UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
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|
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2007
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
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06-1798488 |
(State or other jurisdiction of
|
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(I.R.S. Employer |
incorporation or organization)
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|
Identification No.) |
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|
3600 Glenwood Avenue, Suite 104 |
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|
Raleigh, North Carolina
|
|
27612 |
(Address and zip code of principal executive offices)
|
|
(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 is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act.
Large accelerated filer o Accelerated filer o Non-accelerated filer þ
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 on November 10, 2007 was
6,803,863.
TRIANGLE CAPITAL CORPORATION
TABLE OF CONTENTS
QUARTERLY REPORT ON FORM 10-Q
2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
TRIANGLE CAPITAL CORPORATION
Balance Sheets
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|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
|
(Consolidated) |
|
|
(Combined) |
|
|
|
(Unaudited) |
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
Investments at fair value: |
|
|
|
|
|
|
|
|
NonControl / NonAffiliate investments (cost
of $60,597,699 and $40,592,972 at September 30,
2007 and December 31, 2006, respectively) |
|
$ |
63,449,412 |
|
|
$ |
42,370,348 |
|
Affiliate investments (cost of $13,420,305 and $9,453,445
at September 30, 2007 and December 31, 2006,
respectively) |
|
|
13,946,303 |
|
|
|
10,011,145 |
|
Control investments (cost of $15,980,690 and $2,614,935
at September 30, 2007 and December 31, 2006,
respectively) |
|
|
18,483,136 |
|
|
|
2,614,935 |
|
|
|
|
Total investments at fair value |
|
|
95,878,851 |
|
|
|
54,996,428 |
|
Deferred loan origination revenue |
|
|
(1,125,654 |
) |
|
|
(774,216 |
) |
Cash and cash equivalents |
|
|
35,789,724 |
|
|
|
2,556,502 |
|
Interest and fees receivable |
|
|
304,831 |
|
|
|
134,819 |
|
Prepaid expenses |
|
|
30,382 |
|
|
|
|
|
Deferred offering costs |
|
|
|
|
|
|
1,020,646 |
|
Deferred financing fees |
|
|
998,746 |
|
|
|
985,477 |
|
Property and equipment, net |
|
|
34,701 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
131,911,581 |
|
|
$ |
58,919,656 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
$ |
740,300 |
|
|
$ |
794,983 |
|
Interest payable |
|
|
171,222 |
|
|
|
606,296 |
|
Partners tax distribution payable |
|
|
|
|
|
|
531,566 |
|
Payable to Triangle Capital Partners, LLC |
|
|
|
|
|
|
30,000 |
|
SBA guaranteed debentures payable |
|
|
35,800,000 |
|
|
|
31,800,000 |
|
|
|
|
Total liabilities |
|
|
36,711,522 |
|
|
|
33,762,845 |
|
|
|
|
|
|
|
|
|
|
Net Assets |
|
|
|
|
|
|
|
|
General partners capital |
|
|
|
|
|
|
100 |
|
Limited partners capital |
|
|
|
|
|
|
21,250,000 |
|
Common stock, $0.001 par value per share
(150,000,000 shares authorized, 6,803,863 and 100
shares issued and outstanding as of September 30,
2007 and December 31, 2006, respectively) |
|
|
6,804 |
|
|
|
|
|
Additional paid-in capital |
|
|
87,599,046 |
|
|
|
1,500 |
|
Accumulated undistributed net realized earnings |
|
|
1,714,052 |
|
|
|
1,570,135 |
|
Net unrealized appreciation of investments |
|
|
5,880,157 |
|
|
|
2,335,076 |
|
|
|
|
Total net assets |
|
|
95,200,059 |
|
|
|
25,156,811 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and net assets |
|
$ |
131,911,581 |
|
|
$ |
58,919,656 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value per share |
|
$ |
13.99 |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
See accompanying notes.
3
TRIANGLE CAPITAL CORPORATION
Unaudited Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
Three Months |
|
Nine Months |
|
Nine Months |
|
|
Ended |
|
Ended |
|
Ended |
|
Ended |
|
|
September 30, |
|
September 30, |
|
September 30, |
|
September 30, |
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
|
(Consolidated) |
|
(Combined) |
|
(Consolidated) |
|
(Combined) |
|
|
|
Investment income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan interest, fee and dividend income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NonControl / NonAffiliate investments |
|
$ |
1,728,682 |
|
|
$ |
1,137,179 |
|
|
$ |
4,233,318 |
|
|
$ |
3,353,636 |
|
Affiliate investments |
|
|
574,964 |
|
|
|
151,478 |
|
|
|
1,368,578 |
|
|
|
483,817 |
|
Control investments |
|
|
361,395 |
|
|
|
74,606 |
|
|
|
845,136 |
|
|
|
217,559 |
|
|
|
|
Total loan interest, fee and dividend income |
|
|
2,665,041 |
|
|
|
1,363,263 |
|
|
|
6,447,032 |
|
|
|
4,055,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paidinkind interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NonControl / NonAffiliate investments |
|
|
213,850 |
|
|
|
204,240 |
|
|
|
590,655 |
|
|
|
594,119 |
|
Affiliate investments |
|
|
63,556 |
|
|
|
10,336 |
|
|
|
159,098 |
|
|
|
29,187 |
|
Control investments |
|
|
143,188 |
|
|
|
42,370 |
|
|
|
294,501 |
|
|
|
123,558 |
|
|
|
|
Total paidinkind interest income |
|
|
420,594 |
|
|
|
256,946 |
|
|
|
1,044,254 |
|
|
|
746,864 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income from cash and cash equivalent investments |
|
|
508,652 |
|
|
|
93,274 |
|
|
|
1,502,341 |
|
|
|
212,115 |
|
|
|
|
Total investment income |
|
|
3,594,287 |
|
|
|
1,713,483 |
|
|
|
8,993,627 |
|
|
|
5,013,991 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
525,081 |
|
|
|
459,746 |
|
|
|
1,545,798 |
|
|
|
1,378,736 |
|
Amortization of deferred financing fees |
|
|
28,515 |
|
|
|
25,158 |
|
|
|
83,731 |
|
|
|
74,397 |
|
Management fees |
|
|
|
|
|
|
398,441 |
|
|
|
232,423 |
|
|
|
1,190,632 |
|
General and administrative expenses |
|
|
1,048,690 |
|
|
|
81 |
|
|
|
2,690,946 |
|
|
|
39,820 |
|
|
|
|
Total expenses |
|
|
1,602,286 |
|
|
|
883,426 |
|
|
|
4,552,898 |
|
|
|
2,683,585 |
|
|
|
|
Net investment income |
|
|
1,992,001 |
|
|
|
830,057 |
|
|
|
4,440,729 |
|
|
|
2,330,406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gain (loss) on investments Non Control /
NonAffiliate |
|
|
|
|
|
|
|
|
|
|
(1,464,224 |
) |
|
|
5,977,109 |
|
Net realized gain on investments Affiliate |
|
|
141,014 |
|
|
|
|
|
|
|
141,014 |
|
|
|
|
|
Net unrealized appreciation (depreciation) of investments |
|
|
1,233,666 |
|
|
|
228,700 |
|
|
|
3,545,081 |
|
|
|
(2,552,800 |
) |
|
|
|
Total net gain on investments |
|
|
1,374,680 |
|
|
|
228,700 |
|
|
|
2,221,871 |
|
|
|
3,424,309 |
|
|
|
|
Net increase in net assets resulting from operations |
|
$ |
3,366,681 |
|
|
$ |
1,058,757 |
|
|
$ |
6,662,600 |
|
|
$ |
5,754,715 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income per share basic and diluted |
|
$ |
0.30 |
|
|
|
N/A |
|
|
$ |
0.66 |
|
|
|
N/A |
|
|
|
|
Net increase in net assets resulting from operations per
share basic and diluted |
|
$ |
0.50 |
|
|
|
N/A |
|
|
$ |
0.99 |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per common share |
|
$ |
0.26 |
|
|
|
N/A |
|
|
$ |
0.41 |
|
|
|
N/A |
|
|
|
|
Weighted average number of shares outstanding basic
and diluted |
|
|
6,735,177 |
|
|
|
N/A |
|
|
|
6,703,414 |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of net increase in net assets resulting from
operations to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General partner |
|
|
N/A |
|
|
$ |
211,751 |
|
|
|
N/A |
|
|
$ |
1,150,943 |
|
Limited partners |
|
|
N/A |
|
|
|
847,006 |
|
|
|
N/A |
|
|
|
4,603,772 |
|
|
|
|
|
|
|
N/A |
|
|
$ |
1,058,757 |
|
|
|
N/A |
|
|
$ |
5,754,715 |
|
|
|
|
See accompanying notes.
4
TRIANGLE CAPITAL CORPORATION
Unaudited Statements of Changes in Net Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
Net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital |
|
|
Undistributed |
|
|
Unrealized |
|
|
|
|
|
|
General |
|
|
Limited |
|
|
Contribution |
|
|
Net |
|
|
Appreciation |
|
|
Total |
|
|
|
Partners |
|
|
Partners |
|
|
Commitment |
|
|
Realized |
|
|
of |
|
|
Net |
|
|
|
Capital |
|
|
Capital |
|
|
Receivable |
|
|
Earnings |
|
|
Investments |
|
|
Assets |
|
Balance, January 1, 2006 |
|
$ |
100 |
|
|
$ |
21,250,000 |
|
|
$ |
(10,625,000 |
) |
|
$ |
(2,010,553 |
) |
|
$ |
2,750,000 |
|
|
$ |
11,364,547 |
|
Partners capital contributions |
|
|
|
|
|
|
|
|
|
|
10,625,000 |
|
|
|
|
|
|
|
|
|
|
|
10,625,000 |
|
Distribution to partners |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,000,010 |
) |
|
|
|
|
|
|
(5,000,010 |
) |
Net investment income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,330,406 |
|
|
|
|
|
|
|
2,330,406 |
|
Realized gain on investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,977,109 |
|
|
|
(5,977,109 |
) |
|
|
|
|
Net unrealized gains in
investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,424,309 |
|
|
|
3,424,309 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2006 |
|
$ |
100 |
|
|
$ |
21,250,000 |
|
|
$ |
|
|
|
$ |
1,296,952 |
|
|
$ |
197,200 |
|
|
$ |
22,744,252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
Net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undistributed |
|
|
Unrealized |
|
|
|
|
|
|
General |
|
|
Limited |
|
|
Common Stock |
|
|
Additional |
|
|
Net |
|
|
Appreciation |
|
|
Total |
|
|
|
Partners |
|
|
Partners |
|
|
Number |
|
|
Par |
|
|
Paid In |
|
|
Realized |
|
|
of |
|
|
Net |
|
|
|
Capital |
|
|
Capital |
|
|
of Shares |
|
|
Value |
|
|
Capital |
|
|
Earnings |
|
|
Investments |
|
|
Assets |
|
Balance, January 1, 2007 |
|
$ |
100 |
|
|
$ |
21,250,000 |
|
|
|
100 |
|
|
$ |
|
|
|
$ |
1,500 |
|
|
$ |
1,570,135 |
|
|
$ |
2,335,076 |
|
|
$ |
25,156,811 |
|
Public offering of common
stock |
|
|
|
|
|
|
|
|
|
|
4,770,000 |
|
|
|
4,770 |
|
|
|
64,723,267 |
|
|
|
|
|
|
|
|
|
|
|
64,728,037 |
|
Formation transactions |
|
|
(100 |
) |
|
|
(21,250,000 |
) |
|
|
1,916,660 |
|
|
|
1,917 |
|
|
|
21,248,183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,440,729 |
|
|
|
|
|
|
|
4,440,729 |
|
Realized gain (loss) on
investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,323,210 |
) |
|
|
1,464,224 |
|
|
|
141,014 |
|
Net unrealized gains on
investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,080,857 |
|
|
|
2,080,857 |
|
Dividends paid |
|
|
|
|
|
|
|
|
|
|
117,103 |
|
|
|
117 |
|
|
|
1,626,096 |
|
|
|
(2,753,555 |
) |
|
|
|
|
|
|
(1,127,342 |
) |
Tax distribution to partners |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(220,047 |
) |
|
|
|
|
|
|
(220,047 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2007 |
|
$ |
|
|
|
$ |
|
|
|
|
6,803,863 |
|
|
$ |
6,804 |
|
|
$ |
87,599,046 |
|
|
$ |
1,714,052 |
|
|
$ |
5,880,157 |
|
|
$ |
95,200,059 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
5
TRIANGLE CAPITAL CORPORATION
Unaudited Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
|
Nine Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2007 |
|
|
2006 |
|
|
|
(Consolidated) |
|
|
(Combined) |
|
|
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net increase in net assets resulting from operations |
|
$ |
6,662,600 |
|
|
$ |
5,754,715 |
|
Adjustments to reconcile net increase in net assets resulting
from operations to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Purchases of portfolio investments |
|
|
(42,534,975 |
) |
|
|
(15,703,478 |
) |
Repayments received/sales of portfolio investments |
|
|
4,878,207 |
|
|
|
9,870,607 |
|
Loan origination and other fees received |
|
|
894,904 |
|
|
|
474,795 |
|
Net realized loss (gain) on investments |
|
|
1,323,210 |
|
|
|
(5,977,109 |
) |
Net unrealized depreciation (appreciation) of investments |
|
|
(3,545,081 |
) |
|
|
2,552,800 |
|
Paidinkind interest accrued, net of payments received |
|
|
(845,033 |
) |
|
|
(383,073 |
) |
Amortization of deferred financing fees |
|
|
83,731 |
|
|
|
74,397 |
|
Recognition of loan origination and other fees |
|
|
(543,466 |
) |
|
|
(400,291 |
) |
Accretion of loan discounts |
|
|
(158,751 |
) |
|
|
(119,593 |
) |
Depreciation expense |
|
|
4,605 |
|
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Interest and fees receivable |
|
|
(170,012 |
) |
|
|
(50,172 |
) |
Prepaid expenses |
|
|
(30,382 |
) |
|
|
|
|
Accounts payable and accrued liabilities |
|
|
(54,683 |
) |
|
|
(13,226 |
) |
Interest payable |
|
|
(435,074 |
) |
|
|
(414,494 |
) |
Receivable from / payable to Triangle Capital Partners, LLC |
|
|
(30,000 |
) |
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(34,500,200 |
) |
|
|
(4,334,122 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(39,306 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(39,306 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Borrowings under SBA guaranteed debentures payable |
|
|
4,000,000 |
|
|
|
|
|
Financing fees paid |
|
|
(97,000 |
) |
|
|
|
|
Proceeds from initial public offering, net of expenses |
|
|
64,728,037 |
|
|
|
|
|
Change in deferred offering costs |
|
|
1,020,646 |
|
|
|
|
|
Partners capital contributions |
|
|
|
|
|
|
10,625,000 |
|
Cash dividends paid |
|
|
(1,127,342 |
) |
|
|
|
|
Distributions to partners |
|
|
(751,613 |
) |
|
|
(5,000,010 |
) |
|
|
|
Net cash provided by financing activities |
|
|
67,772,728 |
|
|
|
5,624,990 |
|
|
|
|
Net increase in cash and cash equivalents |
|
|
33,233,222 |
|
|
|
1,290,868 |
|
Cash and cash equivalents, beginning of period |
|
|
2,556,502 |
|
|
|
6,067,164 |
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
35,789,724 |
|
|
$ |
7,358,032 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
1,980,873 |
|
|
$ |
1,793,230 |
|
|
|
|
See accompanying notes.
6
TRIANGLE CAPITAL CORPORATION
Unaudited Consolidated Schedule of Investments
September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment |
|
|
Principal |
|
|
|
|
|
|
Fair |
|
Portfolio Company |
|
Industry |
|
|
(1) (2) |
|
|
Amount |
|
|
Cost |
|
|
Value (3) |
|
Non-Control / Non-Affiliate Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AirServ Corporation (5%)* |
|
Airline Services |
|
Subordinated Note (12%, Due 06/09) |
|
$ |
4,235,546 |
|
|
$ |
4,084,696 |
|
|
$ |
4,084,696 |
|
|
|
|
|
|
|
Common Stock Warrants (1,356,668 shares) |
|
|
|
|
|
|
414,285 |
|
|
|
767,203 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,235,546 |
|
|
|
4,498,981 |
|
|
|
4,851,899 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ambient Air Corporation (6%)* |
|
Specialty Trade Contractors |
|
Subordinated Note (12%, Due 03/11) |
|
|
3,144,654 |
|
|
|
3,036,563 |
|
|
|
3,036,563 |
|
|
|
|
|
|
|
Subordinated Note (14%, Due 03/11) |
|
|
1,872,075 |
|
|
|
1,872,075 |
|
|
|
1,872,075 |
|
|
|
|
|
|
|
Common Stock Warrants (455 shares) |
|
|
|
|
|
|
142,361 |
|
|
|
1,238,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,016,729 |
|
|
|
5,050,999 |
|
|
|
6,147,138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
APO Newco, LLC (5%)* |
|
Commercial and Consumer Marketing Products |
|
Subordinated Note (14%, Due 03/13) |
|
|
4,293,318 |
|
|
|
4,269,604 |
|
|
|
4,269,604 |
|
|
|
|
|
|
|
Unit purchase warrant (87,302 Class C units) |
|
|
|
|
|
|
25,200 |
|
|
|
25,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,293,318 |
|
|
|
4,294,804 |
|
|
|
4,294,804 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Art Headquarters, LLC (3%)* |
|
Retail, Wholesale and Distribution |
|
Subordinated Note (14%, Due 01/10) |
|
|
2,506,822 |
|
|
|
2,484,983 |
|
|
|
2,484,983 |
|
|
|
|
|
|
|
Membership unit warrants (15% of units (150 units)) |
|
|
|
|
|
|
40,800 |
|
|
|
42,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,506,822 |
|
|
|
2,525,783 |
|
|
|
2,527,783 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assurance Operations Corporation (4%)* |
|
Auto Components / Metal Fabrication |
|
Subordinated Note (17%, Due 03/12) |
|
|
3,780,224 |
|
|
|
3,780,224 |
|
|
|
3,780,224 |
|
|
|
|
|
|
|
Common Stock (200 shares) |
|
|
|
|
|
|
200,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,780,224 |
|
|
|
3,980,224 |
|
|
|
3,780,224 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bruce Plastics, Inc. (1%)* |
|
Plastic Component Manufacturing |
|
Subordinated Note (14%, Due 10/11) |
|
|
1,500,000 |
|
|
|
1,407,642 |
|
|
|
1,407,642 |
|
|
|
|
|
|
|
Common Stock Warrants (12% of common stock) |
|
|
|
|
|
|
108,534 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,500,000 |
|
|
|
1,516,176 |
|
|
|
1,407,642 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CV Holdings, LLC (5%)* |
|
Specialty Healthcare Products Manufacturer |
|
Subordinated Note (16%, Due 03/10) |
|
|
4,900,829 |
|
|
|
4,900,829 |
|
|
|
4,900,829 |
|
|
|
|
|
|
|
Royalty rights |
|
|
|
|
|
|
|
|
|
|
308,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,900,829 |
|
|
|
4,900,829 |
|
|
|
5,209,629 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cyrus Networks, LLC (6%)* |
|
Data Center Services Provider |
|
Senior Note (10%, Due 07/13) |
|
|
4,289,804 |
|
|
|
4,289,804 |
|
|
|
4,289,804 |
|
|
|
|
|
|
|
2nd Lien Note
(13%, Due 01/14) |
|
|
888,514 |
|
|
|
888,514 |
|
|
|
888,514 |
|
|
|
|
|
|
|
Revolving Line of Credit (10%) |
|
|
70,880 |
|
|
|
70,880 |
|
|
|
70,880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,249,198 |
|
|
|
5,249,198 |
|
|
|
5,249,198 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DataPath, Inc. (1%)* |
|
Satellite Communication Manufacturer |
|
Common Stock (210,263 shares) |
|
|
|
|
|
|
101,500 |
|
|
|
751,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101,500 |
|
|
|
751,500 |
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment |
|
|
Principal |
|
|
|
|
|
|
Fair |
|
Portfolio Company |
|
Industry |
|
|
(1) (2) |
|
|
Amount |
|
|
Cost |
|
|
Value (3) |
|
Eastern Shore Ambulance, Inc. (1%)* |
|
Specialty Health Care Services |
|
Subordinated Note (13%, Due 03/11) |
|
|
1,000,000 |
|
|
|
956,194 |
|
|
|
956,194 |
|
|
|
|
|
|
|
Common Stock Warrants (6% of common stock) |
|
|
|
|
|
|
55,268 |
|
|
|
43,200 |
|
|
|
|
|
|
|
Common Stock (30 shares) |
|
|
|
|
|
|
30,000 |
|
|
|
11,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000,000 |
|
|
|
1,041,462 |
|
|
|
1,010,694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fire Sprinkler Systems, Inc. (3%)* |
|
Specialty Trade Contractors |
|
Subordinated Notes (13%-17.5%, Due 04/11) |
|
|
2,494,953 |
|
|
|
2,494,953 |
|
|
|
2,494,953 |
|
|
|
|
|
|
|
Common Stock (250 shares) |
|
|
|
|
|
|
250,000 |
|
|
|
69,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,494,953 |
|
|
|
2,744,953 |
|
|
|
2,564,353 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flint Acquisition Corporation (5%)* |
|
Specialty Chemical Manufacturer |
|
Subordinated Note (12.5%, Due 09/09) |
|
|
3,750,000 |
|
|
|
3,750,000 |
|
|
|
3,750,000 |
|
|
|
|
|
|
|
Preferred Stock (9,875 shares) |
|
|
|
|
|
|
308,333 |
|
|
|
892,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,750,000 |
|
|
|
4,058,333 |
|
|
|
4,642,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Garden Fresh Restaurant Corp. (4%)* |
|
Restaurant |
|
2nd
Lien Note
(12.8%, Due 12/11) |
|
|
3,000,000 |
|
|
|
3,000,000 |
|
|
|
3,000,000 |
|
|
|
|
|
|
|
Membership Units (5,000 units) |
|
|
|
|
|
|
500,000 |
|
|
|
484,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000,000 |
|
|
|
3,500,000 |
|
|
|
3,484,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gerli & Company (3%)* |
|
Specialty Woven Fabrics Manufacturer |
|
Subordinated Note (14%, Due 08/11) |
|
|
3,098,437 |
|
|
|
3,037,970 |
|
|
|
3,037,970 |
|
|
|
|
|
|
|
Common Stock Warrants (56,559 shares) |
|
|
|
|
|
|
83,414 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,098,437 |
|
|
|
3,121,384 |
|
|
|
3,037,970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Library Systems & Services, LLC (3%)* |
|
Municipal Business Services |
|
Subordinated Note (12%, Due 03/11) |
|
|
2,000,000 |
|
|
|
1,957,828 |
|
|
|
1,957,828 |
|
|
|
|
|
|
|
Common Stock Warrants (112 shares) |
|
|
|
|
|
|
58,995 |
|
|
|
535,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000,000 |
|
|
|
2,016,823 |
|
|
|
2,493,428 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Syrgis Holdings, Inc. (6%)* |
|
Specialty Chemical Manufacturer |
|
Senior Note (10%, Due 08/12-02/14) |
|
|
5,000,000 |
|
|
|
5,000,000 |
|
|
|
5,000,000 |
|
|
|
|
|
|
|
Common Units (2,114 units) |
|
|
|
|
|
|
1,000,000 |
|
|
|
1,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000,000 |
|
|
|
6,000,000 |
|
|
|
6,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twin-Star International, Inc. (6%)* |
|
Consumer Home Furnishings Manufacturer |
|
Subordinated Note (13%, Due 04/14) |
|
|
4,500,000 |
|
|
|
4,500,000 |
|
|
|
4,500,000 |
|
|
|
|
|
|
|
Senior Note (8.3%, Due 04/13) |
|
|
1,496,250 |
|
|
|
1,496,250 |
|
|
|
1,496,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,996,250 |
|
|
|
5,996,250 |
|
|
|
5,996,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Non-Control / Non-Affiliate
Investments |
|
|
|
|
|
|
|
|
|
|
57,822,306 |
|
|
|
60,597,699 |
|
|
|
63,449,412 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliate Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Axxiom Manufacturing, Inc. (3%)* |
|
Industrial Equipment Manufacturer |
|
Subordinated Note (14%, Due 01/11) |
|
|
2,070,719 |
|
|
|
2,070,719 |
|
|
|
2,070,719 |
|
|
|
|
|
|
|
Common Stock (34,100 shares) |
|
|
|
|
|
|
200,000 |
|
|
|
556,700 |
|
|
|
|
|
|
|
Common Stock Warrant (1,000 shares) |
|
|
|
|
|
|
|
|
|
|
12,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,070,719 |
|
|
|
2,270,719 |
|
|
|
2,639,919 |
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment |
|
|
Principal |
|
|
|
|
|
|
Fair |
|
Portfolio Company |
|
Industry |
|
|
(1) (2) |
|
|
Amount |
|
|
Cost |
|
|
Value (3) |
|
Brantley Transportation, LLC (Brantley
Transportation) and Pine Street Holdings, LLC (Pine Street) (4)
(4%)*
|
|
Oil and Gas Services |
|
Subordinated Note -
Brantley Transportation (14%, Due 12/12) |
|
|
3,800,000 |
|
|
|
3,769,416 |
|
|
|
3,769,416 |
|
|
|
|
|
|
|
Common Unit Warrants - Brantley Transportation |
|
|
|
|
|
|
33,600 |
|
|
|
50,800 |
|
|
|
|
|
|
|
(4,560 common units) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Units - Pine Street (200 units) |
|
|
|
|
|
|
200,000 |
|
|
|
172,800 |
|
|
|
|
|
|
|
Common Unit Warrants - Pine Street (2,220 units) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,800,000 |
|
|
|
4,003,016 |
|
|
|
3,993,016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equisales, LLC (7%)* |
|
Energy Products and Services |
|
Subordinated Note (15%, Due 04/12) |
|
|
6,082,968 |
|
|
|
6,082,968 |
|
|
|
6,082,968 |
|
|
|
|
|
|
|
Class A Units (500,000 units) |
|
|
|
|
|
|
500,000 |
|
|
|
500,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,082,968 |
|
|
|
6,582,968 |
|
|
|
6,582,968 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Genapure Corporation (Genapure) and
Genpref, LLC (Genpref) (5) (1%)* |
|
Lab Testing Services |
|
Genapure Common Stock (4,286 shares) |
|
|
|
|
|
|
500,000 |
|
|
|
647,975 |
|
|
|
|
|
|
|
Genpref Preferred Stock (455 shares) |
|
|
|
|
|
|
63,602 |
|
|
|
82,425 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
563,602 |
|
|
|
730,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Affiliate Investments |
|
|
|
|
|
|
|
|
|
|
11,953,687 |
|
|
|
13,420,305 |
|
|
|
13,946,303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Control Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARC Industries, LLC (3%)* |
|
Remediation Services |
|
Subordinated Note (19%, Due 11/10) |
|
|
2,572,553 |
|
|
|
2,572,553 |
|
|
|
2,572,553 |
|
|
|
|
|
|
|
Membership Units (3,000 units) |
|
|
|
|
|
|
175,000 |
|
|
|
148,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,572,553 |
|
|
|
2,747,553 |
|
|
|
2,721,253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fischbein, LLC (13%)* |
|
Packaging and Materials Handling |
|
Subordinated Note (16.5%, Due 05/13) |
|
|
8,561,883 |
|
|
|
8,561,883 |
|
|
|
8,561,883 |
|
|
|
Equipment Manufacturer |
|
Membership Units (4,200,000 units) |
|
|
|
|
|
|
4,200,000 |
|
|
|
4,200,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,561,883 |
|
|
|
12,761,883 |
|
|
|
12,761,883 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Porters Group, LLC (3%)* |
|
Metal Fabrication |
|
Membership Units (4,730 units) |
|
|
|
|
|
|
471,254 |
|
|
|
3,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
471,254 |
|
|
|
3,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Control Investments |
|
|
|
|
|
|
|
|
|
|
11,134,436 |
|
|
|
15,980,690 |
|
|
|
18,483,136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments, September 30, 2007
(101%)* |
|
|
|
|
|
|
|
|
|
$ |
80,910,429 |
|
|
$ |
89,998,694 |
|
|
$ |
95,878,851 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
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) |
|
Interest rates on subordinated debt include cash interest rate and paid-in-kind interest
rate. |
|
(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. |
|
(5) |
|
Genpref is the sole owner of Genapures preferred stock and its sole business purpose is its
ownership of Genapures preferred stock. |
See accompanying notes.
9
TRIANGLE CAPITAL CORPORATION
Combined Schedule of Investments
December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment |
|
|
Principal |
|
|
|
|
|
|
Fair |
|
Portfolio Company |
|
Industry |
|
|
(1) (2) |
|
|
Amount |
|
|
Cost |
|
|
Value (3) |
|
Non-Control / Non-Affiliate Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AirServ Corporation (18%)* |
|
Airline Services |
|
Subordinated Note (12%, Due 06/09) |
|
$ |
4,226,813 |
|
|
$ |
4,010,000 |
|
|
$ |
4,010,000 |
|
|
|
|
|
|
|
Common Stock Warrants (1,238,843 shares) |
|
|
|
|
|
|
414,285 |
|
|
|
551,385 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,226,813 |
|
|
|
4,424,285 |
|
|
|
4,561,385 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ambient Air Corporation (16%)* |
|
Specialty Trade Contractors |
|
Subordinated Notes (12%-13%, Due 03/09-3/11) |
|
|
4,000,000 |
|
|
|
3,874,015 |
|
|
|
3,874,015 |
|
|
|
|
|
|
|
Common Stock Warrants (455 shares) |
|
|
|
|
|
|
142,361 |
|
|
|
142,361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,000,000 |
|
|
|
4,016,376 |
|
|
|
4,016,376 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Art Headquarters, LLC (11%)* |
|
Retail, Wholesale and Distribution |
|
Subordinated Note (14%, Due 01/10) |
|
|
2,680,155 |
|
|
|
2,652,414 |
|
|
|
2,652,414 |
|
|
|
|
|
|
|
Membership unit warrants (15% of units (150 units)) |
|
|
|
|
|
|
40,800 |
|
|
|
40,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,680,155 |
|
|
|
2,693,214 |
|
|
|
2,693,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assurance Operations Corporation (15%)* |
|
Auto Components / Metal Fabrication |
|
Subordinated Note (17%, Due 03/12) |
|
|
3,640,439 |
|
|
|
3,640,439 |
|
|
|
3,640,439 |
|
|
|
|
|
|
|
Common Stock (200 shares) |
|
|
|
|
|
|
200,000 |
|
|
|
200,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,640,439 |
|
|
|
3,840,439 |
|
|
|
3,840,439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bruce Plastics, Inc. (6%)* |
|
Plastic Component Manufacturing |
|
Subordinated Note (14%, Due 10/11 |
|
|
1,500,000 |
|
|
|
1,395,305 |
|
|
|
1,395,305 |
|
|
|
|
|
|
|
Common Stock Warrants (12% of common stock) |
|
|
|
|
|
|
108,534 |
|
|
|
108,534 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,500,000 |
|
|
|
1,503,839 |
|
|
|
1,503,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CV Holdings, LLC (20%)* |
|
Specialty Healthcare Products Manufacturer |
|
Subordinated Note (16%, Due 03/10) |
|
|
4,683,376 |
|
|
|
4,683,376 |
|
|
|
4,683,376 |
|
|
|
|
|
|
|
Royalty rights |
|
|
|
|
|
|
|
|
|
|
250,000 |
|
|
|
|
|
|
|
|
|
|
|
|
4,683,376 |
|
|
|
4,683,376 |
|
|
|
4,933,376 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DataPath, Inc. (8%)* |
|
Satellite Communication Manufacturer |
|
Common Stock (210,263 shares) |
|
|
|
|
|
|
101,500 |
|
|
|
2,070,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101,500 |
|
|
|
2,070,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eastern Shore Ambulance, Inc. (4%)* |
|
Specialty Health Care Services |
|
Subordinated Note (13%, Due 03/11) |
|
|
1,000,000 |
|
|
|
949,099 |
|
|
|
949,099 |
|
|
|
|
|
|
|
Common Stock Warrants (6% of common stock) |
|
|
|
|
|
|
55,268 |
|
|
|
94,267 |
|
|
|
|
|
|
|
Common Stock (30 shares) |
|
|
|
|
|
|
30,000 |
|
|
|
51,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000,000 |
|
|
|
1,034,367 |
|
|
|
1,094,466 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fire Sprinkler Systems, Inc. (12%)* |
|
Specialty Trade Contractors |
|
Subordinated Notes (13%-17.5%, Due 04/11) |
|
|
2,713,460 |
|
|
|
2,713,460 |
|
|
|
2,713,460 |
|
|
|
|
|
|
|
Common Stock (250 shares) |
|
|
|
|
|
|
250,000 |
|
|
|
250,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,713,460 |
|
|
|
2,963,460 |
|
|
|
2,963,460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flint Acquisition Corporation (18%)* |
|
Specialty Chemical Manufacturer |
|
Subordinated Note (12.5%, Due 09/09) |
|
|
3,750,000 |
|
|
|
3,750,000 |
|
|
|
3,750,000 |
|
|
|
|
|
|
|
Preferred Stock (9,875 shares) |
|
|
|
|
|
|
308,333 |
|
|
|
829,633 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,750,000 |
|
|
|
4,058,333 |
|
|
|
4,579,633 |
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment |
|
|
Principal |
|
|
|
|
|
|
Fair |
|
Portfolio Company |
|
Industry |
|
|
(1) (2) |
|
|
Amount |
|
|
Cost |
|
|
Value (3) |
|
Garden Fresh Restaurant Corp. (15%)* |
|
Restaurant |
|
2nd Lien Note
(12.8%, Due 12/11) |
|
|
3,000,000 |
|
|
|
3,000,000 |
|
|
|
3,000,000 |
|
|
|
|
|
|
|
Membership Units (5,000 units) |
|
|
|
|
|
|
500,000 |
|
|
|
673,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000,000 |
|
|
|
3,500,000 |
|
|
|
3,673,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gerli & Company (12%)* |
|
Specialty Woven Fabrics Manufacturer |
|
Subordinated Note (14%, Due 08/11) |
|
|
3,052,167 |
|
|
|
2,981,184 |
|
|
|
2,981,184 |
|
|
|
|
|
|
|
Common Stock Warrants (56,559 shares) |
|
|
|
|
|
|
83,414 |
|
|
|
83,414 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,052,167 |
|
|
|
3,064,598 |
|
|
|
3,064,598 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Library Systems & Services, LLC (9%)* |
|
Municipal Business Services |
|
Subordinated Note (12%, Due 03/11) |
|
|
2,000,000 |
|
|
|
1,950,190 |
|
|
|
1,950,190 |
|
|
|
|
|
|
|
Common Stock Warrants (112 shares) |
|
|
|
|
|
|
58,995 |
|
|
|
189,895 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000,000 |
|
|
|
2,009,185 |
|
|
|
2,140,085 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numo Manufacturing, Inc. (5%)* |
|
Consumer Products Manufacturer |
|
Subordinated Note (13%, Due 12/10) |
|
|
2,700,000 |
|
|
|
2,700,000 |
|
|
|
1,235,777 |
|
|
|
|
|
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants (238 shares) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,700,000 |
|
|
|
2,700,000 |
|
|
|
1,235,777 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Non-Control / Non-Affiliate
Investments |
|
|
|
|
|
|
|
|
38,946,410 |
|
|
|
40,592,972 |
|
|
|
42,370,348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliate Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Axxiom Manufacturing, Inc. (4) (10%)* |
|
Industrial Equipment Manufacturer |
|
Subordinated Note (14%, Due 01/11) |
|
|
2,039,575 |
|
|
|
2,039,575 |
|
|
|
2,039,575 |
|
|
|
|
|
|
|
Common Stock (34,100 shares) |
|
|
|
|
|
|
200,000 |
|
|
|
541,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,039,575 |
|
|
|
2,239,575 |
|
|
|
2,581,275 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brantley Transportation, LLC (Brantley Transportation) and
Pine Street Holdings, LLC (Pine Street)
(5) (16%)* |
|
Oil and Gas Services |
|
Subordinated Note -
Brantley Transportation (14%, Due 12/12) |
|
|
3,800,633 |
|
|
|
3,767,033 |
|
|
|
3,767,033 |
|
|
|
|
|
|
|
Common Unit Warrants - Brantley Transportation |
|
|
|
|
|
|
33,600 |
|
|
|
33,600 |
|
|
|
|
|
|
|
(4,560 common units) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Units - Pine Street (200 units) |
|
|
|
|
|
|
200,000 |
|
|
|
200,000 |
|
|
|
|
|
|
|
Common Unit Warrants - Pine Street (2,220 units) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,800,633 |
|
|
|
4,000,633 |
|
|
|
4,000,633 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Genapure Corporation (2%)* |
|
Lab Testing Services |
|
Common Stock (4,286 shares) |
|
|
|
|
|
|
500,000 |
|
|
|
500,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500,000 |
|
|
|
500,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Porters Group, LLC (12%)* |
|
Metal Fabrication |
|
Subordinated Note (12%, Due 06/10) |
|
|
2,410,000 |
|
|
|
2,242,083 |
|
|
|
2,242,083 |
|
|
|
|
|
|
|
Membership Units (980 units) |
|
|
|
|
|
|
250,000 |
|
|
|
142,150 |
|
|
|
|
|
|
|
Membership Warrants (3,750 Units) |
|
|
|
|
|
|
221,154 |
|
|
|
545,004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,410,000 |
|
|
|
2,713,237 |
|
|
|
2,929,237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Affiliate Investments |
|
|
|
|
|
|
|
|
|
|
8,250,208 |
|
|
|
9,453,445 |
|
|
|
10,011,145 |
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment |
|
|
Principal |
|
|
|
|
|
|
Fair |
|
Portfolio Company |
|
Industry |
|
|
(1) (2) |
|
|
Amount |
|
|
Cost |
|
|
Value (3) |
|
Control Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARC Industries, LLC (10%)* |
|
Remediation Services |
|
Subordinated Note (19%, Due 11/10) |
|
|
2,439,935 |
|
|
|
2,439,935 |
|
|
|
2,439,935 |
|
|
|
|
|
|
|
Membership Units (3,000 units) |
|
|
|
|
|
|
175,000 |
|
|
|
175,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,439,935 |
|
|
|
2,614,935 |
|
|
|
2,614,935 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Control Investments |
|
|
|
|
|
|
|
|
|
|
2,439,935 |
|
|
|
2,614,935 |
|
|
|
2,614,935 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments, December 31, 2006
(219%)* |
|
|
|
|
|
|
|
|
|
$ |
49,636,553 |
|
|
$ |
52,661,352 |
|
|
$ |
54,996,428 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
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) |
|
Interest rates on subordinated debt include cash interest rate and paid-in-kind interest rate. |
|
(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) |
|
Does not include a warrant to purchase 1,000 shares of Axxioms common stock which will be held
by the Fund upon completion of the formation transactions described in Note 1. |
|
(5) |
|
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.
12
TRIANGLE CAPITAL CORPORATION
Notes to Unaudited Financial Statements
1. ORGANIZATION, BASIS OF PRESENTATION AND BUSINESS
Organization
Triangle Capital Corporation (the Company) was formed on October 10, 2006 for the purposes
of acquiring 100% of the equity interests in Triangle Mezzanine Fund LLLP (the Fund) and its
general partner, Triangle Mezzanine LLC (TML), raising capital in an initial public offering,
which was completed in February 2007 (the Offering), and thereafter operating as an internally
managed business development company (BDC) under the Investment Company Act of 1940 (the 1940
Act).
On February 21, 2007, concurrent with the closing of the Offering, the following formation
transactions were consummated (the Formation Transactions):
|
|
|
The Company acquired 100% of the limited partnership interests in the Fund in exchange
for approximately 1.9 million shares of the Companys common stock, which became the
Companys wholly owned subsidiary, retained its license under the authority of the United
States Small Business Administrations (SBA) to operate as a Small Business Investment
Company (SBIC) and continues to hold its existing investments and make new investments
with the proceeds of the Offering. |
|
|
|
|
The Company acquired 100% of the equity interests in TML, and the management agreement
between the Fund and Triangle Capital Partners, LLC was terminated. |
The Offering consisted of the sale of 4,770,000 shares of Common Stock at a price of $15 per
share, resulting in net proceeds of approximately $64.7 million, after deducting offering costs
totaling approximately $6.8 million.
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 (previously employed by the Funds external manager) under the supervision of
its board of directors. For all periods subsequent to the consummation of the Offering and the
Formation Transactions, 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 subsidiary, Triangle Mezzanine Fund LLLP. The Formation Transactions involved an
exchange of shares of the Companys common stock between companies under common control. In
accordance with the guidance on exchanges of shares between entities under common control contained
in Statement of Financial Accounting Standards No. 141, Business Combinations (SFAS 141), the
Companys results of operations and cash flows for the three and nine months ended September 30,
2007 are presented as if the Formation Transactions had occurred as of January 1, 2007. In
addition, in accordance with SFAS 141, the results of the Companys operations and its cash flows
for the three and nine months ended September 30, 2006 and the Companys financial position as of
December 31, 2006 have been presented on a combined basis in order to provide comparative
information with respect to prior periods. The Companys financial position as of September 30,
2007 is presented on a consolidated basis. The effects of all intercompany transactions between
the Company and its subsidiaries have been eliminated in consolidation/combination. All financial
data and information included in these financial statements have been presented on the basis
describe above.
The accompanying unaudited financial statements are presented in conformity with United States
generally accepted accounting principles (U.S. 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 U.S. 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, 2006. Financial statements
prepared on a U.S. 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.
13
Business
The Company is a specialty finance company that provides customized financing solutions
primarily to middle market companies located throughout the United States, particularly in the
Southeast. On September 11, 2003, the Fund became licensed to operate as a SBIC under the
authority of the 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.
Dividends
The Company has adopted a dividend reinvestment plan (DRIP) that provides for reinvestment
of dividends on behalf of its shareholders, unless a shareholder elects to receive cash. As a
result, when the Company declares a dividend, shareholders who have not opted out of the DRIP will
have their dividends automatically reinvested in additional shares of the Companys common stock,
rather than receiving cash dividends.
On May 9, 2007, the Company declared a dividend of $0.15 per common share, payable on June 28,
2007 to shareholders of record on May 31, 2007. The total amount of the dividend was approximately
$1.0 million, of which approximately $358,000 was paid in cash and approximately $645,000 was
reinvested in new shares of the Companys common stock.
On August 8, 2007, the Company declared a dividend of $0.26 per common share, payable on
September 27, 2007 to shareholders of record on August 30, 2007. The total amount of the dividend
was approximately $1.75 million, of which approximately $769,000 was paid in cash and approximately
$981,000 was reinvested in new shares of the Companys common stock.
Allocations and Distributions of the Fund
Prior to the consummation of the Formation Transactions, cumulative net increase in net assets
resulting from operations was allocated to the partners in the following order: first, to the
extent of the limited partners preferred return, second, to the General Partner until its
allocation equaled 20.0% of the limited partners preferred return divided by 80.0% and third,
80.0% to the limited partners and 20.0% to the General Partner of any remaining amounts. The
limited partners preferred return was an amount equal to 7.0%, compounded annually, of the
partners net capital contribution. Cumulative net losses were allocated to the partners in
proportion to their capital contributions.
In addition, prior to the consummation of the Formation Transactions, distributions generally
were allocated to the partners in the following order: first, to the extent of the income taxes
imposed on the partner with respect to income allocated to the partner, second, to each limited
partner to the extent of the limited partners preferred return, third, to each partner to the
extent of contributed capital, fourth, to the General Partner until its allocation equals 20.0% of
the cumulative distributions and fifth, 80.0% to the limited partners and 20.0% to the General
Partner. Distributions were at the discretion of the General Partner. During the nine months ended
September 30, 2007 and 2006, the Fund distributed $751,613 and $5,000,010, respectively, in cash to
the General and Limited Partners of the Fund. After consummation of the Formation Transactions,
distributions of the Fund are allocated 100% to the Company.
Management Fee
Prior to the consummation of the Formation Transactions, the Fund was managed by Triangle
Capital Partners, LLC, a related party that is majority-owned by the Companys Chief Executive
Officer and two of the Companys managing directors. Triangle Capital Partners, LLC was entitled to
a quarterly management fee, which was payable at an annual rate of 2.5% of total aggregate
subscriptions of all institutional partners and capital available from the SBA. Payments of the
management fee were made quarterly in advance. Certain direct expenses such as legal, audit, tax
and limited partner expense were the responsibility of the Fund. The management fees for the nine
months ended September 30, 2007 were $232,423 and for the three and nine months ended September 30,
2006 were $398,441 and $1,190,632, respectively. In conjunction with the consummation of the
Formation Transactions in February 2007, the management agreement was terminated.
Recently Issued Accounting Standards
In February 2006, the FASB issued FASB Statement No. 155, Accounting for Certain Hybrid
Financial Instruments, an amendment of FASB Statements No. 133 and 140. This Statement was
effective for all financial instruments acquired or issued after the beginning of an entitys first
fiscal year that begins after September 15, 2006. The adoption of this statement did not have a
material impact on the Companys financial position, results of operations or cash flows.
In July 2006, the FASB released FASB Interpretation No. 48, Accounting for Uncertainty in
Income Taxes (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be
recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the
evaluation of tax positions taken or expected to be taken in the course of preparing the Companys
tax
14
returns to determine whether the tax positions are more-likely-than-not of being sustained
by the applicable tax authority. Tax positions deemed to meet the more-likely-than-not threshold
would be recorded as a tax benefit or expense in the current year. Adoption of FIN 48 is required
for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of
the effective date. The adoption of this statement did not have a material impact on the Companys
financial position, results of operations or cash flows.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair
Value Measurements (SFAS 157), which defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair
value measurements. This Statement applies under other accounting pronouncements that require or
permit fair value measurements, the FASB having previously concluded in those accounting
pronouncements that fair value is the relevant measurement attribute. SFAS 157 is effective for
financial statements issued for fiscal years beginning after November 15, 2007, and interim periods
within those fiscal years. The Company is currently evaluating the impact on its financial
statements of adopting SFAS 157.
In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The
Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an amendment of FASB
Statement No. 115 (SFAS 159), which permits entities to choose to measure many financial
instruments and certain other items at fair value. The objective of SFAS 159 is to improve
financial reporting by providing entities with the opportunity to mitigate volatility in reported
earnings caused by measuring related assets and liabilities differently without having to apply
complex hedge accounting provisions. This Statement is expected to expand the use of fair value
measurement, which is consistent with the Boards long-term measurement objectives for accounting
for financial instruments. Under SFAS 159, unrealized gains and losses on items for which the fair
value option has been elected are reported in earnings (or another performance indicator if the
business entity does not report earnings) at each subsequent reporting date. SFAS 159 is effective
for financial statements issued for fiscal years beginning after November 15, 2007, and interim
periods within those fiscal years. The Company is currently evaluating the impact on its financial
statements of adopting SFAS 159.
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 |
|
|
|
|
|
Percentage of |
|
|
Cost |
|
Total Portfolio |
|
Fair Value |
|
Total Portfolio |
|
|
|
September 30, 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debt and 2nd lien notes |
|
$ |
69,479,614 |
|
|
|
77 |
% |
|
$ |
69,479,614 |
|
|
|
73 |
% |
Senior debt |
|
|
10,856,934 |
|
|
|
12 |
|
|
|
10,856,934 |
|
|
|
11 |
|
Equity shares |
|
|
8,699,689 |
|
|
|
10 |
|
|
|
12,517,700 |
|
|
|
13 |
|
Equity warrants |
|
|
962,457 |
|
|
|
1 |
|
|
|
2,715,803 |
|
|
|
3 |
|
Royalty rights |
|
|
|
|
|
|
|
|
|
|
308,800 |
|
|
|
|
|
|
|
|
|
|
$ |
89,998,694 |
|
|
|
100 |
% |
|
$ |
95,878,851 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debt and 2nd lien notes |
|
$ |
48,788,108 |
|
|
|
93 |
% |
|
$ |
47,323,885 |
|
|
|
86 |
% |
Equity shares |
|
|
2,714,833 |
|
|
|
5 |
|
|
|
5,633,283 |
|
|
|
10 |
|
Equity warrants |
|
|
1,158,411 |
|
|
|
2 |
|
|
|
1,789,260 |
|
|
|
3 |
|
Royalty rights |
|
|
|
|
|
|
|
|
|
|
250,000 |
|
|
|
1 |
|
|
|
|
|
|
$ |
52,661,352 |
|
|
|
100 |
% |
|
$ |
54,996,428 |
|
|
|
100 |
% |
|
|
|
15
The Company invests in portfolio companies in the United States, with an emphasis on the
Southeast. The following tables show the portfolio composition by geographic location at cost and
fair value as a percentage of total investments. The geographic composition is determined by the
location of the corporate headquarters of the portfolio company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of |
|
|
|
|
|
Percentage of |
|
|
Cost |
|
Total Portfolio |
|
Fair Value |
|
Total Portfolio |
|
|
|
September 30, 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southeast |
|
$ |
55,608,804 |
|
|
|
62 |
% |
|
$ |
60,623,970 |
|
|
|
63 |
% |
Non-Southeast |
|
|
34,389,890 |
|
|
|
38 |
|
|
|
35,254,881 |
|
|
|
37 |
|
|
|
|
|
|
$ |
89,998,694 |
|
|
|
100 |
% |
|
$ |
95,878,851 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southeast |
|
$ |
27,500,525 |
|
|
|
52 |
% |
|
$ |
30,403,524 |
|
|
|
55 |
% |
Non-Southeast |
|
|
25,160,827 |
|
|
|
48 |
|
|
|
24,592,904 |
|
|
|
45 |
|
|
|
|
|
|
$ |
52,661,352 |
|
|
|
100 |
% |
|
$ |
54,996,428 |
|
|
|
100 |
% |
|
|
|
Valuation of Investments
The Company invests primarily in debt and equity of privately held companies for which market
prices are not available. Therefore, the Company values its investments at fair value, as
determined in good faith by the Board of Directors. 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 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 the facts and
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 which, for investments that are
less than nine months old, typically equates to the original cost basis unless there has been
significant overperformance or underperformance by the portfolio company or an extraordinary
event affecting the portfolio company. In making the good faith determination of the value of these
securities, the Company starts with the cost basis of the security, which includes the amortized
original issue discount, and paymentinkind (PIK) interest, if any. Management evaluates the
investments in portfolio companies using the portfolio companys most recent 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 addition, when evaluating equity
securities of private companies, the Company considers generally accepted valuation methodologies.
These valuation techniques consist of (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 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.
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). It is the Companys policy to 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.
As of September 30, 2006, the Company asked Duff & Phelps to perform the procedures on
investments in 17 portfolio companies comprising 100% of the total investments at fair value as of
September 30, 2006. As of December 31, 2006, the Company asked Duff & Phelps to perform the
procedures on investments in six portfolio companies comprising approximately 41% of the total
investments at fair value (exclusive of the fair value of new investments made during the quarter)
as of December 31, 2006. For the quarter ended March 31, 2007, the Company asked Duff & Phelps to
perform the procedures on investments in five 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, 2007. For the quarter ended June 30, 2007, the Company asked Duff & Phelps
to perform the procedures on investments in five portfolio companies comprising approximately 28%
of the total investments at fair value (exclusive of the fair value of new investments made during
the quarter) as of June 30, 2007. For the quarter ended September 30, 2007, the Company asked Duff
& Phelps to perform the procedures on investments in five portfolio companies comprising
approximately 29% of the total investments at fair value (exclusive of the fair value of new
investments made during the quarter) as of September 30, 2007. Upon completion of the procedures,
Duff & Phelps concluded that the fair value, as determined by the Board of Directors, of
16
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.
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.
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 fair value 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 the Company 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. The Company will stop accruing interest on investments and write off any previously
accrued and uncollected interest when it is determined that interest is no longer collectible.
Dividend income is recorded on the exdividend date.
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 are recorded into income when received. Any previously deferred
fees are immediately recorded into income upon prepayment of the related loan.
Payment in Kind Interest
The Company holds loans in its portfolio that contain a payment in kind (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 this interest generally occurs at the time of loan principal repayment. The Company
will generally cease accruing PIK interest if there is insufficient value to support the accrual or
if the investee is not expected to be able to pay all principal and interest due.
Concentration of Credit Risk
The Companys investments are generally in lower middlemarket companies in a variety of
industries. As of September 30, 2007, there was one investment that represented greater than 10%
of the Companys portfolio and as of December 31, 2006, there was no individual investment greater
than 10% 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 have a limited operating history and financial resources;
2) investing in senior subordinated debt which ranks equal to or lower than debt held by other
investors; 3) holding investments that are not publicly traded and are subject to legal and other
restrictions on resale, as well as other risks common to investing in below investment grade debt
and equity instruments.
17
3. INCOME TAXES
The Company intends to elect to be treated as a Regulated Investment Company (RIC) under
Subchapter M of the Internal Revenue Code of 1986, as amended (the Code), effective as of January
1, 2007. Accordingly, no provision for income taxes is included in the financial statements. As a
RIC, so long as the Company meets certain minimum distribution, source-of-income and asset
diversification requirements, the Company generally will be 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. As a RIC, the Company intends to distribute to its stockholders
substantially all of its income, except for certain net long-term capital gains. The Company
intends to make deemed distributions to its stockholders of any such retained net long-term capital
gains.
Dividend amounts are determined by the Board of Directors each quarter and are based upon the
annual taxable earnings estimated by the Companys management. To the extent that the Companys
earnings fall below the amount of dividends declared, however, a portion of the total amount of the
Companys dividends for the fiscal year may be deemed a return of capital to the Companys
stockholders for tax purposes.
The Company may hold certain investments through 100% ownership in certain taxable
corporations in order to meet the requirements for qualification as a RIC. In such cases, the
Company will be required to accrue and reflect in its results of operations the income taxes
payable by such corporations.
4. LONGTERM DEBT
The Company has the following debentures outstanding guaranteed by the SBA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prioritized |
|
September 30, |
|
December 31, |
Issuance Date |
|
Maturity Date |
|
Return Rate |
|
2007 |
|
2006 |
|
September 22, 2004 |
|
September 1, 2014 |
|
|
5.539 |
% |
|
$ |
8,700,000 |
|
|
$ |
8,700,000 |
|
March 23, 2005 |
|
March 1, 2015 |
|
|
5.893 |
% |
|
|
13,600,000 |
|
|
|
13,600,000 |
|
September 28, 2005 |
|
September 1, 2015 |
|
|
5.796 |
% |
|
|
9,500,000 |
|
|
|
9,500,000 |
|
February 1, 2007 |
|
March 1, 2017 |
|
|
6.231 |
% |
|
|
4,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
35,800,000 |
|
|
$ |
31,800,000 |
|
|
|
|
|
|
|
|
|
|
Interest on the debentures is payable semiannually. There are no principal payments required
on these debentures 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 twice the amount of its regulatory capital. As of September 30, 2007, the maximum statutory
limit on the dollar amount of outstanding SBA guaranteed debentures issued by a single SBIC is
$127.2 million (which amount is subject to increase on an annual basis based on cost of living
increases). With $63.3 million of regulatory capital as of September 30, 2007, the Fund has the
current capacity to issue up to a total of $126.5 million of SBA guaranteed debentures, subject to
the payment of a 1% commitment fee to the SBA on the amount of the commitment. Currently, the Fund
has paid commitment fees for and has a commitment from the SBA to issue a total of $41.9 million of
SBA guaranteed debentures, of which $35.8 million are outstanding as of September 30, 2007. In
order to access the additional $84.6 million in borrowing capacity for which the Fund is currently
eligible, the Fund would incur non-refundable commitment fees of $846,000. In addition to the
onetime 1.0% fee on the total commitment from the SBA, the Company also pays a onetime 2.5% 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, 2007 and
December 31, 2006 were 5.819% and 5.767%, respectively.
18
5. FINANCIAL HIGHLIGHTS
The following is a schedule of financial highlights for the nine months ended September 30,
2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
2007 |
|
|
2006(1) |
|
Per share data: |
|
|
|
|
|
|
|
|
Net asset value at beginning of period(2) |
|
$ |
13.44 |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
Net investment income(3) |
|
|
0.66 |
|
|
|
N/A |
|
Net realized loss on investments(3) |
|
|
(0.20 |
) |
|
|
N/A |
|
Net unrealized appreciation on investments(3) |
|
|
0.53 |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
Total increase from investment operations(3) |
|
|
0.99 |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
Cash dividends paid |
|
|
(0.17 |
) |
|
|
|
|
Distribution to partners(3) |
|
|
(0.03 |
) |
|
|
N/A |
|
Other(4) |
|
|
(0.24 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value at end of period |
|
$ |
13.99 |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
Market value
at end of period(5) |
|
$ |
13.60 |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares outstanding at end of period |
|
|
6,803,863 |
|
|
|
N/A |
|
Net assets at end of period |
|
$ |
95,200,059 |
|
|
$ |
22,744,252 |
|
Average net assets(2) |
|
$ |
91,788,558 |
|
|
$ |
19,700,658 |
|
Ratio of operating expenses to average net assets (annualized) |
|
|
6.6 |
% |
|
|
13.6 |
% |
Ratio of net investment income to average net assets
(annualized) |
|
|
6.5 |
% |
|
|
11.8 |
% |
Portfolio turnover ratio |
|
|
7.4 |
% |
|
|
9.4 |
% |
Total
Return(6) |
|
|
(6.6 |
%) |
|
|
N/A |
|
|
|
|
(1) |
|
Per share data for the nine months ended September 30, 2006 is not presented as there
were no shares of Triangle Capital Corporation outstanding during the period. |
|
(2) |
|
Net asset value as of January 1, 2007 and average net assets for the nine months
ended September 30, 2007 are presented as if the Offering and Formation Transactions had
occurred on January 1, 2007. See Note 1 for a further description of the basis of
presentation of the Companys financial statements. |
|
(3) |
|
Weighted average basic per share data. |
|
(4) |
|
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. |
|
(5) |
|
Represents the closing price of the Companys common stock on the last day of the
period. |
|
(6) |
|
The total return for the nine months ended September 30, 2007 equals the change in
the ending market value of the Companys common stock from the Offering price of $15.00
per share plus dividends paid per share during the period, divided by the Offering price.
Total return is not annualized. |
6. SUBSEQUENT EVENTS
On October 25, 2007, the Company invested $4.0 million and $3.1 million in first lien and
second lien senior debt, respectively, of FCL Graphics, Inc. (FCL Graphics), a provider of
commercial printing services based in Chicago, Illinois. Under the terms of the investments, FCL
Graphics will pay interest on the first lien senior debt at floating rates ranging from LIBOR plus
350 basis points per annum to LIBOR plus 750 basis points per annum and will pay interest on the
second lien senior debt at a fixed rate of 18.0%.
On October 25, 2007, the Company invested approximately $3.3 million and $0.2 million in
senior and junior subordinated debt, respectively, of Energy Hardware Holdings, LLC (EH
Holdings), a global distributor of machined parts to the power generation industry based in South
Carolina. Under the terms of the investments, EH Holdings will pay interest on the senior
subordinated debt at a fixed rate of 14.5% per annum and will pay interest on the junior
subordinated debt at a fixed rate of 8.0% per annum.
19
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. As discussed further in Note 1 to
our unaudited financial statements, on February 21, 2007, concurrent with the closing of our
initial public offering (the Offering), we acquired Triangle Mezzanine Fund LLLP (the Fund) and
the Funds General Partner, Triangle Mezzanine LLC (TML) in exchange for shares of our common
stock. These acquisitions constituted an exchange of shares between entities under common control.
In accordance with the guidance on exchanges of shares between entities under common control
contained in Statement of Financial Accounting Standards No. 141, Business Combinations, the
financial data and information discussed herein for the three and nine months ended September 30,
2007 are presented as if the acquisition had occurred as of January 1, 2007. In addition, the
results of our operations and cash flows for the three and nine months ended September 30, 2006 and
our financial position as of December 31, 2006 are presented on a combined basis in order to
provide comparative information with respect to prior periods.
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, 2006. 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.
Overview of Our Business
We are a Maryland corporation incorporated on October 10, 2006, for the purposes of acquiring
the Fund and TML, raising capital in the Offering and thereafter operating as an internally managed
business development company, or BDC, under the Investment Company Act of 1940. 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. The Fund has invested
primarily in debt instruments, equity securities, warrants and other securities of lower middle
market privately held companies located in the United States. Upon the consummation of the
Offering, we completed the Formation Transactions described in footnote 1 to our unaudited
financial statements included in Item 1 of Part I of this Quarterly Report, at which time the Fund
became our wholly-owned subsidiary, and the former partners of the Fund became our stockholders.
Our business is to provide capital to lower middle market companies in the United States with
an emphasis on the Southeast. 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 $10.0 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. Historically,
our investments have ranged from $2.0 to $4.0 million due to investment limitations imposed by the
SBA based on the Funds size prior to the Offering. In certain situations, we have partnered with
other funds to provide larger financing commitments. With the additional capital from the Offering,
we have increased our financing commitments to between $5.0 and $15.0 million per portfolio
company.
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 15.0% per annum. Certain of our debt
investments have a form of interest, referred to as payment 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.
In our negotiations with potential portfolio companies, we generally seek to minimize PIK interest.
Cash interest on our debt investments is generally payable monthly;
however, some of our debt
investments pay cash interest on a quarterly basis. As of September 30, 2007 and December 31,
2006, the weighted average yield on all of our outstanding debt investments (including PIK
interest) was approximately 13.8% and 14.0%, respectively. The weighted average yield on all of our
outstanding investments (including equity and equity-linked investments) was approximately 12.4%
and 13.3% as of September 30, 2007 and December 31, 2006, respectively.
The Fund is eligible to sell debentures guaranteed by the SBA to 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
SBA-guaranteed debentures, referred to herein as SBA leverage, to make additional investments and
thus enhance returns to our stockholders.
20
Portfolio Composition
The total value of our investment portfolio was $95.9 million as of September 30, 2007, as
compared to $55.0 million as of December 31, 2006. As of September 30, 2007, we had investments in
24 portfolio companies with an aggregate cost of $90.0 million. As of December 31, 2006, we had
investments in 19 portfolio companies with an aggregate cost of $52.7 million. As of September 30,
2007, we had one portfolio investment that represented greater than 10% of the total fair value of
our investment portfolio. As of December 31, 2006, none of our portfolio investments represented
greater than 10% of the total fair value of our investment portfolio.
As of September 30, 2007 and December 31, 2006, our investment portfolio consisted of the
following investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of |
|
|
|
|
|
Percentage of |
|
|
Cost |
|
Total Portfolio |
|
Fair Value |
|
Total Portfolio |
|
|
|
September 30, 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debt and 2nd lien notes |
|
$ |
69,479,614 |
|
|
|
77 |
% |
|
$ |
69,479,614 |
|
|
|
73 |
% |
Senior debt |
|
|
10,856,934 |
|
|
|
12 |
|
|
|
10,856,934 |
|
|
|
11 |
|
Equity shares |
|
|
8,699,689 |
|
|
|
10 |
|
|
|
12,517,700 |
|
|
|
13 |
|
Equity warrants |
|
|
962,457 |
|
|
|
1 |
|
|
|
2,715,803 |
|
|
|
3 |
|
Royalty rights |
|
|
|
|
|
|
|
|
|
|
308,800 |
|
|
|
|
|
|
|
|
|
|
$ |
89,998,694 |
|
|
|
100 |
% |
|
$ |
95,878,851 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debt and 2nd lien notes |
|
$ |
48,788,108 |
|
|
|
93 |
% |
|
$ |
47,323,885 |
|
|
|
86 |
% |
Equity shares |
|
|
2,714,833 |
|
|
|
5 |
|
|
|
5,633,283 |
|
|
|
10 |
|
Equity warrants |
|
|
1,158,411 |
|
|
|
2 |
|
|
|
1,789,260 |
|
|
|
3 |
|
Royalty rights |
|
|
|
|
|
|
|
|
|
|
250,000 |
|
|
|
1 |
|
|
|
|
|
|
$ |
52,661,352 |
|
|
|
100 |
% |
|
$ |
54,996,428 |
|
|
|
100 |
% |
|
|
|
A summary of our investment portfolio by the geographic location of our portfolio companies is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of |
|
|
|
|
|
Percentage of |
|
|
Cost |
|
Total Portfolio |
|
Fair Value |
|
Total Portfolio |
|
|
|
September 30, 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southeast |
|
$ |
55,608,804 |
|
|
|
62 |
% |
|
$ |
60,623,970 |
|
|
|
63 |
% |
Non-Southeast |
|
|
34,389,890 |
|
|
|
38 |
|
|
|
35,254,881 |
|
|
|
37 |
|
|
|
|
|
|
$ |
89,998,694 |
|
|
|
100 |
% |
|
$ |
95,878,851 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southeast |
|
$ |
27,500,525 |
|
|
|
52 |
% |
|
$ |
30,403,524 |
|
|
|
55 |
% |
Non-Southeast |
|
|
25,160,827 |
|
|
|
48 |
|
|
|
24,592,904 |
|
|
|
45 |
|
|
|
|
|
|
$ |
52,661,352 |
|
|
|
100 |
% |
|
$ |
54,996,428 |
|
|
|
100 |
% |
|
|
|
21
Investment Activity
During the three months ended September 30, 2007, we made two new investments totaling $11.2
million and one additional debt investment in an existing portfolio company of $1.9 million. We
received principal prepayments from two portfolio companies totaling $3.2 million, which resulted
in a realized gain of approximately $0.1 million. In addition, we received normal principal
repayments and PIK interest repayments totaling approximately $0.2 million in the three months
ended September 30, 2007.
Total portfolio investment activity for the three months ended September 30, 2007 was as
follows:
|
|
|
|
|
|
|
Three Months |
|
|
|
Ended |
|
|
|
September 30, 2007 |
|
Fair value of portfolio, July 1, 2007 |
|
$ |
84,328,042 |
|
New investments |
|
|
13,121,373 |
|
Principal repayments and payment in kind interest payments received |
|
|
(3,277,326 |
) |
Payment in kind interest earned |
|
|
420,594 |
|
Accretion/writeoff of loan discounts |
|
|
52,502 |
|
Net unrealized gain on investments |
|
|
1,233,666 |
|
|
|
|
|
|
|
|
|
|
Fair value of portfolio, September 30, 2007 |
|
$ |
95,878,851 |
|
|
|
|
|
Weighted average yield on debt investments as of September 30, 2007 |
|
|
13.8 |
% |
|
|
|
|
Weighted average yield on total investments as of September 30, 2007 |
|
|
12.4 |
% |
|
|
|
|
During the nine months ended September 30, 2007, we made six new investments totaling $40.5
million, one additional debt investment in an existing portfolio company of $1.9 million and one
additional equity investment in an existing portfolio company of approximately $0.1 million. We
sold one investment in a portfolio company for approximately $1.2 million, resulting in a realized
loss of approximately $1.5 million. We received principal prepayments from two portfolio companies
totaling $3.2 million, which resulted in a realized gain of approximately $0.1 million. In
addition, we received normal principal repayments and PIK interest repayments totaling
approximately $0.7 million in the nine months ended September 30, 2007.
Total portfolio investment activity for the nine months ended September 30, 2007 was as
follows:
|
|
|
|
|
|
|
Nine Months |
|
|
|
Ended |
|
|
|
September 30, 2007 |
|
Fair value of portfolio, January 1, 2007 |
|
$ |
54,996,428 |
|
New investments |
|
|
42,534,975 |
|
Proceeds from sale of investment |
|
|
(1,235,777 |
) |
Principal repayments and payment in kind interest payments received |
|
|
(3,841,651 |
) |
Payment in kind interest earned |
|
|
1,044,255 |
|
Accretion/writeoff of loan discounts |
|
|
299,764 |
|
Net unrealized gain on investments |
|
|
2,080,857 |
|
|
|
|
|
|
|
|
|
|
Fair value of portfolio, September 30, 2007 |
|
$ |
95,878,851 |
|
|
|
|
|
Weighted average yield on debt investments as of September 30, 2007 |
|
|
13.8 |
% |
|
|
|
|
Weighted average yield on total investments as of September 30, 2007 |
|
|
12.4 |
% |
|
|
|
|
Results of Operations
Comparison of three months ended September 30, 2007 and September 30, 2006
Investment Income
For the three months ended September 30, 2007, total investment income was $3.6 million, a
110% increase from $1.7 million of total investment income for the three months ended September 30,
2006. This increase was primarily attributable to a $1.3 million increase in total loan interest,
fee and dividend income due to net increase in our portfolio investments from September 30, 2006 to
September 30, 2007. Fee income, consisting primarily of loan prepayment fees, debt amendment fees
and certain management and advisory fees was approximately $0.3 million for the three months ended
September 30, 2007 compared with no fee income in the
22
three months ended September 30, 2006. In addition, interest income from cash and cash
equivalent investments increased by $0.4 million due to a significant increase in average cash
balances in the third quarter of 2007 over the comparable period in 2006 resulting from the receipt
of proceeds of $64.7 million from our Offering in February 2007.
Expenses
For the three months ended September 30, 2007, expenses increased by 81% to $1.6 million from
$0.9 million for the three months ended September 30, 2006. The increase in expenses was primarily
attributable to a $1.0 million increase in general and administrative expenses. As a result of the
Offering and the Formation Transactions described in Note 1 to our unaudited financial statements,
we are an internally managed investment company and, on February 21, 2007, we began incurring
general and administrative costs associated with employing our executive officers, key investment
personnel and corporate professionals and other general corporate overhead costs. In addition, we
experienced an increase in general and administrative costs associated with being a publicly-traded
company, such as increased insurance, accounting, corporate governance and legal costs. These
increases in general and administrative costs were partially offset by a $0.4 million decrease in
management fees. We incurred a full quarter of management fees in the third quarter of 2006 and
incurred no management fees in the third quarter of 2007.
Net Investment Income
As a result of the $1.9 million increase in total investment income and the $0.7 million
increase in expenses, net investment income for the three months ended September 30, 2007 was
$2.0 million compared to net investment income of $0.8 million during the three months ended
September 30, 2006.
Net Increase in Net Assets Resulting From Operations
During the three months ended September 30, 2007, we recorded net unrealized appreciation of
investments in the amount of $1.2 million, comprised of unrealized appreciation on eight
investments totaling $2.4 million and unrealized depreciation on ten investments totaling $1.2
million. In addition, we recognized a realized gain of $0.1 million on an investment in a
portfolio company during the three months ended September 30, 2007. This realized gain resulted
from the writeoff of original issue discount related to the prepayment of the portfolio companys
outstanding subordinated note.
During the three months ended September 30, 2006, we recorded net unrealized appreciation of
investments in the amount of $0.2 million, consisting of unrealized appreciation on two investments
totaling $0.3 million and unrealized depreciation on two investments totaling $0.1 million.
As a result of these events, our net increase in net assets from operations during the three
months ended September 30, 2007 was $3.4 million as compared to $1.1 million for the three months
ended September 30, 2006.
Comparison of nine months ended September 30, 2007 and September 30, 2006
Investment Income
For the nine months ended September 30, 2007, total investment income was $9.0 million, a 79%
increase from $5.0 million of total investment income for the nine months ended September 30, 2006.
This increase was primarily attributable to a $2.4 million increase in total loan interest, fee and
dividend income due to a net increase in our portfolio investments from September 30, 2006 to
September 30, 2007. Fee income, consisting primarily of loan prepayment fees, debt
amendment fees and certain management and advisory fees was approximately $0.5 million for the nine
months ended September 30, 2007 compared with $0.2 for the nine months ended September 30, 2006.
In addition, interest income from cash and cash equivalent investments increased by $1.3 million
due to a significant increase in average cash balances in the first nine months of 2007 over the
comparable period in 2006 resulting from the receipt of proceeds of $64.7 million from our Offering
in February 2007.
Expenses
For the nine months ended September 30, 2007, expenses increased by 70% to $4.6 million from
$2.7 million for the nine months ended September 30, 2006. The increase in expenses was primarily
attributable to a $2.7 million increase in general and administrative expenses and an increase in
interest expense of approximately $0.2 million. As a result of the Offering and the Formation
Transactions described in Note 1 to our unaudited financial statements, we are an internally
managed investment company and, on February 21, 2007, we began incurring general and administrative
costs associated with employing our executive officers, key investment personnel and corporate
professionals and other general corporate overhead costs. In addition, we experienced an increase
in general and administrative costs associated with being a publicly-traded company, such as
increased insurance, accounting, corporate governance and legal costs. These increases in general
and administrative costs were partially offset by a $1.0 million decrease in management fees. We
incurred a full nine months of management fees in the first three quarters of 2006 and only
incurred
management fees through February 21, 2007 in the first nine months of 2007.
23
Net Investment Income
As a result of the $4.0 million increase in total investment income and the $1.9 million
increase in expenses, net investment income for the nine months ended September 30, 2007 was
$4.4 million compared to net investment income of $2.3 million during the nine months ended
September 30, 2006.
Net Increase in Net Assets Resulting From Operations
For the nine months ended September 30, 2007, net realized loss on non-control/non-affiliate
investments was $1.5 million which related to a realized loss on one investment. In addition, we
recognized a realized gain of $0.1 million on an affiliate investment during the nine months ended
September 30, 2007. This realized gain resulted from the writeoff of original issue discount
related to the prepayment of the portfolio companys outstanding subordinated note. During the
nine months ended September 30, 2007, we recorded net unrealized appreciation of investments in the
amount of $3.5 million, comprised primarily of an unrealized appreciation reclassification
adjustment of approximately $1.5 million related to the realized loss noted above. In addition, in
the nine months ended September 30, 2007, we recorded unrealized appreciation on eleven other
investments totaling $4.3 million and unrealized depreciation on ten investments totaling $2.3
million.
For the nine months ended September 30, 2006, net realized gain on non-control/non-affiliate
investments was $6.0 million which related to realized gains on two investments. During the nine
months ended September 30, 2006, we recorded net unrealized depreciation of investments in the
amount of $2.6 million, consisting of (i) unrealized depreciation on three investments totaling
$2.8 million, (ii) an unrealized depreciation reclassification adjustment of approximately $0.7
million related to the realized gains noted above and (iii) unrealized appreciation on five
investments totaling $0.9 million.
As a result of these events, our net increase in net assets from operations during the nine
months ended September 30, 2007 was $6.7 million as compared to $5.8 million for the nine months
ended September 30, 2006.
Liquidity and Capital Resources
We believe that our current cash and cash equivalents on hand, our anticipated cash flows from
operations and the proceeds from our recent Offering will be adequate to meet our cash needs for
our daily operations for at least the next twelve months.
Cash Flows
For the nine months ended September 30, 2007, we experienced a net increase in cash and cash
equivalents in the amount of $33.2 million. During that period, our operating activities used
$34.5 million in cash, and we generated $67.8 million of cash from financing activities, consisting
primarily of (i) proceeds from our Offering of $64.7 million, (ii) proceeds from the issuance of
SBA guaranteed debentures of $4.0 million and (iii) a decrease in deferred offering costs of $1.0
million, partially offset by cash dividends paid of $1.1 million, tax distributions to partners of
$0.8 million and financing fees paid to the SBA of $0.1 million. At September 30, 2007, we had
$35.8 million of cash and cash equivalents on hand.
For the nine months ended September 30, 2006, we experienced a net increase in cash and cash
equivalents in the amount of $1.3 million. During that period, we used $4.3 million in cash to fund
operating activities, and we generated $5.6 million of cash from financing activities consisting of
limited partner capital contributions of $10.6 million, offset by distributions to limited partners
totaling $5.0 million.
As of September 30, 2007, our net assets totaled $95.2 million, with a net asset value per
share of $13.99, and we had approximately $35.8 million in cash and cash equivalents. We intend to
generate additional cash from operations, including income earned from investments in our portfolio
companies and from the temporary investment of cash in short-term money market accounts. Our
primary use of funds will be to make investments in portfolio companies, pay operating expenses,
pay interest on our SBA guaranteed debentures and pay dividends on our outstanding common stock.
After we have used our current capital resources, we expect to raise additional capital to support
our future growth through future equity offerings and/or future issuances of SBA backed debentures,
to the extent permitted by the SBA and the 1940 Act.
Financing Transactions
Due to the Funds status as a licensed SBIC, the Fund has the ability to issue SBA guaranteed
debentures at favorable interest rates. 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 twice the amount of its Regulatory Capital. As of
September 30, 2007, the maximum statutory limit on the dollar amount of outstanding SBA guaranteed
debentures issued by a single
24
SBIC is $127.2 million (which amount is subject to increase on an annual basis based on cost
of living increases). With $63.3 million of Regulatory Capital as of September 30, 2007, the Fund
has the current capacity to issue up to a total of $126.5 million of SBA guaranteed debentures,
subject to the payment of a 1% commitment fee to the SBA in the amount of the commitment.
Currently, the Fund has paid commitment fees for and has a commitment from the SBA to issue a total
of $41.9 million of SBA guaranteed debentures, of which $35.8 million are outstanding as of
September 30, 2007. In order to access the additional $84.6 million in borrowing capacity for
which the Fund is currently eligible, the Fund would incur non-refundable commitment fees of
$846,000.
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 1, 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. As of September 30, 2007, the Fund had issued
$35.8 million of debentures guaranteed by the SBA, which debentures had a weighted average interest
rate of 5.82% per annum.
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 value our investment portfolio each quarter. As discussed below, we have
engaged an independent valuation firm to assist us in our valuation process.
Securities that are publicly traded, if any, are valued at the closing price of the exchange
or securities market on which they are listed on the valuation date. Securities that are not traded
on a public exchange or securities market but for which a limited market exists are valued at the
indicative bid price offered on the valuation date. As of September 30, 2007, none of the debt
securities in our portfolio were publicly traded or had a limited market, and there was a limited
market for one of the equity securities we owned.
Debt and equity securities that are not publicly traded and for which a 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 the facts and
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 which, for investments that are
less than nine months old, typically equates to our original cost basis, unless there has been
significant over-performance or under-performance by the portfolio company. In making the good
faith determination of the value of these securities, we start with the cost basis of the security,
which includes the amortized original issue discount, and PIK interest, if any. Management
evaluates our investments in portfolio companies using the most recent portfolio company financial
statements and forecasts. Management also consults with portfolio company 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 addition, when evaluating
equity securities of private companies, we consider generally accepted valuation methodologies.
These valuation techniques consist of: discounted cash flow of the expected sale price in the
future, valuation of the securities based on recent sales in comparable transactions, and 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.
We seek to determine the value of the security as if we intended to sell the security at the
time of the valuation. To estimate the current sale price of the security, 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; |
25
|
|
|
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. |
Due to the uncertainty inherent in the valuation process, such estimates of fair value may
differ significantly from the values that would have been obtained had a ready market for the
securities existed, and the differences could be material. Additionally, 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.
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). It is our
policy to 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.
As of September 30, 2006, we asked Duff & Phelps to perform the procedures on investments in
17 portfolio companies comprising 100% of the total investments at fair value as of September 30,
2006. As of December 31, 2006, we asked Duff & Phelps to perform the procedures on investments in
six portfolio companies comprising approximately 41% of the total investments at fair value
(exclusive of the fair value of new investments made during the quarter) as of December 31, 2006.
For the quarter ended March 31, 2007, we asked Duff & Phelps to perform the procedures on
investments in five 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,
2007. For the quarter ended June 30, 2007, we asked Duff & Phelps to perform the procedures on
investments in five portfolio companies comprising approximately 28% of the total investments at
fair value (exclusive of the fair value of new investments made during the quarter) as of June 30,
2007. For the quarter ended September 30, 2007, we asked Duff & Phelps to perform the procedures
on investments in five portfolio companies comprising approximately 29% of the total investments at
fair value (exclusive of the fair value of new investments made during the quarter) as of September
30, 2007. 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. We stop accruing interest on investments and 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.
Payment-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 recorded as interest income. 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. We will stop accruing PIK interest and write off any accrued and uncollected
interest when it is determined that PIK interest is no longer collectible.
26
Recently Issued Accounting Standards
In February 2006, the FASB issued FASB Statement No. 155, Accounting for Certain Hybrid
Financial Instruments, an amendment of FASB Statements No. 133 and 140. This Statement was
effective for all financial instruments acquired or issued after the beginning of an entitys first
fiscal year that begins after September 15, 2006. The adoption of this statement did not have a
material impact on our financial position, results of operations or cash flows.
In July 2006, the FASB released FASB Interpretation No. 48, Accounting for Uncertainty in
Income Taxes (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be
recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the
evaluation of tax positions taken or expected to be taken in the course of preparing the Companys
tax returns to determine whether the tax positions are more-likely-than-not of being sustained by
the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold
would be recorded as a tax benefit or expense in the current year. Adoption of FIN 48 is required
for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of
the effective date. The adoption of this statement did not have a material impact on our financial
position, or results of operations or cash flows.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair
Value Measurements (SFAS 157), which defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair
value measurements. This Statement applies under other accounting pronouncements that require or
permit fair value measurements, the FASB having previously concluded in those accounting
pronouncements that fair value is the relevant measurement attribute. SFAS 157 is effective for
financial statements issued for fiscal years beginning after November 15, 2007, and interim periods
within those fiscal years. We are currently evaluating the impact on our financial statements of
adopting SFAS 157.
In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The
Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an amendment of FASB
Statement No. 115 (SFAS 159), which permits entities to choose to measure many financial
instruments and certain other items at fair value. The objective of SFAS 159 is to improve
financial reporting by providing entities with the opportunity to mitigate volatility in reported
earnings caused by measuring related assets and liabilities differently without having to apply
complex hedge accounting provisions. This Statement is expected to expand the use of fair value
measurement, which is consistent with the Boards long-term measurement objectives for accounting
for financial instruments. Under SFAS 159, unrealized gains and losses on items for which the fair
value option has been elected are reported in earnings (or another performance indicator if the
business entity does not report earnings) at each subsequent reporting date. SFAS 159 is effective
for financial statements issued for fiscal years beginning after November 15, 2007, and interim
periods within those fiscal years. We are currently evaluating the impact on our financial
statements of the adoption of SFAS 159.
Off-Balance Sheet Arrangements
We currently have no off-balance sheet arrangements.
Related Party Transactions
Effective concurrently with the closing of the Offering, TML, the general partner of the Fund,
merged into a wholly-owned subsidiary of Triangle Capital Corporation. A substantial majority of
the ownership interests of TML were owned by our Chief Executive Officer, Chief Investment Officer,
Chief Financial Officer and two of our Managing Directors. As a result of such merger, these five
individuals collectively received shares of our common stock valued at approximately $6.7 million.
Three members of our management, including our Chief Executive Officer, and two of our
Managing Directors, collectively own approximately 67% of Triangle Capital Partners, LLC. As of
September 30, 2007, Triangle Capital Partners, LLC owned 10,973 shares of Triangle Capital
Corporations common stock. Prior to the closing of the Offering, Triangle Capital Partners, LLC
provided management and advisory services to the Fund pursuant to a management services agreement
dated as of February 3, 2003. Under the terms of this management services agreement, Triangle
Capital Partners, LLC received approximately $0.2 million and $1.2 million in management fees from
the Fund during the nine months ended September 30, 2007 and 2006, respectively. This agreement
terminated upon the closing of the Offering.
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
27
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 2006
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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are subject to financial market risks, including changes in interest rates. Changes in
interest rates affect both our cost of funding and the valuation of our investment portfolio. Our
risk management systems and procedures are designed to identify and analyze our risk, to set
appropriate policies and limits and to continually monitor these risks and limits by means of
reliable administrative and information systems and other policies and programs. Our investment
income is affected by changes in various interest rates, including LIBOR and prime rates. As of
September 30, 2007, approximately 81.6% of our debt investment portfolio bore interest at fixed
rates. All of our outstanding indebtedness is currently at fixed rates. See page 7 of this
quarterly report for tabular information regarding our investments, interest rates and fair values
as of September 30, 2007 which are subject to the aforementioned financial market risks.
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 2007 that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
28
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
Neither Triangle Capital Corporation nor any of its subsidiaries is a party to any pending
legal proceedings.
Item 1A. Risk Factors.
There were no material changes from the risk factors as previously disclosed in Item 1A of
Part I of our Annual Report on Form 10-K for the year ended December 31, 2006.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits.
|
|
|
Number |
|
Exhibit |
2.1
|
|
Agreement and Plan of Merger, dated as of November 2, 2006, by and among Triangle
Capital Corporation, New Triangle GP, LLC, and Triangle Mezzanine LLC (Filed as
Exhibit (k)(7) to the Registrants Registration Statement on Form N-2/N-5 (File No.
333-138418) filed with the Securities and Exchange Commission on November 3, 2006
and incorporated herein by reference). |
|
|
|
2.2
|
|
Agreement and Plan of Merger, dated as of November 2, 2006, by and among Triangle
Capital Corporation, TCC Merger Sub, LLC and Triangle Mezzanine Fund LLLP (Filed as
Exhibit (k)(8) to the Registrants Registration Statement on Form N-2/N-5 (File No.
333-138418) filed with the Securities and Exchange Commission on November 3, 2006
and incorporated herein by reference). |
|
|
|
3.1
|
|
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). |
|
|
|
3.2
|
|
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). |
|
|
|
3.3
|
|
Amended and Restated Bylaws of the Registrant (Filed as Exhibit (b) 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). |
|
|
|
3.4
|
|
Second Amended and Restated Agreement of
Limited Partnership of Triangle Mezzanine Fund LLLP. |
|
|
|
4.1
|
|
Form of Common Stock Certificate (Filed as Exhibit (d) to the Registrants post
- -effective amendment to the Registration Statement on Form N-2/N-5 (File No.
333-138418) filed with the Securities and Exchange Commission on February 15, 2007
and incorporated herein by reference). |
|
|
|
4.2
|
|
Form of Dividend Reinvestment Plan (Filed as Exhibit (e) 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). |
|
|
|
31.1
|
|
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. |
|
|
|
31.2
|
|
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. |
|
|
|
32.1
|
|
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. |
|
|
|
32.2
|
|
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. |
29
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.
|
|
|
|
|
|
TRIANGLE CAPITAL CORPORATION
|
|
Date: November 7, 2007 |
/s/ Garland S. Tucker, III
|
|
|
Garland S. Tucker, III |
|
|
President, Chief Executive Officer and
Chairman of the Board of Directors |
|
|
|
|
|
Date: November 7, 2007 |
/s/ Steven C. Lilly
|
|
|
Steven C. Lilly |
|
|
Chief Financial Officer and Director |
|
|
|
|
|
Date: November 7, 2007 |
/s/ C. Robert Knox, Jr.
|
|
|
C. Robert Knox, Jr. |
|
|
Principal Accounting Officer |
|
|
30
EXHIBIT INDEX
|
|
|
Number |
|
Exhibit |
2.1
|
|
Agreement and Plan of Merger, dated as of November 2, 2006, by and among Triangle
Capital Corporation, New Triangle GP, LLC, and Triangle Mezzanine LLC (Filed as
Exhibit (k)(7) to the Registrants Registration Statement on Form N-2/N-5 (File No.
333-138418) filed with the Securities and Exchange Commission on November 3, 2006
and incorporated herein by reference). |
|
|
|
2.2
|
|
Agreement and Plan of Merger, dated as of November 2, 2006, by and among Triangle
Capital Corporation, TCC Merger Sub, LLC and Triangle Mezzanine Fund LLLP (Filed as
Exhibit (k)(8) to the Registrants Registration Statement on Form N-2/N-5 (File No.
333-138418) filed with the Securities and Exchange Commission on November 3, 2006
and incorporated herein by reference). |
|
|
|
3.1
|
|
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). |
|
3.2
|
|
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). |
|
|
|
3.3
|
|
Amended and Restated Bylaws of the Registrant (Filed as Exhibit (b) 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). |
|
|
|
3.4
|
|
Second Amended and Restated Agreement of
Limited Partnership of Triangle Mezzanine Fund LLLP. |
|
|
|
4.1
|
|
Form of Common Stock Certificate (Filed as Exhibit (d) to the Registrants post
- -effective amendment to the Registration Statement on Form N-2/N-5 (File No.
333-138418) filed with the Securities and Exchange Commission on February 15, 2007
and incorporated herein by reference). |
|
|
|
4.2
|
|
Form of Dividend Reinvestment Plan (Filed as Exhibit (e) 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). |
|
|
|
31.1
|
|
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. |
|
|
|
31.2
|
|
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. |
|
|
|
32.1
|
|
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. |
|
|
|
32.2
|
|
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. |