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☒
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Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 |
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☐
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Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 |
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Commission
File Number |
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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 |
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I.R.S. Employer
Identification Number |
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814-01022
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Capitala Finance Corp.
4201 Congress St., Suite 360
Charlotte, North Carolina, 28209 Telephone: (704) 376-5502 State of Incorporation: Maryland |
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90-0945675
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Title of Each Class
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Trading symbol(s)
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Name of Each Exchange on Which Registered
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Common Stock, par value $0.01 per share
5.75% Convertible Notes due 2022 6.00% Notes due 2022 |
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CPTA
CPTAG CPTAL |
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NASDAQ Global Select Market
NASDAQ Capital Market NASDAQ Global Select Market |
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| Large accelerated filer ☐ | | | Accelerated filer ☐ | |
| Non-accelerated filer ☒ | | | Smaller reporting company ☐ | |
| | | | Emerging growth company ☐ | |
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PAGE
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PART I | | | | | | | |
| | | | 1 | | | |
| | | | 32 | | | |
| | | | 69 | | | |
| | | | 69 | | | |
| | | | 69 | | | |
| | | | 70 | | | |
PART II | | | | | | | |
| | | | 71 | | | |
| | | | 78 | | | |
| | | | 79 | | | |
| | | | 103 | | | |
| | | | 104 | | | |
| | | | 104 | | | |
| | | | 104 | | | |
| | | | 104 | | | |
PART III | | | | | | | |
| | | | 105 | | | |
| | | | 108 | | | |
| | | | 109 | | | |
| | | | 111 | | | |
| | | | 113 | | | |
PART IV | | | | | | | |
| | | | 115 | | | |
| | | | 117 | | | |
| | | | 118 | | |
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Investment
Rating |
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Summary Description
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1
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| | In general, the investment may be performing above our internal expectations. Full return of principal and interest is expected. Capital gain is expected. | |
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2
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| | In general, the investment may be performing within our internal expectations, and potential risks to the applicable investment are considered to be neutral or favorable compared to any potential risks at the time of the original investment. All new investments are initially given this rating. | |
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3
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| | In general, the investment may be performing below our internal expectations and therefore, investments in this category may require closer internal monitoring; however, the valuation team believes that no loss of investment return (interest and/or dividends) or principal is expected. The investment also may be out of compliance with certain financial covenants. | |
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4
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| | In general, the investment may be performing below internal expectations and quantitative or qualitative risks may have increased substantially since the original investment. Loss of some or all principal is expected. | |
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5
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| | In general, the investment may be performing substantially below our internal expectations and a number of quantitative or qualitative risks may have increased substantially since the original investment. Loss of some or all principal is expected. | |
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As of
December 31, 2020 |
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As of
December 31, 2019 |
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Investment Rating
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Investments
at Fair Value |
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Percentage
of Total Investments |
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Investments
at Fair Value |
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Percentage
of Total Investments |
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1
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| | | $ | 96,703 | | | | | | 35.2% | | | | | $ | 85,688 | | | | | | 23.6% | | |
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As of
December 31, 2020 |
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As of
December 31, 2019 |
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Investment Rating
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Investments
at Fair Value |
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Percentage
of Total Investments |
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Investments
at Fair Value |
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Percentage
of Total Investments |
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2
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| | | | 140,111 | | | | | | 51.0 | | | | | | 219,855 | | | | | | 60.7 | | |
3
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| | | | 17,111 | | | | | | 6.2 | | | | | | 56,989 | | | | | | 15.7 | | |
4
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| | | | 20,767 | | | | | | 7.6 | | | | | | — | | | | | | — | | |
5
|
| | | | — | | | | | | — | | | | | | — | | | | | | — | | |
Total
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| | | $ | 274,692 | | | | | | 100.0% | | | | | $ | 362,532 | | | | | | 100.0% | | |
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Incentive fee
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| | = 100% × pre-incentive fee net investment income, subject to the “catch-up”(4) | |
| | | | = 100% × (2.2% − 2.0%) | |
| | | | = 0.20% | |
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Incentive fee
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| | = 20% × pre-incentive fee net investment income, subject to “catch-up”(4) | |
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Incentive fee
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| | = 100% × “catch-up” + (20% × (pre-incentive fee net investment income − 2.5%)) | |
| Catch-up | | | = 2.5% − 2.0% | |
| | | | = 0.5% | |
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Incentive fee
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| | = (100% × 0.5%) + (20% × (2.80% − 2.5%)) | |
| | | | = 0.5% + (20%× 0.3%) | |
| | | | = 0.5% + 0.06% | |
| | | | = 0.56% | |
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Income Related
Incentive Fee Accrued Before Application of Deferral Mechanism |
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Capital Gains Related
Incentive Fee Accrued Before Application of Deferral Mechanism |
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Incentive Fee
Calculations |
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Incentive Fees Paid
and Deferred |
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Year 1
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| | $8.0 million ($40.0 million multiplied by 20%) | | | None | | | $8.0 million | | | Incentive fees of $8.0 million paid; no incentive fees deferred | |
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Year 2
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| | $8.0 million ($40.0 million multiplied by 20%) | | | $6.0 million (20% of $30.0 million) | | | $14.0 million | | | Incentive fees of $14.0 million paid; no incentive fees deferred | |
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Year 3
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| | $8.0 million ($40.0 million multiplied by 20%) | | | None (20% of cumulative net capital gains of $25.0 million ($30.0 million in cumulative realized gains less $5.0 million in cumulative unrealized capital depreciation) less $6.0 million of capital gains fee paid in Year 2) | | | $7.0 million (20% of the sum of (a) our pre-incentive fee net investment income, (b) our net unrealized appreciation or depreciation during such period and (c) our net realized capital gains or losses during Year 3) | | | Incentive fees of $7.0 million paid; $8.0 million of incentive fees accrued but payment restricted to $7.0 million; $1.0 million of incentive fees deferred | |
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Year 4
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| | $8.0 million ($40.0 million multiplied by 20%) | | | $0.2 million (20% of cumulative net capital gains of $31.0 million ($36.0 million cumulative realized capital gains less $5.0 million cumulative unrealized capital depreciation) less $6.0 million of capital gains fee paid in Year 2) | | | $8.2 million | | | Incentive fees of $9.2 million paid ($8.2 million of incentive fees accrued in Year 4 plus $1.0 million of deferred incentive fees); no incentive fees deferred | |
Assumed Return on Our Portfolio(1) (net of expenses)
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(10.0)%
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(5.0)%
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0.0%
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5.0%
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10.0%
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Corresponding net return to common stockholder
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| | | | (39.5)% | | | | | | (24.5)% | | | | | | (9.4)% | | | | | | 5.6% | | | | | | 20.7% | | |
Fiscal Year Ended
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NAV
Per Share(1)(4) |
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Sales Price(4)
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Premium or
(Discount) of High Sales Price to NAV(2) |
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Premium or
(Discount) of Low Sales Price to NAV(2) |
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Declared
Distributions Per Share(3)(4) |
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High
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Low
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December 31, 2021 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
First Quarter (through March 5, 2021)
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*
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| | | | $ | 16.99 | | | | | $ | 14.04 | | | | |
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*
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*
|
| | | | | — | | |
December 31, 2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fourth Quarter
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| | | $ | 40.19 | | | | | $ | 15.28 | | | | | $ | 8.40 | | | | | | (62.0)% | | | | | | (79.1)% | | | | | | — | | |
Third Quarter
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| | | $ | 39.99 | | | | | $ | 18.96 | | | | | $ | 9.20 | | | | | | (52.6)% | | | | | | (77.0)% | | | | | | — | | |
Second Quarter
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| | | $ | 38.75 | | | | | $ | 26.66 | | | | | $ | 13.08 | | | | | | (31.2)% | | | | | | (66.2)% | | | | | | — | | |
First Quarter
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| | | $ | 37.61 | | | | | $ | 55.20 | | | | | $ | 15.60 | | | | | | 46.8% | | | | | | (58.5)% | | | | | $ | 1.50 | | |
December 31, 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fourth Quarter
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| | | $ | 54.84 | | | | | $ | 54.72 | | | | | $ | 48.42 | | | | | | (0.2)% | | | | | | (11.7)% | | | | | $ | 1.50 | | |
Third Quarter
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| | | $ | 56.39 | | | | | $ | 59.94 | | | | | $ | 44.04 | | | | | | 6.3% | | | | | | (21.9)% | | | | | $ | 1.50 | | |
Second Quarter
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| | | $ | 57.27 | | | | | $ | 58.14 | | | | | $ | 47.82 | | | | | | 1.5% | | | | | | (16.5)% | | | | | $ | 1.50 | | |
First Quarter
|
| | | $ | 69.66 | | | | | $ | 52.44 | | | | | $ | 40.98 | | | | | | (24.7)% | | | | | | (41.2)% | | | | | $ | 1.50 | | |
Date Declared
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Record Date
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Payment Date
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Amount
Per Share(1) |
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January 2, 2020
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January 24, 2020
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January 30, 2020
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| | | $ | 0.50 | | |
January 2, 2020
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February 20, 2020
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February 27, 2020
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| | | | 0.50 | | |
January 2, 2020
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March 23, 2020
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March 30, 2020
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| | | | 0.50 | | |
Total Distributions Declared and Distributed for 2020
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| | | | | | | | | $ | 1.50 | | |
Date Declared
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Record Date
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Payment Date
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Amount
Per Share(1) |
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January 2, 2019
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January 24, 2019
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January 30, 2019
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| | | $ | 0.50 | | |
January 2, 2019
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February 20, 2019
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February 27, 2019
|
| | | | 0.50 | | |
January 2, 2019
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March 21, 2019
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March 28, 2019
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| | | | 0.50 | | |
April 1, 2019
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April 22, 2019
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April 29, 2019
|
| | | | 0.50 | | |
April 1, 2019
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May 23, 2019
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May 30, 2019
|
| | | | 0.50 | | |
April 1, 2019
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June 20, 2019
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June 27, 2019
|
| | | | 0.50 | | |
July 1, 2019
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July 23, 2019
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July 30, 2019
|
| | | | 0.50 | | |
July 1, 2019
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August 22, 2019
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August 29, 2019
|
| | | | 0.50 | | |
July 1, 2019
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September 20, 2019
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September 27, 2019
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| | | | 0.50 | | |
October 1, 2019
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October 22, 2019
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October 29, 2019
|
| | | | 0.50 | | |
October 1, 2019
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November 22, 2019
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November 29, 2019
|
| | | | 0.50 | | |
October 1, 2019
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December 23, 2019
|
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December 30, 2019
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| | | | 0.50 | | |
Total Distributions Declared and Distributed for 2019
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| | | | | | | | | $ | 6.00 | | |
Date Declared
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Record Date
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Payment Date
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Amount
Per Share(1) |
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January 2, 2018
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January 22, 2018
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January 30, 2018
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| | | $ | 0.50 | | |
January 2, 2018
|
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February 20, 2018
|
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February 27, 2018
|
| | | | 0.50 | | |
January 2, 2018
|
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March 23, 2018
|
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March 29, 2018
|
| | | | 0.50 | | |
April 2, 2018
|
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April 19, 2018
|
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April 27, 2018
|
| | | | 0.50 | | |
April 2, 2018
|
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May 22, 2018
|
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May 30, 2018
|
| | | | 0.50 | | |
April 2, 2018
|
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June 20, 2018
|
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June 28, 2018
|
| | | | 0.50 | | |
July 2, 2018
|
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July 23, 2018
|
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July 30, 2018
|
| | | | 0.50 | | |
July 2, 2018
|
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August 23, 2018
|
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August 30, 2018
|
| | | | 0.50 | | |
July 2, 2018
|
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September 20, 2018
|
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September 27, 2018
|
| | | | 0.50 | | |
October 1, 2018
|
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October 23, 2018
|
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October 30, 2018
|
| | | | 0.50 | | |
October 1, 2018
|
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November 21, 2018
|
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November 29, 2018
|
| | | | 0.50 | | |
October 1, 2018
|
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December 20, 2018
|
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December 28, 2018
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| | | | 0.50 | | |
Total Distributions Declared and Distributed for 2018
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| | | | | | | | | $ | 6.00 | | |
| Stockholder transaction expenses: | | | | | | | |
|
Sales load (as a percentage of offering price)
|
| | | | N/A(1) | | |
|
Offering expenses borne by us (as a percentage of offering price)
|
| | | | N/A(2) | | |
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Dividend reinvestment plan fees (per sales transaction fee)
|
| | | $ | 15.00(3) | | |
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Total stockholder transaction expenses (as a percentage of offering price)
|
| | | | —% | | |
| Annual expenses (as a percentage of net assets attributable to common stock): | | | | | | | |
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Base management fee
|
| | | | 5.61%(4) | | |
|
Incentive fees payable from Net Investment Income
|
| | | | —%(5) | | |
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Incentive fee payable from Capital Gains
|
| | | | —%(5) | | |
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Interest payments on borrowed funds
|
| | | | 8.98%(6) | | |
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Other expenses
|
| | | | 4.21%(7) | | |
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Total annual expenses
|
| | | | 18.80%(8) | | |
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1 Year
|
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3 Years
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5 Years
|
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10 Years
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You would pay the following expenses on a $1,000 investment, assuming
a 5.0% annual return |
| | | $ | 188 | | | | | $ | 490 | | | | | $ | 714 | | | | | $ | 1,054 | | |
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1 Year
|
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3 Years
|
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5 Years
|
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10 Years
|
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You would pay the following expenses on a $1,000 investment, assuming
a 5.0% annual return |
| | | $ | 198 | | | | | $ | 511 | | | | | $ | 737 | | | | | $ | 1,068 | | |
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As of and for the years ended December 31,
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2020
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2019
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2018
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2017
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2016
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Consolidated statements of operations data: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total investment income
|
| | | $ | 26,446 | | | | | $ | 44,035 | | | | | $ | 47,293 | | | | | $ | 51,089 | | | | | $ | 68,312 | | |
Total expenses, net of fee waivers
|
| | | | 26,388 | | | | | | 30,992 | | | | | | 31,271 | | | | | | 35,565 | | | | | | 39,272 | | |
Net investment income
|
| | | | 58 | | | | | | 13,043 | | | | | | 16,022 | | | | | | 15,524 | | | | | | 29,040 | | |
Net realized loss from investments
|
| | | | (24,049) | | | | | | (19,756) | | | | | | (34,804) | | | | | | (24,189) | | | | | | (22,766) | | |
Net unrealized (depreciation) appreciation on investments and written call option
|
| | | | (11,611) | | | | | | (20,306) | | | | | | 840 | | | | | | 2,970 | | | | | | 2,878 | | |
Tax (provision) benefit
|
| | | | — | | | | | | (628) | | | | | | 1,916 | | | | | | (1,289) | | | | | | — | | |
Net realized gain on extinguishment of debt
|
| | | | 155 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
Net (decrease) increase in net assets resulting from operations
|
| | | $ | (35,447) | | | | | $ | (27,647) | | | | | $ | (16,026) | | | | | $ | (6,984) | | | | | $ | 9,152 | | |
Per share data(2): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income
|
| | | $ | 0.02 | | | | | $ | 4.86 | | | | | $ | 6.01 | | | | | $ | 5.86 | | | | | $ | 11.01 | | |
Net (decrease) increase in net assets resulting from operations
|
| | | $ | (13.08) | | | | | $ | (10.29) | | | | | $ | (6.01) | | | | | $ | (2.63) | | | | | $ | 3.47 | | |
Distributions declared
|
| | | $ | 1.50 | | | | | $ | 6.00 | | | | | $ | 6.00 | | | | | $ | 8.52 | | | | | $ | 10.80 | | |
Net asset value per share
|
| | | $ | 40.19 | | | | | $ | 54.84 | | | | | $ | 71.26 | | | | | $ | 83.46 | | | | | $ | 94.75 | | |
Consolidated statements of assets and liabilities data:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total assets
|
| | | $ | 327,997 | | | | | $ | 427,337 | | | | | $ | 493,165 | | | | | $ | 534,595 | | | | | $ | 584,415 | | |
Total net assets
|
| | | $ | 108,947 | | | | | $ | 148,113 | | | | | $ | 190,644 | | | | | $ | 221,887 | | | | | $ | 250,582 | | |
Other data: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total return(1)
|
| | | | (71.10)% | | | | | | 37.75% | | | | | | 12.14% | | | | | | (35.68)% | | | | | | 24.07% | | |
Number of portfolio company investments at year end
|
| | | | 36 | | | | | | 43 | | | | | | 44 | | | | | | 47 | | | | | | 53 | | |
Total portfolio investments for the year
|
| | | $ | 21,070 | | | | | $ | 77,831 | | | | | $ | 107,802 | | | | | $ | 82,750 | | | | | $ | 120,844 | | |
Investment repayments for the year
|
| | | $ | 75,761 | | | | | $ | 128,122 | | | | | $ | 123,517 | | | | | $ | 115,810 | | | | | $ | 163,564 | | |