UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
|
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|
þ |
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2009
OR
|
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|
o |
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 001-33130
Triangle Capital Corporation
(Exact name of registrant as specified in its charter)
|
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|
Maryland
(State or other jurisdiction of
incorporation or organization)
|
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06-1798488
(I.R.S. Employer
Identification No.) |
|
|
|
3700 Glenwood Avenue, Suite 530
Raleigh, North Carolina
(Address of principal executive offices)
|
|
27612
(Zip Code) |
Registrants telephone number, including area code: (919) 719-4770
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically 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). Yes o No o
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):
Large accelerated filer o |
Accelerated filer o |
Non-accelerated
filer þ (Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
The number of shares outstanding of the registrants Common Stock (par value $0.001 per share) on
November 1, 2009 was 9,908,511.
TRIANGLE CAPITAL CORPORATION
TABLE OF CONTENTS
QUARTERLY REPORT ON FORM 10-Q
2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
TRIANGLE CAPITAL CORPORATION
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
|
|
2009 |
|
2008 |
|
|
|
|
|
(Unaudited) |
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
Investments at fair value: |
|
|
|
|
|
|
|
|
NonControl / NonAffiliate investments (cost
of $135,212,872 and $138,413,589 at September 30,
2009 and December 31, 2008, respectively) |
|
$ |
127,517,222 |
|
|
$ |
135,712,877 |
|
Affiliate investments (cost of $55,100,201 and $30,484,491
at September 30, 2009 and December 31, 2008,
respectively) |
|
|
49,780,689 |
|
|
|
33,894,556 |
|
Control investments (cost of $11,558,825 and $11,253,458
at September 30, 2009 and December 31, 2008,
respectively) |
|
|
11,093,125 |
|
|
|
12,497,858 |
|
|
|
|
Total investments at fair value |
|
|
188,391,036 |
|
|
|
182,105,291 |
|
Cash and cash equivalents |
|
|
33,414,295 |
|
|
|
27,193,287 |
|
Interest and fees receivable |
|
|
365,532 |
|
|
|
679,828 |
|
Prepaid expenses and other current assets |
|
|
276,297 |
|
|
|
95,325 |
|
Deferred financing fees |
|
|
3,470,600 |
|
|
|
3,545,410 |
|
Property and equipment, net |
|
|
34,503 |
|
|
|
48,020 |
|
|
|
|
Total assets |
|
$ |
225,952,263 |
|
|
$ |
213,667,161 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
$ |
1,450,875 |
|
|
$ |
1,608,909 |
|
Interest payable |
|
|
570,519 |
|
|
|
1,881,761 |
|
Deferred revenue |
|
|
112,500 |
|
|
|
|
|
Dividends payable |
|
|
4,029,456 |
|
|
|
2,766,945 |
|
Taxes payable |
|
|
24,899 |
|
|
|
30,436 |
|
Deferred income taxes |
|
|
437,827 |
|
|
|
843,947 |
|
SBA guaranteed debentures payable |
|
|
115,110,000 |
|
|
|
115,110,000 |
|
|
|
|
Total liabilities |
|
|
121,736,076 |
|
|
|
122,241,998 |
|
|
|
|
|
|
|
|
|
|
Net Assets |
|
|
|
|
|
|
|
|
Common stock, $0.001 par value per share (150,000,000
shares authorized, 9,827,942 and 6,917,363 shares issued
and outstanding as of September 30, 2009 and December 31,
2008, respectively) |
|
|
9,828 |
|
|
|
6,917 |
|
Additional paid-in capital |
|
|
115,370,671 |
|
|
|
87,836,786 |
|
Investment income in excess of distributions |
|
|
1,902,083 |
|
|
|
2,115,157 |
|
Accumulated realized gains on investments |
|
|
852,293 |
|
|
|
356,495 |
|
Net unrealized appreciation (depreciation) of investments |
|
|
(13,918,688 |
) |
|
|
1,109,808 |
|
|
|
|
Total net assets |
|
|
104,216,187 |
|
|
|
91,425,163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and net assets |
|
$ |
225,952,263 |
|
|
$ |
213,667,161 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value per share |
|
$ |
10.60 |
|
|
$ |
13.22 |
|
|
|
|
See accompanying notes.
3
TRIANGLE CAPITAL CORPORATION
Unaudited Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
Three Months |
|
Nine Months |
|
Nine Months |
|
|
Ended |
|
Ended |
|
Ended |
|
Ended |
|
|
September 30, |
|
September 30, |
|
September 30, |
|
September 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan interest, fee and dividend income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NonControl / NonAffiliate investments |
|
$ |
3,850,305 |
|
|
$ |
3,447,176 |
|
|
$ |
12,252,053 |
|
|
$ |
8,166,903 |
|
Affiliate investments |
|
|
1,374,819 |
|
|
|
936,965 |
|
|
|
3,215,690 |
|
|
|
2,572,546 |
|
Control investments |
|
|
232,575 |
|
|
|
315,408 |
|
|
|
713,553 |
|
|
|
1,194,603 |
|
|
|
|
Total loan interest, fee and dividend income |
|
|
5,457,699 |
|
|
|
4,699,549 |
|
|
|
16,181,296 |
|
|
|
11,934,052 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paidinkind interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NonControl / NonAffiliate investments |
|
|
711,882 |
|
|
|
840,543 |
|
|
|
2,322,402 |
|
|
|
1,709,348 |
|
Affiliate investments |
|
|
600,532 |
|
|
|
175,491 |
|
|
|
978,568 |
|
|
|
489,005 |
|
Control investments |
|
|
122,738 |
|
|
|
96,393 |
|
|
|
286,816 |
|
|
|
356,700 |
|
|
|
|
Total paidinkind interest income |
|
|
1,435,152 |
|
|
|
1,112,427 |
|
|
|
3,587,786 |
|
|
|
2,555,053 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income from cash and cash equivalent investments |
|
|
203,792 |
|
|
|
57,661 |
|
|
|
408,464 |
|
|
|
264,607 |
|
|
|
|
Total investment income |
|
|
7,096,643 |
|
|
|
5,869,637 |
|
|
|
20,177,546 |
|
|
|
14,753,712 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
1,749,593 |
|
|
|
1,125,469 |
|
|
|
5,137,159 |
|
|
|
2,586,279 |
|
Amortization of deferred financing fees |
|
|
90,500 |
|
|
|
64,596 |
|
|
|
268,810 |
|
|
|
160,765 |
|
General and administrative expenses |
|
|
1,538,693 |
|
|
|
1,467,866 |
|
|
|
4,766,841 |
|
|
|
4,338,825 |
|
|
|
|
Total expenses |
|
|
3,378,786 |
|
|
|
2,657,931 |
|
|
|
10,172,810 |
|
|
|
7,085,869 |
|
|
|
|
Net investment income |
|
|
3,717,857 |
|
|
|
3,211,706 |
|
|
|
10,004,736 |
|
|
|
7,667,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gains on investments
Non-Control/Non-Affiliate |
|
|
|
|
|
|
51,089 |
|
|
|
848,164 |
|
|
|
51,089 |
|
Net unrealized appreciation (depreciation) of investments |
|
|
(4,504,933 |
) |
|
|
(736,636 |
) |
|
|
(15,028,496 |
) |
|
|
(1,376,704 |
) |
|
|
|
Total net gain (loss) on investments before income taxes |
|
|
(4,504,933 |
) |
|
|
(685,547 |
) |
|
|
(14,180,332 |
) |
|
|
(1,325,615 |
) |
Income tax benefit (expense) |
|
|
8,417 |
|
|
|
(49,813 |
) |
|
|
(38,277 |
) |
|
|
(251,984 |
) |
|
|
|
Net increase (decrease) in net assets resulting from
operations |
|
$ |
(778,659 |
) |
|
$ |
2,476,346 |
|
|
$ |
(4,213,873 |
) |
|
$ |
6,090,244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income per share basic and diluted |
|
$ |
0.41 |
|
|
$ |
0.46 |
|
|
$ |
1.25 |
|
|
$ |
1.12 |
|
|
|
|
Net increase (decrease) in net assets resulting from
operations per share basic and diluted |
|
$ |
(0.09 |
) |
|
$ |
0.36 |
|
|
$ |
(0.53 |
) |
|
$ |
0.89 |
|
|
|
|
Dividends declared per common share |
|
$ |
0.41 |
|
|
$ |
0.35 |
|
|
$ |
1.21 |
|
|
$ |
0.66 |
|
|
|
|
Distributions of capital gains declared per common share |
|
$ |
|
|
|
$ |
|
|
|
$ |
0.05 |
|
|
$ |
|
|
|
|
|
Weighted average number of shares outstanding basic
and diluted |
|
|
9,129,192 |
|
|
|
6,917,363 |
|
|
|
8,024,933 |
|
|
|
6,864,341 |
|
|
|
|
See accompanying notes.
4
TRIANGLE CAPITAL CORPORATION
Unaudited Consolidated Statements of Changes in Net Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment |
|
|
|
|
|
|
Net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income |
|
|
Accumulated |
|
|
Unrealized |
|
|
|
|
|
|
Common Stock |
|
|
Additional |
|
|
in Excess of |
|
|
Realized |
|
|
Appreciation |
|
|
Total |
|
|
|
Number |
|
|
Par |
|
|
Paid In |
|
|
(Less Than) |
|
|
Losses on |
|
|
(Depreciation) of |
|
|
Net |
|
|
|
of Shares |
|
|
Value |
|
|
Capital |
|
|
Distributions |
|
|
Investments |
|
|
Investments |
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2008 |
|
|
6,803,863 |
|
|
$ |
6,804 |
|
|
$ |
86,949,189 |
|
|
$ |
1,738,797 |
|
|
$ |
(618,620 |
) |
|
$ |
5,396,183 |
|
|
$ |
93,472,353 |
|
Net investment income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,667,843 |
|
|
|
|
|
|
|
|
|
|
|
7,667,843 |
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
172,189 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
172,189 |
|
Realized gain on investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,089 |
|
|
|
33,167 |
|
|
|
84,256 |
|
Net unrealized losses on investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,409,871 |
) |
|
|
(1,409,871 |
) |
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(251,984 |
) |
|
|
|
|
|
|
|
|
|
|
(251,984 |
) |
Dividends declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,565,459 |
) |
|
|
|
|
|
|
|
|
|
|
(4.565.459 |
) |
Issuance of restricted stock |
|
|
113,500 |
|
|
|
113 |
|
|
|
(113 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2008 |
|
|
6,917,363 |
|
|
$ |
6,917 |
|
|
$ |
87,121,265 |
|
|
$ |
4,589,197 |
|
|
$ |
(567,531 |
) |
|
$ |
4,019,479 |
|
|
$ |
95,169,327 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment |
|
|
Accumulated |
|
|
Unrealized |
|
|
|
|
|
|
Common Stock |
|
|
Additional |
|
|
Income |
|
|
Realized |
|
|
Appreciation |
|
|
Total |
|
|
|
Number |
|
|
Par |
|
|
Paid In |
|
|
in Excess of |
|
|
Gains on |
|
|
(Depreciation) of |
|
|
Net |
|
|
|
of Shares |
|
|
Value |
|
|
Capital |
|
|
Distributions |
|
|
Investments |
|
|
Investments |
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2009 |
|
|
6,917,363 |
|
|
$ |
6,917 |
|
|
$ |
87,836,786 |
|
|
$ |
2,115,157 |
|
|
$ |
356,495 |
|
|
$ |
1,109,808 |
|
|
$ |
91,425,163 |
|
Net investment income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,004,736 |
|
|
|
|
|
|
|
|
|
|
|
10,004,736 |
|
Net realized gains on investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
848,164 |
|
|
|
(557,316 |
) |
|
|
290,848 |
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
512,448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
512,448 |
|
Net unrealized losses on investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,471,180 |
) |
|
|
(14,471,180 |
) |
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(38,277 |
) |
|
|
|
|
|
|
|
|
|
|
(38,277 |
) |
Dividends/distributions declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,179,533 |
) |
|
|
(352,366 |
) |
|
|
|
|
|
|
(10,531,899 |
) |
Public offerings of common stock |
|
|
2,775,000 |
|
|
|
2,775 |
|
|
|
27,088,473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,091,248 |
|
Issuance of restricted stock |
|
|
144,812 |
|
|
|
145 |
|
|
|
(145 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock withheld for payroll
taxes upon vesting of restricted
stock |
|
|
(6,533 |
) |
|
|
(6 |
) |
|
|
(66,894 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(66,900 |
) |
Forfeiture of restricted stock |
|
|
(2,700 |
) |
|
|
(3 |
) |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2009 |
|
|
9,827,942 |
|
|
$ |
9,828 |
|
|
$ |
115,370,671 |
|
|
$ |
1,902,083 |
|
|
$ |
852,293 |
|
|
$ |
(13,918,688 |
) |
|
$ |
104,216,187 |
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
5
TRIANGLE CAPITAL CORPORATION
Unaudited Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
Nine Months |
|
|
Ended |
|
Ended |
|
|
September 30, |
|
September 30, |
|
|
2009 |
|
2008 |
|
|
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net increase (decrease) in net assets resulting from operations |
|
$ |
(4,213,873 |
) |
|
$ |
6,090,244 |
|
Adjustments to reconcile net increase (decrease) in net assets
resulting from operations to net cash provided by (used in) operating
activities: |
|
|
|
|
|
|
|
|
Purchases of portfolio investments |
|
|
(27,943,735 |
) |
|
|
(73,645,254 |
) |
Repayments received/sales of portfolio investments |
|
|
9,289,106 |
|
|
|
9,060,478 |
|
Loan origination and other fees received |
|
|
540,000 |
|
|
|
1,401,996 |
|
Net realized gain on investments |
|
|
(848,164 |
) |
|
|
(51,089 |
) |
Net unrealized depreciation of investments |
|
|
15,434,615 |
|
|
|
718,784 |
|
Deferred income taxes |
|
|
(406,120 |
) |
|
|
657,919 |
|
Paidinkind interest accrued, net of payments received |
|
|
(2,008,357 |
) |
|
|
(1,788,984 |
) |
Amortization of deferred financing fees |
|
|
268,810 |
|
|
|
160,765 |
|
Recognition of loan origination and other fees |
|
|
(443,135 |
) |
|
|
(309,140 |
) |
Accretion of loan discounts |
|
|
(306,075 |
) |
|
|
(95,132 |
) |
Depreciation expense |
|
|
16,711 |
|
|
|
11,110 |
|
Stock-based compensation |
|
|
512,448 |
|
|
|
172,189 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Interest and fees receivable |
|
|
314,296 |
|
|
|
36,671 |
|
Prepaid expenses and other current assets |
|
|
(180,972 |
) |
|
|
(65,890 |
) |
Accounts payable and accrued liabilities |
|
|
(158,034 |
) |
|
|
(27,296 |
) |
Interest payable |
|
|
(1,311,242 |
) |
|
|
(431,762 |
) |
Deferred revenue |
|
|
112,500 |
|
|
|
|
|
Taxes payable |
|
|
(5,537 |
) |
|
|
(52,598 |
) |
|
|
|
Net cash provided by (used in) operating activities |
|
|
(11,336,758 |
) |
|
|
(58,156,989 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(3,194 |
) |
|
|
(25,030 |
) |
|
|
|
Net cash used in investing activities |
|
|
(3,194 |
) |
|
|
(25,030 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Borrowings under SBA guaranteed debentures payable |
|
|
|
|
|
|
56,100,000 |
|
Short-term borrowings |
|
|
|
|
|
|
5,100,000 |
|
Financing fees paid |
|
|
(194,000 |
) |
|
|
(2,268,025 |
) |
Proceeds from common stock offerings, net of expenses |
|
|
27,091,248 |
|
|
|
|
|
Common stock withheld for payroll taxes upon vesting of restricted stock |
|
|
(66,900 |
) |
|
|
|
|
Cash dividends paid |
|
|
(8,917,022 |
) |
|
|
(6,606,618 |
) |
Cash distributions paid |
|
|
(352,366 |
) |
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
17,560,960 |
|
|
|
52,325,357 |
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
6,221,008 |
|
|
|
(5,856,662 |
) |
Cash and cash equivalents, beginning of period |
|
|
27,193,287 |
|
|
|
21,787,750 |
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
33,414,295 |
|
|
$ |
15,931,088 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
6,448,401 |
|
|
$ |
3,018,042 |
|
|
|
|
See accompanying notes.
6
TRIANGLE CAPITAL CORPORATION
Unaudited Consolidated Schedule of Investments
September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair |
|
Portfolio Company |
|
Industry |
|
Type of Investment (1) (2) |
|
Principal Amount |
|
|
Cost |
|
|
Value (3) |
|
|
NonControl / NonAffiliate Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ambient Air Corporation (AA) and Peaden-Hobbs Mechanical, LLC (PHM) (6%)* |
|
Specialty Trade Contractors |
|
Subordinated Note-AA (12% Cash, 2% PIK, Due 03/11) |
|
$ |
3,230,822 |
|
|
$ |
3,155,960 |
|
|
$ |
3,155,960 |
|
|
|
|
|
Subordinated Note-AA (14% Cash, 4% PIK, Due 03/11) |
|
|
1,975,985 |
|
|
|
1,955,882 |
|
|
|
1,955,882 |
|
|
|
|
|
Common Stock-PHM (128,571 shares) |
|
|
|
|
|
|
128,571 |
|
|
|
99,000 |
|
|
|
|
|
Common Stock Warrants-AA (455 shares) |
|
|
|
|
|
|
142,361 |
|
|
|
552,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,206,807 |
|
|
|
5,382,774 |
|
|
|
5,763,642 |
|
American De-Rosa Lamparts, LLC and Hallmark Lighting (4%)* |
|
Wholesale and Distribution |
|
Subordinated Note (11.5% Cash, 3.75% PIK, Due 10/13) |
|
|
8,364,145 |
|
|
|
8,238,410 |
|
|
|
3,887,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,364,145 |
|
|
|
8,238,410 |
|
|
|
3,887,000 |
|
American Direct Marketing Resources, LLC (4%)* |
|
Direct Marketing Services |
|
Subordinated Note (12% Cash, 3% PIK, Due 03/15) |
|
|
4,126,509 |
|
|
|
4,055,190 |
|
|
|
4,055,190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,126,509 |
|
|
|
4,055,190 |
|
|
|
4,055,190 |
|
ARC Industries, LLC (3%)* |
|
Remediation Services |
|
Subordinated Note (14% Cash, 5% PIK, Due 11/10) |
|
|
2,626,094 |
|
|
|
2,613,976 |
|
|
|
2,613,976 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,626,094 |
|
|
|
2,613,976 |
|
|
|
2,613,976 |
|
Art Headquarters, LLC (2%)* |
|
Retail, Wholesale and Distribution |
|
Subordinated Note (12% Cash, 2% PIK, Due 01/10) |
|
|
2,181,822 |
|
|
|
2,175,656 |
|
|
|
2,175,656 |
|
|
|
|
|
Membership unit warrants (15% of units (150 units)) |
|
|
|
|
|
|
40,800 |
|
|
|
100,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,181,822 |
|
|
|
2,216,456 |
|
|
|
2,276,356 |
|
Assurance Operations Corporation (2%)* |
|
Auto Components / Metal Fabrication |
|
Senior Note (6% Cash, Due 06/11) |
|
|
2,484,000 |
|
|
|
2,034,000 |
|
|
|
2,034,000 |
|
|
|
|
|
Common Stock (300 shares) |
|
|
|
|
|
|
300,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,484,000 |
|
|
|
2,334,000 |
|
|
|
2,034,000 |
|
CV Holdings, LLC (11%)* |
|
Specialty Healthcare Products |
|
Subordinated Note (12% Cash, 4% PIK, Due 09/13) |
|
|
11,107,737 |
|
|
|
10,234,391 |
|
|
|
10,234,391 |
|
|
|
Manufacturer |
|
Royalty rights |
|
|
|
|
|
|
874,400 |
|
|
|
859,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,107,737 |
|
|
|
11,108,791 |
|
|
|
11,093,391 |
|
Cyrus Networks, LLC (6%)* |
|
Data Center Services Provider |
|
Senior Note (3.75% Cash, Due 07/13) |
|
|
5,045,468 |
|
|
|
5,032,569 |
|
|
|
5,032,569 |
|
|
|
|
|
2nd Lien Note (7.5% Cash, Due 01/14) |
|
|
1,196,809 |
|
|
|
1,196,809 |
|
|
|
1,196,809 |
|
|
|
|
|
Revolving Line of Credit (3.75% Cash) |
|
|
455,659 |
|
|
|
455,659 |
|
|
|
455,659 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,697,936 |
|
|
|
6,685,037 |
|
|
|
6,685,037 |
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair |
|
Portfolio Company |
|
Industry |
|
Type of Investment (1) (2) |
|
Principal Amount |
|
|
Cost |
|
|
Value (3) |
|
|
Electronic Systems Protection, Inc. (4%)* |
|
Power Protection Systems |
|
Subordinated Note (12% Cash, 2% PIK, Due 12/15) |
|
$ |
3,105,386 |
|
|
$ |
3,080,576 |
|
|
$ |
2,847,500 |
|
|
|
Manufacturing |
|
Senior Note (4.07% Cash, Due 01/14) |
|
|
904,624 |
|
|
|
904,624 |
|
|
|
904,624 |
|
|
|
|
|
Common Stock (500 shares) |
|
|
|
|
|
|
285,000 |
|
|
|
73,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,010,010 |
|
|
|
4,270,200 |
|
|
|
3,826,024 |
|
Energy Hardware Holdings, LLC (0%)* |
|
Machined Parts Distribution |
|
Voting Units (4,833 units) |
|
|
|
|
|
|
4,833 |
|
|
|
510,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,833 |
|
|
|
510,700 |
|
Fire Sprinkler Systems, Inc. (1%)* |
|
Specialty Trade Contractors |
|
Subordinated Notes (11%-12.5% PIK, Due 04/11) |
|
|
2,388,362 |
|
|
|
2,366,352 |
|
|
|
836,000 |
|
|
|
|
|
Common Stock (295 shares) |
|
|
|
|
|
|
294,624 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,388,362 |
|
|
|
2,660,976 |
|
|
|
836,000 |
|
Frozen Specialties, Inc. (7%)* |
|
Frozen Foods Manufacturer |
|
Subordinated Note (13% Cash, 5% PIK, Due 07/14) |
|
|
7,565,777 |
|
|
|
7,421,219 |
|
|
|
7,421,219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,565,777 |
|
|
|
7,421,219 |
|
|
|
7,421,219 |
|
Garden Fresh Restaurant Corp. (4%)* |
|
Restaurant |
|
2nd Lien Note (8.1% Cash, Due 12/11) |
|
|
3,000,000 |
|
|
|
3,000,000 |
|
|
|
3,000,000 |
|
|
|
|
|
Membership Units (5,000 units) |
|
|
|
|
|
|
500,000 |
|
|
|
910,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000,000 |
|
|
|
3,500,000 |
|
|
|
3,910,500 |
|
Gerli & Company (1%)* |
|
Specialty Woven Fabrics |
|
Subordinated Note (12% Cash, 2% PIK, Due 08/11) |
|
|
3,161,439 |
|
|
|
3,116,472 |
|
|
|
1,470,100 |
|
|
|
Manufacturer |
|
Common Stock Warrants (56,559 shares) |
|
|
|
|
|
|
83,414 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,161,439 |
|
|
|
3,199,886 |
|
|
|
1,470,100 |
|
Grindmaster-Cecilware Corp. (5%)* |
|
Food Services Equipment Manufacturer |
|
Subordinated Note (11% Cash, 3% PIK, Due 03/15) |
|
|
5,756,708 |
|
|
|
5,641,708 |
|
|
|
5,641,708 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,756,708 |
|
|
|
5,641,708 |
|
|
|
5,641,708 |
|
Inland Pipe Rehabilitation Holding Company LLC (12%)* |
|
Cleaning and Repair Services |
|
Subordinated Note (14% Cash, Due 01/14) |
|
|
8,109,091 |
|
|
|
7,252,427 |
|
|
|
7,252,427 |
|
|
|
|
|
Subordinated Note (18% Cash, Due 01/14) |
|
|
3,750,000 |
|
|
|
3,685,356 |
|
|
|
3,685,356 |
|
|
|
|
|
Membership Interest Purchase Warrant (2.9%) |
|
|
|
|
|
|
853,500 |
|
|
|
1,740,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,859,091 |
|
|
|
11,791,283 |
|
|
|
12,677,983 |
|
Jenkins Service, LLC (8%)* |
|
Restoration Services |
|
Subordinated Note (10.25% Cash, 7.25% PIK, Due 04/14) |
|
|
7,378,513 |
|
|
|
7,249,913 |
|
|
|
7,249,913 |
|
|
|
|
|
Convertible Note (10%, Due 04/18) |
|
|
1,375,000 |
|
|
|
1,341,293 |
|
|
|
1,341,293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,753,513 |
|
|
|
8,591,206 |
|
|
|
8,591,206 |
|
Library Systems & Services, LLC (2%)* |
|
Municipal Business Services |
|
Subordinated Note (12% Cash, Due 03/11) |
|
|
1,000,000 |
|
|
|
966,448 |
|
|
|
966,448 |
|
|
|
|
|
Common Stock Warrants (112 shares) |
|
|
|
|
|
|
58,995 |
|
|
|
1,146,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000,000 |
|
|
|
1,025,443 |
|
|
|
2,112,948 |
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair |
|
Portfolio Company |
|
Industry |
|
Type of Investment (1) (2) |
|
Principal Amount |
|
|
Cost |
|
|
Value (3) |
|
|
Novolyte Technologies, Inc. (7%)* |
|
Specialty Manufacturing |
|
Subordinated Note (12% Cash, 4% PIK, Due 04/15) |
|
$ |
7,264,187 |
|
|
$ |
7,120,456 |
|
|
$ |
7,120,456 |
|
|
|
|
|
Preferred Units (600 units) |
|
|
|
|
|
|
600,000 |
|
|
|
102,800 |
|
|
|
|
|
Common Units (22,960 units) |
|
|
|
|
|
|
150,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,264,187 |
|
|
|
7,870,456 |
|
|
|
7,223,256 |
|
Syrgis Holdings, Inc. (3%)* |
|
Specialty Chemical Manufacturer |
|
Senior Notes (7.75%-10.75% Cash, Due 08/12-02/14) |
|
|
3,576,782 |
|
|
|
3,552,183 |
|
|
|
3,459,600 |
|
|
|
|
|
Common Units (2,114 units) |
|
|
|
|
|
|
1,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,576,782 |
|
|
|
4,552,183 |
|
|
|
3,459,600 |
|
TrustHouse Services Group, Inc. (4%)* |
|
Food Management Services |
|
Subordinated Note (12% Cash, 2% PIK, Due 09/15) |
|
|
4,329,499 |
|
|
|
4,258,156 |
|
|
|
4,258,156 |
|
|
|
|
|
Class A Units (1,495 units) |
|
|
|
|
|
|
475,000 |
|
|
|
405,100 |
|
|
|
|
|
Class B Units (79 units) |
|
|
|
|
|
|
25,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,329,499 |
|
|
|
4,758,156 |
|
|
|
4,663,256 |
|
Tulsa Inspection Resources, Inc. (TIR) and Regent TIR Partners, LLC (RTIR) (5%)* |
|
Pipeline Inspection Services |
|
Subordinated Note (14% Cash, Due 03/14) |
|
|
5,000,000 |
|
|
|
4,609,295 |
|
|
|
4,609,295 |
|
|
|
|
|
Common Units RTIR (11 units) |
|
|
|
|
|
|
200,000 |
|
|
|
200,000 |
|
|
|
|
|
Common Stock Warrants - TIR (7 shares) |
|
|
|
|
|
|
321,000 |
|
|
|
321,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000,000 |
|
|
|
5,130,295 |
|
|
|
5,130,295 |
|
Twin-Star International, Inc. (5%)* |
|
Consumer Home Furnishings |
|
Subordinated Note (12% Cash, 3% PIK, Due 04/14) |
|
|
4,500,000 |
|
|
|
4,447,191 |
|
|
|
4,154,200 |
|
|
|
Manufacturer |
|
Senior Note (5%, Due 04/13) |
|
|
1,290,868 |
|
|
|
1,290,868 |
|
|
|
1,137,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,790,868 |
|
|
|
5,738,059 |
|
|
|
5,292,000 |
|
Wholesale Floors, Inc. (3%)* |
|
Commercial Services |
|
Subordinated Note (12.5%Cash, 1.5% PIK, Due 06/14) |
|
|
3,500,000 |
|
|
|
3,357,739 |
|
|
|
3,357,739 |
|
|
|
|
|
Membership Interest Purchase Warrant (4.0%) |
|
|
|
|
|
|
132,800 |
|
|
|
52,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,500,000 |
|
|
|
3,490,539 |
|
|
|
3,410,039 |
|
Yellowstone Landscape Group, Inc. (12%)* |
|
Landscaping Services |
|
Subordinated Note (12% Cash, 3% PIK, Due 04/14) |
|
|
13,195,731 |
|
|
|
12,931,796 |
|
|
|
12,931,796 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,195,731 |
|
|
|
12,931,796 |
|
|
|
12,931,796 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal NonControl / NonAffiliate Investments |
|
|
|
|
|
|
132,947,017 |
|
|
|
135,212,872 |
|
|
|
127,517,222 |
|
Affiliate Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Point, LLC (5%)* |
|
Asset Management Software Provider |
|
Subordinated Note (12% Cash, 7% PIK, Due 03/13) |
|
|
5,322,055 |
|
|
|
5,246,127 |
|
|
|
5,246,127 |
|
|
|
|
|
Membership Units (10 units) |
|
|
|
|
|
|
500,000 |
|
|
|
190,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,322,055 |
|
|
|
5,746,127 |
|
|
|
5,437,027 |
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair |
|
Portfolio Company |
|
Industry |
|
Type of Investment (1) (2) |
|
Principal Amount |
|
|
Cost |
|
|
Value (3) |
|
|
Axxiom Manufacturing, Inc. (2%)* |
|
Industrial Equipment |
|
Subordinated Note (13% Cash, 3% PIK, Due 01/11) |
|
$ |
1,061,976 |
|
|
$ |
1,048,432 |
|
|
$ |
1,048,432 |
|
|
|
Manufacturer |
|
Common Stock (34,100 shares) |
|
|
|
|
|
|
200,000 |
|
|
|
599,200 |
|
|
|
|
|
Common Stock Warrant (1,000 shares) |
|
|
|
|
|
|
|
|
|
|
15,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,061,976 |
|
|
|
1,248,432 |
|
|
|
1,663,132 |
|
Brantley Transportation, LLC (Brantley Transportation) and Pine Street Holdings,
LLC (Pine Street) (4) (1%)* |
|
Oil and Gas Services |
|
Subordinated Note Brantley Transportation (14% Cash, Due 12/12) |
|
|
3,800,000 |
|
|
|
3,707,312 |
|
|
|
1,255,700 |
|
|
|
|
Common Unit Warrants Brantley Transportation (4,560 common units) |
|
|
|
|
|
|
33,600 |
|
|
|
|
|
|
|
|
|
Preferred Units Pine Street (200 units) |
|
|
|
|
|
|
200,000 |
|
|
|
|
|
|
|
|
|
Common Unit Warrants Pine Street (2,220 units) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,800,000 |
|
|
|
3,940,912 |
|
|
|
1,255,700 |
|
Dyson Corporation (12%)* |
|
Custom Forging and Fastener |
|
Subordinated Note (12% Cash, 3% PIK, Due 12/13) |
|
|
10,555,889 |
|
|
|
10,381,448 |
|
|
|
10,381,448 |
|
|
|
Supplies |
|
Class A Units (1,000,000 units) |
|
|
|
|
|
|
1,000,000 |
|
|
|
1,783,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,555,889 |
|
|
|
11,381,448 |
|
|
|
12,164,548 |
|
Equisales, LLC (7%)* |
|
Energy Products and Services |
|
Subordinated Note (13% Cash, 4% PIK, Due 04/12) |
|
|
6,481,034 |
|
|
|
6,406,497 |
|
|
|
6,406,497 |
|
|
|
|
|
Class A Units (500,000 units) |
|
|
|
|
|
|
500,000 |
|
|
|
1,088,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,481,034 |
|
|
|
6,906,497 |
|
|
|
7,495,197 |
|
FCL Graphics, Inc. (4%)* |
|
Commercial Printing Services |
|
Senior Note (7.75% Cash, Due 5/12) |
|
|
1,575,554 |
|
|
|
1,570,696 |
|
|
|
1,505,400 |
|
|
|
|
|
Senior Note (11.75% Cash, Due 5/13) |
|
|
2,000,000 |
|
|
|
1,994,141 |
|
|
|
1,911,300 |
|
|
|
|
|
2nd Lien Note (20% Cash, Due 11/13) |
|
|
3,403,754 |
|
|
|
3,393,919 |
|
|
|
798,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,979,308 |
|
|
|
6,958,756 |
|
|
|
4,214,700 |
|
Flint Acquisition Corporation (2%)* |
|
Specialty Chemical Manufacturer |
|
Preferred Stock (9,875 shares) |
|
|
|
|
|
|
308,333 |
|
|
|
2,226,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
308,333 |
|
|
|
2,226,000 |
|
Genapure Corporation (1%)* |
|
Lab Testing Services |
|
Genapure Common Stock (5,594 shares) |
|
|
|
|
|
|
563,602 |
|
|
|
656,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
563,602 |
|
|
|
656,100 |
|
Technology Crops International (5%)* |
|
Supply Chain Management Services |
|
Subordinated Note (12% Cash, 5% PIK, Due 03/15) |
|
|
5,006,250 |
|
|
|
4,906,250 |
|
|
|
4,906,250 |
|
|
|
|
|
Common Units (50 Units) |
|
|
|
|
|
|
500,000 |
|
|
|
500,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,006,250 |
|
|
|
5,406,250 |
|
|
|
5,406,250 |
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair |
|
Portfolio Company |
|
Industry |
|
Type of Investment (1) (2) |
|
Principal Amount |
|
|
Cost |
|
|
Value (3) |
|
|
Waste Recyclers Holdings, LLC (9%)* |
|
Environmental and Facilities Services |
|
Subordinated Note (8% Cash, 7.5% PIK, Due 01/13) |
|
$ |
4,042,032 |
|
|
$ |
3,969,335 |
|
|
$ |
3,969,335 |
|
|
|
|
|
Subordinated Note (3% Cash, 12.5% PIK, Due 01/13) |
|
|
5,562,424 |
|
|
|
5,489,726 |
|
|
|
4,709,700 |
|
|
|
|
|
Class A Preferred Units (300 Units) |
|
|
|
|
|
|
2,251,100 |
|
|
|
583,000 |
|
|
|
|
|
Common Unit Purchase Warrant (1,170,083 Units) |
|
|
|
|
|
|
748,900 |
|
|
|
|
|
|
|
|
|
Common Units (153,219 Units) |
|
|
|
|
|
|
180,783 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,604,456 |
|
|
|
12,639,844 |
|
|
|
9,262,035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Affiliate Investments |
|
|
|
|
|
|
48,810,968 |
|
|
|
55,100,201 |
|
|
|
49,780,689 |
|
Control Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fischbein, LLC (11%)* |
|
Packaging and Materials Handling |
|
Subordinated Note (12% Cash, 6.5% PIK, Due 05/13) |
|
|
7,470,883 |
|
|
|
7,358,825 |
|
|
|
7,358,825 |
|
|
|
Equipment Manufacturer |
|
Membership Units (4,200,000 units) |
|
|
|
|
|
|
4,200,000 |
|
|
|
3,734,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,470,883 |
|
|
|
11,558,825 |
|
|
|
11,093,125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Control Investments |
|
|
|
|
|
|
7,470,883 |
|
|
|
11,558,825 |
|
|
|
11,093,125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments, September 30, 2009(181%)* |
|
|
|
|
|
$ |
189,228,868 |
|
|
$ |
201,871,898 |
|
|
$ |
188,391,036 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Value as a percent of net assets |
|
(1) |
|
All debt investments are income producing. Common stock, preferred stock and all warrants are
nonincome producing. |
|
(2) |
|
Disclosures of interest rates on subordinated notes include cash interest rates and
paidinkind (PIK) interest rates. |
|
(3) |
|
All investments are restricted as to resale and were valued at fair value as determined in
good faith by the Board of Directors. |
|
(4) |
|
Pine Street Holdings, LLC is the majority owner of Brantley Transportation, LLC and its sole
business purpose is its ownership of Brantley Transportation, LLC. |
See accompanying notes.
11
TRIANGLE CAPITAL CORPORATION
Consolidated Schedule of Investments
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment |
|
Principal |
|
|
|
|
|
|
Fair |
|
Portfolio Company |
|
Industry |
|
(1) (2) |
|
Amount |
|
|
Cost |
|
|
Value (3) |
|
|
NonControl / NonAffiliate Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ambient Air Corporation (AA) and Peaden-Hobbs Mechanical, LLC (PHM) (6%)* |
|
Specialty Trade Contractors |
|
Subordinated Note-AA (12% Cash, 2% PIK, Due 03/11) |
|
$ |
3,182,231 |
|
|
$ |
3,074,633 |
|
|
$ |
3,074,633 |
|
|
|
|
|
Subordinated Note-AA (14% Cash, 4% PIK, Due 03/11) |
|
|
1,917,045 |
|
|
|
1,888,343 |
|
|
|
1,888,343 |
|
|
|
|
|
Common Stock-PHM (126,634 shares) |
|
|
|
|
|
|
126,634 |
|
|
|
126,634 |
|
|
|
|
|
Common Stock Warrants-AA (455 shares) |
|
|
|
|
|
|
142,361 |
|
|
|
600,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,099,276 |
|
|
|
5,231,971 |
|
|
|
5,689,710 |
|
American De-Rosa Lamparts, LLC and Hallmark Lighting (8%)* |
|
Wholesale and Distribution |
|
Subordinated Note (11.5% Cash, 3.75% PIK, Due 10/13) |
|
|
8,208,166 |
|
|
|
8,064,571 |
|
|
|
6,894,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,208,166 |
|
|
|
8,064,571 |
|
|
|
6,894,500 |
|
American Direct Marketing Resources, LLC (4%)* |
|
Direct Marketing Services |
|
Subordinated Note (12% Cash, 3% PIK, Due 03/15) |
|
|
4,035,038 |
|
|
|
3,957,113 |
|
|
|
3,957,113 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,035,038 |
|
|
|
3,957,113 |
|
|
|
3,957,113 |
|
APO Newco, LLC (3%)* |
|
Commercial and Consumer |
|
Subordinated Note (12% Cash, 2% PIK, Due 03/13) |
|
|
1,993,336 |
|
|
|
1,907,664 |
|
|
|
1,907,664 |
|
|
|
Marketing Products |
|
Unit purchase warrant (87,302 Class C units) |
|
|
|
|
|
|
25,200 |
|
|
|
1,033,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,993,336 |
|
|
|
1,932,864 |
|
|
|
2,941,064 |
|
ARC Industries, LLC (3%)* |
|
Remediation Services |
|
Subordinated Note (14% Cash, 5% PIK, Due 11/10) |
|
|
2,528,587 |
|
|
|
2,508,276 |
|
|
|
2,508,276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,528,587 |
|
|
|
2,508,276 |
|
|
|
2,508,276 |
|
Art Headquarters, LLC (3%)* |
|
Retail, Wholesale and Distribution |
|
Subordinated Note (12% Cash, 2% PIK, Due 01/10) |
|
|
2,333,488 |
|
|
|
2,309,951 |
|
|
|
2,309,951 |
|
|
|
|
|
Membership unit warrants (15% of units (150 units)) |
|
|
|
|
|
|
40,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,333,488 |
|
|
|
2,350,751 |
|
|
|
2,309,951 |
|
Assurance
Operations Corporation (4%)* |
|
Auto Components / Metal Fabrication |
|
Subordinated Note (12% Cash, 5%
PIK, Due 03/12) |
|
|
4,026,884 |
|
|
|
3,985,742 |
|
|
|
3,261,800 |
|
|
|
|
|
Common Stock (57 shares) |
|
|
|
|
|
|
257,143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,026,884 |
|
|
|
4,242,885 |
|
|
|
3,261,800 |
|
CV Holdings, LLC (12%)* |
|
Specialty Healthcare Products |
|
Subordinated Note (12% Cash, 4% PIK, Due 09/13) |
|
|
10,776,412 |
|
|
|
9,780,508 |
|
|
|
9,780,508 |
|
|
|
Manufacturer |
|
Royalty rights |
|
|
|
|
|
|
874,400 |
|
|
|
874,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,776,412 |
|
|
|
10,654,908 |
|
|
|
10,654,908 |
|
Cyrus Networks, LLC (8%)* |
|
Data Center Services Provider |
|
Senior Note (5.83% Cash, Due 07/13) |
|
|
5,539,867 |
|
|
|
5,524,881 |
|
|
|
5,524,881 |
|
|
|
|
|
2nd Lien Note (9.08% Cash, Due 01/14) |
|
|
1,196,809 |
|
|
|
1,196,809 |
|
|
|
1,196,809 |
|
|
|
|
|
Revolving Line of Credit (5.83% Cash) |
|
|
253,144 |
|
|
|
253,144 |
|
|
|
253,144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,989,820 |
|
|
|
6,974,834 |
|
|
|
6,974,834 |
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment |
|
Principal |
|
|
|
|
|
|
Fair |
|
Portfolio Company |
|
Industry |
|
(1) (2) |
|
Amount |
|
|
Cost |
|
|
Value (3) |
|
|
DataPath, Inc. (0%)* |
|
Satellite Communication Manufacturer |
|
Common Stock (210,263 shares) |
|
|
|
|
|
$ |
101,500 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101,500 |
|
|
|
|
|
Electronic
Systems Protection, Inc.
(5%)* |
|
Power Protection Systems |
|
Subordinated Note (12% Cash, 2% PIK, Due 12/15) |
|
|
3,059,267 |
|
|
|
3,032,533 |
|
|
|
3,032,533 |
|
|
|
Manufacturing |
|
Senior Note (5.64% Cash, Due 01/14) |
|
|
930,635 |
|
|
|
930,635 |
|
|
|
930,635 |
|
|
|
|
|
Common Stock (500 shares) |
|
|
|
|
|
|
285,000 |
|
|
|
285,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,989,902 |
|
|
|
4,248,168 |
|
|
|
4,248,168 |
|
Energy Hardware Holdings, LLC (0%)* |
|
Machined Parts Distribution |
|
Voting Units (4,833 units) |
|
|
|
|
|
|
4,833 |
|
|
|
292,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,833 |
|
|
|
292,300 |
|
FCL Graphics, Inc. (8%)* |
|
Commercial Printing Services |
|
Senior Note (7.7% Cash, Due 5/12) |
|
|
1,669,200 |
|
|
|
1,663,083 |
|
|
|
1,663,083 |
|
|
|
|
|
Senior Note (11.7% Cash, Due 5/13) |
|
|
2,000,000 |
|
|
|
1,993,191 |
|
|
|
1,993,191 |
|
|
|
|
|
2nd Lien Note (10.5% Cash, 7.5% PIK, Due 11/13) |
|
|
3,393,186 |
|
|
|
3,382,162 |
|
|
|
3,382,162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,062,386 |
|
|
|
7,038,436 |
|
|
|
7,038,436 |
|
Fire Sprinkler Systems, Inc. (1%)* |
|
Specialty Trade Contractors |
|
Subordinated Notes (11%-12.5% Cash, 2%-5% PIK, Due 04/11) |
|
|
2,388,362 |
|
|
|
2,356,781 |
|
|
|
1,000,000 |
|
|
|
|
|
Common Stock (283 shares) |
|
|
|
|
|
|
282,905 |
|
|
|
11,719 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,388,362 |
|
|
|
2,639,686 |
|
|
|
1,011,719 |
|
Garden Fresh Restaurant Corp. (4%)* |
|
Restaurant |
|
2nd Lien Note (11% Cash, Due 12/11) |
|
|
3,000,000 |
|
|
|
3,000,000 |
|
|
|
3,000,000 |
|
|
|
|
|
Membership Units (5,000 units) |
|
|
|
|
|
|
500,000 |
|
|
|
583,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000,000 |
|
|
|
3,500,000 |
|
|
|
3,583,600 |
|
Gerli & Company (2%)* |
|
Specialty Woven Fabrics |
|
Subordinated Note (12% Cash, 2% PIK, Due 08/11) |
|
|
3,161,439 |
|
|
|
3,092,786 |
|
|
|
1,865,000 |
|
|
|
Manufacturer |
|
Common Stock Warrants (56,559 shares) |
|
|
|
|
|
|
83,414 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,161,439 |
|
|
|
3,176,200 |
|
|
|
1,865,000 |
|
Inland Pipe Rehabilitation Holding Company LLC (10%)* |
|
Cleaning and Repair Services |
|
Subordinated Note (12% Cash, 2% PIK, Due 01/14) |
|
|
8,095,149 |
|
|
|
7,422,265 |
|
|
|
7,422,265 |
|
|
|
|
|
Membership Interest Purchase Warrant (2.5%) |
|
|
|
|
|
|
563,300 |
|
|
|
1,407,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,095,149 |
|
|
|
7,985,565 |
|
|
|
8,829,565 |
|
Jenkins Service, LLC (10%)* |
|
Restoration Services |
|
Subordinated Note (10.25% Cash, 7.25% PIK, Due 04/14) |
|
|
8,411,172 |
|
|
|
8,266,277 |
|
|
|
8,266,277 |
|
|
|
|
|
Convertible Note (10% Cash, Due 04/18) |
|
|
1,375,000 |
|
|
|
1,336,993 |
|
|
|
1,336,993 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,786,172 |
|
|
|
9,603,270 |
|
|
|
9,603,270 |
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment |
|
Principal |
|
|
|
|
|
|
Fair |
|
Portfolio Company |
|
Industry |
|
(1) (2) |
|
Amount |
|
|
Cost |
|
|
Value (3) |
|
|
Library Systems & Services, LLC (3%)* |
|
Municipal Business Services |
|
Subordinated Note (12% Cash, Due 03/11) |
|
$ |
2,000,000 |
|
|
$ |
1,948,573 |
|
|
$ |
1,948,573 |
|
|
|
|
|
Common Stock Warrants (112 shares) |
|
|
|
|
|
|
58,995 |
|
|
|
802,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000,000 |
|
|
|
2,007,568 |
|
|
|
2,751,073 |
|
Novolyte Technologies, Inc. (8%)* |
|
Specialty Manufacturing |
|
Subordinated Note (12% Cash, 4% PIK, Due 04/15) |
|
|
7,048,222 |
|
|
|
6,880,696 |
|
|
|
6,880,696 |
|
|
|
|
|
Preferred Units (600 units) |
|
|
|
|
|
|
600,000 |
|
|
|
600,000 |
|
|
|
|
|
Common Units (22,960 units) |
|
|
|
|
|
|
150,000 |
|
|
|
150,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,048,222 |
|
|
|
7,630,696 |
|
|
|
7,630,696 |
|
Syrgis Holdings, Inc. (6%)* |
|
Specialty Chemical Manufacturer |
|
Senior Note (7.6% Cash, Due 08/12-02/14) |
|
|
4,632,500 |
|
|
|
4,602,773 |
|
|
|
4,602,773 |
|
|
|
|
|
Common Units (2,114 units) |
|
|
|
|
|
|
1,000,000 |
|
|
|
532,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,632,500 |
|
|
|
5,602,773 |
|
|
|
5,135,473 |
|
TrustHouse Services Group, Inc. (5%)* |
|
Food Management Services |
|
Subordinated Note (12% Cash, 2% PIK, Due 09/15) |
|
|
4,264,494 |
|
|
|
4,186,542 |
|
|
|
4,186,542 |
|
|
|
|
|
Class A Units (1,495 units) |
|
|
|
|
|
|
475,000 |
|
|
|
207,500 |
|
|
|
|
|
Class B Units (79 units) |
|
|
|
|
|
|
25,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,264,494 |
|
|
|
4,686,542 |
|
|
|
4,394,042 |
|
Twin-Star International, Inc. (6%)* |
|
Consumer Home Furnishings |
|
Subordinated Note (12% Cash 3% PIK, Due 04/14) |
|
|
4,500,000 |
|
|
|
4,439,137 |
|
|
|
4,439,137 |
|
|
|
Manufacturer |
|
Senior Note (8% Cash, Due 04/13) |
|
|
1,301,921 |
|
|
|
1,301,921 |
|
|
|
1,301,921 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,801,921 |
|
|
|
5,741,058 |
|
|
|
5,741,058 |
|
Waste Recyclers Holdings, LLC (13%)* |
|
Environmental and Facilities Services |
|
Subordinated Note (12% Cash, 3.5% PIK, Due 01/13) |
|
|
9,106,995 |
|
|
|
8,935,266 |
|
|
|
8,935,266 |
|
|
|
|
|
Class A Preferred Units (300 Units) |
|
|
|
|
|
|
2,251,100 |
|
|
|
2,251,100 |
|
|
|
|
|
Common Unit Purchase Warrant (1,170,083 Units) |
|
|
|
|
|
|
748,900 |
|
|
|
748,900 |
|
|
|
|
|
Common Units (153,219 Units) |
|
|
|
|
|
|
153,219 |
|
|
|
153,219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,106,995 |
|
|
|
12,088,485 |
|
|
|
12,088,485 |
|
Wholesale Floors, Inc. (4%)* |
|
Commercial Services |
|
Subordinated Note (12.5% Cash, 1.5% PIK, Due 06/14) |
|
|
3,500,000 |
|
|
|
3,341,947 |
|
|
|
3,341,947 |
|
|
|
|
|
Membership Interest Purchase Warrant (4.0%) |
|
|
|
|
|
|
132,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,500,000 |
|
|
|
3,474,747 |
|
|
|
3,341,947 |
|
Yellowstone Landscape Group, Inc. (14%)* |
|
Landscaping Services |
|
Subordinated Note (12% Cash, 3% PIK, Due 04/14) |
|
|
13,261,710 |
|
|
|
12,965,889 |
|
|
|
12,965,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,261,710 |
|
|
|
12,965,889 |
|
|
|
12,965,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal NonControl / NonAffiliate Investments |
|
|
|
|
|
|
133,090,259 |
|
|
|
138,413,589 |
|
|
|
135,712,877 |
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment |
|
Principal |
|
|
|
|
|
|
Fair |
|
Portfolio Company |
|
Industry |
|
(1) (2) |
|
Amount |
|
|
Cost |
|
|
Value (3) |
|
|
Affiliate Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Point, LLC (6%)* |
|
Asset Management Software Provider |
|
Subordinated Note (12% Cash, 3% PIK, Due 03/13) |
|
$ |
5,123,925 |
|
|
$ |
5,035,428 |
|
|
$ |
5,035,428 |
|
|
|
|
|
Membership Units (10 units) |
|
|
|
|
|
|
500,000 |
|
|
|
371,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,123,925 |
|
|
|
5,535,428 |
|
|
|
5,406,828 |
|
Axxiom Manufacturing, Inc. (3%)* |
|
Industrial Equipment |
|
Subordinated Note (12% Cash, 2% PIK, Due 01/11) |
|
|
2,124,037 |
|
|
|
2,103,277 |
|
|
|
2,103,277 |
|
|
|
Manufacturer |
|
Common Stock (34,100 shares) |
|
|
|
|
|
|
200,000 |
|
|
|
408,900 |
|
|
|
|
|
Common Stock Warrant (1,000 shares) |
|
|
|
|
|
|
|
|
|
|
10,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,124,037 |
|
|
|
2,303,277 |
|
|
|
2,522,777 |
|
Brantley Transportation, LLC (Brantley Transportation) and Pine Street
Holdings, LLC (Pine Street) (4) (4%)* |
|
Oil and Gas Services |
|
Subordinated Note Brantley Transportation (14% Cash, Due 12/12) |
|
|
3,800,000 |
|
|
|
3,690,525 |
|
|
|
3,690,525 |
|
|
|
|
Common Unit Warrants
Brantley Transportation (4,560 common units) |
|
|
|
|
|
|
33,600 |
|
|
|
41,800 |
|
|
|
|
|
Preferred Units Pine Street (200 units) |
|
|
|
|
|
|
200,000 |
|
|
|
139,200 |
|
|
|
|
|
Common Unit Warrants Pine Street (2,220 units) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,800,000 |
|
|
|
3,924,125 |
|
|
|
3,871,525 |
|
Dyson Corporation (12%)* |
|
Custom Forging and Fastener |
|
Subordinated Note (12% Cash, 3% PIK, Due 12/13) |
|
|
10,318,750 |
|
|
|
10,123,339 |
|
|
|
10,123,339 |
|
|
|
Supplies |
|
Class A Units (1,000,000 units) |
|
|
|
|
|
|
1,000,000 |
|
|
|
964,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,318,750 |
|
|
|
11,123,339 |
|
|
|
11,088,039 |
|
Equisales, LLC (9%)* |
|
Energy Products and Services |
|
Subordinated Note (12% Cash, 3% PIK, Due 04/12) |
|
|
6,319,315 |
|
|
|
6,226,387 |
|
|
|
6,226,387 |
|
|
|
|
|
Class A Units (500,000 units) |
|
|
|
|
|
|
500,000 |
|
|
|
2,322,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,319,315 |
|
|
|
6,726,387 |
|
|
|
8,548,787 |
|
Flint Acquisition Corporation (2%)* |
|
Specialty Chemical Manufacturer |
|
Preferred Stock (9,875 shares) |
|
|
|
|
|
|
308,333 |
|
|
|
1,984,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
308,333 |
|
|
|
1,984,500 |
|
Genapure Corporation (1%)* |
|
Lab Testing Services |
|
Genapure Common Stock (5,594 shares) |
|
|
|
|
|
|
563,602 |
|
|
|
472,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
563,602 |
|
|
|
472,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Affiliate Investments |
|
|
|
|
|
|
27,686,027 |
|
|
|
30,484,491 |
|
|
|
33,894,556 |
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment |
|
Principal |
|
|
|
|
|
|
Fair |
|
Portfolio Company |
|
Industry |
|
(1) (2) |
|
Amount |
|
|
Cost |
|
|
Value (3) |
|
Control Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fischbein, LLC (14%)* |
|
Packaging and Materials Handling |
|
Subordinated Note (12% Cash, 4.5% PIK, Due 05/13) |
|
|
7,184,066 |
|
|
|
7,053,458 |
|
|
|
7,053,458 |
|
|
|
Equipment Manufacturer |
|
Membership Units (4,200,000 units) |
|
|
|
|
|
|
4,200,000 |
|
|
|
5,444,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,184,066 |
|
|
|
11,253,458 |
|
|
|
12,497,858 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Control Investments |
|
|
|
|
|
|
7,184,066 |
|
|
|
11,253,458 |
|
|
|
12,497,858 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments, December 31, 2008 (199%)* |
|
|
|
|
|
$ |
167,960,352 |
|
|
$ |
180,151,538 |
|
|
$ |
182,105,291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Value as a percent of net assets |
|
(1) |
|
All debt investments are income producing. Common stock, preferred stock and all warrants are
non-income producing. |
|
(2) |
|
Disclosures of interest rates on subordinated notes include cash interest rates and
paid-in-kind (PIK) interest rates. |
|
(3) |
|
All investments are restricted as to resale and were valued at fair value as determined in
good faith by the Board of Directors. |
|
(4) |
|
Pine Street Holdings, LLC is the majority owner of Brantley Transportation, LLC and its sole
business purpose is its ownership of Brantley Transportation, LLC. |
See accompanying notes.
16
TRIANGLE CAPITAL CORPORATION
Notes to Unaudited Financial Statements
1. ORGANIZATION, BASIS OF PRESENTATION AND BUSINESS
Organization
Triangle Capital Corporation and its wholly owned subsidiary, Triangle Mezzanine Fund LLLP
(the Fund) (collectively, the Company) operate as a business development company (BDC) under
the Investment Company Act of 1940 (the 1940 Act). The Fund is a specialty finance limited
liability limited partnership formed to make investments primarily in middle market companies
located throughout the United States. The Funds term is ten years from the date of formation
(August 14, 2002) unless terminated earlier or extended in accordance with provisions of the
limited partnership agreement. On September 11, 2003, the Fund was licensed to operate as a Small
Business Investment Company (SBIC) under the authority of the United States Small Business
Administration (SBA). As an SBIC, the Fund is subject to a variety of regulations concerning,
among other things, the size and nature of the companies in which it may invest and the structure
of those investments.
The Company currently operates as a closedend, nondiversified investment company and has
elected to be treated as a BDC under the 1940 Act. The Company is internally managed by its
executive officers under the supervision of its board of directors. The Company does not pay
management or advisory fees, but instead incurs the operating costs associated with employing
executive management and investment and portfolio management professionals.
Basis of Presentation
The financial statements of the Company include the accounts of the Company and its
wholly-owned subsidiaries, including the Fund. The Fund does not consolidate portfolio company
investments. The effects of all intercompany transactions between the Company and its subsidiaries
have been eliminated in consolidation/combination.
The accompanying unaudited financial statements are presented in conformity with United States
generally accepted accounting principles (GAAP) for interim financial information and pursuant to
the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain
disclosures accompanying annual consolidated financial statements prepared in accordance with GAAP
are omitted. In the opinion of management, all adjustments, consisting solely of normal recurring
accruals considered necessary for the fair presentation of financial statements for the interim
period, have been included. The current periods results of operations are not necessarily
indicative of results that ultimately may be achieved for the year. Therefore, the unaudited
financial statements and notes should be read in conjunction with the audited financial statements
and notes thereto for the period ended December 31, 2008. Financial statements prepared on a GAAP
basis require management to make estimates and assumptions that affect the amounts and disclosures
reported in the consolidated financial statements and accompanying notes. Such estimates and
assumptions could change in the future as more information becomes known, which could impact the
amounts reported and disclosed herein.
Management has evaluated subsequent events for recognition or disclosure through November 4,
2009, which was the date this Form 10-Q was filed with the Securities and Exchange Commission.
Public Offerings of Common Stock
On April 23, 2009, the Company filed a prospectus supplement pursuant to which 1,200,000
shares of common stock were offered for sale at a price to the public of $10.75 per share.
Pursuant to this offering, all shares were sold and delivered on April 27, 2009 resulting in net
proceeds to the Company, after underwriting discounts and offering expenses, of approximately
$11,700,000. On May 27, 2009, pursuant to the exercise of an overallotment option granted in
connection with the offering, the underwriters involved purchased an additional 80,000 shares of
the Companys common stock at the same public offering price, less underwriting discounts and
commissions, resulting in net proceeds to the Company of approximately $800,000.
On
August 7, 2009, the Company filed a prospectus supplement pursuant to which 1,300,000
shares of common stock were offered for sale at a price to the public of $10.42 per share. In
addition, the underwriters involved were granted an overallotment option to purchase an additional
195,000 shares of the Companys common stock at the same public offering price. Pursuant to this
offering, all shares (including the overallotment option shares) were sold and delivered on August
12, 2009 resulting in net proceeds to the Company, after underwriting discounts and offering
expenses, of approximately $14,600,000.
17
New Accounting Standards
In May 2009, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 165, Subsequent Events, which was later codified as FASB ASC Topic 855,
Subsequent Events (ASC Topic 855). ASC Topic 855 establishes general standards of accounting for
and disclosure of events that occur after the balance sheet date but before financial statements
are issued or are available to be issued. ASC Topic 855 includes a new required disclosure of the
date through which an entity has evaluated subsequent events and is effective for interim periods
or fiscal years ending after June 15, 2009. The Companys adoption of ASC Topic 855 did not have a
material effect on its financial position or results of operations.
In June 2009, the FASB issued Statement of Financial Accounting Standards No. 168, The FASB
Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principlesa
replacement of FASB Statement No. 162 (SFAS 168). The Codification will become the source of
authoritative GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and
interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal
securities laws are also sources of authoritative GAAP for SEC registrants. On the effective date
of SFAS 168, the Codification will supersede all then-existing non-SEC accounting and reporting
standards. All other non-grandfathered, non-SEC accounting literature not included in the
Codification will become non-authoritative. SFAS 168 is effective for financial statements issued
for interim and annual periods ending after September 15, 2009. The adoption of SFAS 168 only
impacted the Companys disclosures by requiring Codification references.
2. INVESTMENTS
Summaries of the composition of the Companys investment portfolio at cost and fair value as a
percentage of total investments are shown in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Total |
|
|
|
|
|
Percentage of Total |
|
|
Cost |
|
Portfolio |
|
Fair Value |
|
Portfolio |
September 30, 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debt and 2nd lien notes |
|
$ |
167,380,542 |
|
|
|
83 |
% |
|
$ |
153,498,784 |
|
|
|
82 |
% |
Senior debt |
|
|
16,834,740 |
|
|
|
9 |
|
|
|
16,440,952 |
|
|
|
9 |
|
Equity shares |
|
|
14,366,846 |
|
|
|
7 |
|
|
|
13,663,300 |
|
|
|
7 |
|
Equity warrants |
|
|
2,415,370 |
|
|
|
1 |
|
|
|
3,929,000 |
|
|
|
2 |
|
Royalty rights |
|
|
874,400 |
|
|
|
|
|
|
|
859,000 |
|
|
|
|
|
|
|
|
|
|
$ |
201,871,898 |
|
|
|
100 |
% |
|
$ |
188,391,036 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debt and 2nd lien notes |
|
$ |
147,493,871 |
|
|
|
82 |
% |
|
$ |
143,015,291 |
|
|
|
79 |
% |
Senior debt |
|
|
16,269,628 |
|
|
|
9 |
|
|
|
16,269,628 |
|
|
|
9 |
|
Equity shares |
|
|
13,684,269 |
|
|
|
8 |
|
|
|
17,301,372 |
|
|
|
9 |
|
Equity warrants |
|
|
1,829,370 |
|
|
|
1 |
|
|
|
4,644,600 |
|
|
|
3 |
|
Royalty rights |
|
|
874,400 |
|
|
|
|
|
|
|
874,400 |
|
|
|
|
|
|
|
|
|
|
$ |
180,151,538 |
|
|
|
100 |
% |
|
$ |
182,105,291 |
|
|
|
100 |
% |
|
|
|
During the three months ended September 30, 2009, the Company made three new investments
totaling $18.8 million. During the nine months ended September 30, 2009, the Company made four new
investment totaling $24.0 million and five investments in existing portfolio companies totaling
approximately $4.0 million.
During the three months ended September 30, 2008, the Company made two new investments
totaling $16.2 million, one additional debt investment in an existing portfolio company of $0.2
million and one additional equity investment in an existing portfolio company of approximately
$5,000. During the nine months ended September 30, 2008, the Company made ten new investments
totaling $72.5 million, one additional debt investment in an existing portfolio company of $1.0
million and three additional equity investments in existing portfolio companies of approximately
$0.1 million.
Valuation of Investments
The Company has established and documented processes and methodologies for determining the
fair values of portfolio company investments on a recurring basis in accordance with FASB ASC Topic
820, Fair Value Measurements and Disclosures (formerly Statement of Financial Accounting Standards
No. 157, Fair Value Measurements) (ASC Topic 820). Under ASC Topic 820, a financial instruments
categorization within the valuation hierarchy is based upon the lowest level of input that is
significant to the fair value measurement. The three levels of valuation hierarchy established by
ASC Topic 820 are defined as follows:
Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical
assets or liabilities in active markets.
18
Level 2 inputs to the valuation methodology include quoted prices for similar assets and
liabilities in active markets, and inputs that are observable for the asset or liability, either
directly or indirectly, for substantially the full term of the financial instrument.
Level 3 inputs to the valuation methodology are unobservable and significant to the fair
value measurement.
The Companys investment portfolio is comprised of debt and equity of privately held companies
for which quoted prices falling within the categories of Level 1 and Level 2 inputs are not
available. Therefore, the Company values all of its investments at fair value, as determined in
good faith by the Board of Directors (Level 3 inputs, as further described below). Due to the
inherent uncertainty in the valuation process, the Board of Directors estimate of fair value may
differ significantly from the values that would have been used had a ready market for the
securities existed, and the differences could be material. In addition, changes in the market
environment and other events that may occur over the life of the investments may cause the gains or
losses ultimately realized on these investments to be different than the valuations currently
assigned.
Debt and equity securities that are not publicly traded and for which a limited market does
not exist are valued at fair value as determined in good faith by the Board of Directors. There is
no single standard for determining fair value in good faith, as fair value depends upon
circumstances of each individual case. In general, fair value is the amount that the Company might
reasonably expect to receive upon the current sale of the security.
Management evaluates the investments in portfolio companies using the most recent portfolio
company financial statements and forecasts. Management also consults with the portfolio companys
senior management to obtain further updates on the portfolio companys performance, including
information such as industry trends, new product development and other operational issues.
In making the good faith determination of the value of debt securities, the Company starts
with the cost basis of the security, which includes the amortized original issue discount, and
paidinkind (PIK) interest, if any. The Company also uses a risk rating system to estimate the
probability of default on the debt securities and the probability of loss if there is a default.
The risk rating system covers both qualitative and quantitative aspects of the business and the
securities held. In valuing debt securities, management utilizes an income approach model that
considers factors including, but not limited to, (i) the portfolio investments current risk rating
(discussed below), (ii) the portfolio companys current trailing twelve months (TTM) results of
operations as compared to the portfolio companys TTM results of operations as of the date the
investment was made and the portfolio companys anticipated results for the next twelve months of
operations, (iii) the portfolio companys current leverage as compared to its leverage as of the
date the investment was made, and (iv) current pricing and credit metrics for similar proposed and
executed investment transactions. In valuing equity securities of private companies, the Company
considers valuation methodologies consistent with industry practice, including (i) valuation using
a valuation model based on original transaction multiples and the portfolio companys recent
financial performance, (ii) valuation of the securities based on recent sales in comparable
transactions, and (iii) a review of similar companies that are publicly traded and the market
multiple of their equity securities.
The following table presents the Companys financial instruments carried at fair value as of
September 30, 2009 and December 31, 2008, on the consolidated balance sheet by ASC Topic 820
valuation hierarchy, as previously described:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at September 30, 2009 |
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio company investments |
|
$ |
|
|
|
$ |
|
|
|
$ |
188,391,036 |
|
|
$ |
188,391,036 |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
188,391,036 |
|
|
$ |
188,391,036 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at December 31, 2008 |
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio company investments |
|
$ |
|
|
|
$ |
|
|
|
$ |
182,105,291 |
|
|
$ |
182,105,291 |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
182,105,291 |
|
|
$ |
182,105,291 |
|
|
|
|
19
The following table reconciles the beginning and ending balances of our portfolio company
investments measured at fair value on a recurring basis using significant unobservable inputs
(Level 3) for the nine months ended September 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
Nine Months |
|
|
Ended |
|
Ended |
|
|
September 30, 2009 |
|
September 30, 2008 |
|
Fair value of portfolio, beginning of period |
|
$ |
182,105,291 |
|
|
$ |
113,036,240 |
|
New investments |
|
|
27,943,735 |
|
|
|
73,645,254 |
|
Loan origination fees received |
|
|
(540,000 |
) |
|
|
(1,351,996 |
) |
Proceeds from sales of investments |
|
|
(1,888,384 |
) |
|
|
(275,361 |
) |
Principal repayments received |
|
|
(7,400,722 |
) |
|
|
(8,785,117 |
) |
Paid-in-kind interest earned |
|
|
3,587,786 |
|
|
|
2,555,053 |
|
Paid-in-kind interest received |
|
|
(1,579,429 |
) |
|
|
(766,069 |
) |
Accretion of loan discounts |
|
|
306,075 |
|
|
|
95,132 |
|
Accretion of deferred loan origination revenue |
|
|
443,135 |
|
|
|
278,515 |
|
Realized gains on investments |
|
|
848,164 |
|
|
|
51,089 |
|
Unrealized losses on investments |
|
|
(15,434,615 |
) |
|
|
(718,784 |
) |
|
|
|
Fair value of portfolio, end of period |
|
$ |
188,391,036 |
|
|
$ |
177,763,956 |
|
|
|
|
All realized and unrealized gains and losses, net of tax, are included in earnings (changes in
net assets) and are reported on separate line items within the Companys statements of operations.
Net pre-tax unrealized decreases in the fair value of investments of approximately $4,580,000 and
$15,509,000, respectively, during the three and nine months ended September 30, 2009 are related to
portfolio company investments that are still held by the Company as of September 30, 2009. Net
pre-tax unrealized decreases in the fair value of investments of approximately $480,000 and
$851,000, respectively, during the three and nine months ended September 30, 2008 are related to
portfolio company investments that were still held by the Company as of September 30, 2008.
Duff & Phelps, LLC (Duff & Phelps), an independent valuation firm, provides third party
valuation consulting services to the Company which consist of certain limited procedures that the
Company identified and requested Duff & Phelps to perform (hereinafter referred to as the
procedures). We generally request Duff & Phelps to perform the procedures on each portfolio
company at least once in every calendar year and for new portfolio companies, at least once in the
twelve-month period subsequent to the initial investment. In certain instances, we may determine
that it is not cost-effective, and as a result is not in our stockholders best interest, to
request Duff & Phelps to perform the procedures on one or more portfolio companies. Such instances
include, but are not limited to, situations where the fair value of our investment in the portfolio
company is determined to be insignificant relative to our total investment portfolio.
For the quarter ended March 31, 2009, the Company asked Duff & Phelps to perform the
procedures on investments in seven portfolio companies comprising approximately 26% of the total
investments at fair value (exclusive of the fair value of new investments made during the quarter)
as of March 31, 2009. For the quarter ended June 30, 2009, the Company asked Duff & Phelps to
perform the procedures on investments in six portfolio companies comprising approximately 20% of
the total investments at fair value (exclusive of the fair value of new investments made during the
quarter) as of June 30, 2009. For the quarter ended September 30, 2009, the Company asked Duff &
Phelps to perform the procedures on investments in seven portfolio companies comprising
approximately 24% of the total investments at fair value (exclusive of the fair value of new
investments made during the quarter) as of September 30, 2009. Upon completion of the procedures,
Duff & Phelps concluded that the fair value, as determined by the Board of Directors, of those
investments subjected to the procedures did not appear to be unreasonable. The Board of Directors
of Triangle Capital Corporation is ultimately and solely responsible for determining the fair value
of the Companys investments in good faith.
Warrants
When originating a debt security, the Company will sometimes receive warrants or other
equityrelated securities from the borrower. The Company determines the cost basis of the warrants
or other equityrelated securities received based upon their respective fair values on the date of
receipt in proportion to the total fair value of the debt and warrants or other equityrelated
securities received. Any resulting difference between the face amount of the debt and its recorded
fair value resulting from the assignment of value to the warrant or other equity instruments is
treated as original issue discount and accreted into interest income over the life of the loan.
20
Realized Gain or Loss and Unrealized Appreciation or Depreciation of Portfolio Investments
Realized gains or losses are recorded upon the sale or liquidation of investments and
calculated as the difference between the net proceeds from the sale or liquidation, if any, and the
cost basis of the investment using the specific identification method. Unrealized appreciation or
depreciation reflects the difference between the valuation of the investments and the cost basis of
the investments.
Investment Classification
In accordance with the provisions of the 1940 Act, the Company classifies investments by level
of control. As defined in the 1940 Act, Control Investments are investments in those companies
that the Company is deemed to Control. Affiliate Investments are investments in those companies
that are Affiliated Companies of the Company, as defined in the 1940 Act, other than Control
Investments. NonControl/NonAffiliate Investments are those that are neither Control
Investments nor Affiliate Investments. Generally, under the 1940 Act, the Company is deemed to
control a company in which it has invested if the Company owns more than 25.0% of the voting
securities of such company or has greater than 50.0% representation on its board. The Company is
deemed to be an affiliate of a company in which the Company has invested if it owns between 5.0%
and 25.0% of the voting securities of such company.
Investment Income
Interest income, adjusted for amortization of premium and accretion of original issue
discount, is recorded on the accrual basis to the extent that such amounts are expected to be
collected. Generally, when interest and/or principal payments on a loan become past due, or if the
Company otherwise does not expect the borrower to be able to service its debt and other
obligations, the Company will place the loan on non-accrual status and will generally cease
recognizing interest income on that loan for financial reporting purposes, until all principal and
interest has been brought current through payment or due to a restructuring such that the interest
income is deemed to be collectible. The Company writes off any previously accrued and uncollected
interest when it is determined that interest is no longer considered collectible. Dividend income
is recorded on the exdividend date.
Paid-in-Kind Interest
The Company holds loans in its portfolio that contain a paidinkind (PIK) interest
provision. The PIK interest, computed at the contractual rate specified in each loan agreement, is
added to the principal balance of the loan and is recorded as interest income. Thus, the actual
collection of PIK interest may be deferred until the time of debt principal repayment.
To maintain the Companys status as a Regulated Investment Company (RIC), this non-cash
source of income must be paid out to stockholders in the form of dividends, even though the Company
has not yet collected the cash. Generally, when current cash interest and/or principal payments on
a loan become past due, or if the Company otherwise does not expect the borrower to be able to
service its debt and other obligations, the Company will place the loan on non-accrual status and
will generally cease recognizing PIK interest income on that loan for financial reporting purposes,
until all principal and interest has been brought current through payment or due to a restructuring
such that the interest income is deemed to be collectible. The Company writes off any previously
accrued and uncollected PIK interest when it is determined that the PIK interest is no longer
collectible.
Fee Income
Loan origination, facility, commitment, consent and other advance fees received in connection
with loan agreements are recorded as deferred income and recognized as income over the term of the
loan. Loan prepayment penalties and loan amendment fees are recorded into income when received. Any
previously deferred fees are immediately recorded into income upon prepayment of the related loan.
Concentration of Credit Risk
The Companys investees are generally lower middlemarket companies in a variety of
industries. At both September 30, 2009 and December 31, 2008, there were no individual investments
greater than 10% of the fair value of the Companys portfolio. Income, consisting of interest,
dividends, fees, other investment income, and realization of gains or losses on equity interests,
can fluctuate dramatically upon repayment of an investment or sale of an equity interest and in any
given year can be highly concentrated among several investees.
The Companys investments carry a number of risks including, but not limited to: 1) investing
in lower middle market companies which may have limited operating histories and, in many cases,
have limited financial resources; 2) investing in senior subordinated debt which ranks equal to or
lower than debt held by certain other investors; 3) holding investments that are not publicly
traded and are subject to legal and other restrictions on resale and other risks common to
investing in below investment grade debt and equity instruments.
21
3. INCOME TAXES AND DISTRIBUTIONS OF INVESTMENT COMPANY TAXABLE INCOME
The Company has elected to be treated as a RIC under Subchapter M of the Internal Revenue Code
of 1986, as amended (the Code), and intends to make the required distributions to its
stockholders as specified therein. In order to qualify as a RIC, the Company must meet certain
minimum distribution, source-of-income and asset diversification requirements. If such
requirements are met, then the Company is generally required to pay income taxes only on the
portion of its taxable income and gains it does not distribute (actually or constructively) and
certain built-in gains. The Company met its minimum distribution requirements for 2008 and 2007
and continually monitors its distribution requirements for 2009 with the goal of ensuring
compliance with the Code.
The minimum distribution requirements applicable to RICs require the Company to distribute to
its stockholders at least 90% of its investment company taxable income (ICTI), as defined by the
Code, each year. Depending on the level of ICTI earned in a tax year, the Company may choose to
carry forward ICTI in excess of current year distributions into the next tax year and pay a 4%
excise tax on such excess. Any such carryover ICTI must be distributed before the end of that next
tax year through a dividend declared prior to filing the final tax return related to the year which
generated such ICTI.
ICTI generally differs from net investment income for financial reporting purposes due to
temporary and permanent differences in the recognition of income and expenses. The Company may be
required to recognize ICTI in certain circumstances in which it does not receive cash. For example,
if the Company holds debt obligations that are treated under applicable tax rules as having
original issue discount (such as debt instruments issued with warrants), the Company must include
in ICTI each year a portion of the original issue discount that accrues over the life of the
obligation, regardless of whether cash representing such income is received by the Company in the
same taxable year. The Company may also have to include in ICTI other amounts that it has not yet
received in cash, such as 1) PIK interest income and 2) interest income from investments that have
been classified as non-accrual for financial reporting purposes. Interest income on non-accrual
investments is not recognized for financial reporting purposes, but generally is recognized in
ICTI. Because any original issue discount or other amounts accrued will be included in the
Companys ICTI for the year of accrual, the Company may be required to make a distribution to its
stockholders in order to satisfy the minimum distribution requirements, even though the Company
will not have received and may not ever receive any corresponding cash amount. ICTI also excludes
net unrealized appreciation or depreciation, as investment gains or losses are not included in
taxable income until they are realized.
In addition, the Company has certain wholly owned taxable subsidiaries (the Taxable
Subsidiaries), each of which holds one or more of its portfolio investments that are listed on the
Consolidated Schedule of Investments. The Taxable Subsidiaries are consolidated for financial
reporting purposes, such that the Companys consolidated financial statements reflect the Companys
investments in the portfolio companies owned by the Taxable Subsidiaries. The purpose of the
Taxable Subsidiaries is to permit the Company to hold certain portfolio companies that are
organized as limited liability companies (LLCs) (or other forms of passthrough entities) and
still satisfy the RIC tax requirement that at least 90% of the RICs gross revenue for income tax
purposes must consist of investment income. Absent the Taxable Subsidiaries, a proportionate amount
of any gross income of an LLC (or other passthrough entity) portfolio investment would flow
through directly to the RIC. To the extent that such income did not consist of investment income,
it could jeopardize the Companys ability to qualify as a RIC and therefore cause the Company to
incur significant amounts of federal income taxes. When LLCs (or other pass-through entities) are
owned by the Taxable Subsidiaries, their income is taxed to the Taxable Subsidiaries and does not
flow through to the RIC, thereby helping the Company preserve its RIC status and resultant tax
advantages. The Taxable Subsidiaries are not consolidated for income tax purposes and may generate
income tax expense as a result of their ownership of the portfolio companies. This income tax
expense is reflected in the Companys Statements of Operations.
For federal income tax purposes, the cost of investments owned at September 30, 2009 was
approximately $202.8 million.
22
4. LONGTERM DEBT
At both September 30, 2009 and December 31, 2008, the Company has the following debentures
outstanding guaranteed by the SBA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prioritized |
|
|
|
|
|
|
|
|
|
Return |
|
|
|
|
|
Issuance/Pooling Date |
|
Maturity Date |
|
(Interest) Rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 22, 2004
|
|
September 1, 2014
|
|
|
5.539 |
% |
|
$ |
8,700,000 |
|
March 23, 2005
|
|
March 1, 2015
|
|
|
5.893 |
% |
|
|
13,600,000 |
|
September 28, 2005
|
|
September 1, 2015
|
|
|
5.796 |
% |
|
|
9,500,000 |
|
February 1, 2007
|
|
March 1, 2017
|
|
|
6.231 |
% |
|
|
4,000,000 |
|
March 26, 2008
|
|
March 1, 2018
|
|
|
6.191 |
% |
|
|
6,410,000 |
|
March 27, 2008
|
|
September 1, 2018
|
|
|
6.580 |
% |
|
|
4,840,000 |
|
April 11, 2008
|
|
September 1, 2018
|
|
|
6.442 |
% |
|
|
9,400,000 |
|
April 28, 2008
|
|
September 1, 2018
|
|
|
6.442 |
% |
|
|
15,160,000 |
|
May 29, 2008
|
|
September 1, 2018
|
|
|
6.442 |
% |
|
|
5,000,000 |
|
May 29, 2008
|
|
September 1, 2018
|
|
|
6.442 |
% |
|
|
5,000,000 |
|
June 11, 2008
|
|
September 1, 2018
|
|
|
6.442 |
% |
|
|
5,000,000 |
|
June 24, 2008
|
|
September 1, 2018
|
|
|
6.442 |
% |
|
|
2,500,000 |
|
August 28, 2008
|
|
September 1, 2018
|
|
|
6.442 |
% |
|
|
1,000,000 |
|
August 28, 2008
|
|
September 1, 2018
|
|
|
6.442 |
% |
|
|
2,000,000 |
|
August 28, 2008
|
|
September 1, 2018
|
|
|
6.442 |
% |
|
|
1,000,000 |
|
October 24, 2008
|
|
March 1, 2019
|
|
|
5.337 |
% |
|
|
4,000,000 |
|
October 28, 2008
|
|
March 1, 2019
|
|
|
5.337 |
% |
|
|
4,000,000 |
|
October 31, 2008
|
|
March 1, 2019
|
|
|
5.337 |
% |
|
|
4,000,000 |
|
October 31, 2008
|
|
March 1, 2019
|
|
|
5.337 |
% |
|
|
4,000,000 |
|
November 4, 2008
|
|
March 1, 2019
|
|
|
5.337 |
% |
|
|
4,000,000 |
|
November 4, 2008
|
|
March 1, 2019
|
|
|
5.337 |
% |
|
|
2,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
115,110,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Interest payments are payable semiannually. There are no principal payments required on
these issues prior to maturity. Debentures issued prior to September 2006 were subject to
prepayment penalties during their first five years. Those pre-payment penalties no longer apply to
debentures issued after September 1, 2006.
Under the Small Business Investment Act and current SBA policy applicable to SBICs, an SBIC
(or group of SBICs under common control) can have outstanding, at any time, SBA guaranteed
debentures up to three times the amount of its regulatory capital. As of September 30, 2009, the
maximum statutory limit on the dollar amount of outstanding SBA guaranteed debentures issued by a
single SBIC is $150.0 million. In June 2009, the Fund received a new leverage commitment from the
SBA which increased the Funds ability to issue SBA guaranteed debentures up to the maximum
statutory limit of $150.0 million. In addition to the onetime 1.0% fee on the total commitment
from the SBA, the Company also pays a onetime 2.425% fee on the amount of each debenture issued.
These fees are capitalized as deferred financing costs and are amortized over the term of the debt
agreements using the effective interest method. The weighted average interest rates for all SBA
guaranteed debentures as of September 30, 2009 and December 31, 2008 were 6.03% and 5.81%,
respectively. The weighted average interest rate as of December 31, 2008 includes $93.1 million of
pooled SBA-guaranteed debentures with a weighted average fixed interest rate of 6.19% and $22.0
million of unpooled SBA-guaranteed debentures with a weighted average interim interest rate of
4.19%. As of September 30, 2009, all SBA-guaranteed debentures have been pooled and assigned fixed
rates.
5. EQUITY-BASED COMPENSATION
The Companys Board of Directors and stockholders have approved the Triangle Capital
Corporation Amended and Restated 2007 Equity Incentive Plan (the Plan), under which there are
900,000 shares of the Companys Common Stock authorized for issuance. The terms of equity-based
awards granted under the Plan generally will vest ratably over one-year or four-year periods.
The Company accounts for its equity-based compensation plan using the fair value method, as
prescribed by FASB Accounting Standards Codification (ASC) Topic 718, Stock Compensation
(formerly Statement of Accounting Standards No. 123R, Share-Based Payment). Accordingly, for
restricted stock awards, we measure the grant date fair value based upon the market price of our
common stock on the date of the grant and amortize this fair value to compensation expense over the
requisite service period or vesting term.
23
On February 4, 2009, the Companys Board of Directors granted 133,000 restricted shares of
our common stock to certain employees. These restricted shares had a total grant date fair value
of approximately $1.4 million, which will be expensed on a straight-line basis over each respective
awards vesting period. In addition, on May 6, 2009, the Companys Board of directors granted
11,812 restricted shares of our common stock to its independent directors. These restricted shares
had a total grant date fair value of approximately $0.1 million, which will be expensed on a
straight-line basis over a one-year period ending May 6, 2010.
In the three and nine months ended September 30, 2009, the Company recognized equity-based
compensation expense of approximately $0.2 million and $0.5 million, respectively. In the three
and nine months ended September 30, 2008, the Company recognized equity-based compensation expense
of approximately $0.1 million and $0.2 million, respectively. Equity-based compensation expense is
included in general and administrative expenses in the Companys consolidated statements of
operations. As of September 30, 2009, the Company has a total of 219,813 restricted shares
outstanding.
As of September 30, 2009, there was approximately $2.0 million of total unrecognized
compensation cost, related to the Companys non-vested restricted shares. This cost is expected to
be recognized over a weighted-average period of approximately 2.9 years.
6. FINANCIAL HIGHLIGHTS
The following is a schedule of financial highlights for the nine months ended September 30,
2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
2009 |
|
2008 |
|
|
|
Per share data: |
|
|
|
|
|
|
|
|
Net asset value at beginning of period |
|
$ |
13.22 |
|
|
$ |
13.74 |
|
|
|
|
|
|
|
|
|
|
Net investment income(1) |
|
|
1.25 |
|
|
|
1.12 |
|
Net realized gains on investments(1) |
|
|
0.11 |
|
|
|
0.01 |
|
Net unrealized appreciation (depreciation) on investments(1) |
|
|
(1.87 |
) |
|
|
(0.20 |
) |
|
|
|
Total increase (decrease) from investment operations(1) |
|
|
(0.51 |
) |
|
|
0.93 |
|
|
|
|
|
|
|
|
|
|
Cash dividends/distributions declared |
|
|
(1.26 |
) |
|
|
(0.66 |
) |
Common stock offerings(2) |
|
|
(0.65 |
) |
|
|
|
|
Stock-based compensation |
|
|
0.06 |
|
|
|
0.03 |
|
Income tax provision(1) |
|
|
|
|
|
|
(0.04 |
) |
Other(3) |
|
|
(0.26 |
) |
|
|
(0.24 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value at end of period |
|
$ |
10.60 |
|
|
$ |
13.76 |
|
|
|
|
Market value at end of period(4) |
|
$ |
12.34 |
|
|
$ |
11.94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares outstanding at end of period |
|
|
9,827,942 |
|
|
|
6,917,363 |
|
Net assets at end of period |
|
$ |
104,216,187 |
|
|
$ |
95,169,327 |
|
Average net assets |
|
$ |
94,993,552 |
|
|
$ |
94,934,623 |
|
Ratio of operating expenses to average net assets (annualized) |
|
|
14.3 |
% |
|
|
10.0 |
% |
Ratio of net investment income to average net assets (annualized) |
|
|
14.0 |
% |
|
|
10.8 |
% |
Portfolio turnover ratio |
|
|
5.1 |
% |
|
|
6.6 |
% |
Total Return(5) |
|
|
33.3 |
% |
|
|
1.6 |
% |
|
|
|
(1) |
|
Weighted average basic per share data. |
|
(2) |
|
Represents the dilutive effect of the Companys public offerings of common stock at a
price less than net asset value. |
|
(3) |
|
Represents the impact of the different share amounts used in calculating per share
data as a result of calculating certain per share data based upon the weighted average
basic shares outstanding during the period and certain per share data based on the shares
outstanding as of a period end or transaction date. |
|
(4) |
|
Represents the closing price of the Companys common stock on the NASDAQ Global
Market on the last day of the period. |
|
(5) |
|
Total return equals the change in the ending market value of the Companys common
stock during the period, plus dividends declared per share during the period, divided by
the market value of the Companys common stock on the first day of the period. Total
return is not annualized. |
24
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion is designed to provide a better understanding of our unaudited
consolidated financial statements, including a brief discussion of our business, key factors that
impacted our performance and a summary of our operating results. The following discussion should
be read in conjunction with the Unaudited Financial Statements and the notes thereto included in
Item 1 of this Quarterly Report on Form 10-Q, and the Consolidated Financial Statements and notes
thereto and Managements Discussion and Analysis of Financial Condition and Results of Operations
contained in our Annual Report on Form 10-K for the year ended December 31, 2008. Historical
results and percentage relationships among any amounts in the financial statements are not
necessarily indicative of trends in operating results for any future periods.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
This Quarterly Report contains forward-looking statements which are subject to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Statements that are not
historical are forward-looking statements within the meaning of Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Exchange Act of 1934. Some of the statements in this
Quarterly Report constitute forward-looking statements because they relate to future events or our
future performance or financial condition. Forward-looking statements may include, among other
things, statements as to our future operating results, our business prospects and the prospects of
our portfolio companies, the impact of the investments that we expect to make, the ability of our
portfolio companies to achieve their objectives, our expected financings and investments, the
adequacy of our cash resources and working capital, and the timing of cash flows, if any, from the
operations of our portfolio companies. Words such as expect, anticipate, target, goals,
project, intend, plan, believe, seek, estimate, continue, forecast, may,
should, potential, variations of such words, and similar expressions indicate a forward-looking
statement, although not all forward-looking statements include these words. Readers are cautioned
that the forward-looking statements contained in this Quarterly Report are only predictions, are
not guarantees of future performance, and are subject to risks, events, uncertainties and
assumptions that are difficult to predict. Our actual results could differ materially from those
implied or expressed in the forward-looking statements for any reason, including the factors
discussed in Item 1A entitled Risk Factors in Part I of our 2008 Annual Report on Form 10-K.
Other factors that could cause actual results to differ materially include changes in the economy,
risks associated with possible disruption due to terrorism in our operations or the economy
generally, and future changes in laws or regulations and conditions in our operating areas. These
statements are based on our current expectations, estimates, forecasts, information and projections
about the industry in which we operate and the beliefs and assumptions of our management as of the
date of this Quarterly Report. We assume no obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise, unless we are
required to do so by law. Although we undertake no obligation to revise or update any
forward-looking statements, whether as a result of new information, future events or otherwise, you
are advised to consult any additional disclosures that we may make directly to you or through
reports that we in the future may file with the SEC, including annual reports on Form 10-K,
quarterly reports on Form 10-Q and current reports on Form 8-K.
Overview of Our Business
We are a Maryland corporation which has elected to be treated and operates as an internally
managed business development company, or BDC, under the Investment Company Act of 1940, or 1940
Act. Our wholly owned subsidiary, Triangle Mezzanine Fund LLLP (the Fund) is licensed as a small
business investment company, or SBIC, by the United States Small Business Administration, or SBA,
and has also elected to be treated as a BDC under the 1940 Act. We and the Fund invest primarily in
debt instruments, equity investments, warrants and other securities of lower middle market
privately held companies located in the United States.
Our business is to provide capital to lower middle market companies in the United States. We
define lower middle market companies as those with annual revenues between $10.0 and $100.0
million. We focus on investments in companies with a history of generating revenues and positive
cash flows, an established market position and a proven management team with a strong operating
discipline. Our target portfolio company has annual revenues between $20.0 and $75.0 million and
annual earnings before interest, taxes, depreciation and amortization, or EBITDA, between $2.0 and
$20.0 million.
We invest primarily in senior and subordinated debt securities secured by first and second
lien security interests in portfolio company assets, coupled with equity interests. Our investments
generally range from $5.0 to $15.0 million per portfolio company. In certain situations, we have
partnered with other funds to provide larger financing commitments.
We generate revenues in the form of interest income, primarily from our investments in debt
securities, loan origination and other fees and dividend income. Fees generated in connection with
our debt investments are recognized over the life of the loan using the effective interest method
or, in some cases, recognized as earned. In addition, we generate revenue in the form of capital
gains, if any, on warrants or other equity-related securities that we acquire from our portfolio
companies. Our debt investments generally have a term of between three and seven years and
typically bear interest at fixed rates between 11.0% and 16.0% per annum. Certain of our debt
investments have a form of interest, referred to as paid-in-kind, or PIK, interest, that is not
paid currently but that is accrued and added to the loan balance and paid at the end of the term.
Cash interest on our debt investments is generally payable monthly;
25
however, some of our debt investments pay cash interest on a quarterly basis. As of both
September 30, 2009 and December 31, 2008, the weighted average yield on all of our outstanding debt
investments (including PIK interest) was approximately 14.4%. The weighted average yield on all of
our outstanding investments (including equity and equity-linked investments) was approximately
13.3% and 13.2% as of September 30, 2009 and December 31, 2008, respectively.
The Fund is eligible to sell debentures guaranteed by the SBA in the capital markets at
favorable interest rates and invest these funds in portfolio companies. We intend to continue to
operate the Fund as an SBIC, subject to SBA approval, and to utilize the proceeds of the sale of
the Funds SBA-guaranteed debentures, referred to herein as SBA leverage, to enhance returns to our
stockholders.
Portfolio Composition
The total value of our investment portfolio was $188.4 million as of September 30, 2009, as
compared to $182.1 million as of December 31, 2008. As of September 30, 2009, we had investments
in 36 portfolio companies with an aggregate cost of $201.9 million. As of December 31, 2008, we
had investments in 34 portfolio companies with an aggregate cost of $180.2 million. As of both
September 30, 2009 and December 31, 2008, none of our portfolio investments represented greater
than 10% of the total fair value of our investment portfolio.
As of September 30, 2009 and December 31, 2008, our investment portfolio consisted of the
following investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Total |
|
|
|
|
|
Percentage of Total |
|
|
Cost |
|
Portfolio |
|
Fair Value |
|
Portfolio |
|
|
|
September 30, 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debt and 2nd lien notes |
|
$ |
167,380,542 |
|
|
|
83 |
% |
|
$ |
153,498,784 |
|
|
|
82 |
% |
Senior debt |
|
|
16,834,740 |
|
|
|
9 |
|
|
|
16,440,952 |
|
|
|
9 |
|
Equity shares/membership interests |
|
|
14,366,846 |
|
|
|
7 |
|
|
|
13,663,300 |
|
|
|
7 |
|
Equity warrants |
|
|
2,415,370 |
|
|
|
1 |
|
|
|
3,929,000 |
|
|
|
2 |
|
Royalty rights |
|
|
874,400 |
|
|
|
|
|
|
|
859,000 |
|
|
|
|
|
|
|
|
|
|
$ |
201,871,898 |
|
|
|
100 |
% |
|
$ |
188,391,036 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debt and 2nd lien notes |
|
$ |
147,493,871 |
|
|
|
82 |
% |
|
$ |
143,015,291 |
|
|
|
79 |
% |
Senior debt |
|
|
16,269,628 |
|
|
|
9 |
|
|
|
16,269,628 |
|
|
|
9 |
|
Equity shares/membership interests |
|
|
13,684,269 |
|
|
|
8 |
|
|
|
17,301,372 |
|
|
|
9 |
|
Equity warrants |
|
|
1,829,370 |
|
|
|
1 |
|
|
|
4,644,600 |
|
|
|
3 |
|
Royalty rights |
|
|
874,400 |
|
|
|
|
|
|
|
874,400 |
|
|
|
|
|
|
|
|
|
|
$ |
180,151,538 |
|
|
|
100 |
% |
|
$ |
182,105,291 |
|
|
|
100 |
% |
|
|
|
Investment Activity
During the nine months ended September 30, 2009, we made four new investments totaling $24.0
million and five investments in existing portfolio companies totaling approximately $4.0 million.
We sold investments in two portfolio companies for total proceeds of approximately $1.9 million,
received a full repayment from one portfolio company totaling approximately $2.0 million, received
partial repayments of loans from five portfolio companies totaling approximately $4.4 million and
received payment in kind (PIK) interest repayments totaling
approximately $1.6 million. In
addition, we received normal principal repayments totaling approximately $1.0 million in the nine
months ended September 30, 2009.
During the nine months ended September 30, 2008, we made ten new investments totaling $72.5
million, one additional debt investment in an existing portfolio company of $1.0 million and three
additional equity investments in existing portfolio companies of approximately $0.1 million. We
also sold two investments in portfolio companies for approximately $0.3 million, resulting in
realized gains totaling $0.1 million. We had two portfolio company loans repaid at par in the
amount of $4.8 million. In addition, we received normal principal repayments, partial loan
prepayments and PIK interest repayments totaling approximately $4.0 million in the nine months
ended September 30, 2008.
26
Total portfolio investment activity for the nine months ended September 30, 2009 and 2008 was
as follows:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
Nine Months Ended |
|
|
September 30, 2009 |
|
September 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of portfolio, beginning of period |
|
$ |
182,105,291 |
|
|
$ |
113,036,240 |
|
New investments |
|
|
27,943,735 |
|
|
|
73,645,254 |
|
Loan origination fees received |
|
|
(540,000 |
) |
|
|
(1,351,996 |
) |
Proceeds from sales of investments |
|
|
(1,888,384 |
) |
|
|
(275,361 |
) |
Principal repayments received |
|
|
(7,400,722 |
) |
|
|
(8,785,117 |
) |
Paid-in-kind interest earned |
|
|
3,587,786 |
|
|
|
2,555,053 |
|
Paid-in-kind interest received |
|
|
(1,579,429 |
) |
|
|
(766,069 |
) |
Accretion of loan discounts |
|
|
306,075 |
|
|
|
95,132 |
|
Accretion of deferred loan origination revenue |
|
|
443,135 |
|
|
|
278,515 |
|
Realized gains on investments |
|
|
848,164 |
|
|
|
51,089 |
|
Unrealized losses on investments |
|
|
(15,434,615 |
) |
|
|
(718,784 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of portfolio, end of period |
|
$ |
188,391,036 |
|
|
$ |
177,763,956 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average yield on debt investments at end of period |
|
|
14.4 |
% |
|
|
14.2 |
% |
|
|
|
Weighted average yield on total investments at end of period |
|
|
13.3 |
% |
|
|
13.0 |
% |
|
|
|
Non-Accrual Assets
As of September 30, 2009, the fair value of our non-accrual assets comprised 3.7% of the total
fair value of our portfolio, and the cost of our non-accrual assets comprised 8.5% of the total
cost of our portfolio. Our non-accrual assets as of September 30, 2009 are as follows:
Gerli and Company
In the third quarter of 2008, we recognized an unrealized loss of $0.3 million on our
subordinated note investment in Gerli and Company (Gerli), which has a cost as of September 30,
2009 of approximately $3.1 million. This unrealized loss reduced the fair value of our investment
in Gerli to $2.8 million as of September 30, 2008. During the third quarter of 2008, we continued
to receive interest payments in accordance with our loan agreement. In November 2008, we placed
our investment in Gerli on non-accrual status. As a result, under generally accepted accounting
principles (GAAP), we no longer recognize interest income on our investment in Gerli for
financial reporting purposes. Additionally, in the fourth quarter of 2008, we recognized an
additional unrealized loss on our investment in Gerli of $0.9 million and in the nine months ended
September 30, 2009, we recognized an additional unrealized loss on our investment in Gerli of $0.4
million. As of September 30, 2009, the fair value of our investment in Gerli is $1.5 million.
Fire Sprinkler Systems, Inc.
In 2008, we recognized an unrealized loss of $1.4 million on our subordinated note investment
in Fire Sprinkler Systems, Inc. (Fire Sprinkler Systems), which has a cost as of September 30,
2009 of approximately $2.4 million. This unrealized loss reduced the fair value of our investment
in Fire Sprinkler Systems to $1.0 million as of December 31, 2008. Through the first nine months
of 2008, we continued to receive interest and principal payments in accordance with our loan
agreement. In October 2008, we placed our investment in Fire Sprinkler Systems on non-accrual
status. As a result, under GAAP, we no longer recognize interest income on our investment in Fire
Sprinkler Systems for financial reporting purposes. In the first nine months of 2009, we
recognized an additional unrealized loss on our investment in Fire Sprinkler Systems of $0.2
million. As of September 30, 2009, the fair value of our investment in Fire Sprinkler Systems is
$0.8 million.
American De-Rosa Lamparts, LLC and Hallmark Lighting
In 2008, we recognized an unrealized loss of $1.2 million on our subordinated note investment
in American De-Rosa Lamparts, LLC and Hallmark Lighting (collectively ADL), which had a cost as
of September 30, 2009 of approximately $8.2 million. This unrealized loss reduced the fair value of
our investment in ADL to $6.9 million as of December 31, 2008. In the nine months ended September
30, 2009, we recognized an additional unrealized loss on our investment in ADL of $3.2 million. As
of September 30, 2009, the fair value of our investment in ADL was approximately $3.9 million.
Through August 31, 2009, we continued to receive interest payments from ADL in accordance with the
loan agreement. In September 2009, we received notification from ADLs senior lender that ADL was
blocked from making interest payments to us for a period of six months. As a result, we placed our
investment
27
in ADL on non-accrual status and under GAAP, we no longer recognize interest income on our
investment in ADL for financial reporting purposes.
FCL Graphics, Inc. 2nd Lien Note
In the first six months of 2009, we recognized an unrealized loss of $1.7 million on our
2nd Lien note investment in FCL Graphics, Inc. (FCL). During the first eight months
of 2009, we received cash interest on our 2nd lien note in FCL at the stated contractual
rate (20% per annum as of September 30, 2009). In September 2009, FCL did not make the scheduled
interest payments on its 2nd Lien notes. As a result, we have placed our 2nd
Lien note in FCL on non-accrual status and therefore, under GAAP, we no longer recognize interest
income on our 2nd Lien note investment in FCL for financial reporting purposes. We are
currently in negotiations with FCL and FCLs other lenders to amend the terms of our note. The
terms of the proposed amendment provide for cash interest at a rate of LIBOR plus 250 basis points
per annum and PIK interest at a rate of 8% per annum. In the third quarter of 2009, we recognized
an additional unrealized loss on our 2nd Lien note investment in FCL of approximately
$0.9 million, which has a cost as of September 30, 2009 of approximately $3.4 million. The fair
value of our 2nd Lien note investment in FCL as of September 30, 2009 is approximately
$0.8 million.
Results of Operations
Comparison of three months ended September 30, 2009 and September 30, 2008
Investment Income
For the three months ended September 30, 2009, total investment income was $7.1 million, a 21%
increase from $5.9 million of total investment income for the three months ended September 30,
2008. This increase was primarily attributable to a $1.1 million increase in total loan interest
(including PIK interest), fee and dividend income due to net increase in our portfolio investments
from September 30, 2008 to September 30, 2009. We recognized non-recurring fee income of $0.2
million for the three months ended September 30, 2009 as compared to $0.1 million for the three
months ended September 30, 2008.
Expenses
For the three months ended September 30, 2009, expenses increased by 27% to $3.4 million from
$2.7 million for the three months ended September 30, 2008. The increase in expenses was primarily
attributable to a $0.6 million increase in interest expense due to higher average balances of
SBA-guaranteed debentures outstanding during the three months ended September 30, 2009 than in the
comparable period in 2008.
Net Investment Income
As a result of the $1.2 million increase in total investment income and the $0.7 million
increase in expenses, net investment income for the three months ended September 30, 2009 was $3.7
million compared to net investment income of $3.2 million during the three months ended September
30, 2008.
Net Decrease in Net Assets Resulting From Operations
We recognized no realized gains or losses on investments in the three months ended September
30, 2009. During the three months ended September 30, 2008, we recognized a realized gain on the
sale of one investment totaling $0.1 million.
During the three months ended September 30, 2009, we recorded net unrealized depreciation of
investments in the amount of $4.5 million, comprised of unrealized depreciation on seventeen
investments totaling $5.5 million and unrealized appreciation on nine investments totaling $1.0
million. In the three months ended September 30, 2008, we recorded net unrealized depreciation of
investments in the amount of $0.7 million, comprised of unrealized appreciation on ten investments
totaling $1.8 million and unrealized depreciation on ten investments totaling $2.5 million.
As a result of these events, our net decrease in net assets resulting from operations during
the three months ended September 30, 2009 was $0.8 million as compared to a net increase in net
assets resulting from operations of $2.5 million for the three months ended September 30, 2008.
Comparison of nine months ended September 30, 2009 and September 30, 2008
Investment Income
For the nine months ended September 30, 2009, total investment income was $20.2 million, a 37%
increase from $14.8 million of
28
total investment income for the nine months ended September 30, 2008. This increase was
attributable to a $5.3 million increase in total loan interest (including PIK interest), fee and
dividend income due to net increase in our portfolio investments from September 30, 2008 to
September 30, 2009. We recognized non-recurring fee income of $0.5 million for the nine months
ended September 30, 2009 as compared to $0.4 million for the nine months ended September 30, 2008.
Expenses
For the nine months ended September 30, 2009, expenses increased by 44% to $10.2 million from
$7.1 million for the nine months ended September 30, 2008. The increase in expenses was primarily
attributable to a $2.6 million increase in interest expense and a $0.4 million increase in general
and administrative expenses. The increase in interest expense is related to higher average
balances of SBA-guaranteed debentures outstanding during the nine months ended September 30, 2009
than in the comparable period in 2008. In addition, we experienced an increase in general and
administrative costs in 2009, primarily related to compensation costs (including stock-based
compensation) and facility costs.
Net Investment Income
As a result of the $5.4 million increase in total investment income and the $3.1 million
increase in expenses, net investment income for the nine months ended September 30, 2009 was $10.0
million compared to net investment income of $7.7 million during the nine months ended September
30, 2008.
Net Decrease in Net Assets Resulting From Operations
In the nine months ended September 30, 2009, we recorded net realized gains of $0.8 million,
consisting primarily of i) a realized gain on the sale of one investment of $1.8 million and ii) a
loss on the recapitalization of another investment of $0.9 million. During the nine months ended
September 30, 2008, we recognized a realized gain on the sale of one investment totaling $0.1
million.
In the nine months ended September 30, 2009, we recorded net unrealized depreciation of
investments in the amount of $15.0 million, comprised of net unrealized depreciation
reclassification adjustments totaling $0.6 million related to
i) the sale of one investment and ii) the
recapitalization of another investment noted above, as well as unrealized depreciation on seventeen
investments totaling $17.8 million and unrealized appreciation on eleven investments totaling $3.3
million. In the nine months ended September 30, 2008, we recorded net unrealized depreciation of
investments in the amount of $1.4 million, comprised of unrealized appreciation on ten investments
totaling $4.0 million and unrealized depreciation on thirteen investments totaling $5.4 million.
As a result of these events, our net decrease in net assets resulting from operations during
the nine months ended September 30, 2009 was $4.2 million as compared to a net increase in net
assets resulting from operations of $6.1 million for the nine months ended September 30, 2008.
Liquidity and Capital Resources
We believe that our current cash and cash equivalents on hand, our available SBA leverage and
our anticipated cash flows from operations will be adequate to meet our cash needs for our daily
operations for at least the next twelve months.
In the future, depending on the valuation of the Funds assets pursuant to SBA guidelines, the
Fund may be limited by provisions of the Small Business Investment Act of 1958, and SBA regulations
governing SBICs, in making certain distributions to Triangle Capital Corporation that may be
necessary to enable Triangle Capital Corporation to make the minimum required distributions to its
stockholders and continue to qualify as a RIC.
Cash Flows
For the nine months ended September 30, 2009, we experienced a net increase in cash and cash
equivalents in the amount of $6.2 million. During that period, our operating activities used $11.3
million in cash, consisting primarily of purchases of investments totaling $27.9 million, offset by
i) net investment income and ii) sales/repayments of portfolio investments of $9.3 million. In the
nine months ended September 30, 2009, financing activities provided $17.6 million of cash,
consisting of proceeds from our public stock offerings of $27.1 million, net of cash dividends and
distributions to stockholders totaling $9.3 million. At September 30, 2009, we had $33.4 million
of cash and cash equivalents on hand.
For the nine months ended September 30, 2008, we experienced a net decrease in cash and cash
equivalents in the amount of $5.9 million. During that period, our operating activities used $58.2
million in cash, consisting primarily of new portfolio investments of $73.6 million, offset by
repayments of loans received and proceeds from sales of investments of $9.1 million. We generated
$52.3 million of cash from financing activities, consisting of proceeds from borrowings under SBA
guaranteed debentures payable of $56.1 million and short-term borrowings of $5.1 million, partially
offset by financing fees paid to the SBA of $2.3 million and cash
29
dividends paid of $6.6 million. At September 30, 2008, we had $15.9 million of cash and cash
equivalents on hand.
Financing Transactions
Due to the Funds status as a licensed SBIC, the Fund has the ability to issue debentures
guaranteed by the SBA at favorable interest rates. Under the Small Business Investment Act and the
SBA rules applicable to SBICs, an SBIC (or group of SBICs under common control) can have
outstanding at any time debentures guaranteed by the SBA in an amount up to three times the amount
of its regulatory capital, which generally is the amount raised from private investors. The maximum
statutory limit on the dollar amount of outstanding debentures guaranteed by the SBA issued by a
single SBIC is currently $150.0 million. Debentures guaranteed by the SBA have a maturity of ten
years, with interest payable semi-annually. The principal amount of the debentures is not required
to be paid before maturity but may be pre-paid at any time. Debentures issued prior to September
2006 were subject to pre-payment penalties during their first five years. Those pre-payment
penalties no longer apply to debentures issued after September 1, 2006.
In June 2009, the Fund received a new leverage commitment from the SBA which increased the
Funds ability to issue SBA guaranteed debentures up to the maximum statutory limit of $150.0
million. As of September 30, 2009, the Fund has $115.1 million of SBA guaranteed debentures
outstanding. In addition to the onetime 1.0% fee on the total commitment from the SBA, the
Company also pays a onetime 2.425% fee on the amount of each debenture issued. These fees are
capitalized as deferred financing costs and are amortized over the term of the debt agreements
using the effective interest method. The weighted average interest rate for all SBA guaranteed
debentures as of September 30, 2009 was 6.03%.
Distributions to Stockholders
We have elected to be treated as a RIC under Subchapter M of the Internal Revenue Code of
1986, as amended (the Code) and intend to make the required distributions to our stockholders as
specified therein. In order to qualify as a RIC, we must meet certain minimum distribution,
source-of-income and asset diversification requirements. If such requirements are met, then we are
generally required to pay income taxes only on the portion of our taxable income and gains we do
not distribute (actually or constructively) and certain built-in gains. We met our minimum
distribution requirements for 2008 and 2007 and continually monitor our distribution requirements
for 2009 with the goal of ensuring compliance with the Code.
The minimum distribution requirements applicable to RICs require us to distribute to our
stockholders at least 90% of our investment company taxable income (ICTI), as defined by the
Code, each year. Depending on the level of ICTI earned in a tax year, we may choose to carry
forward ICTI in excess of current year distributions into the next tax year and pay a 4% excise tax
on such excess. Any such carryover ICTI must be distributed before the end that next tax year
through a dividend declared prior to filing the final tax return related to the year which
generated such ICTI.
ICTI generally differs from net investment income for financial reporting purposes due to
temporary and permanent differences in the recognition of income and expenses. We may be required
to recognize ICTI in certain circumstances in which we do not receive cash. For example, if we hold
debt obligations that are treated under applicable tax rules as having original issue discount
(such as debt instruments issued with warrants), we must include in ICTI each year a portion of the
original issue discount that accrues over the life of the obligation, regardless of whether cash
representing such income is received by us in the same taxable year. We may also have to include
in ICTI other amounts that we have not yet received in cash, such as 1) PIK interest income and 2)
interest income from investments that have been classified as non-accrual for financial reporting
purposes. Interest income on non-accrual investments is not recognized for financial reporting
purposes, but generally is recognized in ICTI. Because any original issue discount or other
amounts accrued will be included in our ICTI for the year of accrual, we may be required to make a
distribution to our stockholders in order to satisfy the minimum distribution requirements, even
though we will not have received and may not ever receive any corresponding cash amount. ICTI also
excludes net unrealized appreciation or depreciation, as investment gains or losses are not
included in taxable income until they are realized.
Current Market Conditions
During 2008 and 2009, the debt and equity capital markets in the United States have been
severely impacted by significant write-offs in the financial services sector relating to subprime
mortgages and the re-pricing of credit risk in the broadly syndicated bank loan market, among other
things. These events, along with the deterioration of the housing market, have led to an economic
recession in the U.S and abroad, which could be long-term. Banks, investment companies and others
in the financial services industry have continued to report significant write-downs in the fair
value of their assets, which has led to the failure of a number of banks and investment companies,
a number of distressed mergers and acquisitions, the government take-over of the nations two
largest government-sponsored mortgage companies, and the passage of the $700 billion Emergency
Economic Stabilization of 2008 in October 2008 and the American Recovery and Reinvestment Act of
2009 in February 2009. These events have significantly impacted the financial and credit markets
and have reduced the availability of debt and equity capital for the market as a whole, and for
financial firms in particular. While we have capacity to issue additional SBA guaranteed debentures
as discussed above, we may not be able to access additional equity capital, which could result in
the slowing of our origination activity during 2010 and beyond.
30
In the event that the United States economy remains in a recession, it is possible that the
results of some of the middle market companies in which we invest could experience further
deterioration, which could ultimately lead to difficulty in meeting debt service requirements and
an increase in defaults. There can be no assurance that the performance of certain of our portfolio
companies will not be negatively impacted by challenging economic conditions which could have a
negative impact on our future results.
Recent Developments
On April 23, 2009, we filed a prospectus supplement pursuant to which 1,200,000 shares of
common stock were offered for sale at a price to the public of $10.75 per share. Pursuant to this
offering, all shares were sold and delivered on April 27, 2009 resulting in net proceeds to us,
after underwriting discounts and offering expenses, of approximately $11,700,000. On May 27, 2009,
pursuant to the exercise of an overallotment option granted in connection with the offering, the
underwriters involved purchased an additional 80,000 shares of our common stock at the same public
offering price, less underwriting discounts and commissions, resulting in net proceeds to us of
approximately $800,000.
On
August 7, 2009, we filed a prospectus supplement pursuant to which 1,300,000 shares of
common stock were offered for sale at a price to the public of $10.42 per share. In addition, the
underwriters involved were granted an overallotment option to purchase an additional 195,000 shares
of our common stock at the same public offering price. Pursuant to this offering, all shares
(including the overallotment option shares) were sold and delivered on August 12, 2009 resulting in
net proceeds to us, after underwriting discounts and offering expenses, of approximately
$14,600,000.
Critical Accounting Policies and Use of Estimates
The preparation of our financial statements in accordance with accounting principles generally
accepted in the United States requires management to make certain estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses for the periods covered by such financial statements.
We have identified investment valuation and revenue recognition as our most critical accounting
estimates. On an on-going basis, we evaluate our estimates, including those related to the matters
described below. These estimates are based on the information that is currently available to us and
on various other assumptions that we believe to be reasonable under the circumstances. Actual
results could differ materially from those estimates under different assumptions or conditions. A
discussion of our critical accounting policies follows.
Investment Valuation
The most significant estimate inherent in the preparation of our financial statements is the
valuation of investments and the related amounts of unrealized appreciation and depreciation of
investments recorded. We have established and documented processes and methodologies for
determining the fair values of portfolio company investments on a recurring (quarterly) basis. As
discussed below, we have engaged an independent valuation firm to assist us in our valuation
process.
On January 1, 2008, we adopted FASB ASC Topic 820, Fair Value Measurements and Disclosures
(formerly Statement of Financial Accounting Standards No. 157, Fair Value Measurements), which
defines fair value, establishes a framework for measuring fair value in accordance with generally
accepted accounting principles and expands disclosures about fair value measurements.
ASC Topic 820 clarifies that the exchange price is the price in an orderly transaction between
market participants to sell an asset or transfer a liability in the market in which the reporting
entity would transact for the asset or liability, that is, the principal or most advantageous
market for the asset or liability. The transaction to sell the asset or transfer the liability is a
hypothetical transaction at the measurement date, considered from the perspective of a market
participant that holds the asset or owes the liability. ASC Topic 820 provides a consistent
definition of fair value which focuses on exit price and prioritizes, within a measurement of fair
value, the use of market-based inputs over entity-specific inputs. In addition, ASC Topic 820
provides a framework for measuring fair value and establishes a three-level hierarchy for fair
value measurements based upon the transparency of inputs to the valuation of an asset or liability
as of the measurement date. The three levels of valuation hierarchy established by ASC Topic 820
are defined as follows:
|
|
Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical
assets or liabilities in active markets. |
|
|
|
Level 2 inputs to the valuation methodology include quoted prices for similar assets and
liabilities in active markets, and inputs that are observable for the asset or liability,
either directly or indirectly, for substantially the full term of the financial instrument. |
|
|
|
Level 3 inputs to the valuation methodology are unobservable and significant to the fair
value measurement. |
31
A financial instruments categorization within the valuation hierarchy is based upon the
lowest level of input that is significant to the fair value measurement. Our investment portfolio
is comprised of debt and equity of privately held companies for which quoted prices falling within
the categories of Level 1 and Level 2 inputs are not available. Therefore, we value all of our
investments at fair value, as determined in good faith by our Board of Directors, using Level 3
inputs, as further described below. Due to the inherent uncertainty in the valuation process, our
Board of Directors estimate of fair value may differ significantly from the values that would have
been used had a ready market for the securities existed, and the differences could be material. In
addition, changes in the market environment and other events that may occur over the life of the
investments may cause the gains or losses ultimately realized on these investments to be different
than the valuations currently assigned.
Debt and equity securities that are not publicly traded and for which a limited market does
not exist are valued at fair value as determined in good faith by our Board of Directors. There is
no single standard for determining fair value in good faith, as fair value depends upon
circumstances of each individual case. In general, fair value is the amount that we might
reasonably expect to receive upon the current sale of the security.
We evaluate the investments in portfolio companies using the most recently available portfolio
company financial statements and forecasts. We also consult with the portfolio companys senior
management to obtain further updates on the portfolio companys performance, including information
such as industry trends, new product development and other operational issues. Additionally, we
consider some or all of the following factors:
|
|
|
financial standing of the issuer of the security; |
|
|
|
|
comparison of the business and financial plan of the issuer with actual results; |
|
|
|
|
the size of the security held as it relates to the liquidity of the market for such
security; |
|
|
|
|
pending public offering of common stock by the issuer of the security; |
|
|
|
|
pending reorganization activity affecting the issuer, such as merger or debt
restructuring; |
|
|
|
|
ability of the issuer to obtain needed financing; |
|
|
|
|
changes in the economy affecting the issuer; |
|
|
|
|
financial statements and reports from portfolio company senior management and
ownership; |
|
|
|
|
the type of security, the securitys cost at the date of purchase and any
contractual restrictions on the disposition of the security; |
|
|
|
|
discount from market value of unrestricted securities of the same class at the time
of purchase; |
|
|
|
|
special reports prepared by analysts; |
|
|
|
|
information as to any transactions or offers with respect to the security and/or
sales to third parties of similar securities; |
|
|
|
|
the issuers ability to make payments and the type of collateral; |
|
|
|
|
the current and forecasted earnings of the issuer; |
|
|
|
|
statistical ratios compared to lending standards and to other similar securities;
and |
|
|
|
|
other pertinent factors. |
In making the good faith determination of the value of debt securities, we start with the cost
basis of the security, which includes the amortized original issue discount, and paidinkind
(PIK) interest, if any. We also use a risk rating system to estimate the probability of default on
the debt securities and the probability of loss if there is a default. The risk rating system
covers both qualitative and quantitative aspects of the business and the securities held. In
valuing debt securities, we utilize an income approach model that considers factors including,
but not limited to, (i) the portfolio investments current risk rating (discussed below), (ii) the
portfolio companys current trailing twelve months (TTM) results of operations as compared to
the portfolio companys TTM results of operations as of the date the investment was made and the
portfolio companys outlook for the next twelve months of operations, (iii) the portfolio companys
current leverage as compared to its leverage as of the date the investment was made, and (iv)
current pricing and credit metrics for similar proposed and executed investment transactions. In
valuing equity securities of private companies, we consider valuation methodologies consistent with
industry practice, including (i) valuation using a valuation model based on original transaction
multiples and the portfolio companys recent financial performance, (ii) valuation of the
securities based on recent sales in comparable transactions, and (iii) a review of similar
companies that are publicly traded and the market multiple of their equity securities.
Unrealized appreciation or depreciation on portfolio investments are recorded as increases or
decreases in investments on the balance sheets and are separately reflected on the statements of
operations in determining net increase or decrease in net assets resulting from operations.
Duff & Phelps, LLC (Duff & Phelps), an independent valuation firm, provides third party
valuation consulting services to us, which consist of certain limited procedures that we identified
and requested Duff & Phelps to perform (hereinafter referred to as the procedures). We generally
request Duff & Phelps to perform the procedures on each portfolio company at least once in every
calendar year and for new portfolio companies, at least once in the twelve-month period subsequent
to the initial investment. In certain instances, we may determine that it is not cost-effective,
and as a result is not in our stockholders best interest, to request Duff
32
& Phelps to perform the procedures on one or more portfolio companies. Such instances
include, but are not limited to, situations where the fair value of our investment in the portfolio
company is determined to be insignificant relative to our total investment portfolio.
For the quarter ended March 31, 2009, we asked Duff & Phelps to perform the procedures on
investments in seven portfolio companies comprising approximately 26% of the total investments at
fair value (exclusive of the fair value of new investments made during the quarter) as of March 31,
2009. For the quarter ended June 30, 2009, we asked Duff & Phelps to perform the procedures on
investments in six portfolio companies comprising approximately 20% of the total investments at
fair value (exclusive of the fair value of new investments made during the quarter) as of June 30,
2009. For the quarter ended September 30, 2009, we asked Duff & Phelps to perform the procedures
on investments in seven portfolio companies comprising approximately 24% of the total investments
at fair value (exclusive of the fair value of new investments made during the quarter) as of
September 30, 2009. Upon completion of the procedures, Duff & Phelps concluded that the fair
value, as determined by the Board of Directors, of those investments subjected to the procedures
did not appear to be unreasonable. Our Board of Directors is ultimately and solely responsible for
determining the fair value of our investments in good faith.
Revenue Recognition
Interest and Dividend Income
Interest income, adjusted for amortization of premium and accretion of original issue
discount, is recorded on the accrual basis to the extent that such amounts are expected to be
collected. Generally, when interest and/or principal payments on a loan become past due, or if we
otherwise do not expect the borrower to be able to service its debt and other obligations, we will
place the loan on non-accrual status and will generally cease recognizing interest income on that
loan for financial reporting purposes until all principal and interest have been brought current
through payment or due to a restructuring such that the interest income is deemed to be
collectible. We write off any previously accrued and uncollected interest when it is determined
that interest is no longer considered collectible. Dividend income is recorded on the ex-dividend
date.
Fee Income
Loan origination, facility, commitment, consent and other advance fees received by us on loan
agreements or other investments are recorded as deferred income and recognized as income over the
term of the loan.
Paid-in-Kind Interest (PIK)
We currently hold, and we expect to hold in the future, some loans in our portfolio that
contain a PIK interest provision. The PIK interest, computed at the contractual rate specified in
each loan agreement, is added to the principal balance of the loan, rather than being paid to us in
cash, and is recorded as interest income. Thus, the actual collection of PIK interest may be
deferred until the time of debt principal repayment.
To maintain our status as a RIC, this non-cash source of income must be paid out to
stockholders in the form of dividends, even though we have not yet collected the cash. Generally,
when current cash interest and/or principal payments on a loan become past due, or if we otherwise
do not expect the borrower to be able to service its debt and other obligations, we will place the
loan on non-accrual status and will generally cease recognizing PIK interest income on that loan
for financial reporting purposes until all principal and interest has been brought current through
payment or due to a restructuring such that the interest income is deemed to be collectible. We
write off any previously accrued and uncollected PIK interest when it is determined that the PIK
interest is no longer collectible.
New Accounting Standards
In May 2009, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 165, Subsequent Events, which was later codified as FASB ASC Topic 855,
Subsequent Events (ASC Topic 855). ASC Topic 855 establishes general standards of accounting for
and disclosure of events that occur after the balance sheet date but before financial statements
are issued or are available to be issued. ASC Topic 855 includes a new required disclosure of the
date through which an entity has evaluated subsequent events and is effective for interim periods
or fiscal years ending after June 15, 2009. Our adoption of ASC Topic 855 did not have a material
effect on our financial position or results of operations.
In June 2009, the FASB issued Statement of Financial Accounting Standards No. 168, The FASB
Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principlesa
replacement of FASB Statement No. 162 (SFAS 168). The Codification will become the source of
authoritative GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and
interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal
securities laws are also sources of authoritative GAAP for SEC registrants. On the effective date
of SFAS 168, the Codification will supersede all
33
then-existing non-SEC accounting and reporting standards. All other non-grandfathered, non-SEC
accounting literature not included in the Codification will become non-authoritative. SFAS 168 is
effective for financial statements issued for interim and annual periods ending after September 15,
2009. The adoption of SFAS 168 only impacted our disclosures by requiring Codification references.
Off-Balance Sheet Arrangements
We currently have no off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Beginning in late 2007, the United States entered a recession, which many believe could be
prolonged. As the economy continued to deteriorate in 2008, spending by both consumers and
businesses declined significantly, which has impacted the broader financial and credit markets and
has reduced the availability of debt and equity capital for the market as a whole and financial
firms in particular. This reduction in spending has had an adverse effect on a number of the
industries in which some of our portfolio companies operate, and on certain of our portfolio
companies as well.
During 2009, we experienced write-downs in our portfolio, several of which were due to decline
in the performance of those portfolio companies. As of September 30, 2009, the fair value of our
non-accrual assets was approximately $7.0 million, which comprised approximately 3.7% of the total
fair value of our portfolio, and the cost of our non-accrual assets was approximately $17.1 million,
or 8.5% of the total cost of our portfolio. In addition to these non-accrual assets, as of
September 30, 2009, we had, on a fair value basis, approximately
$21.0 million of debt investments,
or 11.1% of the total fair value of our portfolio, which were current with respect to scheduled
principal and interest payments, but which were carried at less than cost. The cost of these
assets as of September 30, 2009 was approximately $25.1 million, or 12.4% of the total cost of our
portfolio.
In the event that the current recession continues for a significant time or the economy
deteriorates further, the financial position and results of operations of certain of the
middle-market companies in our portfolio could be further affected adversely, which ultimately
could lead to difficulty in our portfolio companies meeting debt service requirements and an
increase in defaults. There can be no assurance that the performance of our portfolio companies
will not be further impacted by economic conditions, which could have a negative impact on our
future results.
In addition, we are subject to interest rate risk. Interest rate risk is defined as the
sensitivity of our current and future earnings to interest rate volatility, variability of spread
relationships, the difference in re-pricing intervals between our assets and liabilities and the
effect that interest rates may have on our cash flows. Changes in the general level of interest
rates can affect our net interest income, which is the difference between the interest income
earned on interest earning assets and our interest expense incurred in connection with our interest
bearing debt and liabilities. Changes in interest rates can also affect, among other things, our
ability to acquire and originate loans and securities and the value of our investment portfolio.
Our investment income is affected by fluctuations in various interest rates, including LIBOR and
prime rates. We regularly measure exposure to interest rate risk and determine whether or not any
hedging transactions are necessary to mitigate exposure to changes in interest rates. As of
September 30, 2009, we were not a party to any hedging arrangements.
As of September 30, 2009, approximately 87.8%, or $161.8 million of our debt portfolio
investments bore interest at fixed rates and approximately 12.2%, or $22.4 million of our debt
portfolio investments bore interest at variable rates. A 200 basis point decrease in the interest
rates on our variable-rate debt investments would decrease our investment income by approximately
$0.4 million on an annual basis. All of our pooled SBA-guaranteed debentures bear interest at
fixed rates.
Because we currently borrow, and plan to borrow in the future, money to make investments, our
net investment income is dependent upon the difference between the rate at which we borrow funds
and the rate at which we invest the funds borrowed. Accordingly, there can be no assurance that a
significant change in market interest rates will not have a material adverse effect on our net
investment income. In periods of rising interest rates, our cost of funds would increase, which
could reduce our net investment income if there is not a corresponding increase in interest income
generated by our investment portfolio.
34
Item 4T. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information
required to be disclosed in the reports that we file or submit under the Securities Exchange Act of
1934 is recorded, processed, summarized, and reported within the time periods specified in the
SECs rules and forms and that such information is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure. Our Chief Executive Officer and Chief Financial Officer
carried out an evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures as of the end of the period covered by this report. Based on the evaluation
of these disclosure controls and procedures, the Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures were effective. It should be noted
that any system of controls, however well designed and operated, can provide only reasonable, and
not absolute, assurance that the objectives of the system are met. In addition, the design of any
control system is based in part upon certain assumptions about the likelihood of future events.
Because of these and other inherent limitations of control systems, there can be no assurance that
any design will succeed in achieving its stated goals under all potential future conditions,
regardless of how remote.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the third
quarter of 2009 that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
35
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
Neither Triangle Capital Corporation nor any of its subsidiaries is a party to any material
pending legal proceedings.
Item 1A. Risk Factors.
The following risk factors should be considered in addition to the risk factors set forth in
our Annual Report on Form 10-K for the year ended December 31, 2008.
Recent developments may increase the risks associated with our business and an investment in
us.
The U.S. economy and financial markets have been experiencing a high level of volatility,
disruption and stress, which was exacerbated by the failure of several major financial institutions
in the last few months of 2008. In addition, the U.S. economy has entered a recession, which is
likely to be severe and prolonged. Similar conditions have occurred in the financial markets and
economies of numerous other countries and could worsen, both in the U.S. and globally. These
conditions have raised the level of many of the risks described in the accompanying prospectus and
could have an adverse effect on our portfolio companies and on their results of operations,
financial conditions, access to credit and capital. The stress in the credit market and upon banks
has led other creditors to tighten credit and the terms of credit. In certain cases, senior lenders
to our customers can block payments by our customers in respect of our loans to such customers. In
turn, these could have adverse effects on our business, financial condition, results of operations,
dividend payments, access to capital, valuation of our assets and our stock price.
We are dependent upon our key investment personnel for our future success.
We depend on the members of our senior management team, particularly executive officers
Garland S. Tucker, III, Brent P.W. Burgess and Steven C. Lilly, for the identification, final
selection, structuring, closing and monitoring of our investments. These executive officers have
critical industry experience and relationships that we rely on to implement our business plan. If
we lose the services of these individuals, we may not be able to operate our business as we expect,
and our ability to compete could be harmed, which could cause our operating results to suffer.
Effective February 21, 2009, Messrs. Tucker, Burgess and Lilly are no longer employed by us
pursuant to an employment agreement. Rather, each is currently employed by us on an at-will basis.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer
Purchases of Equity Securities
During the three months ended September 30, 2009, in connection with our Dividend Reinvestment
Plan for our common stockholders, we directed the plan administrator to purchase 82,680 shares of
our common stock for $961,400.01 in the open market in order to satisfy our obligations to deliver
shares of common stock to our stockholders with respect to our dividend declared on June 16, 2009.
The following chart summarizes repurchases of our common stock for the three months ended September
30, 2009.
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Maximum Number (or |
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Total Number of |
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Approximate Dollar |
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Shares Purchased as |
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Value) of Shares |
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Part of Publicly |
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that May Yet Be |
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Total Number of |
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Average Price Paid |
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Announced Plans or |
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Purchased Under the |
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Period |
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Shares |
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per Share |
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Programs |
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Plans or Programs |
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July 1-31, 2009 |
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82,680 |
(1) |
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$ |
11.6280 |
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August 1-31, 2009 |
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September 1-30, 2009 |
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Total |
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82,680 |
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$ |
11.6280 |
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(1) |
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These shares were purchased in the open market pursuant to the terms of our Dividend
Reinvestment Plan. |
Item 3. Defaults Upon Senior Securities.
Not applicable.
36
Item 4. Submission of Matters to a Vote of Security Holders.
Item 5. Other Information.
Not applicable.
37
Item 6. Exhibits.
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Number |
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Exhibit |
3.1
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Articles of Amendment and Restatement of the Registrant (Filed as
Exhibit (a)(3) to the Registrants Registration Statement on Form
N-2/N-5 (File No. 333-138418) filed with the Securities and
Exchange Commission on December 29, 2006 and incorporated herein by
reference). |
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3.2
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Certificate of Limited Partnership of Triangle Mezzanine Fund LLLP
(Filed as Exhibit (a)(4) to the Registrants Registration Statement
on Form N-2/N-5 (File No. 333-138418) filed with the Securities and
Exchange Commission on February 13, 2007 and incorporated herein by
reference). |
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3.3
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Second Amended and Restated Agreement of Limited Partnership of
Triangle Mezzanine Fund LLLP (Filed as Exhibit 3.4 to the
Registrants Quarterly Report on Form 10-Q filed with the
Securities and Exchange Commission on November 7, 2007 and
incorporated herein by reference). |
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3.4
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Second Amended and Restated Bylaws of the Registrant (Filed as
Exhibit 3.4 to the Registrants Annual Report of Form 10-K filed
with the Securities and Exchange Commission on February 25, 2009
and incorporated herein by reference). |
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4.1
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Form of Common Stock Certificate (Filed as Exhibit (d) to the
Registrants Amendment No. 1 to the Registration Statement on Form
8-A (File No. 001-33130) filed with the Securities and Exchange
Commission on February 14, 2007 and incorporated herein by
reference). |
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4.2
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Triangle Capital Corporation Dividend Reinvestment Plan (Filed as
Exhibit 4.2 to the Registrants Annual Report on Form 10-K filed
with the Securities and Exchange Commission on March 12, 2008 and
incorporated herein by reference). |
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4.3
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Agreement to Furnish Certain Instruments (Filed as Exhibit 4.19 to
the Registrants Annual Report on Form 10-K filed with the
Securities and Exchange Commission on February 25, 2009 and
incorporated herein by reference). |
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31.1
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Chief Executive Officer Certification Pursuant to Rule 13a-14 of
the Securities Exchange Act of 1934, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002. |
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31.2
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Chief Financial Officer Certification Pursuant to Rule 13a-14 of
the Securities Exchange Act of 1934, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002. |
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32.1
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Chief Executive Officer Certification pursuant to Section 1350,
Chapter 63 of Title 18, United States Code, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
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32.2
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Chief Financial Officer Certification pursuant to Section 1350,
Chapter 63 of Title 18, United States Code, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
38
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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TRIANGLE CAPITAL CORPORATION
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Date: November 4, 2009 |
/s/ Garland S. Tucker, III
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Garland S. Tucker, III |
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President, Chief Executive Officer
and
Chairman of the Board of Directors |
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Date: November 4, 2009 |
/s/ Steven C. Lilly
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Steven C. Lilly |
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Chief Financial Officer and Director |
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Date: November 4, 2009 |
/s/ C. Robert Knox, Jr.
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C. Robert Knox, Jr. |
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Principal Accounting Officer |
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39
EXHIBIT INDEX
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Number |
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Exhibit |
3.1
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Articles of Amendment and Restatement of the Registrant (Filed as
Exhibit (a)(3) to the Registrants Registration Statement on Form
N-2/N-5 (File No. 333-138418) filed with the Securities and
Exchange Commission on December 29, 2006 and incorporated herein by
reference). |
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3.2
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Certificate of Limited Partnership of Triangle Mezzanine Fund LLLP
(Filed as Exhibit (a)(4) to the Registrants Registration Statement
on Form N-2/N-5 (File No. 333-138418) filed with the Securities and
Exchange Commission on February 13, 2007 and incorporated herein by
reference). |
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3.3
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Second Amended and Restated Agreement of Limited Partnership of
Triangle Mezzanine Fund LLLP (Filed as Exhibit 3.4 to the
Registrants Quarterly Report on Form 10-Q filed with the
Securities and Exchange Commission on November 7, 2007 and
incorporated herein by reference). |
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3.4
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Second Amended and Restated Bylaws of the Registrant (Filed as
Exhibit 3.4 to the Registrants Annual Report of Form 10-K filed
with the Securities and Exchange Commission on February 25, 2009
and incorporated herein by reference). |
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4.1
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Form of Common Stock Certificate (Filed as Exhibit (d) to the
Registrants Amendment No. 1 to the Registration Statement on Form
8-A (File No. 001-33130) filed with the Securities and Exchange
Commission on February 14, 2007 and incorporated herein by
reference). |
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4.2
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Triangle Capital Corporation Dividend Reinvestment Plan (Filed as
Exhibit 4.2 to the Registrants Annual Report on Form 10-K filed
with the Securities and Exchange Commission on March 12, 2008 and
incorporated herein by reference). |
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4.3
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Agreement to Furnish Certain Instruments (Filed as Exhibit 4.19 to
the Registrants Annual Report on Form 10-K filed with the
Securities and Exchange Commission on February 25, 2009 and
incorporated herein by reference). |
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31.1
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Chief Executive Officer Certification Pursuant to Rule 13a-14 of
the Securities Exchange Act of 1934, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002. |
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31.2
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Chief Financial Officer Certification Pursuant to Rule 13a-14 of
the Securities Exchange Act of 1934, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002. |
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32.1
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Chief Executive Officer Certification pursuant to Section 1350,
Chapter 63 of Title 18, United States Code, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
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32.2
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Chief Financial Officer Certification pursuant to Section 1350,
Chapter 63 of Title 18, United States Code, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |