UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

  

  x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the Quarter Ended March 31, 2016

 

  ¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Commission
File Number
 

Exact name of registrant as specified in its
charter, address of principal executive

office, telephone number and state or other jurisdiction of incorporation or organization

 

I.R.S. Employer

Identification Number

814-01022  

Capitala Finance Corp.

4201 Congress St., Suite 360

Charlotte, North Carolina

Telephone: (704) 376-5502

State of Incorporation: Maryland

  90-0945675

 

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.

 

Capitala Finance Corp. Yes   x             No   ¨  

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

Capitala Finance Corp. Yes   ¨             No   ¨  

 

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

 

Capitala Finance Corp. Large accelerated filer ¨ Accelerated filer x
         
  Non-accelerated filer ¨ Smaller reporting company ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Capitala Finance Corp. Yes  ¨         No   x  

 

The number of shares of Capitala Finance Corp.’s common stock, $0.01 par value, outstanding as of May 6, 2016 was 15,806,260.

 

 

 

 

TABLE OF CONTENTS

 

    Page
     
PART I FINANCIAL INFORMATION 3
     
Item 1. Consolidated Financial Statements 3
     
  Consolidated Statements of Assets and Liabilities as of March 31, 2016 (unaudited) and December 31, 2015 3
     
  Consolidated Statements of Operations for the three months ended March 31, 2016 and 2015 (unaudited) 4
     
  Consolidated Statements of Changes in Net Assets for the three months ended March 31, 2016 and 2015 (unaudited) 5
     
  Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015 (unaudited) 6
     
  Consolidated Schedules of Investments as of March 31, 2016 (unaudited) and December 31, 2015 7
     
  Notes to Consolidated Financial Statements as of March 31, 2016 (unaudited) 9
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 32
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 46
     
Item 4. Controls and Procedures 47
     
PART II OTHER INFORMATION 48
     
Item 1. Legal Proceedings 48
     
Item 1A. Risk Factors 48
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 48
     
Item 3. Defaults upon Senior Securities 48
     
Item 4. Mine Safety Disclosures 48
     
Item 5. Other Information 48
     
Item 6. Exhibits 49
   
Signatures 51

 

 2 

 

  

 PART I. FINANCIAL INFORMATION

  

Item 1. Consolidated Financial Statements

 

Capitala Finance Corp.

 

Consolidated Statements of Assets and Liabilities

(in thousands, except share and per share data)

 

   As of 
   March 31, 2016   December 31, 2015 
   (unaudited)     
ASSETS          
           
Investments at fair value          
Non-control/non-affiliate investments (amortized cost of $387,712 and $391,031, respectively)  $401,251   $404,513 
Affiliate investments (amortized cost of $94,520 and $99,290, respectively)   100,161    117,350 
Control investments (amortized cost of $104,588 and $79,866, respectively)   98,329    70,593 
Total investments at fair value (amortized cost of $586,820 and $570,187, respectively)   599,741    592,456 
Cash and cash equivalents   14,346    34,105 
Interest and dividend receivable   6,537    5,390 
Due from related parties   256    256 
Prepaid expenses   386    503 
Other assets   79    108 
Total assets  $621,345   $632,818 
           
LIABILITIES          
SBA debentures (net of deferred financing costs of $3,378 and $3,537, respectively)  $178,822   $180,663 
Notes (net of deferred financing costs of $3,447 and $3,583, respectively)   109,991    109,855 
Credit Facility (net of deferred financing costs of $1,409 and $1,649, respectively)   71,591    68,351 
Due to related parties   4    6 
Management and incentive fee payable   2,368    1,687 
Interest and financing fees payable   1,150    2,987 
Accounts payable and accrued expenses   -    467 
Total liabilities  $363,926   $364,016 
           
Commitments and contingencies (Note 2)          
           
NET ASSETS          
Common stock, par value $.01, 100,000,000 common shares authorized, 15,799,635 and 15,777,345 common shares  issued and outstanding, respectively   158    158 
Additional paid in capital   239,331    239,104 
Undistributed net investment income   8,570    8,570 
Accumulated net realized loss from investments   (3,561)   (1,299)
Net unrealized appreciation on investments   12,921    22,269 
Total net assets   257,419    268,802 
           
Total liabilities and net assets  $621,345   $632,818 
           
Net asset value per share  $16.29   $17.04 

 

See accompanying notes to consolidated financial statements.

 

 3 

 

 

Capitala Finance Corp.

 

Consolidated Statements of Operations

(in thousands, except share and per share data)

(unaudited)

 

   For the Three Months Ended March 31 
   2016   2015 
         
INVESTMENT INCOME          
Interest and fee income:          
Non-control/Non-affiliate investments  $10,747   $7,675 
Affiliate investments   1,363    3,591 
Control investments   2,854    1,639 
Total interest and fee income   14,964    12,905 
Payment-in-kind interest and dividend income:          
Non-control/Non-affiliate investments   878    314 
Affiliate investments   95    257 
Control investments   231    198 
Total payment-in-kind interest and dividend income   1,204    769 
Dividend income:          
Non-control/Non-affiliate investments   205    153 
Affiliate investments   29    29 
Control investments   1,045    184 
Total dividend income   1,279    366 
Interest income from cash and cash equivalents   2    1 
Total investment income   17,449    14,041 
           
EXPENSES          
Interest and financing expenses   5,023    4,637 
Base management fee   2,728    2,410 
Incentive fees   1,706    1,180 
General and administrative expenses   1,168    997 
Expenses before incentive fee waiver   10,625    9,224 
Incentive fee waiver (See Note 6)   (597)   - 
Total expenses, net of incentive fee waiver   10,028    9,224 
           
NET INVESTMENT INCOME   7,421    4,817 
           
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:          
Net realized gain (loss) from investments:          
Non-control/Non-affiliate investments   -    28 
Affiliate investments   (2,262)   - 
Control investments   -    9,312 
Total realized gain (loss) from investments   (2,262)   9,340 
Net unrealized depreciation on investments   (9,348)   (4,290)
Net gain (loss) on investments   (11,610)   5,050 
           
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS  $(4,189)  $9,867 
           
NET INCREASE (DECREASE) IN NET ASSETS PER SHARE RESULTING FROM OPERATIONS – BASIC AND DILUTED  $(0.27)  $0.76 
           
WEIGHTED AVERAGE COMMON STOCK OUTSTANDING - BASIC AND DILUTED   15,785,943    12,974,483 
           
DISTRIBUTIONS PAID PER SHARE  $0.47   $0.52 
           
DISTRIBUTIONS PAYABLE PER SHARE  $-   $0.45 

 

See accompanying notes to consolidated financial statements.

 

 4 

 

 

Capitala Finance Corp.

 

Consolidated Statements of Changes in Net Assets

(in thousands, except share data)

(unaudited)

 

   Common Stock   Additional       Accumulated
Net
   Net Unrealized
Appreciation
     
   Number of   Par   Paid in   Undistributed Net   Realized Gains   (Depreciation) on     
   Shares   Value   Capital   Investment Income   (Losses)   Investments   Total 
                             
BALANCE, December 31, 2014   12,974,420   $130   $188,408   $12,314   $803   $39,182   $240,837 
Net investment income   -    -    -    4,817    -    -    4,817 
Net realized gain from investments   -    -    -    -    9,340    -    9,340 
Net change in unrealized depreciation on investments   -    -    -    -    -    (4,290)   (4,290)
Distributions to Shareholders:                                   
Stock issued under dividend reinvestment plan   2,822    -    50    -    -    -    50 
Distributions declared   -    -    -    (6,098)   (6,484)   -    (12,582)
BALANCE, March 31, 2015   12,977,242   $130   $188,458   $11,033   $3,659   $34,892   $238,172 
                                    
BALANCE, December 31, 2015   15,777,345   $158   $239,104   $8,570   $(1,299)  $22,269    268,802 
Net investment income   -    -    -    7,421    -    -    7,421 
Net realized loss from investments   -    -    -    -    (2,262)   -    (2,262)
Net change in unrealized depreciation on investments   -    -    -    -    -    (9,348)   (9,348)
Distributions to Shareholders:                                   
Stock issued under dividend reinvestment plan   22,290    -    227    -    -    -    227 
Distributions declared   -    -    -    (7,421)   -    -    (7,421)
BALANCE, March 31, 2016   15,799,635   $158   $239,331   $8,570   $(3,561)  $12,921   $257,419 

 

See accompanying notes to consolidated financial statements.

 

 5 

 

  

Capitala Finance Corp.

 

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

   For the Three Months Ended March 31 
   2016   2015 
         
CASH FLOWS FROM OPERATING ACTIVITIES          
Net increase (decrease) in net assets resulting from operations  $(4,189)  $9,867 
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash used in operating activities:          
Purchase of investments   (27,523)   (67,233)
Repayments of investments   10,186    34,556 
Net realized (gain)/loss on investments   2,262    (9,340)
Net unrealized depreciation on investments   9,348    4,290 
Payment-in-kind interest and dividends   (1,204)   (769)
Accretion of original issue discount on investments   (354)   (94)
Amortization of deferred financing fees   535    467 
Changes in assets and liabilities:          
Interest and dividend receivable   (1,147)   (1,816)
Prepaid expenses   117    144 
Other assets   29    (106)
Due to related parties   (2)   81 
Management and incentive fee payable   681    1,024 
Interest and financing fees payable   (1,837)   (1,905)
Accounts payable and accrued expenses   (467)   (266)
NET CASH USED IN OPERATING ACTIVITIES   (13,565)   (31,100)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Paydowns on SBA debentures   (2,000)   - 
Proceeds from Credit Facility   3,000    15,000 
Distributions paid to shareholders   (7,194)   (6,692)
Deferred financing fees paid   -    (308)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES  $(6,194)  $8,000 
           
NET DECREASE IN CASH AND CASH EQUIVALENTS   (19,759)   (23,100)
CASH AND CASH EQUIVALENTS, beginning of period  $34,105   $55,107 
CASH AND CASH EQUIVALENTS, end of period  $14,346   $32,007 
           
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION          
Cash paid for interest  $6,217   $5,826 
           
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING TRANSACTIONS          
Distributions declared and payable  $-   $5,840 
Distribution paid through DRIP share issuances  $227   $50 

 

See accompanying notes to consolidated financial statements.

 

 6 

 

 

Capitala Finance Corp.

 

Consolidated Schedule of Investments

(in thousands, except for units)

March 31, 2016

(unaudited)

  

Company (4, 5)  Industry  Type of Investment  Principal
Amount
   Cost   Fair Value   % of
Net Assets
 
                       
Non-control/Non-affiliated investments - 155.9%                          
                           
AAE Acquisition, LLC  Industrial Equipment Rental  Senior Secured Term Debt (12% Cash, Due 3/31/18) (1)  $11,000   $11,000   $11,000    4.3%
                           
AAE Acquisition, LLC  Industrial Equipment Rental  Membership Units (14% fully diluted)        17    2,161    0.8%
                           
               11,017    13,161    5.1%
                           
American Clinical Solutions, LLC  Healthcare  Senior Secured Debt (L+9.5% Cash, 1% Floor, Due 6/11/20)   9,625    9,625    9,625    3.7%
                           
               9,625    9,625    3.7%
                           
American Exteriors, LLC  Replacement Window Manufacturer  Senior Secured Debt (10%, 4% PIK at company's option, Due 12/31/16) (1)(2)   5,307    3,979    3,324    1.3%
                           
American Exteriors, LLC  Replacement Window Manufacturer  Common Stock Warrants (10% fully diluted)        -    -    0.0%
                           
               3,979    3,324    1.3%
                           
B&W Quality Growers, LLC  Farming  Subordinated Debt (14% Cash, Due 7/23/20)   10,000    9,992    10,000    3.9%
                           
B&W Quality Growers, LLC  Farming  Membership Unit Warrants (91,739 Units)        20    4,950    1.9%
                           
               10,012    14,950    5.8%
                           
Bluestem Brands, Inc.  Online Merchandise Retailer  Senior Secured Term Debt (L+7.5% Cash, 1% Floor, Due 11/7/20)   4,467    4,329    4,329    1.7%
                           
               4,329    4,329    1.7%
                           
Boot Barn Holdings, Inc  Western Wear Retail  Common Stock (95,252 shares) (8)        381    895    0.3%
                           
               381    895    0.3%
                           
Brock Holdings III, Inc.  Industrial Specialty Services  Subordinated Debt (L+8.25% Cash, 1.75% Floor, Due 3/16/18)   5,000    4,895    4,895    1.9%
                           
               4,895    4,895    1.9%
                           
Brunswick Bowling Products, Inc.  Bowling Products  Senior Secured Term Debt (L+6.0% Cash, 2% Floor, Due 5/22/20)   2,000    2,000    2,000    0.8%
                           
Brunswick Bowling Products, Inc.  Bowling Products  Subordinated Debt (L+14.25% Cash, 2% Floor, Due 5/22/20)   6,983    6,983    6,983    2.7%
                           
Brunswick Bowling Products, Inc.  Bowling Products  Preferred Shares (2,966 shares, 8% PIK) (6)        3,183    3,860    1.5%
                           
               12,166    12,843    5.0%
                           
Burke America Parts Group, LLC  Home Repair Parts Manufacturer  Senior Secured Term Debt (9.5% Cash, Due 4/30/20)   5,000    4,875    5,000    1.9%
                           
Burke America Parts Group, LLC  Home Repair Parts Manufacturer  Membership Units (14 units)        5    751    0.3%
                           
               4,880    5,751    2.2%
                           
Caregiver Services, Inc.  In-Home Healthcare Services  Common Stock (293,186 shares)        258    222    0.1%
                           
Caregiver Services, Inc.  In-Home Healthcare Services  Common Stock Warrants (655,908 units) (7)        264    498    0.2%
                           
               522    720    0.3%
                           
Cedar Electronics Holding Corp.  Consumer Electronics  Subordinated Debt (12% Cash, Due 12/26/20)   28,300    28,300    28,300    11.0%
                           
               28,300    28,300    11.0%
                           
Community Choice Financial, Inc.  Financial Services  Senior Secured Revolving Debt (L+13.0% Cash, 1% Floor, Due 3/27/17) (8)   20,000    20,000    20,000    7.8%
                           
               20,000    20,000    7.8%
                           
Construction Partners, Inc.  Construction Services  Subordinated Debt (11.5% Cash, Due 6/12/20)   12,500    12,500    12,500    4.9%
                           
               12,500    12,500    4.9%
                           
Corporate Visions, Inc.  Sales & Marketing Services  Subordinated Debt (9% Cash, 2% PIK, Due 11/29/21)   16,021    16,021    16,021    6.2%
                           
Corporate Visions, Inc.  Sales & Marketing Services  Common Stock (15,750 shares)        1,575    1,728    0.7%
                           
               17,596    17,749    6.9%
                           
CSM Bakery Solutions, LLC  Bakery Supplies Distributor  Subordinated Debt (L+7.75% Cash, 1% Floor, Due 8/7/22)   17,000    16,699    16,150    6.3%
                           
               16,699    16,150    6.3%
                           
DSW Homes, LLC  Disaster Recovery Homebuilding  Subordinated Debt (L+12% Cash, Due 9/24/18)   2,000    2,000    2,000    0.8%
                           
               2,000    2,000    0.8%
                           
Emerging Markets Communications, LLC  Satellite Communications  Subordinated Debt (L+9.625% Cash, 1% Floor, Due 7/1/22)   5,000    4,935    4,935    1.9%
                           
               4,935    4,935    1.9%
                           
Flavors Holdings, Inc.  Food Product Manufacturer  Senior Secured Term Debt (L+5.75% Cash, 1% Floor, Due 4/3/20)   7,400    7,182    6,586    2.6%
                           
Flavors Holdings, Inc.  Food Product Manufacturer  Subordinated Debt (L+10% Cash, 1% Floor, Due 10/3/21)   12,000    11,619    10,440    4.1%
                           
               18,801    17,026    6.7%
                           
Group Cirque du Soleil, Inc.  Entertainment  Subordinated Debt (L+8.25% Cash, 1% Floor, Due 7/8/23) (8)   1,000    986    986    0.4%
                           
               986    986    0.4%
                           
Immersive Media Tactical Solutions, LLC  Specialty Defense Contractor  Senior Secured Term Debt (Due 12/9/19) (13)   2,400    2,000    1,532    0.6%
                           
               2,000    1,532    0.6%
                           
Kelle's Transport Service, LLC  Transportation  Senior Secured Debt (14% Cash, Due 3/31/19)   14,200    14,190    14,200    5.5%
                           
Kelle's Transport Service, LLC  Transportation  Preferred Units (1,000 units, 10% PIK Dividend) (6)        3,181    3,181    1.2%
                           
Kelle's Transport Service, LLC  Transportation  Common Stock Warrants (15% fully diluted)        22    2,998    1.2%
                           
               17,393    20,379    7.9%
                           
Maxim Crane Works, L.P.  Crane Rental and Sales  Subordinated Debt (L+9.25% Cash, 1% Floor, Due 11/26/18)   5,000    5,029    5,029    2.0%
                           
               5,029    5,029    2.0%
                           
Medical Depot, Inc.  Medical Device Distributor  Subordinated Debt (14% Cash, Due 9/27/20) (1)   14,667    14,667    14,667    5.7%
                           
Medical Depot, Inc.  Medical Device Distributor  Series C Convertible Preferred Stock (740 shares)        1,333    11,590    4.5%
                           
               16,000    26,257    10.2%
                           
Merlin International, Inc.  IT Government Contracting  Subordinated Debt (12.5% Cash, Due 12/16/19)   20,000    20,000    20,000    7.8%
                           
               20,000    20,000    7.8%
                           
Nielsen & Bainbridge, LLC  Home Décor Manufacturer  Subordinated Debt (L+9.25% Cash, 1% Floor, Due 8/15/21)   15,000    14,825    14,614    5.7%
                           
               14,825    14,614    5.7%
                           
Nth Degree, Inc.  Business Services  Senior Secured Debt (L+7.0% Cash. 1% Floor, 1% PIK, Due 12/14/20)   12,287    12,287    12,287    4.8%
                           
Nth Degree, Inc.  Business Services  Senior Secured Debt (L+11.5% Cash. 1% Floor, 2% PIK, Due 12/14/20)   9,054    9,054    9,054    3.5%
                           
Nth Degree, Inc.  Business Services  Preferred Stock (10% PIK dividend) (6)        3,090    3,090    1.2%
                           
               24,431    24,431    9.5%
                           
Portrait Innovations, Inc.  Professional and Personal Digital Imaging  Senior Secured Term Debt (12% Cash, Due 2/26/20)   15,000    15,000    15,000    5.8%
                           
               15,000    15,000    5.8%
                           
Sequoia Healthcare Management, LLC  Healthcare Management  Senior Secured Term Debt (12% Cash, 4% PIK, Due 7/17/19)   11,461    11,318    11,461    4.5%
                           
               11,318    11,461    4.5%
                           
Sierra Hamilton, LLC  Oil & Gas Engineering and Consulting Services  Senior Secured Debt (12.25% Cash, Due 12/15/18)   15,000    15,000    7,500    2.9%
                           
               15,000    7,500    2.9%
                           
Sparus Holdings, Inc.  Energy Services  Senior Secured Term Debt (12% Cash, Due 9/30/16) (1)   5,120    5,120    5,120    2.0%
                           
Sparus Holdings, Inc.  Energy Services  Subordinated Debt (12% Cash, Due 9/30/16) (1)   5,380    5,380    5,380    2.1%
                           
               10,500    10,500    4.1%
                           
Taylor Precision Products, Inc.  Household Product Manufacturer  Series C Preferred Stock (379 shares)        758    541    0.2%
                           
               758    541    0.2%
                           
Tenere, Inc.  Industrial Manufacturing  Senior Secured Term Debt (11% Cash, 2% PIK, Due 12/15/17) (9)   3,559    3,559    3,559    1.4%
                           
               3,559    3,559    1.4%
                           
U.S. Well Services, LLC  Oil & Gas Services  Senior Secured Debt (L+11.5% Cash, 0.5% Floor, Due 5/2/19)   13,905    13,859    13,905    5.3%
                           
               13,859    13,905    5.3%
                           
Velum Global Credit Management, LLC  Financial Services  Senior Secured Debt (15% PIK, Due 12/31/17) (1)(8)   9,417    9,417    9,417    3.7%
                           
               9,417    9,417    3.7%
                           
Vology, Inc.  Information Technology  Subordinated Debt (L+14% Cash, 1% Floor, Due 1/24/21)   8,000    8,000    8,000    3.1%
                           
               8,000    8,000    3.1%
                           
Western Windows Systems, LLC  Building Products  Senior Secured Term Debt (12.2% Cash, Due 7/31/20) (3)   14,000    14,000    14,000    5.3%
                           
Western Windows Systems, LLC  Building Products  Membership units (39,860 units)        3,000    4,987    1.9%
                           
               17,000    18,987    7.2%
                           
Sub Total Non-control/Non-affiliated investments             $387,712   $401,251    155.9%
                           
Affiliate investments - 38.9%                          
                           
Burgaflex Holdings, LLC  Automobile Part Manufacturer  Senior Subordinated Debt (14% Cash, Due 8/9/19)  $3,000   $3,000   $3,000    1.2%
                           
Burgaflex Holdings, LLC  Automobile Part Manufacturer  Junior Subordinated Debt (12% Cash, Due 8/9/19)   5,828    5,828    5,828    2.3%
                           
Burgaflex Holdings, LLC  Automobile Part Manufacturer  Common Stock (1,253,198 shares)        1,504    2,634    1.0%
                           
               10,332    11,462    4.5%
                           
City Gear, LLC  Footwear Retail  Subordinated Debt (13% Cash, Due 9/28/17) (1)   8,231    8,231    8,231    3.2%
                           
City Gear, LLC  Footwear Retail  Preferred Membership Units (2.78% fully diluted, 9% Cash Dividend) (6)        1,269    1,269    0.5%
                           
City Gear, LLC  Footwear Retail  Membership Unit Warrants (11.38% fully diluted)        -    9,240    3.5%
                           
               9,500    18,740    7.2%
                           
GA Communications, Inc.  Advertising & Marketing Services  Series A-1 Preferred Stock (1,998 shares, 8% PIK dividend) (6)        2,470    2,817    1.1%
                           
GA Communications, Inc.  Advertising & Marketing Services  Series B-1 Common Stock (200,000 shares)        2    1,128    0.4%
                           
               2,472    3,945    1.5%
                           
J&J Produce Holdings, Inc.  Produce Distribution  Subordinated Debt (13% Cash, Due 7/16/18) (12)   5,182    5,182    5,182    2.0%
                           
J&J Produce Holdings, Inc.  Produce Distribution  Common Stock (8,182 shares)        818    -    0.0%
                           
J&J Produce Holdings, Inc.  Produce Distribution  Common Stock Warrants (4,506 shares)        -    -    0.0%
                           
               6,000    5,182    2.0%
                           
LJS Partners, LLC  QSR Franchisor  Common Stock (1,500,000 shares)        1,525    3,373    1.3%
                           
               1,525    3,373    1.3%
                           
MJC Holdings, LLC  Specialty Clothing  Series A Preferred Units (2,000,000 units)        1,000    4,438    1.7%
                           
               1,000    4,438    1.7%
                           
MMI Holdings, LLC  Medical Device Distributor  Senior Secured Debt (12% Cash, Due 1/31/17) (1)   2,600    2,600    2,600    1.0%
                           
MMI Holdings, LLC  Medical Device Distributor  Subordinated Debt (6% Cash, Due 1/31/17) (1)   400    388    400    0.2%
                           
MMI Holdings, LLC  Medical Device Distributor  Preferred Units (1,000 units, 6% PIK dividend) (6)        1,236    1,370    0.5%
                           
MMI Holdings, LLC  Medical Device Distributor  Common Membership Units (45 units)        -    330    0.1%
                           
               4,224    4,700    1.8%
                           
MTI Holdings, LLC  Retail Display & Security Services  Subordinated Debt (12% Cash, Due 11/1/18)   8,000    8,000    8,000    3.1%
                           
MTI Holdings, LLC  Retail Display & Security Services  Membership Units (2,000,000 units)        2,000    12,626    4.8%
                           
               10,000    20,626    7.9%
                           
Source Capital ABUTEC, LLC  Oil & Gas Services  Senior Secured Term Debt (12% Cash, 3% PIK, Due 12/28/17) (2)(11)   5,994    5,404    965    0.4%
                           
Source Capital ABUTEC, LLC  Oil & Gas Services  Preferred Membership Units (10.5% fully diluted)        1,240    -    0.0%
                           
               6,644    965    0.4%
                           
Source Capital Penray, LLC  Automotive Chemicals & Lubricants  Subordinated Debt (13% Cash, Due 2/17/17)   2,500    2,500    2,500    1.0%
                           
Source Capital Penray, LLC  Automotive Chemicals & Lubricants  Common Stock Warrants (6.65% ownership)        -    675    0.3%
                           
Source Capital Penray, LLC  Automotive Chemicals & Lubricants  Membership Units  (11.3% ownership)        750    984    0.4%
                           
               3,250    4,159    1.7%
                           
STX Healthcare Management Services, Inc.  Dental Practice Management  Subordinated Debt (12.5% Cash, Due 7/31/18) (1)   6,425    6,425    6,398    2.5%
                           
STX Healthcare Management Services, Inc.  Dental Practice Management  Common Stock (1,200,000 shares)        1,200    1,118    0.4%
                           
STX Healthcare Management Services, Inc.  Dental Practice Management  Common Stock Warrants (1,154,254 shares)        218    1,076    0.4%
                           
               7,843    8,592    3.3%
                           
TCE Holdings, Inc.  Oil & Gas Services  Subordinated Debt (12% Cash, 2% PIK, Due 2/1/19) (2)   13,787    13,649    2,783    1.1%
                           
TCE Holdings, Inc.  Oil & Gas Services  Subordinated Debt (12% Cash, 2% PIK, Due 2/1/19) (2)   10,986    10,876    2,217    0.9%
                           
TCE Holdings, Inc.  Oil & Gas Services  Class A Common Stock (3,600 shares)        3,734    -    0.0%
                           
               28,259    5,000    2.0%
                           
V12 Holdings, Inc.  Data Processing & Digital Marketing  Senior Secured Term Debt (15% PIK, Due 11/26/16)   490    490    953    0.4%
                           
V12 Holdings, Inc.  Data Processing & Digital Marketing  Bridge Note (0% Cash, Due 11/26/16) (1)   663    361    663    0.3%
                           
V12 Holdings, Inc.  Data Processing & Digital Marketing  Tier 2 Note (0% Cash, Due 11/26/16) (1)   81    44    81    0.0%
                           
V12 Holdings, Inc.  Data Processing & Digital Marketing  Senior Subordinated Note (0% Cash, Due 11/26/16) (1)   3,563    2,369    3,563    1.4%
                           
V12 Holdings, Inc.  Data Processing & Digital Marketing  Tier 3 Note (0% Cash, Due 11/26/16) (1)   299    207    299    0.1%
                           
V12 Holdings, Inc.  Data Processing & Digital Marketing  Jr. Subordinated Note (0% Cash, Due 11/26/16) (1)   2,750    -    2,750    1.1%
                           
V12 Holdings, Inc.  Data Processing & Digital Marketing  Tier 4 Note (0% Cash, Due 11/26/16) (1)   243    -    243    0.1%
                           
V12 Holdings, Inc.  Data Processing & Digital Marketing  Series A-1 Preferred Stock (255,102 shares)        -    -    0.0%
                           
V12 Holdings, Inc.  Data Processing & Digital Marketing  Series A-3 Preferred Stock (88,194 shares)        -    -    0.0%
                           
V12 Holdings, Inc.  Data Processing & Digital Marketing  Series A-5 Preferred Stock (20,530 shares)        -    427    0.2%
                           
V12 Holdings, Inc.  Data Processing & Digital Marketing  Common Stock Warrants (2,063,629 warrants)        -    -    0.0%
                           
               3,471    8,979    3.6%
                           
Sub Total Affiliate investments             $94,520   $100,161    38.9%
                           
Control investments - 38.2%                          
                           
CableOrganizer Acquisition, LLC  Computer Supply Retail  Senior Secured Term Debt (12% Cash, 4% PIK, Due 5/24/18)  $11,137   $11,137   $11,137    4.3%
                           
CableOrganizer Acquisition, LLC  Computer Supply Retail  Common Stock (1,125,000 shares)        1,125    27    0.0%
                           
CableOrganizer Acquisition, LLC  Computer Supply Retail  Common Stock Warrants (570,000 shares)        -    14    0.0%
                           
               12,262    11,178    4.3%
                           
Capitala Senior Liquid Loan Fund I, LLC  Investment Fund  Common Stock (80% ownership) (8)        20,000    18,510    7.3%
                           
               20,000    18,510    7.3%
                           
Eastport Holdings, LLC  Business Services  Subordinated Debt (L+13.0% Cash, 0.5% Floor, Due 4/29/20)   24,000    19,508    24,000    9.3%
                           
Eastport Holdings, LLC  Business Services  Membership Units (30% fully diluted)        4,733    4,733    1.9%
                           
               24,241    28,733    11.2%
                           
Micro Precision, LLC  Conglomerate  Subordinated Debt (10% Cash, Due 9/16/16)   1,862    1,862    1,862    0.7%
                           
Micro Precision, LLC  Conglomerate  Subordinated Debt (14% Cash, 4% PIK, Due 9/16/16)   3,869    3,869    3,869    1.5%
                           
Micro Precision, LLC  Conglomerate  Series A Preferred Units (47 units)        1,629    1,629    0.6%
                           
               7,360    7,360    2.8%
                           
Navis Holdings, Inc.  Textile Equipment Manufacturer  Senior Secured Term Debt (15%, 2% PIK at company's option, Due 10/30/20) (1) (10)   6,500    6,500    6,500    2.5%
                           
Navis Holdings, Inc.  Textile Equipment Manufacturer  Class A Preferred Stock (1,000 shares, 10% Cash Dividend) (6)        1,000    1,000    0.4%
                           
Navis Holdings, Inc.  Textile Equipment Manufacturer  Common Stock (300,000 shares)        1    5,161    2.0%
                           
               7,501    12,661    4.9%
                           
On-Site Fuel Services, Inc.  Fuel Transportation Services  Subordinated Debt (14% Cash, 4% PIK, Due 12/19/16) (2)   8,632    8,448    3,455    1.3%
                           
On-Site Fuel Services, Inc.  Fuel Transportation Services  Series A Preferred Stock (32,782 shares)        3,278    -    0.0%
                           
On-Site Fuel Services, Inc.  Fuel Transportation Services  Series B Preferred Stock (23,648 shares)        2,365    -    0.0%
                           
On-Site Fuel Services, Inc.  Fuel Transportation Services  Common Stock (33,107 shares)        33    -    0.0%
                           
               14,124    3,455    1.3%
                           
Print Direction, Inc.  Printing Services  Senior Secured Term Debt (10% Cash, 2% PIK, Due 2/24/19)   16,110    16,110    16,110    6.3%
                           
Print Direction, Inc.  Printing Services  Common Stock (18,543 shares)        2,990    308    0.1%
                           
Print Direction, Inc.  Printing Services  Common Stock Warrants (820 shares)        -    14    0.0%
                           
               19,100    16,432    6.4%
                           
Sub Total Control investments             $104,588   $98,329    38.2%
                           
TOTAL INVESTMENTS - 233%             $586,820   $599,741    233.0%

 

(1) The maturity date of the original investment has been extended.

(2) Non-accrual investment.

(3) The cash rate equals the approximate current yield on our last-out portion of the unitranche facility.

(4) All debt investments are income producing, unless otherwise noted. Equity and warrant investments are non-income producing, unless otherwise noted.

(5) Percentages are based on net assets of $257,419 as of March 31, 2016.

(6) The equity investment is income producing, based on rate disclosed.

(7) The equity investment has an exercisable put option.

(8) Indicates assets that the Company believes do not represent “qualifying assets” under Section 55(a) of the Investment Company Act of 1940, as amended. Qualifying assets must represent at least 70% of the Company's total assets at the time of acquisition of any additional non-qualifying assets. As of March 31, 2016, 8.0% of the Company's total assets were non-qualifying assets.

(9) The investment has a $0.6 million unfunded commitment.

(10) The investment has a $1.0 million unfunded commitment.

(11) Interest rate amended to 15% PIK through March 31, 2016.

(12) Interest rate amended to 15% through June 30, 2016.

(13) Interest rate was amended to zero. The Company will receive earn-out payments of up to $2.4 million in satisfaction of the debt.

 

See accompanying notes to consolidated financial statements.

 

 7 

 

 

Capitala Finance Corp.

 

Consolidated Schedule of Investments

(in thousands, except for units)

December 31, 2015

 

Company (4), (5)  Industry  Type of Investment  Principal
Amount
   Cost   Fair Value   % of
Net Assets
 
                       
Non-control/Non-affiliated investments - 150.5%                          
                           
AAE Acquisition, LLC  Industrial Equipment Rental  Senior Secured Term Debt (12% Cash, Due 3/31/18) (1)   $11,000   $11,000   $11,000    4.1%
                           
AAE Acquisition, LLC  Industrial Equipment Rental  Membership Units (14% fully diluted)        17    2,181    0.8%
                           
               11,017    13,181    4.9%
                           
American Clinical Solutions, LLC  Healthcare  Senior Secured Debt (L+9.5% Cash, 1% Floor, Due 6/11/20)   9,750    9,750    9,750    3.6%
                           
               9,750    9,750    3.6%
                           
American Exteriors, LLC  Replacement Window Manufacturer  Senior Secured Debt (14% Cash, Due 1/15/16) (1)(2)   4,879    3,679    3,196    1.2%
                           
American Exteriors, LLC  Replacement Window Manufacturer  Common Stock Warrants (15% fully diluted)        -    -    0.0%
                           
               3,679    3,196    1.2%
                           
B&W Quality Growers, LLC  Farming  Subordinated Debt (14% Cash, Due 7/23/20)   10,000    9,992    10,000    3.7%
                           
B&W Quality Growers, LLC  Farming  Membership Unit Warrants (91,739 Units)        20    5,408    2.0%
                           
               10,012    15,408    5.7%
                           
Bluestem Brands, Inc.  Online Merchandise Retailer  Senior Secured Term Debt (L+7.5% Cash, 1% Floor, Due 11/7/20)   4,529    4,382    4,382    1.6%
                           
               4,382    4,382    1.6%
                           
Boot Barn Holdings, Inc  Western Wear Retail  Common Stock (95,252 shares) (8)        381    1,171    0.4%
                           
               381    1,171    0.4%
                           
Brock Holdings III, Inc.  Industrial Specialty Services  Subordinated Debt (L+8.25% Cash, 1.75% Floor, Due 3/16/18)   5,000    4,881    4,881    1.8%
                           
               4,881    4,881    1.8%
                           
Brunswick Bowling Products, Inc.  Bowling Products  Senior Secured Term Debt (L+6.0% Cash, 2% Floor, Due 5/22/20)   2,000    2,000    2,000    0.7%
                           
Brunswick Bowling Products, Inc.  Bowling Products  Subordinated Debt (L+14.25% Cash, 2% Floor, Due 5/22/20)   6,983    6,983    6,983    2.6%
                           
Brunswick Bowling Products, Inc.  Bowling Products  Preferred Shares (2,966 shares, 8% PIK) (6)        3,118    3,141    1.2%
                           
               12,101    12,124    4.5%
                           
Burke America Parts Group, LLC  Home Repair Parts Manufacturer  Senior Secured Term Debt (9.5% Cash, Due 4/30/20)   5,000    4,868    4,868    1.8%
                           
Burke America Parts Group, LLC  Home Repair Parts Manufacturer  Membership Units (14 units)        5    533    0.2%
                           
               4,873    5,401    2.0%
                           
Caregiver Services, Inc.  In-Home Healthcare Services  Common Stock (293,186 shares)        258    223    0.1%
                           
Caregiver Services, Inc.  In-Home Healthcare Services  Common Stock Warrants (655,908 units) (7)        264    498    0.2%
                           
               522    721    0.3%
                           
Cedar Electronics Holding Corp.  Consumer Electronics  Subordinated Debt (12% Cash, Matures 12/26/20)   28,300    28,300    28,300    10.5%
                           
               28,300    28,300    10.5%
                           
Community Choice Financial, Inc.  Financial Services  Senior Secured Revolving Debt (L+13.0% Cash, 1% Floor, Due 3/27/17) (8) (11)   17,161    17,161    17,161    6.4%
                           
               17,161    17,161    6.4%
                           
Construction Partners, Inc.  Construction Services  Subordinated Debt (11.5% Cash, Due 6/12/20)   12,500    12,500    12,500    4.7%
                           
               12,500    12,500    4.7%
                           
Corporate Visions, Inc.  Sales & Marketing Services  Subordinated Debt (9% Cash, 2% PIK, Due 11/29/21)   15,941    15,941    15,941    5.9%
                           
Corporate Visions, Inc.  Sales & Marketing Services  Common Stock (15,750 shares)        1,575    1,917    0.7%
                           
               17,516    17,858    6.6%
                           
Crowley Holdings, Inc.  Transportation  Series A Income Preferred Shares (6,000 shares, 10% Cash, 2% PIK dividend) (6)        6,271    6,271    2.3%
                           
               6,271    6,271    2.3%
                           
CSM Bakery Solutions, LLC  Bakery Supplies Distributor  Subordinated Debt (L+7.75% Cash, 1% Floor, Due 8/7/22)   17,000    16,687    16,146    6.0%
                           
               16,687    16,146    6.0%
                           
DSW Homes, LLC  Disaster Recovery Homebuilding  Subordinated Debt (L+12% Cash, Due 9/24/18)   2,000    2,000    2,000    0.7%
                           
               2,000    2,000    0.7%
                           
Emerging Markets Communications, LLC  Satellite Communications  Subordinated Debt (L+9.625% Cash, 1% Floor, Due 7/1/22)   5,000    4,932    4,932    1.8%
                           
               4,932    4,932    1.8%
                           
Flavors Holdings, Inc.  Food Product Manufacturer  Senior Secured Term Debt (L+5.75% Cash, 1% Floor, Due 4/3/20)   7,500    7,265    6,917    2.6%
                           
Flavors Holdings, Inc.  Food Product Manufacturer  Subordinated Debt (L+10% Cash, 1% Floor, Due 10/3/21)   12,000    11,601    10,519    3.9%
                           
               18,866    17,436    6.5%
                           
Group Cirque du Soleil, Inc.  Entertainment  Subordinated Debt (L+8.25% Cash, 1% Floor, Due 7/8/23) (8)   1,000    986    986    0.4%
                           
               986    986    0.4%
                           
Immersive Media Tactical Solutions, LLC  Specialty Defense Contractor  Senior Secured Term Debt (Due 12/9/19) (14)   2,400    2,000    1,800    0.7%
                           
               2,000    1,800    0.7%
                           
Kelle's Transport Service, LLC  Transportation  Senior Secured Debt (14% Cash, Due 3/31/19)   14,562    14,551    14,562    5.4%
                           
Kelle's Transport Service, LLC  Transportation  Preferred Units (1,000 units, 10% PIK Dividend) (6)        3,101    3,101    1.2%
                           
Kelle's Transport Service, LLC  Transportation  Common Stock Warrants (15% fully diluted)        22    3,310    1.2%
                           
               17,674    20,973    7.8%
                           
Maxim Crane Works, L.P.  Crane Rental and Sales  Subordinated Debt (L+9.25% Cash, 1% Floor, Due 11/26/18)   5,000    5,032    5,032    1.9%
                           
               5,032    5,032    1.9%
                           
Medical Depot, Inc.  Medical Device Distributor  Subordinated Debt (14% Cash, Due 9/27/20) (1)   14,667    14,667    14,667    5.5%
                           
Medical Depot, Inc.  Medical Device Distributor  Series C Convertible Preferred Stock (740 shares)        1,333    8,345    3.1%
                           
               16,000    23,012    8.6%
                           
Merlin International, Inc.  IT Government Contracting  Subordinated Debt (12.5% Cash, Due 12/16/19)   20,000    20,000    20,000    7.4%
                           
               20,000    20,000    7.4%
                           
Nielsen & Bainbridge, LLC  Home Décor Manufacturer  Subordinated Debt (L+9.25% Cash, 1% Floor, Due 8/15/21)   15,000    14,816    14,614    5.4%
                <