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 June 30, 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 August 8, 2016 was 15,829,661.

 

 

 

 

TABLE OF CONTENTS

 

    Page
     
PART I FINANCIAL INFORMATION 3
     
Item 1. Consolidated Financial Statements 3
     
  Consolidated Statements of Assets and Liabilities as of June 30, 2016 (unaudited) and December 31, 2015 3
     
  Consolidated Statements of Operations for the three and six months ended June 30, 2016 and 2015 (unaudited) 4
     
  Consolidated Statements of Changes in Net Assets for the six months ended June 30, 2016 and 2015 (unaudited) 5
     
  Consolidated Statements of Cash Flows for the six months ended June 30, 2016 and 2015 (unaudited) 6
     
  Consolidated Schedules of Investments as of June 30, 2016 (unaudited) and December 31, 2015 7
     
  Notes to Consolidated Financial Statements as of June 30, 2016 (unaudited) 16
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 45
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 68
     
Item 4. Controls and Procedures 69
     
PART II OTHER INFORMATION 70
     
Item 1. Legal Proceedings 70
     
Item 1A. Risk Factors 70
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 70
     
Item 3. Defaults Upon Senior Securities 70
     
Item 4. Mine Safety Disclosures 70
     
Item 5. Other Information 70
     
Item 6. Exhibits 71
   
Signatures 73

 

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 
   June 30, 2016   December 31, 2015 
   (unaudited)     
ASSETS          
           
Investments at fair value          
Non-control/non-affiliate investments (amortized cost of $384,569 and $391,031, respectively)  $399,353   $404,513 
Affiliate investments (amortized cost of $86,899 and $99,290, respectively)   92,789    117,350 
Control investments (amortized cost of $105,297 and $79,866, respectively)   102,975    70,593 
Total investments at fair value (amortized cost of $576,765 and $570,187, respectively)   595,117    592,456 
Cash and cash equivalents   20,108    34,105 
Interest and dividend receivable   4,738    5,390 
Due from related parties   254    256 
Prepaid expenses   320    503 
Other assets   108    108 
Total assets  $620,645   $632,818 
           
LIABILITIES          
SBA debentures (net of deferred financing costs of $3,218 and $3,537, respectively)  $178,982   $180,663 
Notes (net of deferred financing costs of $3,309 and $3,583, respectively)   110,129    109,855 
Credit Facility (net of deferred financing costs of $1,169 and $1,649, respectively)   67,831    68,351 
Due to related parties   4    6 
Management and incentive fee payable   3,331    1,687 
Interest and financing fees payable   2,826    2,987 
Accounts payable and accrued expenses   -    467 
Total liabilities  $363,103   $364,016 
           
Commitments and contingencies (Note 2)          
           
NET ASSETS          
Common stock, par value $.01, 100,000,000 common shares authorized, 15,822,636 and 15,777,345 common shares issued and outstanding, respectively   158    158 
Additional paid in capital   239,628    239,104 
Undistributed net investment income   8,570    8,570 
Accumulated net realized loss from investments   (9,166)   (1,299)
Net unrealized appreciation on investments   18,352    22,269 
Total net assets   257,542    268,802 
           
Total liabilities and net assets  $620,645   $632,818 
           
Net asset value per share  $16.28   $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 June 30   For the Six Months Ended June 30 
   2016   2015   2016   2015 
                 
INVESTMENT INCOME                    
Interest and fee income:                    
Non-control/Non-affiliate investments  $10,604   $9,516   $21,351   $17,191 
Affiliate investments   2,240    3,081    3,603    6,672 
Control investments   2,282    1,086    5,136    2,725 
Total interest and fee income   15,126    13,683    30,090    26,588 
Payment-in-kind interest and dividend income:                    
Non-control/Non-affiliate investments   912    375    1,790    689 
Affiliate investments   98    394    193    650 
Control investments   234    422    465    621 
Total payment-in-kind interest and dividend income   1,244    1,191    2,448    1,960 
Dividend income:                    
Non-control/Non-affiliate investments   -    154    205    307 
Affiliate investments   29    29    58    58 
Control investments   545    25    1,590    209 
Total dividend income   574    208    1,853    574 
Other Income   43    -    43    - 
Interest income from cash and cash equivalents   4    2    6    3 
Total investment income   16,991    15,084    34,440    29,125 
                     
EXPENSES                    
Interest and financing expenses   5,029    4,681    10,051    9,317 
Base management fee   2,702    2,587    5,430    4,997 
Incentive fees   1,667    1,329    3,373    2,510 
General and administrative expenses   927    1,170    2,096    2,167 
Expenses before incentive fee waiver   10,325    9,767    20,950    18,991 
Incentive fee waiver (See Note 6)   (765)   -    (1,361)   - 
Total expenses, net of incentive fee waiver   9,560    9,767    19,589    18,991 
                     
NET INVESTMENT INCOME   7,431    5,317    14,851    10,134 
                     
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS                    
Net realized gain (loss) from investments:                    
Non-control/Non-affiliate investments   69    7,670    69    7,698 
Affiliate investments   (5,819)   7,098    (8,081)   7,098 
Control investments   145    1,069    145    10,381 
Total realized gain (loss) from investments   (5,605)   15,837    (7,867)   25,177 
Net unrealized appreciation (depreciation) on investments   5,431    (16,212)   (3,917)   (20,502)
Net gain (loss) on investments   (174)   (375)   (11,784)   4,675 
                     
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS  $7,257   $4,942   $3,067   $14,809 
                     
NET INCREASE IN NET ASSETS PER SHARE RESULTING FROM OPERATIONS – BASIC AND DILUTED  $0.46   $0.31   $0.19   $1.02 
                     
WEIGHTED AVERAGE COMMON STOCK OUTSTANDING - BASIC AND DILUTED   15,807,340    15,957,926    15,796,642    14,474,446 
                     
DISTRIBUTIONS PAID PER SHARE  $0.47   $0.62   $0.94   $1.14 
                     
DISTRIBUTIONS PAYABLE PER SHARE  $-   $0.30   $-   $0.30 

 

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    

Undistributed Net

   

Accumulated

Net Realized

   

Net Unrealized

Appreciation

(Depreciation)

       
    Number of     Par     Paid in     Investment     Gains     on        
    Shares     Value     Capital     Income     (Losses)     Investments     Total  
                                           
BALANCE, December 31, 2014     12,974,420     $ 130     $ 188,408     $ 12,314     $ 803     $ 39,182     $ 240,837  
Net investment income     -       -       -       10,134       -       -       10,134  
Net realized gain from investments     -       -       -       -       25,177       -       25,177  
Net change in unrealized depreciation on investments     -       -       -       -       -       (20,502 )     (20,502 )
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     (224,602 )     (2 )     (3,888 )     -       -       -       (3,890 )
Distributions to Shareholders:                                                        
Stock issued under dividend reinvestment plan     12,573       -       201       -       -       -       201  
Distributions declared from net investment income     -       -       -       (13,808 )     -       -       (13,808 )
Distributions declared from accumulated net realized gains     -       -       -       -       (7,984 )     -       (7,984 )
BALANCE, June 30, 2015     16,262,391     $ 163     $ 246,386     $ 8,640     $ 17,996     $ 18,680     $ 291,865  
                                                         
BALANCE, December 31, 2015     15,777,345     $ 158     $ 239,104     $ 8,570     $ (1,299 )   $ 22,269       268,802  
Net investment income     -       -       -       14,851       -       -       14,851  
Net realized loss from investments     -       -       -       -       (7,867 )     -       (7,867 )
Net change in unrealized depreciation on investments     -       -       -       -       -       (3,917 )     (3,917 )
Distributions to Shareholders:                                                        
Stock issued under dividend reinvestment plan     45,291       -       524       -       -       -       524  
Distributions declared from net investment income     -       -       -       (14,851 )     -       -       (14,851 )
BALANCE, June 30, 2016     15,822,636     $ 158     $ 239,628     $ 8,570     $ (9,166 )   $ 18,352     $ 257,542  

 

See accompanying notes to consolidated financial statements.

 

5 

 

 

Capitala Finance Corp.

 

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

   For the Six Months Ended June 30 
   2016   2015 
         
CASH FLOWS FROM OPERATING ACTIVITIES          
Net increase in net assets resulting from operations  $3,067   $14,809 
Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by (used in) operating activities:          
Purchase of investments   (27,925)   (170,008)
Repayments of investments   16,661    91,931 
Net realized (gain)/loss on investments   7,867    (25,177)
Net unrealized depreciation on investments   3,917    20,502 
Payment-in-kind interest and dividends   (2,448)   (1,960)
Accretion of original issue discount on investments   (733)   (265)
Amortization of deferred financing fees   1,073    943 
Changes in assets and liabilities:          
Interest and dividend receivable   652    (950)
Due from related parties   2    262 
Prepaid expenses   183    279 
Other assets   -    184 
Trade settlement payable   -    10,772 
Due to related parties   (2)   (4)
Management and incentive fee payable   1,644    2,385 
Interest and financing fees payable   (161)   243 
Accounts payable and accrued expenses   (467)   (309)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES   3,330    (56,363)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Paydowns on SBA debentures   (2,000)   - 
Proceeds from Credit Facility   4,000    25,000 
Payments to Credit Facility   (5,000)   (25,000)
Issuance of common stock, net of offering and underwriting costs   -    61,700 
Distributions paid to shareholders   (14,327)   (16,713)
Repurchases of common stock under stock repurchase program   -    (3,890)
Deferred financing fees paid   -    (308)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES  $(17,327)  $40,789 
           
NET DECREASE IN CASH AND CASH EQUIVALENTS   (13,997)   (15,574)
CASH AND CASH EQUIVALENTS, beginning of period  $34,105   $55,107 
CASH AND CASH EQUIVALENTS, end of period  $20,108   $39,533 
           
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION          
Cash paid for interest  $8,910   $7,883 
           
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING TRANSACTIONS          
Distributions declared and payable  $-   $4,879 
Distribution paid through dividend reinvestment plan share issuances  $524   $201 

 

See accompanying notes to consolidated financial statements.

 

6 

 

 

Capitala Finance Corp.

 

Consolidated Schedule of Investments

(in thousands, except for units)

June 30, 2016

(unaudited)

 

Company (4) , (5)  Industry  Type of Investment  Principal
Amount
   Cost   Fair Value   % of
Net Assets
 
                       
Non-control/Non-affiliated investments - 155.1%                          
                           
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    1,865    0.7%
                           
               11,017    12,865    5.0%
                           
American Clinical Solutions, LLC  Healthcare  Senior Secured Debt (10.5% Cash (3 month Libor + 9.5%, 1% Floor), Due 6/11/20)   9,500    9,500    9,500    3.7%
                           
               9,500    9,500    3.7%
                           
American Exteriors, LLC  Replacement Window Manufacturer  Senior Secured Debt (10%, 4% PIK at company's option, Due 12/31/16) (1)(2)   5,644    4,179    3,113    1.2%
                           
American Exteriors, LLC  Replacement Window Manufacturer  Common Stock Warrants (10% fully diluted)        -    -    0.0%
                           
               4,179    3,113    1.2%
                           
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    4,636    1.8%
                           
               10,012    14,636    5.7%
                           
Bluestem Brands, Inc.  Online Merchandise Retailer  Senior Secured Term Debt (8.5% Cash (1 month Libor + 7.5%, 1% Floor), Due 11/7/20)   4,404    4,276    4,276    1.7%
                           
               4,276    4,276    1.7%
                           
Boot Barn Holdings, Inc.  Western Wear Retail    Common Stock (95,252 shares) (8)        381    821    0.3%
                           
               381    821    0.3%
                           
Brock Holdings III, Inc.  Industrial Specialty Services  Subordinated Debt (10% Cash (1 month Libor + 8.25%, 1.75% Floor), Due 3/16/18)   5,000    4,908    4,908    1.9%
                           
               4,908    4,908    1.9%
                           
Brunswick Bowling Products, Inc.  Bowling Products    Senior Secured Term Debt (8% Cash (1 month Libor + 6.0%, 2% Floor), Due 5/22/20)   2,000    2,000    2,000    0.8%
                           
Brunswick Bowling Products, Inc.  Bowling Products    Subordinated Debt (16.25% Cash (1 month Libor + 14.25%, 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)        3,248    4,748    1.8%
                           
               12,231    13,731    5.3%
                           
Burke America Parts Group, LLC  Home Repair Parts Manufacturer  Senior Secured Term Debt (9.5% Cash, Due 4/30/20)   5,000    4,882    5,000    1.9%
                           
Burke America Parts Group, LLC  Home Repair Parts Manufacturer  Membership Units (14 units)        5    880    0.3%
                           
               4,887    5,880    2.2%
                           
Caregiver Services, Inc.  In-Home Healthcare Services  Common Stock (293,186 shares)        258    219    0.1%
                           
Caregiver Services, Inc.  In-Home Healthcare Services  Common Stock Warrants (655,908 units) (7)        264    490    0.2%
                           
               522    709    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 Debt (14% Cash (1 month Libor + 13%, 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)   16,102    16,102    16,102    6.3%
                           
Corporate Visions, Inc.  Sales & Marketing Services  Common Stock (15,750 shares)        1,575    1,248    0.5%
                           
               17,677    17,350    6.8%
                           
CSM Bakery Solutions, LLC  Bakery Supplies Distributor  Subordinated Debt (8.75% Cash (1 month Libor + 7.75%, 1% Floor), Due 8/7/22)   17,000    16,711    16,150    6.3%
                           
               16,711    16,150    6.3%
                           
Emerging Markets Communications, LLC  Satellite Communications  Subordinated Debt (10.625% Cash (1 month Libor + 9.625%, 1% Floor), Due 7/1/22)   5,000    4,939    4,939    1.9%
                           
               4,939    4,939    1.9%
                           
Flavors Holdings, Inc.  Food Product Manufacturer  Senior Secured Term Debt (6.75% Cash (1 month Libor + 5.75%, 1% Floor), Due 4/3/20)   7,300    7,098    6,497    2.5%
                           
Flavors Holdings, Inc.  Food Product Manufacturer  Subordinated Debt (11% Cash (1 month Libor + 10%, 1% Floor), Due 10/3/21)   12,000    11,636    10,440    4.1%
                           
               18,734    16,937    6.6%

 

7 

 

 

Group Cirque du Soleil, Inc.  Entertainment  Subordinated Debt (9.25% Cash (3 month Libor + 8.25%, 1% Floor), Due 7/8/23) (8)   1,000    987    987    0.4%
                           
               987    987    0.4%
                           
Immersive Media Tactical Solutions, LLC  Specialty Defense Contractor  Senior Secured Term Debt (Due 12/9/19) (12)   2,000    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)   14,023    14,014    14,023    5.4%
                           
Kelle's Transport Service, LLC  Transportation  Preferred Units (1,000 units, 10% PIK Dividend) (6)        3,262    3,262    1.3%
                           
Kelle's Transport Service, LLC  Transportation  Common Stock Warrants (15% fully diluted)        23    1,369    0.5%
                           
               17,299    18,654    7.2%
                           
Maxim Crane Works, L.P.  Crane Rental and Sales  Subordinated Debt (10.25% Cash (1 month Libor + 9.25%, 1% Floor), Due 11/26/18)   5,000    5,026    5,026    2.0%
                           
               5,026    5,026    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    11,468    4.4%
                           
               16,000    26,135    10.1%
                           
Merlin International, Inc.  IT Government Contracting  Subordinated Debt (12.5% Cash, Due 12/16/19)   18,415    18,415    18,415    7.2%
                           
               18,415    18,415    7.2%
                           
Nielsen & Bainbridge, LLC  Home Décor Manufacturer  Subordinated Debt (10.25% Cash (6 month Libor + 9.25%, 1% Floor), Due 8/15/21)   15,000    14,833    14,700    5.7%
                           
               14,833    14,700    5.7%
                           
Nth Degree, Inc.  Business Services  Senior Secured Debt (8.0% Cash (1 month Libor + 7%, 1% Floor), 1% PIK, Due 12/14/20)   12,318    12,318    12,318    4.8%
                           
Nth Degree, Inc.  Business Services  Senior Secured Debt (12.5% Cash (1 month Libor + 11.5%, 1% Floor), 2% PIK, Due 12/14/20)   9,100    9,100    9,100    3.5%
                           
Nth Degree, Inc.  Business Services  Preferred Stock (10% PIK dividend) (6)        3,167    4,781    1.9%
                           
               24,585    26,199    10.2%
                           
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)   11,308    11,180    11,308    4.4%
                           
               11,180    11,308    4.4%
                           
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, 2% PIK, Due 9/30/16) (1)   5,137    5,137    5,339    2.1%
                           
Sparus Holdings, Inc.  Energy Services  Subordinated Debt (12% Cash, 2% PIK, Due 9/30/16) (1)   5,398    5,398    5,610    2.2%
                           
               10,535    10,949    4.3%
                           
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)   3,534    3,534    3,534    1.4%
                           
               3,534    3,534    1.4%
                           
U.S. Well Services, LLC  Oil & Gas Services  Senior Secured Debt (12.0% Cash (1 month Libor + 11.5%, 0.5% floor), Due 5/2/19)   13,905    13,864    13,905    5.3%
                           
               13,864    13,905    5.3%
                           
Velum Global Credit Management, LLC  Financial Services    Senior Secured Debt (15% PIK, Due 12/31/17) (1)(8)   9,779    9,779    9,779    3.8%
                           
               9,779    9,779    3.8%
                           
Vology, Inc.  Information Technology    Subordinated Debt (15% Cash (3 month Libor + 14%, 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    6,574    2.6%
                           
               17,000    20,574    7.9%
                           
Sub Total Non-control/Non-affiliated investments             $384,569   $399,353    155.1%
                           
Affiliate investments - 36.0%                          
                           
Burgaflex Holdings, LLC  Automobile Part Manufacturer  Senior Subordinated Debt (14% Cash, Due 8/9/19) (13)  $3,000   $3,000   $3,000    1.2%
                           
Burgaflex Holdings, LLC  Automobile Part Manufacturer  Junior Subordinated Debt (12% Cash, Due 8/9/19) (13)   5,828    5,828    5,828    2.3%
                           
Burgaflex Holdings, LLC  Automobile Part Manufacturer  Common Stock (1,253,198 shares)        1,504    1,834    0.7%
                           
               10,332    10,662    4.2%
                           
City Gear, LLC  Footwear Retail  Subordinated Debt (13% Cash, Due 9/28/17) (1)   8,231    8,231    8,231    3.2%

 

8 

 

 

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)        -    9,834    3.7%
                           
               9,500    19,334    7.4%
                           
GA Communications, Inc.  Advertising & Marketing Services  Series A-1 Preferred Stock (1,998 shares, 8% PIK dividend) (6)        2,527    2,817    1.1%
                           
GA Communications, Inc.  Advertising & Marketing Services  Series B-1 Common Stock (200,000 shares)        2    1,128    0.4%
                           
               2,529    3,945    1.5%
                           
J&J Produce Holdings, Inc.  Produce Distribution  Subordinated Debt (13% Cash, Due 7/16/18) (11)   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    4,675    1.8%
                           
               1,525    4,675    1.8%
                           
MJC Holdings, LLC  Specialty Clothing  Series A Preferred Units (2,000,000 units)        1,000    4,523    1.8%
                           
               1,000    4,523    1.8%
                           
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)        1,258    1,391    0.5%
                           
MMI Holdings, LLC  Medical Device Distributor  Common Membership Units (45 units)        -    308    0.1%
                           
               4,246    4,699    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    11,264    4.4%
                           
               10,000    19,264    7.5%
                           
Source Capital Penray, LLC  Automotive Chemicals & Lubricants  Subordinated Debt (13% Cash, Due 2/17/17)   1,425    1,425    1,425    0.6%
                           
Source Capital Penray, LLC  Automotive Chemicals & Lubricants  Membership Units (11.3% ownership)        750    1,086    0.4%
                           
               2,175    2,511    1.0%
                           
STX Healthcare Management Services, Inc.  Dental Practice Management  Subordinated Debt (12.5% Cash, Due 7/31/18) (1)   6,425    6,425    6,425    2.5%
                           
STX Healthcare Management Services, Inc.  Dental Practice Management  Common Stock (1,200,000 shares)        1,200    1,593    0.6%
                           
STX Healthcare Management Services, Inc.  Dental Practice Management  Common Stock Warrants (1,154,254 shares)        218    1,532    0.6%
                           
               7,843    9,550    3.7%
                           
TCE Holdings, Inc.  Oil & Gas Services  Subordinated Debt (12% Cash, 2% PIK, Due 2/1/19) (2)   13,857    13,649    -    0.0%
                           
TCE Holdings, Inc.  Oil & Gas Services  Subordinated Debt (12% Cash, 2% PIK, Due 2/1/19) (2)   11,042    10,877    -    0.0%
                           
TCE Holdings, Inc.  Oil & Gas Services  Class A Common Stock (3,600 shares)        3,734    -    0.0%
                           
               28,260    -    0.0%
                           
V12 Holdings, Inc.  Data Processing & Digital Marketing  Senior Secured Term Debt (15% PIK, Due 11/26/16)   508    508    845    0.3%
                           
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  Junior 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)        -    -    0.0%
                           
V12 Holdings, Inc.  Data Processing & Digital Marketing  Common Stock Warrants (2,063,629 warrants)        -    -    0.0%
                           
               3,489    8,444    3.3%
                           
Sub Total Affiliate investments             $86,899   $92,789    36.0%
                           
Control investments- 40.0%                          
                           
CableOrganizer Acquisition, LLC  Computer Supply Retail  Senior Secured Term Debt (12% Cash, 4% PIK, Due 5/24/18)  $11,250   $11,250   $11,250    4.4%
                           
CableOrganizer Acquisition, LLC  Computer Supply Retail  Common Stock (1,125,000 shares)        1,125    86    0.0%
                           
CableOrganizer Acquisition, LLC  Computer Supply Retail  Common Stock Warrants (570,000 shares)        -    44    0.0%
                           
               12,375    11,380    4.4%
                           
Capitala Senior Liquid Loan Fund I, LLC  Investment Fund    Common Stock (80% ownership) (8)         20,000    19,167    7.5%
                           
               20,000    19,167    7.5%

 

9 

 

 

Eastport Holdings, LLC  Business Services  Subordinated Debt (13.68% Cash (3 month Libor + 13%, 0.5% Floor), Due 4/29/20)   24,000    19,783    24,000    9.3%
                           
Eastport Holdings, LLC  Business Services  Membership Units (29.3% fully diluted)        4,733    4,641    1.9%
                           
               24,516    28,641    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)   3,908    3,908    3,908    1.5%
                           
Micro Precision, LLC  Conglomerate  Series A Preferred Units (47 units)        1,629    1,629    0.6%
                           
               7,399    7,399    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    6,297    2.4%
                           
               7,501    13,797    5.3%
                           
On-Site Fuel Services, Inc.  Fuel Transportation Services  Subordinated Debt (14% Cash, 4% PIK, Due 12/19/16) (2)   8,719    8,448    5,876    2.3%
                           
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    5,876    2.3%
                           
Print Direction, Inc.  Printing Services  Senior Secured Term Debt (10% Cash, 2% PIK, Due 2/24/19)   16,392    16,392    16,392    6.4%
                           
Print Direction, Inc.  Printing Services  Common Stock (18,543 shares)        2,990    309    0.1%
                           
Print Direction, Inc.  Printing Services  Common Stock Warrants (820 shares)        -    14    0.0%
                           
               19,382    16,715    6.5%
                           
Sub Total Control investments             $105,297   $102,975    40.0%
                           
TOTAL INVESTMENTS - 231.1%             $576,765   $595,117    231.1%

 

(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 $257,542 as of June 30, 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 June 30, 2016, 8.2% 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% through June 30, 2016.

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

(13) In addition to the stated rate, the investment is paying 3% default interest.

 

See accompanying notes to consolidated financial statements.

 

10 

 

 

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 (10.5% Cash (3 month Libor + 9.5%, 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 (8.5% Cash (1 month Libor + 7.5%, 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 (10% Cash (1 month Libor + 8.25%, 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 (8% Cash (1 month Libor + 6.0%, 2% Floor), Due 5/22/20)   2,000    2,000    2,000    0.7%
                           
Brunswick Bowling Products, Inc.  Bowling Products    Subordinated Debt (16.25% Cash (1 month Libor + 14.25%, 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, Due 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 Debt (14% Cash (1 month Libor + 13%, 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 (8.75% Cash (1 month Libor + 7.75%, 1% Floor), Due 8/7/22)   17,000    16,687    16,146    6.0%
                           
               16,687    16,146    6.0%

 

11 

 

 

DSW Homes, LLC  Disaster Recovery Homebuilding  Subordinated Debt (12.61% Cash (3 month Libor + 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 (10.625% Cash (1 month Libor + 9.625%, 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 (6.75% Cash (1 month Libor + 5.75%, 1% Floor), Due 4/3/20)   7,500    7,265    6,917    2.6%
                           
Flavors Holdings, Inc.  Food Product Manufacturer  Subordinated Debt (11% Cash (1 month Libor + 10%, 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 (9.25% Cash (3 month Libor + 8.25%, 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)   2,000    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 (10.25% Cash (1 month Libor + 9.25%, 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)