UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

  

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

 

For the Quarter Ended September 30, 2015

 

¨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 of incorporation

 

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 November 6, 2015 was 15,765,233.

 

 

 

 

TABLE OF CONTENTS

 

    Page
     
PART I FINANCIAL INFORMATION  
     
Item 1. Consolidated Financial Statements  
     
  Consolidated Statements of Assets and Liabilities as of September 30, 2015 (unaudited) and December 31, 2014 3
     
  Consolidated Statements of Operations for the three and nine months ended September 30, 2015 and 2014 (unaudited) 4
     
  Consolidated Statements of Changes in Net Assets for the nine months ended September 30, 2015 and 2014 (unaudited) 5
     
  Consolidated Statements of Cash Flows for the nine months ended September, 2015 and 2014 (unaudited) 6
     
  Consolidated Schedules of Investments as of September 30, 2015 (unaudited) and December 31, 2014 7
     
  Notes to Consolidated Financial Statements as of September 30, 2015 (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 47
     
Item 1. Legal Proceedings 47
     
Item 1A. Risk Factors 47
     
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 
   September 30, 2015   December 31, 2014 
   (unaudited)     
ASSETS          
           
Investments at fair value          
Non-control/non-affiliate investments (amortized cost of $359,556 and $219,163, respectively)  $379,329   $236,804 
Affiliate investments (amortized cost of $114,922 and $154,552, respectively)   134,317    171,471 
Control investments (amortized cost of $78,850 and $67,440, respectively)   74,571    72,062 
Total investments at fair value (amortized cost of $553,328 and $441,155, respectively)   588,217    480,337 
Cash and cash equivalents   37,535    55,107 
Interest and dividend receivable   5,923    3,113 
Due from related parties   256    518 
Deferred financing fees (net of accumulated amortization of $4,722 and $3,288, respectively)   9,227    10,002 
Prepaid expenses   637    515 
Other assets   522    274 
Total assets  $642,317   $549,866 
           
LIABILITIES          
SBA debentures  $184,200   $192,200 
Notes   113,438    113,438 
Revolving Credit Facility   51,000    - 
Distribution payable   2,384    - 
Due to related parties   4    8 
Management and incentive fee payable   3,246    159 
Interest and financing fees payable   1,152    2,902 
Accounts payable and accrued expenses   80    322 
Total liabilities  $355,504   $309,029 
           
Commitments and contingencies (Note 2)          
           
NET ASSETS          
Common stock, par value $.01, 100,000,000 common shares authorized, 15,895,580 and 12,974,420 common shares issued and outstanding, respectively   159    130 
Additional paid in capital   240,808    188,408 
Accumulated undistributed net investment income   8,902    12,314 
Accumulated undistributed net realized gain from investments   2,055    803 
Net unrealized appreciation on investments   34,889    39,182 
Total net assets   286,813    240,837 
           
Total liabilities and net assets  $642,317   $549,866 
           
Net asset value per share  $18.04   $18.56 

 

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 September 30   For the Nine Months Ended September 30 
   2015   2014   2015   2014 
                 
INVESTMENT INCOME                    
Interest and fee income:                    
Non-control/Non-affiliate investments  $11,948   $4,104   $29,139   $10,170 
Affiliate investments   2,675    4,790    9,347    12,415 
Control investments   1,285    1,422    4,010    4,259 
Total interest and fee income   15,908    10,316    42,496    26,844 
Payment-in-kind interest and dividend income:                    
Non-control/Non-affiliate investments   758    202    1,447    626 
Affiliate investments   612    334    1,263    956 
Control investments   227    192    848    479 
Total payment-in-kind interest and dividend income   1,597    728    3,558    2,061 
Dividend income:                    
Non-control/Non-affiliate investments   154    152    462    1,666 
Affiliate investments   29    29    86    745 
Control investments   615    (61)   823    4,734 
Total dividend income   798    120    1,371    7,145 
Interest income from cash and cash equivalents   1    3    4    17 
Total investment income   18,304    11,167    47,429    36,067 
                     
EXPENSES                    
Interest and financing expenses   4,809    4,268    14,126    8,870 
Base management fee   2,781    2,536    7,778    6,830 
Incentive fees   1,946    -    4,457    2,838 
General and administrative expenses   981    857    3,148    2,870 
Expenses before management fee waiver   10,517    7,661    29,509    21,408 
Management fee waiver (See Note 5)   -    (38)   -    (238)
Total expenses net of management fee waiver   10,517    7,623    29,509    21,170 
                     
NET INVESTMENT INCOME   7,787    3,544    17,920    14,897 
                     
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:                    
Net realized gain (loss) from investments:                    
Non-control/Non-affiliate investments   1,605    -    9,304    1,158 
Affiliate investments   (12,847)   (3,055)   (5,750)   (2,704)
Control investments   (4,795)   -    5,586    173 
Total realized gain (loss) from investments   (16,037)   (3,055)   9,140    (1,373)
Net unrealized appreciation/(depreciation) on investments   16,208    (178)   (4,293)   (5,784)
Net gain (loss) on investments   171    (3,233)   4,847    (7,157)
                     
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS  $7,958   $311   $22,767   $7,740 
                     
NET INCREASE IN NET ASSETS PER SHARE RESULTING FROM OPERATIONS – BASIC AND DILUTED  $0.49   $0.02   $1.52   $0.60 
                     
WEIGHTED AVERAGE COMMON STOCK OUTSTANDING - BASIC AND DILUTED   16,088,979    12,974,420    15,018,537    12,974,420 
                     
DISTRIBUTIONS PAID PER SHARE  $0.62   $0.47   $1.76   $0.47 
                     
DISTRIBUTIONS PAYABLE PER SHARE  $0.15   $-   $0.15   $- 

 

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   Accumulated   Net Unrealized     
   Number of   Par   Paid in   Undistributed Net   Undistributed Net   Appreciation (Depreciation)
on
     
   Shares   Value   Capital   Investment Income   Realized Gains
(Losses)
   Investments   Total 
                             
BALANCE, December 31, 2013   12,974,420   $130   $188,408   $16,760   $(48)  $63,420   $268,670 
Net investment income   -    -    -    14,897    -    -    14,897 
Net realized loss on portfolio investments   -    -    -    -    (1,373)   -    (1,373)
Net change in unrealized appreciation/(depreciation) on portfolio investments   -    -    -    -    -    (5,784)   (5,784)
Distributions declared   -    -    -    (18,294)   -    -    (18,294)
BALANCE, September 30, 2014   12,974,420   $130   $188,408   $13,363   $(1,421)  $57,636   $258,116 
                                    
BALANCE, December 31, 2014   12,974,420   $130   $188,408   $12,314   $803   $39,182    $240,837 
Net investment income   -    -    -    17,920    -    -    17,920 
Net realized gain from investments   -    -    -    -    9,140    -    9,140 
Net change in unrealized appreciation/(depreciation) on portfolio investments   -    -    -    -    -    (4,293)   (4,293)
Issuance of common stock, net of offering and underwriting costs   3,500,000    35    61,665    -    -     -    61,700 
Repurchase and retirement of common stock under stock repurchase program   (624,050)   (6)   (9,882)   -    -     -    (9,888)
Distributions to shareholders:                                  
Stock issued under dividend reinvestment plan   45,210    -    617    -    -    -    617 
Distributions declared   -    -    -    (21,332)   (7,888)   -    (29,220)
BALANCE, September 30, 2015   15,895,580   $159   $240,808   $8,902   $2,055   $34,889   $286,813 

 

See accompanying notes to consolidated financial statements.

 

5

 

 

Capitala Finance Corp.

 

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

   For the Nine Months Ended September 30 
   2015   2014 
         
CASH FLOWS FROM OPERATING ACTIVITIES          
Net increase in net assets resulting from operations  $22,767   $7,740 
Adjustments to reconcile net increase in net assets resulting from operations to net cash used in operating activities:          
Purchase of portfolio investments   (225,604)   (150,304)
Repayments of portfolio investments   126,594    64,833 
Net realized (gain)/loss on portfolio investments   (9,140)   1,373 
Net unrealized depreciation on portfolio investments   4,293    5,784 
Payment-in-kind interest and dividends   (3,558)   (2,061)
Accretion of original issue discount on portfolio investments   (465)   (32)
Amortization of deferred financing fees   1,433    656 
Changes in assets and liabilities:          
Interest and dividend receivable   (2,810)   (624)
Due from related parties   262    1,104 
Prepaid expenses   (122)   607 
Other assets   (248)   - 
Due to related parties   (4)   (449)
Management and incentive fee payable   3,087    (1,760)
Interest and financing fees payable   (1,750)   (1,755)
Accounts payable and accrued expenses   (242)   64 
NET CASH USED IN OPERATING ACTIVITIES   (85,507)   (74,824)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Paydowns on SBA-guaranteed debentures   (8,000)   (10,000)
Proceeds from Revolving Credit Facility   76,000    - 
Payments to Revolving Credit Facility   (25,000)   - 
Issuance of Notes   -    113,438 
Issuance of common stock, net of offering and underwriting costs   61,700    - 
Distributions paid to shareholders   (26,219)   (18,294)
Repurchases of common stock under stock repurchase program   (9,888)   - 
Deferred financing fees paid   (658)   (4,366)
NET CASH PROVIDED BY FINANCING ACTIVITIES  $67,935   $80,778 
           
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS   (17,572)   5,954 
CASH AND CASH EQUIVALENTS, beginning of period  $55,107   $101,622 
CASH AND CASH EQUIVALENTS, end of period  $37,535   $107,576 
           
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION          
Cash paid for interest  $13,033   $9,964 
           
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING TRANSACTIONS          
Distributions declared and payable  $2,384   $- 
Distribution paid through DRIP share issuances  $617   $- 

 

See accompanying notes to consolidated financial statements.

 

6

 

 

Capitala Finance Corp.

 

Consolidated Schedule of Investments

(in thousands, except for units)

September 30, 2015

(Unaudited)

 

Company (4, 5)  Industry  Type of Investment  Principal
Amount
   Cost   Fair Value   % of
Net Assets
 
                       
Non-control/Non-affiliated investments - 132.4%                          
                           
AAE Acquisition, LLC  Industrial Equipment Rental  Senior Secured Term Debt (12% Cash, Due 3/31/18) (1)  $11,000   $11,000   $11,000    3.8%
                           
AAE Acquisition, LLC  Industrial Equipment Rental  Membership Units (14% fully diluted)        17    2,271    0.8%
                           
               11,017    13,271    4.6%
                           
American Clinical Solutions, LLC  Healthcare  Senior Secured Debt (L+9.5% Cash, 1% Floor, Due 6/11/20)   9,875    9,875    9,875    3.4%
                           
               9,875    9,875    3.4%
                           
American Exteriors, LLC  Replacement Window Manufacturer  Senior Secured Debt (14% Cash, Due 1/15/16) (1)   4,879    3,679    4,391    1.5%
                           
American Exteriors, LLC  Replacement Window Manufacturer  Jr. Convertible Note (10% Cash, Due 12/31/16) (1) (2)   500    415    -    0.0%
                           
American Exteriors, LLC  Replacement Window Manufacturer  Common Stock Warrants (15% fully diluted)        -    -    0.0%
                           
               4,094    4,391    1.5%
                           
B&W Quality Growers, LLC  Farming  Subordinated Debt (14% Cash, Due 7/23/20)   10,000    9,991    10,000    3.4%
                           
B&W Quality Growers, LLC  Farming  Membership Unit Warrants (91,739 Units)        20    5,594    2.0%
                           
               10,011    15,594    5.4%
                           
Bluestem Brands, Inc.  Online Merchandise Retailer  Senior Secured Term Debt (L+7.5% Cash, 1% Floor, Due 11/7/20)   4,592    4,435    4,435    1.5%
                           
               4,435    4,435    1.5%
                           
Boot Barn Holdings, Inc  Western Wear Retail  Common Stock (95,252 shares) (8)        381    1,755    0.6%
                           
               381    1,755    0.6%
                           
Brock Holdings III, Inc.  Industrial Specialty Services  Subordinated Debt (L+8.25% Cash, 1.75% Floor, Due 3/16/18)   5,000    4,868    4,868    1.7%
                           
               4,868    4,868    1.7%
                           
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    2.4%
                           
Brunswick Bowling Products, Inc.  Bowling Products  Preferred Shares (2,966 shares, 8% PIK) (6)        3,055    3,055    1.1%
                           
               12,038    12,038    4.2%
                           
Burke America Parts Group, LLC  Home Repair Parts Manufacturer  Senior Secured Term Debt (9.5% Cash, Due 4/30/20)   5,000    4,860    4,860    1.7%
                           
Burke America Parts Group, LLC  Home Repair Parts Manufacturer  Warrants (14 units)        5    356    0.1%
                           
               4,865    5,216    1.8%
                           
Caregiver Services, Inc.  In-Home Healthcare Services  Common Stock (293,186 shares)        258    312    0.2%
                           
Caregiver Services, Inc.  In-Home Healthcare Services  Common Stock Warrants (655,908 units) (7)        264    696    0.2%
                           
               522    1,008    0.4%
                           
Cedar Electronics Holding Corp.  Consumer Electronics  Subordinated Debt (12% Cash, Matures 12/26/20)   28,300    28,300    28,300    9.9%
                           
               28,300    28,300    9.9%
                           
Community Choice Financial, Inc.  Financial Services  Senior Secured Revolving Debt (L+13.0% Cash, 1% Floor, Due 3/27/17) (8) (12)   17,161    17,161    17,161    6.0%
                           
               17,161    17,161    6.0%
                           
Construction Partners, Inc.  Construction Services  Subordinated Debt (11.5% Cash, Due 6/12/20)   12,500    12,500    12,500    4.4%
                           
               12,500    12,500    4.4%
                           
Corporate Visions, Inc.  Sales & Marketing Services  Subordinated Debt (9% Cash, 2% PIK, Due 11/29/21)   15,860    15,860    15,860    5.5%
                           
Corporate Visions, Inc.  Sales & Marketing Services  Common Stock (15,750 shares)        1,575    2,163    0.9%
                           
               17,435    18,023    6.4%
                           
Crowley Holdings, Inc.  Transportation  Series A Income Preferred Shares (6,000 shares, 10% Cash, 2% PIK dividend) (6)        6,239    6,239    2.2%
                           
               6,239    6,239    2.2%
                           
CSM Bakery Solutions, LLC  Bakery Supplies Distributor  Subordinated Debt (L+7.75% Cash, 1% Floor, Due 8/7/22)   17,000    16,675    16,490    5.7%
                           
               16,675    16,490    5.7%
                           
DSW Homes, LLC  Disaster Recovery Homebuilding  Subordinated Debt (L+ 12%, 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 7/16/23)   5,000    4,928    4,928    1.7%
                           
               4,928    4,928    1.7%
                           
Flavors Holdings, Inc.  Food Product Manufacturer  Senior Secured Term Debt (L+5.75% Cash, 1% Floor, Due 4/3/20)   7,600    7,348    7,348    2.6%
                           
Flavors Holdings, Inc.  Food Product Manufacturer  Subordinated Debt (L+10% Cash, 1% Floor, Due 10/3/21)   12,000    11,584    11,584    4.0%
                           
               18,932    18,932    6.6%
                           
Group Cirque du Soleil, Inc.  Entertainment  Subordinated Debt (L+8.25% Cash, 1% Floor, Due 7/8/23) (8)   1,000    985    985    0.3%
                           
               985    985    0.3%
                           
Immersive Media Tactical Solutions, LLC  Specialty Defense Contractor  Senior Secured Term Debt (13% Cash, Due 10/6/16)   2,000    2,000    1,800    0.6%
                           
Immersive Media Tactical Solutions, LLC  Specialty Defense Contractor  Common Unit Warrants (12% fully diluted)        -     -     0.0%
                           
               2,000    1,800    0.6%
                           
Kelle's Transport Service, LLC  Transportation  Senior Secured Debt (14% Cash, Due 3/31/19)   14,562    14,550    14,562    5.1%
                           
Kelle's Transport Service, LLC  Transportation  Preferred Units (1,000 units, 10% PIK Dividend) (6)        3,023    3,023    1.1%
                           
Kelle's Transport Service, LLC  Transportation  Common Stock Warrants (15% fully diluted)        22    4,475    1.6%
                           
               17,595    22,060    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    5,035    5,035    1.9%
                           
               5,035    5,035    1.9%
                           
Medical Depot, Inc.  Medical Device Distributor  Subordinated Debt (14% Cash, Due 9/27/20) (1)   4,667    4,667    4,667    1.6%
                           
Medical Depot, Inc.  Medical Device Distributor  Series C Convertible Preferred Stock (740 shares)        1,333    8,275    2.9%
                           
               6,000    12,942    4.5%
                           
Merlin International, Inc.  IT Government Contracting  Subordinated Debt (12.5% Cash, Due 12/16/19)   20,000    20,000    20,000    7.0%
                           
               20,000    20,000    7.0%
                           
Nielsen & Bainbridge, LLC  Home Décor Manufacturer  Subordinated Debt (L+9.25% Cash, 1% Floor, Due 8/15/21)   15,000    14,808    14,700    5.1%
                           
               14,808    14,700    5.1%
                           
Portrait Innovations, Inc.  Professional and Personal Digital Imaging  Senior Secured Term Debt (12% Cash, Due 2/26/20)   15,000    15,000    15,000    5.2%
                           
               15,000    15,000    5.2%
                           
Sequoia Healthcare Management, LLC  Healthcare Management  Senior Secured Term Debt (12% cash, 4% PIK, due 7/17/19)   12,005    11,829    12,005    4.2%
                           
               11,829    12,005    4.2%
                           
Sierra Hamilton, LLC  Oil & Gas Engineering and Consulting Services  Senior Secured Debt (12.25% Cash, Due 12/15/18)   15,000    15,000    12,750    4.4%
                           
               15,000    12,750    4.4%
                           
Taylor Precision Products, Inc.  Household Product Manufacturer  Series C Preferred Stock (379 shares)        758    758    0.3%
                           
               758    758    0.3%
                           
Tenere, Inc.  Industrial Manufacturing  Senior Secured Term Debt (11% Cash, 2% PIK, Due 12/15/17) (9)   3,564    3,564    3,564    1.2%
                           
               3,564    3,564    1.2%
                           
Team Health, Inc.  Healthcare  Subordinated Debt (L+8% Cash, Due 10/31/16) (11)   -    -    -    0.0%
                           
               -    -    0.0%
                           
U.S. Well Services, LLC  Oil & Gas Services  Senior Secured Debt (L+11.5% Cash, 0.5% Floor, Due 5/2/19)   14,473    14,406    14,406    5.0%
                           
               14,406    14,406    5.0%
                           
Velum Global Credit Management, LLC  Financial Services  Senior Secured Debt (15% Cash, Due 12/31/15) (8)   8,300    8,300    8,300    2.9%
                           
               8,300    8,300    2.9%
                           
Vology, Inc.  Information Technology  Subordinated Debt (L+14% Cash, 1% Floor, Due 1/24/21)   8,000    8,000    8,000    2.8%
                           
               8,000    8,000    2.8%
                           
Western Windows Systems, LLC  Building Products  Senior Secured Term Debt (12.4% Cash, Due 7/31/20)   27,000    27,000    27,000    9.4%
                           
Western Windows Systems, LLC  Building Products  Common Equity (39,860 shares)        3,000    3,000    1.1%
                           
               30,000    30,000    10.5%
                           
Sub Total Non-control/Non-affiliated investments             $359,556   $379,329    132.4%
                           
Affiliate investments - 46.7%                          
                           
Burgaflex Holdings, LLC  Automobile Part Manufacturer  Senior Subordinated Debt (14% Cash, due 8/9/2019)  $3,000   $3,000   $3,000    1.1%
                           
Burgaflex Holdings, LLC  Automobile Part Manufacturer  Junior Subordinated Debt (12% Cash, due 8/9/2019)   5,828    5,828    5,828    2.0%
                           
Burgaflex Holdings, LLC  Automobile Part Manufacturer  Common Stock (1,253,198 shares)        1,504    3,950    1.4%
                           
               10,332    12,778    4.5%
                           
City Gear, LLC  Footwear Retail  Subordinated Debt (13% Cash, Due 9/28/17) (1)   8,231    8,231    8,231    2.9%
                           
City Gear, LLC  Footwear Retail  Preferred Membership Units (9% Cash dividend) (6)        1,269    1,269    0.4%
                           
City Gear, LLC  Footwear Retail  Membership Unit Warrants (14.15% fully diluted)        -    7,946    2.8%
                           
               9,500    17,446    6.1%
                           
GA Communications, Inc.  Advertising & Marketing Services  Series A-1 Preferred Stock (1,998 shares, 8% PIK dividend) (6)        2,357    2,659    0.9%
                           
GA Communications, Inc.  Advertising & Marketing Services  Series B-1 Common Stock (200,000 shares)        2    1,161    0.4%
                           
               2,359    3,820    1.3%
                           
J&J Produce Holdings, Inc.  Produce Distribution  Subordinated Debt (13% Cash, Due 7/16/18) (14)   5,557    5,557    5,557    1.9%
                           
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%
                           
               6,375    5,557    1.9%
                           
LJS Partners, LLC  QSR Franchisor  Common Stock (1,500,000 shares)        1,525    3,248    1.1%
                           
               1,525    3,248    1.1%
                           
MJC Holdings, LLC  Specialty Clothing  Series A Preferred Units (2,000,000 units)        2,000    5,990    2.1%
                           
               2,000    5,990    2.1%
                           
MMI Holdings, LLC  Medical Device Distributor  Senior Secured Debt (12% Cash, Due 1/31/17) (1)   2,600    2,600    2,600    0.9%
                           
MMI Holdings, LLC  Medical Device Distributor  Subordinated Debt (6% Cash, Due 1/31/17) (1)   400    388    400    0.1%
                           
MMI Holdings, LLC  Medical Device Distributor  Preferred Units (1,000 units, 6% PIK dividend) (6)        1,195    1,330    0.5%
                           
MMI Holdings, LLC  Medical Device Distributor  Common Membership Units (45 units)        -    281    0.1%
                           
               4,183    4,611    1.6%
                           
MTI Holdings, LLC  Retail Display & Security Services  Subordinated Debt (12% Cash, Due 11/1/18)   8,000    8,000    8,000    2.8%
                           
MTI Holdings, LLC  Retail Display & Security Services  Membership Units (2,000,000 units)        2,000    8,311    2.9%
                           
               10,000    16,311    5.7%
                           
Source Capital ABUTEC, LLC  Oil & Gas Services  Senior Secured Term Debt (12% Cash, 3% PIK, Due 12/28/17) (3)(13)   5,487    5,404    3,841    1.3%
                           
Source Capital ABUTEC, LLC  Oil & Gas Services  Preferred Membership Units (10.8% fully diluted)        1,240    -    0.0%
                           
               6,644    3,841    1.3%
                           
Source Capital Penray, LLC  Automotive Chemicals & Lubricants  Subordinated Debt (13% Cash, Due 2/17/17)   2,500    2,500    2,500    0.9%
                           
Source Capital Penray, LLC  Automotive Chemicals & Lubricants  Common Stock Warrants (6.65% ownership)        -    868    0.3%
                           
Source Capital Penray, LLC  Automotive Chemicals & Lubricants  Membership Units  (11.3% ownership)        750    618    0.2%
                           
               3,250    3,986    1.4%
                           
Source Recycling, LLC  Scrap Metal Recycler  Subordinated Debt (13% Cash, Due 9/2/16) (2)   5,000    5,000    4,250    1.5%
                           
               5,000    4,250    1.5%
                           
Sparus Holdings, Inc.  Energy Services  Senior Secured Term Debt (12% Cash, 2% PIK, Due 3/21/16)   5,111    5,111    5,111    1.7%
                           
Sparus Holdings, Inc.  Energy Services  Subordinated Debt (12% Cash, 2% PIK, Due 3/21/16) (3)   8,314    8,066    5,889    2.1%
                           
Sparus Holdings, Inc.  Energy Services  Series B Preferred Stock (5,703 shares)        1,173    -    0.0%
                           
Sparus Holdings, Inc.  Energy Services  Common Stock Warrants (3,491 shares)        -    -    0.0%
                           
               14,350    11,000    3.8%
                           
STX Healthcare Management Services, Inc.  Dental Practice Management  Subordinated Debt (12.5% Cash, Due 7/31/18) (1)   6,425    6,425    6,425    2.2%
                           
STX Healthcare Management Services, Inc.  Dental Practice Management  Common Stock (1,200,000 shares)        1,200    967    0.3%
                           
STX Healthcare Management Services, Inc.  Dental Practice Management  Common Stock Warrants (1,154,254 shares)        218    931    0.4%
                           
               7,843    8,323    2.9%
                           
TCE Holdings, Inc.  Oil & Gas Services  Subordinated Debt (12% Cash, 2% PIK, Due 2/1/19)   13,649    13,649    12,967    4.5%
                           
TCE Holdings, Inc.  Oil & Gas Services  Subordinated Debt (12% Cash, 2% PIK, Due 2/1/19)   10,877    10,877    10,333    3.6%
                           
TCE Holdings, Inc.  Oil & Gas Services  Class A Common Stock (3,600 shares)        3,600    -    0.0%
                           
               28,126    23,300    8.1%
                           
V12 Holdings, Inc.  Data Processing & Digital Marketing  Senior Secured Term Debt (15% PIK, Due 11/26/16)   454    454    1,060    0.4%
                           
V12 Holdings, Inc.  Data Processing & Digital Marketing  Bridge Note (0% Cash, Due 11/26/16) (1)   663    361    663    0.2%
                           
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    3,640    1.2%
                           
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    1.0%
                           
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)        -    1,120    0.4%
                           
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)        -    -    0.0%
                           
V12 Holdings, Inc.  Data Processing & Digital Marketing  Common Stock Warrants (2,063,629 warrants)        -    -    0.0%
                           
               3,435    9,856    3.4%
                           
Sub Total Affiliate investments             $114,922   $134,317    46.7%
                           
Control investments - 25.8%                          
                           
CableOrganizer Acquisition, LLC  Computer Supply Retail  Senior Secured Term Debt (12% Cash, 4% PIK, Due 5/24/18)  $10,913   $10,913   $10,913    3.9%
                           
CableOrganizer Acquisition, LLC  Computer Supply Retail  Common Stock (1,125,000 shares)        1,125    123    0.0%
                           
CableOrganizer Acquisition, LLC  Computer Supply Retail  Common Stock Warrants (570,000 shares)        -    64    0.0%
                           
               12,038    11,100    3.9%
                           
Capitala Senior Liquid Loan Fund I, LLC  Investment Fund  Common Stock (80% ownership) (8)        20,000    19,577    6.8%
                           
               20,000    19,577    6.8%
                           
CION/Capitala Senior Liquid Loan Fund I, LLC  Investment Fund  Common Stock (20% ownership) (8) (10)        -    -    0.0%
                           
               -    -    0.0%
                           
Micro Precision, LLC  Conglomerate  Subordinated Debt (10% Cash, Due 9/16/16)   1,862    1,862    1,862    0.6%
                           
Micro Precision, LLC  Conglomerate  Subordinated Debt (14% Cash, 4% PIK, Due 9/16/16)   3,791    3,791    3,791    1.3%
                           
Micro Precision, LLC  Conglomerate  Series A Preferred Units (47 units)        1,629    1,629    0.6%
                           
               7,282    7,282    2.5%
                           
Navis Holdings, Inc.  Textile Equipment Manufacturer  Senior Secured Term Debt (17%, 3% PIK at Company's option, Due 2/1/16)   6,500    6,500    6,500    2.2%
                           
Navis Holdings, Inc.  Textile Equipment Manufacturer  Class A Preferred Stock (1,000 shares, 10% Cash Dividend) (6)        1,000    1,000    0.3%
                           
Navis Holdings, Inc.  Textile Equipment Manufacturer  Common Stock (300,000 shares)        1    5,218    1.8%
                           
               7,501    12,718    4.3%
                           
On-Site Fuel Services, Inc.  Fuel Transportation Services  Subordinated Debt (14% Cash, 4% PIK, Due 12/19/16) (2)   8,213    8,213    6,694    2.4%
                           
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)        2,364    -    0.0%
                           
On-Site Fuel Services, Inc.  Fuel Transportation Services  Common Stock (33,107 shares)        33    -    0.0%
                           
               13,888    6,694    2.4%
                           
Print Direction, Inc.  Printing Services  Senior Secured Term Debt (10% Cash, 2% PIK, Due 2/24/19)   15,151    15,151    15,151    5.4%
                           
Print Direction, Inc.  Printing Services  Common Stock (19,363 shares)        2,990    1,962    0.7%
                           
Print Direction, Inc.  Printing Services  Common Stock Warrants (3% fully diluted)        -    87    0.0%
                           
               18,141    17,200    6.1%
                           
Sub Total Control investments             $78,850   $74,571    26.0%
                           
TOTAL INVESTMENTS -205.1%             $553,328   $588,217    205.1%

 

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

(2) Non-accrual investment.

(3) PIK non-accrual investment.

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

(5) Percentages are based on net assets of $286,813 as of September 30, 2015.

(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 September 30, 2015, 7.6% 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 $10.0 million unfunded commitment.

(11) The investment has a $7.5 million unfunded commitment.

(12) The investment has $2.8 million of unfunded commitment.

(13) Interest rate amended to 6% cash and 9% PIK through December 31, 2015.

(14) Interest rate amended to 15% PIK through September 30, 2015.

 

See accompanying notes to consolidated financial statements.

 

7

 

 

Capitala Finance Corp.

 

Consolidated Schedule of Investments

(in thousands, except for units)

December 31, 2014

 

Company (4, 5)  Industry  Type of Investment  Principal
Amount
   Cost   Fair Value   % of
Net Assets
 
                       
Non-control/Non-affiliated investments - 98.3%                          
                           
AAE Acquisition, LLC  Industrial Equipment Rental  Senior Secured Term Debt (12% Cash, Due 3/31/18) (1)  $11,000   $10,998   $11,000    4.6%
                           
AAE Acquisition, LLC  Industrial Equipment Rental  Membership Units (14% fully diluted)        17    2,212    0.9%
                           
               11,015    13,212    5.5%
                           
A Wireless Holding Company  Wireless Communication Retailer  Subordinated Debt (12% Cash, Due 9/09/19)   12,000    12,000    12,000    5.0%
                           
               12,000    12,000    5.0%
                           
American Exteriors, LLC  Replacement Window Manufacturer  Senior Secured Debt (14% Cash, Due 6/30/15) (1) (11)   4,357    3,157    4,357    1.8%
                           
American Exteriors, LLC  Replacement Window Manufacturer  Jr. Convertible Note (10% Cash, Due 6/30/16) (1)   500    415    500    0.2%
                           
American Exteriors, LLC  Replacement Window Manufacturer  Common Stock Warrants (15% fully diluted) (7)        -    -    0.0%
                           
               3,572    4,857    2.0%
                           
Bluestem Brands, Inc.  Online Merchandise Retailer  Senior Secured Term Debt (L+7.5% Cash, 1% Floor, Due 11/7/2020)   5,000    4,804    4,804    2.0%
                           
               4,804    4,804    2.0%
                           
Boot Barn Holdings, Inc  Western Wear Retail  Common Stock (600,000 shares) (8)        2,400    10,920    4.5%
                           
               2,400    10,920    4.5%
                           
Caregiver Services, Inc.  In-Home Healthcare Services  Common Stock (293,186 shares)        258    193    0.1%
                           
Caregiver Services, Inc.  In-Home Healthcare Services  Common Stock Warrants (655,908 units) (7)        264    431    0.2%
                           
               522    624    0.3%
                           
Construction Partners, Inc.  Construction Services  Subordinated Debt (11.5% Cash, Due 6/12/2020)   12,500    12,500    12,500    5.2%
                           
               12,500    12,500    5.2%
                           
Crowley Holdings, Inc.  Transportation  Series A Income Preferred Shares (6,000 shares, 10% Cash, 2% PIK dividend) (6)        6,145    6,145    2.6%
                           
               6,145    6,145    2.6%
                           
CSM Bakery Solutions, LLC  Bakery Supplies Distributor  Subordinated Debt (L+7.75% Cash, 1% Floor, Due 8/7/22)   17,000    16,640    16,297    6.8%
                           
               16,640    16,297    6.8%
                           
Flavors Holdings, Inc.  Food Product Manufacturer  Senior Secured Term Debt (L+5.75% Cash, 1% Floor, Due 4/3/2020)   7,900    7,594    7,594    3.2%
                           
Flavors Holdings, Inc.  Food Product Manufacturer  Subordinated Debt (L+10%, 1% Floor, Due 10/3/2021)   12,000    11,532    11,532    4.7%
                           
               19,126    19,126    7.9%
                           
Immersive Media Tactical Solutions, LLC  Specialty Defense Contractor  Senior Secured Term Debt (13% Cash, Due 10/6/16)   2,000    2,000    1,850    0.8%
                           
Immersive Media Tactical Solutions, LLC  Specialty Defense Contractor  Common Unit Warrants (12% fully diluted)        -    -    0.0%
                           
               2,000    1,850    0.8%
                           
Kelle's Transport Service, LLC  Transportation  Senior Secured Debt (14% Cash, Due 3/31/19)   15,366    15,351    15,366    6.3%
                           
Kelle's Transport Service, LLC  Transportation  Preferred Units (1,000 units, 10% PIK Dividend) (6)        2,802    2,802    1.2%
                           
Kelle's Transport Service, LLC  Transportation  Common Stock Warrants (15% fully diluted)        23    2,781    1.2%
                           
               18,176    20,949    8.7%
                           
Medical Depot, Inc.  Medical Device Distributor  Subordinated Debt (14% Cash, Due 9/27/20) (1)   4,667    4,667    4,667    1.9%
                           
Medical Depot, Inc.  Medical Device Distributor  Series C Convertible Preferred Stock (740 shares)        1,333    5,283    2.2%
                           
               6,000    9,950    4.1%
                           
Meritas Schools Holdings, LLC  Education Services  Subordinated Debt (L+9% Cash, 1% Floor, Due 1/23/2021)   3,000    2,986    3,000    1.2%
                           
               2,986    3,000    1.2%
                           
Merlin International, Inc.  IT Government Contracting  Subordinated Debt (12.5% Cash, Due 12/16/2019)   20,000    20,000    20,000    8.3%
                           
               20,000    20,000    8.3%
                           
Nielsen & Bainbridge, LLC  Home Décor Manufacturer  Subordinated Debt (L+9.25% Cash, 1% Floor, Due 8/15/21)   15,000    14,785    14,611    6.1%
                           
               14,785    14,611    6.1%
                           
Precision Manufacturing, LLC  Industrial Boiler Manufacturer  Subordinated Debt (14% Cash, Due 2/13/15) (2)   200    200    -    0.0%
                           
Precision Manufacturing, LLC  Industrial Boiler Manufacturer  Subordinated Debt (14% Cash, Due 2/28/15) (2)   300    300    -    0.0%
                           
Precision Manufacturing, LLC  Industrial Boiler Manufacturer  Subordinated Debt (13% Cash, Due 2/10/17) (2)   2,850    2,850    -    0.0%
                           
Precision Manufacturing, LLC  Industrial Boiler Manufacturer  Membership Unit Warrants (6.65% fully diluted)        -    -    0.0%
                           
               3,350    -    0.0%
                           
Sequoia Healthcare Management, LLC  Healthcare Management  Senior Secured Term Debt (12% cash, 4% PIK, due 7/17/2019)   12,420    12,195    12,420    5.2%
                           
               12,195    12,420    5.2%
                           
Sierra Hamilton, LLC  Oil & Gas Engineering and Consulting Services  Senior Secured Debt (12.25% Cash, Due 12/15/18)   15,000    15,000    14,547    6.0%
                           
               15,000    14,547    6.0%
                           
Southern Pump & Tank Company, LLC  Petroleum Equipment Supplier  Senior Secured Term Debt (13% Cash, 6% PIK, Due 1/15/15) (1)   4,316    3,495    3,850    1.6%
                           
Southern Pump & Tank Company, LLC  Petroleum Equipment Supplier  Common Stock Warrants (10% fully diluted)        -    -    0.0%
                           
               3,495    3,850    1.6%
                           
Stoddard Hill Media Holdings, LLC  IT Hosting Services  Class D Preferred Units (132,159 shares)        300    480    0.2%
                           
               300    480    0.2%
                           
Taylor Precision Products, Inc.  Household Product Manufacturer  Series C Preferred Stock (379 shares)        758    758    0.3%
                           
               758    758    0.3%
                           
Tenere, Inc.  Industrial Manufacturing  Senior Secured Term Debt (11% Cash, 2% PIK, Due 12/15/17) (9)   3,510    3,510    3,510    1.5%
                           
               3,510    3,510    1.5%
                           
TGI Friday's, Inc.  Restaurant Chain  Subordinated Debt (L+8.25% Cash, 1% Floor, Due 7/15/21)   10,000    9,962    9,738    4.0%
                           
               9,962    9,738    4.0%
                           
US LBM Holdings, LLC  Building Products  Senior Secured Debt (L+7.0% Cash, 1% Floor, Due 5/2/2020)   4,992    4,895    4,895    2.0%
                           
               4,895    4,895    2.0%
                           
U.S. Well Services, LLC  Oil & Gas Services  Senior Secured Debt (L+11.5% Cash, 0.5% floor, Due 5/2/19) (10)   4,822    4,727    4,761    2.0%
                           
               4,727    4,761    2.0%
                           
Velum Global Credit Management, LLC  Financial Services  Senior Secured Debt (15% Cash, Due 12/31/15) (8)   8,300    8,300    8,300    3.4%
                           
               8,300    8,300    3.4%
                           
Worklife America, Inc.  Professional Employer Organization  Common Stock Warrants (3.84% ownership)        -    2,311    0.9%
                           
Worklife America, Inc.  Professional Employer Organization  Preferred Stock Warrants (3.84% ownership)        -    389    0.2%