period.

Distributions

The following table reflects the cash distributions per share that we have declared on our common stock during the nine months ended September 30, 2018 and 2017 (dollars in thousands except per share amounts).
 
Distributions
 
Per Share
 
Amount
2018
 
 
 
Three months ended September 30, 2018
$
0.17

 
$
13,938

Three months ended June 30, 2018
$
0.18

 
$
13,855

Three months ended March 31, 2018
$
0.17

 
$
13,803

2017
 
 
 
Three months ended September 30, 2017
$
0.17

 
$
13,910

Three months ended June 30, 2017
$
0.18

 
$
13,438

Three months ended March 31, 2017
$
0.17

 
$
12,922


On September 14, 2018, with the authorization of our board of directors, we declared distributions to our stockholders for the period of October 2018 through December 2018. These distributions have been, or will be, calculated based on stockholders of record each day from October 1, 2018 through December 31, 2018 in an amount equal to $0.00191781 per share, per day. Distributions are paid on the first business day following the completion of each month to which they relate.
 

56


For the years ending December 31, 2017, 2016 and 2015, respectively, the tax characteristics of distributions paid to shareholders were as follow (amounts in thousands):
 
Year Ended December 31,
Tax Characteristics of Distributions
2017
 
2016
 
2015
 
 
 
 
 
 
 
 
 
Ordinary income
$
52,473

96.43
%
 
$
44,848

93.90
%
 
$
34,085

99.68
%
Capital gain distributions
1,941

3.57

 
2,913

6.10

 
110

0.32

Total
$
54,414

100.00
%
 
$
47,761

100.00
%
 
$
34,195

100.00
%
The determination of the tax attributes of our distributions is made annually at the end of our taxable year, based upon our taxable income for the full taxable year and distributions paid for the full taxable year. Therefore, a determination made on an interim basis may not be representative of the actual tax attributes of distributions for a full year. If we had determined the tax attributes of our distributions taxable year-to-date as of September 30, 2018, 100% would be from our current and accumulated earnings and profits. However, there can be no certainty to stockholders that this determination is representative of what the actual tax attributes of our fiscal and taxable years ending December 31, 2018 distributions to stockholders will be. The actual tax characteristics of distributions to stockholders will be reported to the Internal Revenue Service and stockholders subject to information reporting after the close of each calendar year on Form 1099-DIV.

We have adopted an “opt in” distribution reinvestment plan for our stockholders. As a result, if we make a distribution, our stockholders will receive distributions in cash unless they specifically “opt in” to the distribution reinvestment plan so as to have their cash distributions reinvested in additional shares of our common stock.
 
We may fund our cash distributions from any sources of funds legally available, including stock offering proceeds, if any, borrowings, net investment income from operations, capital gains proceeds from the sale of assets, non-capital gains proceeds from the sale of assets, dividends or other distributions paid to us on account of preferred and common equity investments in portfolio companies and fee waivers from our Advisers. We have not established any limit on the extent to which we may use borrowings or stock offering proceeds to fund distributions. Our distributions may exceed our earnings. As a result, a portion of the distributions we make may represent a return of capital for U.S. federal income tax purposes.
 
The timing and amount of any future distributions to stockholders are subject to applicable legal restrictions and the sole discretion of our board of directors.
 
In order to satisfy the Code’s requirements applicable to entities subject to tax as RICs, we are required to distribute substantially all of our taxable income to our stockholders on an annual basis. However, we may elect to spill over certain excess undistributed taxable income from one taxable year into the next taxable year, which may require us to incur a 4% nondeductible U.S. federal excise tax on such excess undistributed taxable income. In order to avoid the imposition of the 4% nondeductible excise tax, we need to distribute, in respect of each calendar year dividends for U.S. federal income tax purposes of an amount at least equal to the sum of (1) 98.0% of our net ordinary income (taking into account certain deferrals and elections) for the calendar year, (2) 98.2% of our capital gain in excess of capital loss, or capital gain net income, adjusted for certain ordinary losses, generally for the one-year period ending on October 31 of such calendar year (or, if we so elect, for the calendar year) and (3) any net ordinary income and capital gain net income for the preceding calendar years that was not distributed during such calendar years and on which we incurred no U.S. federal income tax.

Financing Arrangements

We anticipate that we will continue to fund our investment activities through existing cash, capital raised from our stock offerings, if any, proceeds from our dividend reinvestment plan and borrowings on the Credit Facilities. However, with the approval of our board of directors, we closed the Offering to new investors effective September 30, 2017. Our primary uses of funds in both the short-term and long-term are expected to be investments in portfolio companies, operating expenses and cash distributions to holders of our common stock.
 
As of September 30, 2018, we had $120.0 million outstanding and no availability under our TIAA Credit Facility, and $390.0 million outstanding and $60.0 million available under the Deutsche Bank Credit Facility, both of which we estimated approximated fair value. Availability under each of the Credit Facilities is subject to certain limitations and the asset coverage restrictions under the 1940 Act. For further information on our Credit Facilities, including key terms and financial covenants, refer to Note 5 - Borrowings to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2017 as well as Note 5 - Borrowings to the condensed consolidated financial statements included elsewhere in this Report.
 
As a BDC, we have historically been able to issue “senior securities,” including borrowing money from banks or other financial institutions, only in amounts such that our asset coverage, as defined in the 1940 Act, equals at least 200% after such incurrence

57


or issuance. In March 2018, the Small Business Credit Availability Act (the “SBCAA”) was enacted into law. The SBCAA, among other things, amended the 1940 Act to reduce the asset coverage requirement applicable to BDCs from 200% to 150% so long as the BDC meets certain disclosure requirements, obtains certain approval and, in the case of unlisted BDCs, makes an offer to repurchase shares held by its stockholders as of the date of the requisite approval. Effectiveness of the reduced asset coverage requirements to a BDC requires approval by either (1) a “required majority” (as defined in Section 57(o) of the 1940 Act) of such BDC’s board of directors with effectiveness one year after the date of such approval or (2) a majority of the votes cast at a special or annual meeting of such BDC’s stockholders at which a quorum is present, which is effective the day after such stockholder approval. The Company has not requested or obtained either such approval. As of September 30, 2018, our asset coverage ratio under BDC regulations was 218% when assuming our unfunded commitments are treated as senior securities. As of December 31, 2017, our asset coverage ratio under BDC regulations was 236% when assuming our unfunded commitments are treated as senior securities.

Although in the past we have been able to secure access to potential additional liquidity, through proceeds from the Offering and also by entering into the Credit Facilities, there is no assurance that equity or debt capital will be available to us in the future on favorable terms, or at all.

Related-Party Transactions and Agreements

We have entered into agreements with our Adviser, our Sub-Adviser and our Dealer Manager, whereby we pay certain fees and reimbursements to these entities. These included payments to our Dealer Manager for selling commissions and the Dealer Manager fee and include payments to our Adviser for reimbursement of offering costs. In addition, we make payments for certain services that include the identification, execution, and management of our investments and also the management of our day-to-day operations provided to us by our Adviser and Sub-Adviser, pursuant to various agreements that we have entered into. See Note 10 - Related Party Transactions and Arrangements to the financial statements included elsewhere in this Report for additional information regarding related party transactions.

 Contractual Obligations
 
As of September 30, 2018, we had $510.0 million in borrowings outstanding under the Credit Facilities. Our TIAA Credit Facility will mature March 6, 2020, with two one-year extension options, subject to lender approval, and the Deutsche Bank Credit Facility will mature on November 20, 2022. See Note 5 - Borrowings to the financial statements included elsewhere in this Report for a description of the Credit Facilities.
 
A summary of our significant contractual payment obligations for the repayment of outstanding borrowings at September 30, 2018 is as follows:
 
Payments Due By Period (dollars in thousands)
 
Total
 
Less than 1 year
 
1-3 years
 
3-5 years
 
After 5 years
TIAA Credit Facility (1)
$
120,000

 
$
—

 
$
120,000

 
$
—

 
$
—

Deutsche Bank Credit Facility (2)
390,000

 
—

 
—

 
390,000

 
—

Total Credit Facilities
$
510,000

 
$
—

 
$
120,000

 
$
390,000

 
$
—

(1)
At September 30, 2018, we had no availability under our TIAA Credit Facility.
(2)
At September 30, 2018, $60.0 million remained available under the Deutsche Bank Credit Facility; however, our borrowing ability is limited to the asset coverage ratio restrictions imposed by the 1940 Act, as discussed above.

Off-Balance Sheet Arrangements
 
As of September 30, 2018, we had a total of approximately $39.9 million in outstanding commitments comprised of (i) 33 commitments to fund revolving loans that had not been fully drawn or term loans that had not been funded and (ii) four capital commitments that had not been fully called. We recognized unrealized depreciation of approximately $212,000 on our outstanding unfunded loan commitments and no unrealized appreciation or depreciation on our outstanding unfunded capital commitments during the nine months ended September 30, 2018. We reasonably believe that we maintain sufficient assets and available borrowings to adequately cover and allow us to satisfy our outstanding unfunded commitments should the need arise. At December 31, 2017, we had a total of approximately $45.4 million in outstanding commitments comprised of (i) 28 commitments to fund revolving loans that had not been fully drawn or term loans that had not been funded and (ii) four capital commitments that had not been fully called. We recognized unrealized appreciation of approximately $14,000 on our outstanding unfunded loan commitments and no unrealized appreciation or depreciation on our outstanding unfunded capital commitments during the year ended December 31, 2017. We had equity commitments of up to $30.0 million to HMS-ORIX, which were fully funded as of each of September 30, 2018 and December 31, 2017.

58


 
Commitments and Contingencies
 
(dollars in thousands)
 
September 30, 2018
 
December 31, 2017
Unfunded Loan Commitments
 
 
 
Adams Publishing Group, LLC
$
3,035

 
$
—

American Nuts, LLC
1,266

 
—

Apex Linen Services, Inc.
403

 
403

Arcus Hunting, LLC
60

 
976

ASC Ortho Management Company, LLC
750

 
—

BarFly Ventures, LLC
245

 
613

BBB Tank Services
37

 
—

BigName Holdings, LLC
29

 
101

Boccella Precast Products, LLC
360

 
500

CDHA Management, LLC
—

 
2,343

Chamberlin HoldCo, LLC
400

 
—

Charps, LLC
600

 
1,000

Clad-Rex Steel, LLC
100

 
100

CTVSH, PLLC
200

 
200

Datacom, LLC
—

 
25

Direct Marketing Solutions, Inc.
400

 
—

DTE Enterprises, LLC
750

 
—

Dynamic Communities, LLC
250

 
—

Felix Investments Holdings II LLC
—

 
1,667

Gamber-Johnson Holdings, LLC
300

 
300

GST Autoleather Inc.
—

 
1,281

Guerdon Modular Holdings, Inc.
400

 
400

Hawk Ridge Systems, LLC
400

 
400

Hojeij Branded Foods, Inc.
1,588

 
1,923

Hoover Group, Inc.
2,113

 
—

Hostway Corporation
—

 
7

HW Temps LLC
200

 
200

Implus Footcare, LLC
42

 
—

LaMi Products, LLC
—

 
294

Market Force Information, Inc.
300

 
400

Meisler Operating, LLC
400

 
400

Mystic Logistics Holdings, LLC
200

 
200

New Era Technology, Inc.
479

 
—

NexRev, LLC
1,000

 
—

NNE Partners, LLC
2,042

 
5,542

NuStep, LLC
300

 
300

Permian Holdco 2, Inc.
—

 
97

PPC/Shift, LLC
—

 
500

Resolute Industrial LLC
—

 
5,750

SI East , LLC
2,500

 
—

Volusion LLC
1,961

 
—

Wireless Vision Holdings, LLC
2,100

 
2,084

Unfunded Capital Commitments
 
 
 
Brightwood Capital Fund III, LP
1,000

 
1,000

Brightwood Capital Fund IV, LP
8,000

 
9,000

Copper Trail Energy Fund I LP
1,754

 
2,500

Freeport Financial Funds
3,942

 
4,941

Total
$
39,906

 
$
45,447



59


Recent Developments and Subsequent Events
 
On October 10, 2018, we filed a tender offer statement on Schedule TO with the SEC to commence an offer by us to purchase, as approved by our board of directors, an estimated 825,530.42 shares of our issued and outstanding common stock, par value $0.001 per share, at up to approximately $6.7 million. The offer is for cash at a purchase price equal to the NAV per share to be determined within 48 hours of the repurchase date.

On October 31, 2018, we, the Adviser and the Sub-Adviser entered into a conditional income incentive fee agreement (the “Third Quarter 2018 Fee Waiver Agreement”), pursuant to which, for a period from July 1, 2018 through September 30, 2018, the Advisers would waive payments in respect of the “subordinated incentive fee on income,” as such term is defined in the Investment Advisory Agreement, upon the occurrence of any event that, in the Advisers’ sole discretion, causes such waiver to be deemed necessary. The Third Quarter 2018 Fee Waiver Agreement may require us to repay previously waived Expense Support Payments or waived base management fees or incentive fees under certain circumstances. The previously waived fees are potentially subject to repayment by us, if at all, within a period not to exceed three years from the date of each respective fee waiver.




60


Item 3.    Quantitative and Qualitative Disclosures about Market Risk.
 
Quantitative and Qualitative Disclosures about Market Risk
 
We are subject to financial market risks, in particular changes in interest rates. Changes in interest rates may affect our interest income from portfolio investments, the fair value of our fixed income investments, and our cost of funding.
 
Our interest income will be affected by changes in various interest rates, including LIBOR and prime rates, to the extent any of our debt investments include floating interest rates. We generally invest in floating rate debt instruments, meaning that the interest rate payable on such instrument resets periodically based upon changes in a specified interest rate index, typically the one-month or three-month LIBOR. As of September 30, 2018, approximately 88.3% of our LMM, Private Loan, and Middle Market portfolio debt investments (based on cost) contained floating interest rates. As of September 30, 2018, the one-month LIBOR was approximately 2.26% and the three-month LIBOR was approximately 2.40%. However, many of our investments provide that the specified interest rate index on such instruments will never fall below a level, or floor, generally between 100 and 150 basis points regardless of the level of the specified index rate, which minimizes the negative impact to our interest income that would result from a decline in index rates.

In addition, any fluctuations in prevailing interest rates may affect the fair value of our fixed rate debt instruments and result in changes in unrealized gains and losses, and may also effect a net increase or decrease in net assets resulting from operations. Such changes in unrealized appreciation and depreciation will materialize into realized gains and losses if we sell our investments before their respective debt maturity dates.

Further, because we borrow money to make investments, our net investment income is partially dependent upon the difference between the interest rate at which we invest borrowed funds and the interest rate at which we borrow funds. In periods of rising interest rates and when we have borrowed capital with floating interest rates, our interest expense will increase, which will increase our financing costs and reduce our net investment income, especially to the extent we hold fixed-rate debt investments. 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.
 
The following table shows the approximate annualized increase or decrease (dollars in thousands) in the components of net investment income due to hypothetical interest rate index changes, assuming no changes in our investments and borrowings as of September 30, 2018.
Change in interest rates
 
Increase (Decrease) in
Interest Income
 
Increase (Decrease) in
Interest Expense
 
Net Increase (Decrease) in Net
Investment Income
Down 100 basis points
 
$
(8,769
)
 
$
(5,100
)
 
$
(3,669
)
Down 50 basis points
 
(4,394
)
 
(2,550
)
 
(1,844
)
Up 50 basis points
 
4,418

 
2,550

 
1,868

Up 100 basis points
 
8,836

 
5,100

 
3,736

Up 200 basis points
 
17,671

 
10,200

 
7,471

Up 300 basis points
 
26,507

 
15,300

 
11,207


Although we believe that this analysis is indicative of our existing sensitivity to interest rate changes, it does not adjust for changes in the credit market, credit quality, the size and composition of the assets in our portfolio and other business developments, including borrowing under the Credit Facilities or other borrowings, that could affect net increase in net assets resulting from operations, or net income. Accordingly, we can offer no assurances that actual results would not differ materially from the analysis above.

If deemed prudent, we may use interest rate risk management techniques in an effort to minimize our exposure to interest rate fluctuations. These techniques may include various interest rate hedging activities to the extent permitted by the 1940 Act. Adverse developments resulting from changes in interest rates or hedging transactions could have a material adverse effect on our business, financial condition and results of operations. As of September 30, 2018, we had not entered into any interest rate hedging arrangements.
 

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Item 4.    Controls and Procedures.
 
In accordance with the Exchange Act, Rules 13a-15 and 15d-15, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2018 to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

No change occurred in our internal controls over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act), during the three months ended September 30, 2018 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.


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PART II — OTHER INFORMATION
 
Item 1.    Legal Proceedings.
 
We are not currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us. From time to time, we may be party to certain legal proceedings, including proceedings relating to the enforcement of our rights under contracts with our portfolio companies. While the outcome of any legal proceedings cannot be predicted with certainty, we do not expect that these proceedings will have a material adverse effect upon our financial condition or results of operations.
 
Item 1A. Risk Factors.
 
In addition to the other information set forth in this report, you should carefully consider the “Risk Factors” discussed in each of our annual report on Form 10-K for the year ended December 31, 2017 and our quarterly report on Form 10-Q for the quarter ended March 31, 2018, which could materially affect our business, financial condition and/or operating results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially affect our business, financial condition and/or operating results.

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

Repurchases of our common stock pursuant to our tender offer are as follows:
 
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 Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (in millions)
 
 
 
 
 
 

 
 
July 1, 2018 through July 31, 2018
 
—

 
$
—

 
—

 
—

August 1, 2018 through August 31, 2018
 
970,635.65

 
8.15

 
970,635.65

 
—

September 1, 2018 through September 30, 2018
 
11,612.60

 
8.15

 
11,612.60

 
—

Total
 
982,248.25

 
8.15

 
982,248.25

 
—


Item 3.    Defaults upon Senior Securities.
 
None.
 
Item 4.    Mine Safety Disclosures.
 
Not applicable.
 
Item 5.    Other Information.
 
Not applicable.

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Item 6.    Exhibits.

Exhibit No.
 
Description
 
Third Quarter 2018 Conditional Income Incentive Fee Waiver Agreement, dated as of October 31, 2018, by and among the Registrant, HMS Adviser LP and MSC Adviser I, LLC (Filed as Exhibit 10.1 to the Registrant’s current report on Form 8-K, filed on October 31, 2018 (File No. 814-00939) and incorporated herein by reference).
 
Certification of Chief Executive Officer of the Registrant, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith).
 
Certification of Chief Financial Officer of the Registrant, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith).
 
Certification of Chief Executive Officer and Chief Financial Officer of the Registrant, pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Filed herewith).


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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.
 
 
 
HMS INCOME FUND, INC.
 
 
 
 
Date:
November 14, 2018
By:
/s/ SHERRI W. SCHUGART
 
 
 
Sherri W. Schugart
 
 
 
Chairman, Chief Executive Officer and President
 
 
 
 
Date:
November 14, 2018
By:
/s/ RYAN T. SIMS
 
 
 
Ryan T. Sims
 
 
 
Chief Financial Officer and Secretary


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