UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
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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 March 31, 2008
OR
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o |
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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
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27612 |
(Address and zip code of principal executive offices)
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(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, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange
Act. (Check one):
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Large accelerated filer: o
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Accelerated filer: o
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Non-accelerated filer: þ
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Smaller reporting company: o |
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(Do not check if a smaller reporting company) |
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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 May 1, 2008 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
Consolidated Balance Sheets
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March 31, |
|
December 31, |
|
|
2008 |
|
2007 |
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|
(Unaudited) |
|
|
|
|
Assets |
|
|
|
|
|
|
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|
Investments at fair value: |
|
|
|
|
|
|
|
|
Non-Control / Non-Affiliate investments (cost
of $78,569,772 and $66,819,386 at March 31, 2008
and December 31, 2007, respectively) |
|
$ |
79,704,224 |
|
|
$ |
69,078,281 |
|
Affiliate investments (cost of $29,431,381 and $24,487,895
at March 31, 2008 and December 31, 2007,
respectively) |
|
|
29,866,379 |
|
|
|
25,041,093 |
|
Control investments (cost of $13,430,867and $15,910,498
at March 31, 2008 and December 31, 2007,
respectively) |
|
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17,821,613 |
|
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|
20,254,844 |
|
|
|
|
Total investments at fair value |
|
|
127,392,216 |
|
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|
114,374,218 |
|
Deferred loan origination revenue |
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|
(1,571,822 |
) |
|
|
(1,368,603 |
) |
Cash and cash equivalents |
|
|
15,611,011 |
|
|
|
21,787,750 |
|
Interest and fees receivable |
|
|
404,084 |
|
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|
305,159 |
|
Prepaid expenses and other current assets |
|
|
177,962 |
|
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|
47,477 |
|
Deferred financing fees |
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1,752,488 |
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|
999,159 |
|
Property and equipment, net |
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32,916 |
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34,166 |
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Total assets |
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$ |
143,798,855 |
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$ |
136,179,326 |
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Liabilities |
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Accounts payable and accrued liabilities |
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$ |
643,633 |
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$ |
1,144,222 |
|
Interest payable |
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|
185,999 |
|
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|
698,735 |
|
Dividends payable |
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|
|
|
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2,041,159 |
|
Income taxes payable |
|
|
95,580 |
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|
52,598 |
|
Deferred income taxes |
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|
1,585,899 |
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1,760,259 |
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SBA guaranteed debentures payable |
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|
47,050,000 |
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37,010,000 |
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Total liabilities |
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49,561,111 |
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42,706,973 |
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Net Assets |
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Common stock, $0.001 par value per share (150,000,000
shares authorized, 6,803,863 shares issued and
outstanding as of March 31, 2008 and December 31, 2007) |
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|
6,804 |
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|
6,804 |
|
Additional paid-in capital |
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86,949,189 |
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|
86,949,189 |
|
Investment income in excess of distributions |
|
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3,526,071 |
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1,738,797 |
|
Accumulated realized losses on investments |
|
|
(618,620 |
) |
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|
(618,620 |
) |
Net unrealized appreciation of investments |
|
|
4,374,300 |
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|
5,396,183 |
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Total net assets |
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94,237,744 |
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93,472,353 |
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Total liabilities and net assets |
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$ |
143,798,855 |
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$ |
136,179,326 |
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Net asset value per share |
|
$ |
13.85 |
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$ |
13.74 |
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|
See accompanying notes.
3
TRIANGLE CAPITAL CORPORATION
Unaudited Statements of Operations
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Three Months |
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Three Months |
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Ended |
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Ended |
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March 31, 2008 |
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March 31, 2007 |
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(Consolidated) |
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(Combined) |
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Investment income: |
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Loan interest, fee and dividend income: |
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Non-Control / Non-Affiliate investments |
|
$ |
1,921,769 |
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$ |
1,155,622 |
|
Affiliate investments |
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748,766 |
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274,614 |
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Control investments |
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487,434 |
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75,718 |
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Total loan interest, fee and dividend income |
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3,157,969 |
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1,505,954 |
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Paid-in-kind interest income: |
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Non-Control / Non-Affiliate investments |
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296,636 |
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174,796 |
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Affiliate investments |
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142,552 |
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29,250 |
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Control investments |
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129,395 |
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42,948 |
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Total paid-in-kind interest income |
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568,583 |
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246,994 |
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Interest income from cash and cash equivalent investments |
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137,432 |
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359,168 |
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Total investment income |
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3,863,984 |
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2,112,116 |
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Expenses: |
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|
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Interest expense |
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561,815 |
|
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|
499,691 |
|
Amortization of deferred financing fees |
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|
40,141 |
|
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|
27,108 |
|
Management fees |
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|
232,423 |
|
General and administrative expenses |
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|
1,348,333 |
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|
548,164 |
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Total expenses |
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1,950,289 |
|
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|
1,307,386 |
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|
Net investment income |
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|
1,913,695 |
|
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|
804,730 |
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|
|
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Net realized loss on investment Non Control / Non-Affiliate |
|
|
|
|
|
|
(1,464,224 |
) |
Net unrealized appreciation (depreciation) of investments |
|
|
(1,021,883 |
) |
|
|
1,725,329 |
|
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|
Total net gain (loss) on investments before income taxes |
|
|
(1,021,883 |
) |
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|
261,105 |
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|
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|
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Income tax expense |
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|
126,421 |
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|
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|
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Net increase in net assets resulting from operations |
|
$ |
765,391 |
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$ |
1,065,835 |
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Net investment income per share basic and diluted |
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$ |
0.28 |
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$ |
0.12 |
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Net increase in net assets resulting from operations per
share basic and diluted |
|
$ |
0.11 |
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$ |
0.16 |
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Weighted average number of shares outstanding basic and
diluted |
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6,803,863 |
|
|
|
6,686,760 |
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|
See accompanying notes.
4
TRIANGLE CAPITAL CORPORATION
Unaudited Statements of Changes in Net Assets
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Investment |
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Accumulated |
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Net |
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Income |
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Realized |
|
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Unrealized |
|
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General |
|
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Limited |
|
|
Common Stock |
|
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Additional |
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in Excess of |
|
|
Gains |
|
|
Appreciation |
|
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Total |
|
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|
Partners |
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Partners |
|
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Number |
|
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Par |
|
Paid In |
|
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(Less Than) |
|
|
(Losses) on |
|
|
(Depreciation) of |
|
|
Net |
|
|
|
Capital |
|
|
Capital |
|
|
of Shares |
|
|
Value |
|
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Capital |
|
Distributions |
|
|
Investments |
|
|
Investments |
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|
Assets |
|
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|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
804,730 |
|
|
|
|
|
|
|
|
|
|
|
804,730 |
|
Realized loss on investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,464,224 |
) |
|
|
1,464,224 |
|
|
|
|
|
Net unrealized gains on
investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
261,105 |
|
|
|
261,105 |
|
Tax distribution to partners |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(220,047 |
) |
|
|
|
|
|
|
|
|
|
|
(220,047 |
) |
|
|
|
|
|
|
|
|
Balance, March 31, 2007 |
|
$ |
|
|
|
$ |
|
|
|
|
6,686,760 |
|
|
$ |
6,687 |
|
|
$ |
85,972,950 |
|
|
$ |
2,154,818 |
|
|
$ |
(1,464,224 |
) |
|
$ |
4,060,405 |
|
|
$ |
90,730,636 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
|
|
|
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|
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|
|
|
|
|
|
Investment |
|
|
Accumulated |
|
|
Net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income |
|
|
Realized |
|
|
Unrealized |
|
|
|
|
|
|
Common Stock |
|
|
Additional |
|
|
in Excess of |
|
|
Gains |
|
|
Appreciation |
|
|
Total |
|
|
|
Number |
|
|
Par |
|
|
Paid In |
|
|
(Less Than) |
|
|
(Losses) on |
|
|
(Depreciation) of |
|
|
Net |
|
|
|
of Shares |
|
|
Value |
|
|
Capital |
|
|
Distributions |
|
|
Investments |
|
|
Investments |
|
|
Assets |
|
|
|
|
Balance, January 1, 2008 |
|
|
6,803,863 |
|
|
$ |
6,804 |
|
|
$ |
86,949,189 |
|
|
$ |
1,738,797 |
|
|
$ |
(618,620 |
) |
|
$ |
5,396,183 |
|
|
$ |
93,472,353 |
|
Net investment income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,913,695 |
|
|
|
|
|
|
|
|
|
|
|
1,913,695 |
|
Provision for income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(126,421 |
) |
|
|
|
|
|
|
|
|
|
|
(126,421 |
) |
Net unrealized losses on
investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,021,883 |
) |
|
|
(1,021,883 |
) |
|
|
|
|
|
|
|
|
|
Balance, March 31, 2008 |
|
|
6,803,863 |
|
|
$ |
6,804 |
|
|
$ |
86,949,189 |
|
|
$ |
3,526,071 |
|
|
$ |
(618,620 |
) |
|
$ |
4,374,300 |
|
|
$ |
94,237,744 |
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
5
TRIANGLE CAPITAL CORPORATION
Unaudited Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Three Months Ended |
|
|
March 31, |
|
March 31, |
|
|
2008 |
|
2007 |
|
|
(Consolidated) |
|
(Combined) |
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net increase in net assets resulting from operations |
|
$ |
765,391 |
|
|
$ |
1,065,835 |
|
Adjustments to reconcile net increase in net assets resulting
from operations to net cash provided by (used in) operating
activities: |
|
|
|
|
|
|
|
|
Purchases of portfolio investments |
|
|
(14,123,791 |
) |
|
|
(63,602 |
) |
Repayments received/sales of portfolio investments |
|
|
475,404 |
|
|
|
1,424,112 |
|
Loan origination and other fees received |
|
|
403,889 |
|
|
|
27,500 |
|
Net realized loss on investments |
|
|
|
|
|
|
1,464,224 |
|
Net unrealized depreciation (appreciation) of investments |
|
|
1,196,243 |
|
|
|
(1,725,329 |
) |
Deferred income taxes |
|
|
(174,360 |
) |
|
|
|
|
Paid-in-kind interest accrued, net of payments received |
|
|
(541,434 |
) |
|
|
(142,908 |
) |
Amortization of deferred financing fees |
|
|
40,141 |
|
|
|
27,108 |
|
Recognition of loan origination and other fees |
|
|
(200,670 |
) |
|
|
(47,057 |
) |
Accretion of loan discounts |
|
|
(24,420 |
) |
|
|
(51,953 |
) |
Depreciation expense |
|
|
3,265 |
|
|
|
358 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Interest and fees receivable |
|
|
(98,925 |
) |
|
|
(46,782 |
) |
Prepaid expenses |
|
|
(130,485 |
) |
|
|
(70,892 |
) |
Accounts payable and accrued liabilities |
|
|
(500,589 |
) |
|
|
(234,839 |
) |
Interest payable |
|
|
(512,736 |
) |
|
|
(449,456 |
) |
Income taxes payable |
|
|
42,982 |
|
|
|
|
|
Receivable from / payable to Triangle Capital Partners, LLC |
|
|
|
|
|
|
(48,687 |
) |
|
|
|
Net cash provided by (used in) operating activities |
|
|
(13,380,095 |
) |
|
|
1,127,632 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(2,015 |
) |
|
|
(12,905 |
) |
|
|
|
Net cash used in investing activities |
|
|
(2,015 |
) |
|
|
(12,905 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Borrowings under SBA guaranteed debentures payable |
|
|
10,040,000 |
|
|
|
4,000,000 |
|
Financing fees paid |
|
|
(793,470 |
) |
|
|
(97,000 |
) |
Proceeds from initial public offering, net of expenses |
|
|
|
|
|
|
64,728,037 |
|
Change in deferred offering costs |
|
|
|
|
|
|
1,020,646 |
|
Cash dividends paid |
|
|
(2,041,159 |
) |
|
|
|
|
Tax distribution to partners |
|
|
|
|
|
|
(531,566 |
) |
|
|
|
Net cash provided by financing activities |
|
|
7,205,371 |
|
|
|
69,120,117 |
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
(6,176,739 |
) |
|
|
70,234,844 |
|
Cash and cash equivalents, beginning of period |
|
|
21,787,750 |
|
|
|
2,556,502 |
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
15,611,011 |
|
|
$ |
72,791,346 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
1,074,552 |
|
|
$ |
949,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Summary of non-cash financing transactions: |
|
|
|
|
|
|
|
|
Accrued tax distribution to partners |
|
$ |
|
|
|
$ |
220,047 |
|
|
|
|
See accompanying notes.
6
TRIANGLE CAPITAL CORPORATION
Unaudited Consolidated Schedule of Investments
March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment |
|
|
|
|
|
|
|
|
|
Fair |
Portfolio Company |
|
Industry |
|
(1)(2) |
|
Principal Amount |
|
Cost |
|
Value (3) |
Non-Control / Non-Affiliate Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ambient Air Corporation (6%)*
|
|
Specialty Trade
Contractors
|
|
Subordinated Note (12%,
Due 03/11)
|
|
|
$ 3,144,654 |
|
|
|
$ 3,049,405 |
|
|
|
$ 3,049,405 |
|
|
|
|
|
Subordinated Note (14%,
Due 03/11)
|
|
|
1,872,075 |
|
|
|
1,872,075 |
|
|
|
1,872,075 |
|
|
|
|
|
Common Stock Warrants
(455 shares)
|
|
|
|
|
|
|
142,361 |
|
|
|
882,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,016,729 |
|
|
|
5,063,841 |
|
|
|
5,804,280 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
APO Newco, LLC (5%)*
|
|
Commercial and
Consumer Marketing
Products
|
|
Subordinated Note (14%,
Due 03/13) |
|
|
|
|
|
|
4,314,941 |
|
|
|
4,314,941
|
|
|
|
|
|
Unit purchase warrant
(87,302 Class C units)
|
|
|
4,337,078 |
|
|
|
25,200 |
|
|
|
273,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,337,078 |
|
|
|
4,340,141 |
|
|
|
4,588,841 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARC Industries, LLC (3%)*
|
|
Remediation Services
|
|
Subordinated Note (19%,
Due 11/10)
|
|
|
2,434,027 |
|
|
|
2,434,027 |
|
|
|
2,434,027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,434,027 |
|
|
|
2,434,027 |
|
|
|
2,434,027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Art Headquarters, LLC (3%)*
|
|
Retail, Wholesale
and Distribution
|
|
Subordinated Note (14%,
Due 01/10)
|
|
|
2,376,823 |
|
|
|
2,359,270 |
|
|
|
2,359,270 |
|
|
|
|
|
Membership unit
warrants (15% of units
(150 units))
|
|
|
|
|
|
|
40,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,376,823 |
|
|
|
2,400,070 |
|
|
|
2,359,270 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assurance Operations
Corporation (4%)*
|
|
Auto Components /Metal
Fabrication
|
|
Subordinated Note (17%,
Due 03/12)
|
|
|
3,876,915 |
|
|
|
3,876,915 |
|
|
|
3,643,115 |
|
|
|
|
|
Common Stock (57 shares)
|
|
|
|
|
|
|
257,143 |
|
|
|
48,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,876,915 |
|
|
|
4,134,058 |
|
|
|
3,691,615 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bruce Plastics, Inc. (1%)*
|
|
Plastic Component
Manufacturing
|
|
Subordinated Note (14%,
Due 10/11)
|
|
|
1,500,000 |
|
|
|
1,416,604 |
|
|
|
538,404 |
|
|
|
|
|
Common Stock Warrants
(12% of common stock)
|
|
|
|
|
|
|
108,534 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,500,000 |
|
|
|
1,525,138 |
|
|
|
538,404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CV Holdings, LLC (6%)*
|
|
Specialty
Healthcare Products
Manufacturer
|
|
Subordinated Note (16%,
Due 03/10)
|
|
|
5,052,217 |
|
|
|
5,052,217 |
|
|
|
5,052,217 |
|
|
|
|
|
Royalty rights
|
|
|
|
|
|
|
|
|
|
|
274,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,052,217 |
|
|
|
5,052,217 |
|
|
|
5,326,817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cyrus Networks, LLC (6%)*
|
|
Data Center
Services Provider
|
|
Senior Note
(8%, Due 07/13)
|
|
|
4,595,208 |
|
|
|
4,595,208 |
|
|
|
4,595,208 |
|
|
|
|
|
2nd Lien Note
(11%, Due 01/14)
|
|
|
980,428 |
|
|
|
980,428 |
|
|
|
980,428 |
|
|
|
|
|
Revolving Line of
Credit (8%)
|
|
|
70,880 |
|
|
|
70,880 |
|
|
|
70,880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,646,516 |
|
|
|
5,646,516 |
|
|
|
5,646,516 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DataPath, Inc. (1%)*
|
|
Satellite
Communication
Manufacturer
|
|
Common Stock (210,263
shares)
|
|
|
|
|
|
|
101,500 |
|
|
|
576,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101,500 |
|
|
|
576,400 |
|
Eastern Shore Ambulance,
Inc. (1%)*
|
|
Specialty Health
Care Services
|
|
Subordinated Note (13%,
Due 03/11)
|
|
|
1,000,000 |
|
|
|
961,318 |
|
|
|
961,318 |
|
|
|
|
|
Common Stock Warrants
(6% of common stock)
|
|
|
|
|
|
|
55,268 |
|
|
|
11,200 |
|
|
|
|
|
Common Stock
(30 shares)
|
|
|
|
|
|
|
30,000 |
|
|
|
2,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000,000 |
|
|
|
1,046,586 |
|
|
|
975,418 |
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment |
|
|
|
|
|
|
|
|
|
Fair |
Portfolio Company |
|
Industry |
|
(1)(2) |
|
Principal Amount |
|
Cost |
|
Value (3) |
Electronic Systems
Protection, Inc. (5%)*
|
|
Power Protection
Systems
Manufacturing
|
|
Subordinated Note (14%,
Due 12/15)
|
|
|
$ 3,013,833 |
|
|
|
$ 3,013,833 |
|
|
|
$ 3,013,833 |
|
|
|
|
|
Senior Note
(7%, Due 01/14)
|
|
|
997,110 |
|
|
|
997,110 |
|
|
|
997,110 |
|
|
|
|
|
Common Stock
(500 shares)
|
|
|
|
|
|
|
250,000 |
|
|
|
250,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,010,943 |
|
|
|
4,260,943 |
|
|
|
4,260,943 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy Hardware Holdings,
LLC (4%)*
|
|
Machined Parts
Distribution
|
|
Subordinated Note
(14.5%, Due 10/12)
|
|
|
3,285,819 |
|
|
|
3,285,819 |
|
|
|
3,285,819 |
|
|
|
|
|
Junior Subordinated Note
(8%, Due 10/12)
|
|
|
207,667 |
|
|
|
207,667 |
|
|
|
207,667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,493,486 |
|
|
|
3,493,486 |
|
|
|
3,493,486 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FCL Graphics, Inc. (8%)*
|
|
Commercial Printing
Services
|
|
Senior Note
(7%, Due 10/12)
|
|
|
1,880,000 |
|
|
|
1,880,000 |
|
|
|
1,880,000 |
|
|
|
|
|
Senior Note
(12%, Due 10/13)
|
|
|
2,000,000 |
|
|
|
2,000,000 |
|
|
|
2,000,000 |
|
|
|
|
|
2nd Lien Note
(18%, Due 4/14)
|
|
|
3,205,492 |
|
|
|
3,205,492 |
|
|
|
3,205,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,085,492 |
|
|
|
7,085,492 |
|
|
|
7,085,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fire Sprinkler Systems, Inc.
(3%)*
|
|
Specialty Trade
Contractors
|
|
Subordinated Notes
(13%-17.5%, Due 04/11)
|
|
|
2,441,060 |
|
|
|
2,441,060 |
|
|
|
2,441,060 |
|
|
|
|
|
Common Stock (250
shares)
|
|
|
|
|
|
|
250,000 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,441,060 |
|
|
|
2,691,060 |
|
|
|
2,441,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
1,097,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,750,000 |
|
|
|
4,058,333 |
|
|
|
4,847,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Garden Fresh Restaurant
Corp. (4%)*
|
|
Restaurant
|
|
2nd Lien Note
(13%, Due 12/11)
|
|
|
3,000,000 |
|
|
|
3,000,000 |
|
|
|
3,000,000 |
|
|
|
|
|
Membership Units (5,000
units)
|
|
|
|
|
|
|
500,000 |
|
|
|
450,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000,000 |
|
|
|
3,500,000 |
|
|
|
3,450,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gerli & Company (3%)*
|
|
Specialty Woven
Fabrics
Manufacturer
|
|
Subordinated Note (14%,
Due 08/11)
|
|
|
3,129,726 |
|
|
|
3,076,896 |
|
|
|
3,076,896 |
|
|
|
|
|
Common Stock Warrants
(56,559 shares)
|
|
|
|
|
|
|
83,414 |
|
|
|
29,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,129,726 |
|
|
|
3,160,310 |
|
|
|
3,106,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Library Systems & Services,
LLC (3%)*
|
|
Municipal Business
Services
|
|
Subordinated Note (12%,
Due 03/11)
|
|
|
2,000,000 |
|
|
|
1,963,309 |
|
|
|
1,963,309 |
|
|
|
|
|
Common Stock Warrants
(112 shares)
|
|
|
|
|
|
|
58,995 |
|
|
|
560,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000,000 |
|
|
|
2,022,304 |
|
|
|
2,523,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Syrgis Holdings, Inc. (6%)*
|
|
Specialty Chemical
Manufacturer
|
|
Senior Note (9%, Due
08/12-02/14)
|
|
|
4,865,000 |
|
|
|
4,865,000 |
|
|
|
4,865,000 |
|
|
|
|
|
Common Units (2,114
units)
|
|
|
|
|
|
|
1,000,000 |
|
|
|
1,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,865,000 |
|
|
|
5,865,000 |
|
|
|
5,865,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TrustHouse Services Group,
Inc. (5%)*
|
|
Food Management
Services
|
|
Subordinated Note (14%,
Due 03/15)
|
|
|
4,200,000 |
|
|
|
4,200,000 |
|
|
|
4,200,000 |
|
|
|
|
|
Class A Units
(1,495 units)
|
|
|
|
|
|
|
475,000 |
|
|
|
475,000 |
|
|
|
|
|
Class B Units
(79 units)
|
|
|
|
|
|
|
25,000 |
|
|
|
25,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,200,000 |
|
|
|
4,700,000 |
|
|
|
4,700,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment |
|
|
|
|
|
|
|
|
|
Fair |
Portfolio Company |
|
Industry |
|
(1)(2) |
|
Principal Amount |
|
Cost |
|
Value (3) |
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%, Due
04/13)
|
|
|
1,488,750 |
|
|
|
1,488,750 |
|
|
|
1,488,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,988,750 |
|
|
|
5,988,750 |
|
|
|
5,988,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Non-Control / Non-Affiliate Investments |
|
|
|
|
75,204,762 |
|
|
|
78,569,772 |
|
|
|
79,704,224 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliate Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Point, LLC (5%)*
|
|
Asset Management
Software Provider
|
|
Subordinated Note (15%,
Due 03/13)
|
|
|
4,309,151 |
|
|
|
4,309,151 |
|
|
|
4,309,151 |
|
|
|
|
|
Membership Units
(10 units)
|
|
|
|
|
|
|
500,000 |
|
|
|
500,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,309,151 |
|
|
|
4,809,151 |
|
|
|
4,809,151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Axxiom Manufacturing, Inc.
(3%)*
|
|
Industrial
Equipment
Manufacturer
|
|
Subordinated Note (14%,
Due 01/11)
|
|
|
2,091,861 |
|
|
|
2,091,861 |
|
|
|
2,091,861 |
|
|
|
|
|
Common Stock (34,100
shares)
|
|
|
|
|
|
|
200,000 |
|
|
|
428,000 |
|
|
|
|
|
Common Stock Warrant
(1,000 shares)
|
|
|
|
|
|
|
|
|
|
|
9,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,091,861 |
|
|
|
2,291,861 |
|
|
|
2,529,461 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
3,771,580 |
|
|
|
3,771,580 |
|
|
|
|
|
Common Unit Warrants -
Brantley Transportation
(4,560 common units)
|
|
|
|
|
|
|
33,600 |
|
|
|
33,600 |
|
|
|
|
|
Preferred Units Pine
Street (200 units)
|
|
|
|
|
|
|
200,000 |
|
|
|
200,000 |
|
|
|
|
|
Common Unit Warrants -
Pine Street (2,220
units)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,800,000 |
|
|
|
4,005,180 |
|
|
|
4,005,180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dyson Corporation (12%)*
|
|
Custom Forging and
Fastener Supplies
|
|
Subordinated Note (15%,
Due 12/13)
|
|
|
10,085,262 |
|
|
|
10,085,262 |
|
|
|
10,085,262 |
|
|
|
|
|
Class A Units
(1,000,000 units)
|
|
|
|
|
|
|
1,000,000 |
|
|
|
1,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,085,262 |
|
|
|
11,085,262 |
|
|
|
11,085,262 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equisales, LLC (7%)*
|
|
Energy Products and
Services
|
|
Subordinated Note (15%,
Due 04/12)
|
|
|
6,176,325 |
|
|
|
6,176,325 |
|
|
|
6,176,325 |
|
|
|
|
|
Class A Units (500,000
units)
|
|
|
|
|
|
|
500,000 |
|
|
|
500,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,176,325 |
|
|
|
6,676,325 |
|
|
|
6,676,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Genapure Corporation
(Genapure) and Genpref,
LLC (Genpref) (5) (1%)*
|
|
Lab Testing Services
|
|
Genapure Common Stock
(4,286 shares)
|
|
|
|
|
|
|
500,000 |
|
|
|
675,122 |
|
|
|
|
|
Genpref Preferred Stock
(455 shares)
|
|
|
|
|
|
|
63,602 |
|
|
|
85,878 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
563,602 |
|
|
|
761,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Affiliate Investments
|
|
|
|
|
|
|
26,462,599 |
|
|
|
29,431,381 |
|
|
|
29,866,379 |
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment |
|
|
|
|
|
|
|
|
|
Fair |
Portfolio Company |
|
Industry |
|
(1)(2) |
|
Principal Amount |
|
Cost |
|
Value (3) |
Control Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fischbein, LLC (14%)*
|
|
Packaging and
Materials Handling
Equipment
Manufacturer
|
|
Subordinated Note
(16.5%, Due 05/13)
|
|
$ |
8,759,613 |
|
|
$ |
8,759,613 |
|
|
$ |
8,759,613 |
|
|
|
|
|
Membership Units
(4,200,000 units)
|
|
|
|
|
|
|
4,200,000 |
|
|
|
4,626,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,759,613 |
|
|
|
12,959,613 |
|
|
|
13,385,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Porters Group, LLC (5%)*
|
|
Metal Fabrication
|
|
Membership Units (4,730
units)
|
|
|
|
|
|
|
471,254 |
|
|
|
4,436,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
471,254 |
|
|
|
4,436,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Control Investments
|
|
|
|
|
|
|
8,759,613 |
|
|
|
13,430,867 |
|
|
|
17,821,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments, March 31, 2008 (135%)*
|
|
|
|
|
|
$ |
110,426,974 |
|
|
$ |
121,432,020 |
|
|
$ |
127,392,216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
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.
10
TRIANGLE CAPITAL CORPORATION
Consolidated Schedule of Investments
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment |
|
|
|
|
|
|
|
|
|
Fair |
Portfolio Company |
|
Industry |
|
(1)(2) |
|
Principal Amount |
|
Cost |
|
Value (3) |
Non-Control / Non-Affiliate Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ambient Air Corporation (6%)*
|
|
Specialty Trade
Contractors
|
|
Subordinated Note (12%,
Due 03/11)
|
|
|
$ 3,144,654 |
|
|
|
$ 3,042,889 |
|
|
|
$ 3,042,889 |
|
|
|
|
|
Subordinated Note (14%,
Due 03/11)
|
|
|
1,872,075 |
|
|
|
1,872,075 |
|
|
|
1,872,075 |
|
|
|
|
|
Common Stock Warrants
(455 shares)
|
|
|
|
|
|
|
142,361 |
|
|
|
929,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,016,729 |
|
|
|
5,057,325 |
|
|
|
5,844,664 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
APO Newco, LLC (5%)*
|
|
Commercial and
Consumer Marketing
Products
|
|
Subordinated Note (14%,
Due 03/13)
|
|
|
4,315,262 |
|
|
|
4,292,325 |
|
|
|
4,292,325 |
|
|
|
|
|
Unit purchase warrant
(87,302 Class C units)
|
|
|
|
|
|
|
25,200 |
|
|
|
199,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,315,262 |
|
|
|
4,317,525 |
|
|
|
4,491,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Art Headquarters, LLC (3%)*
|
|
Retail, Wholesale
and Distribution
|
|
Subordinated Note (14%,
Due 01/10)
|
|
|
2,441,824 |
|
|
|
2,422,091 |
|
|
|
2,422,091 |
|
|
|
|
|
Membership unit
warrants (15% of units
(150 units))
|
|
|
|
|
|
|
40,800 |
|
|
|
9,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,441,824 |
|
|
|
2,462,891 |
|
|
|
2,431,891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assurance Operations
Corporation (4%)*
|
|
Auto Components /Metal
Fabrication
|
|
Subordinated Note (17%,
Due 03/12)
|
|
|
3,828,527 |
|
|
|
3,828,527 |
|
|
|
3,828,527 |
|
|
|
|
|
Common Stock (200
shares)
|
|
|
|
|
|
|
200,000 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,828,527 |
|
|
|
4,028,527 |
|
|
|
3,828,527 |
|
Bruce Plastics, Inc. (2%)*
|
|
Plastic Component
Manufacturing
|
|
Subordinated Note (14%,
Due 10/11)
|
|
|
1,500,000 |
|
|
|
1,412,046 |
|
|
|
1,412,046 |
|
|
|
|
|
Common Stock Warrants
(12% of common stock)
|
|
|
|
|
|
|
108,534 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,500,000 |
|
|
|
1,520,580 |
|
|
|
1,412,046 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CV Holdings, LLC (6%)*
|
|
Specialty
Healthcare Products
Manufacturer
|
|
Subordinated Note (16%,
Due 03/10)
|
|
|
4,976,360 |
|
|
|
4,976,360 |
|
|
|
4,976,360 |
|
|
|
|
|
Royalty rights
|
|
|
|
|
|
|
|
|
|
|
197,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,976,360 |
|
|
|
4,976,360 |
|
|
|
5,174,260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cyrus Networks, LLC (6%)*
|
|
Data Center
Services Provider
|
|
Senior Note
(9%, Due 07/13)
|
|
|
4,382,257 |
|
|
|
4,382,257 |
|
|
|
4,382,257 |
|
|
|
|
|
2nd Lien Note
(12%, Due 01/14)
|
|
|
907,663 |
|
|
|
907,663 |
|
|
|
907,663 |
|
|
|
|
|
Revolving Line of
Credit (9%)
|
|
|
70,880 |
|
|
|
70,880 |
|
|
|
70,880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,360,800 |
|
|
|
5,360,800 |
|
|
|
5,360,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DataPath, Inc. (1%)*
|
|
Satellite
Communication
Manufacturer
|
|
Common Stock (210,263
shares)
|
|
|
|
|
|
|
101,500 |
|
|
|
576,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101,500 |
|
|
|
576,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eastern Shore Ambulance,
Inc. (1%)*
|
|
Specialty Health
Care Services
|
|
Subordinated Note (13%,
Due 03/11)
|
|
|
1,000,000 |
|
|
|
958,715 |
|
|
|
958,715 |
|
|
|
|
|
Common Stock Warrants
(6% of common stock)
|
|
|
|
|
|
|
55,268 |
|
|
|
7,400 |
|
|
|
|
|
Common Stock
(30 shares)
|
|
|
|
|
|
|
30,000 |
|
|
|
1,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000,000 |
|
|
|
1,043,983 |
|
|
|
968,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment |
|
|
|
|
|
|
|
|
|
Fair |
Portfolio Company |
|
Industry |
|
(1)(2) |
|
Principal Amount |
|
Cost |
|
Value (3) |
Energy Hardware Holdings,
LLC (4%)*
|
|
Machined Parts
Distribution
|
|
Subordinated Note
(14.5%, Due 10/12)
|
|
|
$ 3,265,142 |
|
|
|
$ 3,265,142 |
|
|
|
$ 3,265,142 |
|
|
|
|
|
Junior Subordinated Note
(8%, Due 10/12)
|
|
|
207,667 |
|
|
|
207,667 |
|
|
|
207,667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,472,809 |
|
|
|
3,472,809 |
|
|
|
3,472,809 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FCL Graphics, Inc. (8%)*
|
|
Commercial Printing
Services
|
|
Senior Note
(9%, Due 10/12)
|
|
|
1,920,000 |
|
|
|
1,920,000 |
|
|
|
1,920,000 |
|
|
|
|
|
Senior Note
(13%, Due 10/13)
|
|
|
2,000,000 |
|
|
|
2,000,000 |
|
|
|
2,000,000 |
|
|
|
|
|
2nd Lien Note
(18%, Due 4/14)
|
|
|
3,145,481 |
|
|
|
3,145,481 |
|
|
|
3,145,481 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,065,481 |
|
|
|
7,065,481 |
|
|
|
7,065,481 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fire Sprinkler Systems, Inc.
(3%)*
|
|
Specialty Trade
Contractors
|
|
Subordinated Notes
(13%-17.5%, Due 04/11)
|
|
|
2,517,986 |
|
|
|
2,517,986 |
|
|
|
2,517,986 |
|
|
|
|
|
Common Stock (250
shares)
|
|
|
|
|
|
|
250,000 |
|
|
|
41,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,517,986 |
|
|
|
2,767,986 |
|
|
|
2,559,686 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
1,074,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,750,000 |
|
|
|
4,058,333 |
|
|
|
4,824,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Garden Fresh Restaurant
Corp. (4%)*
|
|
Restaurant
|
|
2nd Lien Note
(13%, Due 12/11)
|
|
|
3,000,000 |
|
|
|
3,000,000 |
|
|
|
3,000,000 |
|
|
|
|
|
Membership Units (5,000
units)
|
|
|
|
|
|
|
500,000 |
|
|
|
446,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000,000 |
|
|
|
3,500,000 |
|
|
|
3,446,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gerli & Company (3%)*
|
|
Specialty Woven
Fabrics
Manufacturer
|
|
Subordinated Note (14%,
Due 08/11)
|
|
|
3,114,063 |
|
|
|
3,057,349 |
|
|
|
3,057,349 |
|
|
|
|
|
Common Stock Warrants
(56,559 shares)
|
|
|
|
|
|
|
83,414 |
|
|
|
84,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,114,063 |
|
|
|
3,140,763 |
|
|
|
3,141,849 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Library Systems & Services,
LLC (3%)*
|
|
Municipal Business
Services
|
|
Subordinated Note (12%,
Due 03/11)
|
|
|
2,000,000 |
|
|
|
1,960,528 |
|
|
|
1,960,528 |
|
|
|
|
|
Common Stock Warrants
(112 shares)
|
|
|
|
|
|
|
58,995 |
|
|
|
594,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000,000 |
|
|
|
2,019,523 |
|
|
|
2,554,828 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Syrgis Holdings, Inc. (6%)*
|
|
Specialty Chemical
Manufacturer
|
|
Senior Note (9%, Due
08/12-02/14)
|
|
|
4,932,500 |
|
|
|
4,932,500 |
|
|
|
4,932,500 |
|
|
|
|
|
Common Units (2,114
units)
|
|
|
|
|
|
|
1,000,000 |
|
|
|
1,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,932,500 |
|
|
|
5,932,500 |
|
|
|
5,932,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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%, Due
04/13)
|
|
|
1,492,500 |
|
|
|
1,492,500 |
|
|
|
1,492,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,992,500 |
|
|
|
5,992,500 |
|
|
|
5,992,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Non-Control / Non-Affiliate Investments |
|
|
|
|
64,284,841 |
|
|
|
66,819,386 |
|
|
|
69,078,281 |
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment |
|
|
|
|
|
|
|
|
|
Fair |
Portfolio Company |
|
Industry |
|
(1)(2) |
|
Principal Amount |
|
Cost |
|
Value (3) |
Affiliate Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Axxiom Manufacturing, Inc.
(3%)*
|
|
Industrial
Equipment
Manufacturer
|
|
Subordinated Note (14%,
Due 01/11)
|
|
|
$ 2,081,321 |
|
|
|
$ 2,081,321 |
|
|
|
$ 2,081,321 |
|
|
|
|
|
Common Stock (34,100 shares)
|
|
|
|
|
|
|
200,000 |
|
|
|
543,600 |
|
|
|
|
|
Common Stock Warrant
(1,000 shares)
|
|
|
|
|
|
|
|
|
|
|
12,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,081,321 |
|
|
|
2,281,321 |
|
|
|
2,637,121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
3,770,482 |
|
|
|
3,770,482 |
|
|
|
|
|
Common Unit Warrants -
Brantley Transportation
(4,560 common units)
|
|
|
|
|
|
|
33,600 |
|
|
|
33,600 |
|
|
|
|
|
Preferred Units Pine
Street (200 units)
|
|
|
|
|
|
|
200,000 |
|
|
|
200,000 |
|
|
|
|
|
Common Unit Warrants -
Pine Street (2,220
units)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,800,000 |
|
|
|
4,004,082 |
|
|
|
4,004,082 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dyson Corporation (12%)*
|
|
Custom Forging and
Fastener Supplies
|
|
Subordinated Note (15%, Due 12/13)
|
|
|
10,009,167 |
|
|
|
10,009,167 |
|
|
|
10,009,167 |
|
|
|
|
|
Class A Units
(1,000,000 units)
|
|
|
|
|
|
|
1,000,000 |
|
|
|
1,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,009,167 |
|
|
|
11,009,167 |
|
|
|
11,009,167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equisales, LLC (7%)*
|
|
Energy Products and
Services
|
|
Subordinated Note (15%, Due 04/12)
|
|
|
6,129,723 |
|
|
|
6,129,723 |
|
|
|
6,129,723 |
|
|
|
|
|
Class A Units (500,000
units)
|
|
|
|
|
|
|
500,000 |
|
|
|
500,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,129,723 |
|
|
|
6,629,723 |
|
|
|
6,629,723 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Genapure Corporation
(Genapure) and Genpref,
LLC (Genpref) (5) (1%)*
|
|
Lab Testing Services
|
|
Genapure Common Stock
(4,286 shares)
|
|
|
|
|
|
|
500,000 |
|
|
|
675,122 |
|
|
|
|
|
Genpref Preferred Stock
(455 shares)
|
|
|
|
|
|
|
63,602 |
|
|
|
85,878 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
563,602 |
|
|
|
761,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Affiliate Investments
|
|
|
|
|
|
|
22,020,211 |
|
|
|
24,487,895 |
|
|
|
25,041,093 |
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment |
|
|
|
|
|
|
|
|
|
Fair |
Portfolio Company |
|
Industry |
|
(1)(2) |
|
Principal Amount |
|
Cost |
|
Value (3) |
Control Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARC Industries, LLC (3%)*
|
|
Remediation Services
|
|
Subordinated Note (19%, Due 11/10)
|
|
|
$ 2,403,521 |
|
|
|
$ 2,403,521 |
|
|
|
$ 2,403,521 |
|
|
|
|
|
Membership Units (3,000 units)
|
|
|
|
|
|
|
175,000 |
|
|
|
118,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,403,521 |
|
|
|
2,578,521 |
|
|
|
2,522,221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fischbein, LLC (14%)*
|
|
Packaging and
Materials Handling
Equipment
Manufacturer
|
|
Subordinated Note
(16.5%, Due 05/13)
|
|
|
8,660,723 |
|
|
|
8,660,723 |
|
|
|
8,660,723 |
|
|
|
|
|
Membership Units
(4,200,000 units)
|
|
|
|
|
|
|
4,200,000 |
|
|
|
4,200,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,660,723 |
|
|
|
12,860,723 |
|
|
|
12,860,723 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Porters Group, LLC (5%)*
|
|
Metal Fabrication
|
|
Membership Units (4,730
units)
|
|
|
|
|
|
|
471,254 |
|
|
|
4,871,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
471,254 |
|
|
|
4,871,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Control Investments
|
|
|
|
|
|
|
11,064,244 |
|
|
|
15,910,498 |
|
|
|
20,254,844 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments, December 31,
|
|
2007 (122%)*
|
|
|
|
|
$ 97,369,296 |
|
|
|
$ 107,217,779 |
|
|
|
$ 114,374,218 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
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.
14
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 interest 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).
The Fund is a specialty finance limited liability limited partnership formed to make
investments primarily in middle market companies located throughout the United States. The Funds
term is ten years from the date of formation (August 14, 2002) unless terminated earlier or
extended in accordance with provisions of the limited partnership agreement. On September 11,
2003, the Fund was licensed to operate as a Small Business Investment Company (SBIC) under the
authority of the United States Small Business Administration
(SBA). As an SBIC, the Fund is subject
to a variety of regulations concerning, among other things, the size and nature of the companies in
which it may invest and the structure of those investments.
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. The Fund became a
wholly owned subsidiary of the Company, retained its license under the authority of the
SBA to operate as an SBIC and continues to hold its existing investments and make new
investments with the proceeds of the Offering; and |
|
|
|
|
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. Upon completion of the Offering, the Company had 6,686,760
common shares outstanding.
As a result of completion of the Offering and formation transactions, the Fund became a 100%
wholly owned subsidiary of the Company. The General partner of the Fund is the New General Partner
(which is wholly owned by the Company), and the limited partners of the Fund are the Company
(99.9%) and the New General Partner (0.1%).
The Company currently operates as a closed-end, non-diversified 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 subsidiaries, including the Fund. The Fund does not consolidate portfolio company
investments.
The Formation Transactions discussed above 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 months ended March 31, 2007 are presented as if the Formation Transactions had
occurred as of January 1, 2007. 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
15
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, 2007. 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.
Allocations and Distributions of the Fund
During the three months ended March 31, 2007, the Fund distributed $531,566 in cash to TML,
the former General Partner of the Fund and accrued a partners tax distribution payable of $220,047
to TML and the former limited partners, such distribution related to the taxable earnings of the
Fund from January 1, 2007 through February 21, 2007. This payable was distributed in the second
quarter of 2007.
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 employees. 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 three
months ended March 31, 2007 were $232,423. In conjunction with the completion of the Offering in
February 2007, the management agreement was terminated.
New Accounting Standards
On January 1, 2008, the Company adopted Statement of Financial Accounting Standards No. 157,
Fair Value Measurements (SFAS 157), which defines fair value, establishes a framework for
measuring fair value in accordance with generally accepted accounting principles (GAAP) and
expands disclosures about fair value measurements. The changes to previous practice resulting from
the application of SFAS 157 relate to the definition of fair value, the methods used to measure
fair value, and the expanded disclosures about fair value measurements. The definition of fair
value retains the exchange price notion used in earlier definitions of fair value. SFAS 157
clarifies that the exchange price is the price in an orderly transaction between market
participants to sell the asset or transfer the liability in the market in which the reporting
entity would transact for the asset or liability, that is, the principal or most advantageous
market for the asset or liability. The transaction to sell the asset or transfer the liability is a
hypothetical transaction at the measurement date, considered from the perspective of a market
participant that holds the asset or owes the liability. SFAS 157 provides a consistent definition
of fair value which focuses on exit price and prioritizes, within a measurement of fair value, the
use of market-based inputs over entity-specific inputs. In addition, SFAS 157 provides a framework
for measuring fair value, and establishes a three-level hierarchy for fair value measurements based
upon the transparency of inputs to the valuation of an asset or liability as of the measurement
date. The Company's adoption of SFAS 157 resulted in additional
unrealized depreciation of approximately $0.2 million. See Note 2 for a further discussion of the impact of the adoption of SFAS 157 on the
Companys financial statements and for expanded disclosures about the Companys fair value
measurements.
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. The Company did not adopt FAS 159.
16
2. INVESTMENTS
Summaries of the composition of the Companys investment portfolio at cost and fair value as a
percentage of total investments are shown in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Total |
|
|
|
|
|
Percentage of |
|
|
Cost |
|
Portfolio |
|
Fair Value |
|
Total Portfolio |
|
|
|
March 31, 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debt and 2nd lien notes |
|
$ |
94,155,068 |
|
|
|
78 |
% |
|
$ |
93,043,068 |
|
|
|
73 |
% |
Senior debt |
|
|
15,896,948 |
|
|
|
13 |
|
|
|
15,896,948 |
|
|
|
12 |
|
Equity shares |
|
|
10,831,832 |
|
|
|
9 |
|
|
|
16,376,800 |
|
|
|
13 |
|
Equity warrants |
|
|
548,172 |
|
|
|
|
|
|
|
1,800,800 |
|
|
|
2 |
|
Royalty rights |
|
|
|
|
|
|
|
|
|
|
274,600 |
|
|
|
|
|
|
|
|
|
|
$ |
121,432,020 |
|
|
|
100 |
% |
|
$ |
127,392,216 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debt and 2nd lien notes |
|
$ |
82,171,781 |
|
|
|
76 |
% |
|
$ |
82,171,781 |
|
|
|
72 |
% |
Senior debt |
|
|
14,798,137 |
|
|
|
14 |
|
|
|
14,798,137 |
|
|
|
13 |
|
Equity shares |
|
|
9,699,689 |
|
|
|
9 |
|
|
|
15,335,900 |
|
|
|
13 |
|
Equity warrants |
|
|
548,172 |
|
|
|
1 |
|
|
|
1,870,500 |
|
|
|
2 |
|
Royalty rights |
|
|
|
|
|
|
|
|
|
|
197,900 |
|
|
|
|
|
|
|
|
|
|
$ |
107,217,779 |
|
|
|
100 |
% |
|
$ |
114,374,218 |
|
|
|
100 |
% |
|
|
|
During the three months ended March 31, 2008, the Company made three new investments totaling
$13.8 million, one additional debt investment in an existing portfolio company of $0.3 million and
one additional equity investment in an existing portfolio company of approximately $0.1 million.
During the three months ended March 31, 2007, the Company made one equity investment in an existing
portfolio company of approximately $0.1 million.
Valuation of Investments
The Company has established and documented processes and methodologies for determining the
fair values of portfolio company investments on a recurring basis in accordance with SFAS 157.
Under SFAS 157, a financial instruments categorization within the valuation hierarchy is based
upon the lowest level of input that is significant to the fair value measurement. The three levels
of valuation hierarchy established by SFAS 157 are defined as follows:
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical
assets or liabilities in active markets.
Level 2 - inputs to the valuation methodology include quoted prices for similar assets and
liabilities in active markets, and inputs that are observable for the asset or liability, either
directly or indirectly, for substantially the full term of the financial instrument.
Level 3 - inputs to the valuation methodology are unobservable and significant to the fair
value measurement.
The Company invests primarily in debt and equity of privately held companies for which quoted
prices falling within the categories of Level 1 and Level 2 inputs are not available. Therefore,
the Company values all of its investments at fair value, as determined in good faith by the Board
of Directors (Level 3 inputs, as further described below). Due to the inherent uncertainty in the
valuation process, the Board of Directors estimate of fair value may differ significantly from the
values that would have been used had a ready market for the securities existed, and the differences
could be material. In addition, changes in the market environment and other events that may occur
over the life of the investments may cause the gains or losses ultimately realized on these
investments to be different than the valuations currently assigned.
Debt and equity securities that are not publicly traded and for which a limited market does
not exist are valued at fair value as determined in good faith by the Board of Directors. There is
no single standard for determining fair value in good faith, as fair value depends upon
circumstances of each individual case. In general, fair value is the amount that the Company might
reasonably expect to receive upon the current sale of the security.
Management evaluates the investments in portfolio companies using the most recent portfolio
company financial statements and forecasts. Management also consults with the portfolio companys
senior management to obtain further updates on the portfolio companys performance, including
information such as industry trends, new product development and other operational issues.
In making the good faith determination of the value of debt securities, the Company starts
with the cost basis of the security, which includes the amortized original issue discount, and
payment-in-kind (PIK) interest, if any. The Company also uses a risk
17
rating system to estimate the probability of default on the debt securities and the
probability of loss if there is a default. The risk rating system covers both qualitative and
quantitative aspects of the business and the securities held. In valuing debt securities,
management utilizes an income approach model that considers factors including, but not limited
to, (i) the portfolio investments current risk rating (discussed below), (ii) the portfolio
companys current trailing twelve months (TTM) results of operations as compared to the
portfolio companys TTM results of operations as of the date the investment was made, (iii) the
portfolio companys current leverage as compared to its leverage as of the date the investment was
made, and (iv) current pricing and credit metrics for similar proposed and executed investment
transactions. In valuing equity securities of private companies, the Company considers valuation
methodologies consistent with industry practice, including (i) valuation using a valuation model
based on original transaction multiples and the portfolio companys recent financial performance,
(ii) valuation of the securities based on recent sales in comparable transactions, and (iii) a
review of similar companies that are publicly traded and the market multiple of their equity
securities.
The following table presents the Companys financial instruments carried at fair value as of
March 31, 2008, on the consolidated balance sheet by FAS 157 valuation hierarchy, as previously
described:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at March 31, 2008 |
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
|
|
March 31, 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio company investments |
|
$ |
|
|
|
$ |
|
|
|
$ |
127,392,216 |
|
|
$ |
127,392,216 |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
127,392,216 |
|
|
$ |
127,392,216 |
|
|
|
|
The following table reconciles the beginning and ending balances of our portfolio company
investments measured at fair value on a recurring basis using significant unobservable inputs
(Level 3) for the three months ended March 31, 2008:
|
|
|
|
|
|
|
Three Months |
|
|
|
Ended |
|
|
|
March 31, 2008 |
|
Fair value of portfolio, January 1, 2008 |
|
$ |
114,374,218 |
|
New investments |
|
|
14,123,791 |
|
Proceeds from sale of investment |
|
|
(175,000 |
) |
Principal repayments and payment in kind interest payments received |
|
|
(327,553 |
) |
Payment in kind interest earned |
|
|
568,583 |
|
Accretion of loan discounts |
|
|
24,420 |
|
Unrealized losses on investments |
|
|
(1,196,243 |
) |
|
|
|
|
|
|
|
|
|
Fair value of portfolio, March 31, 2008 |
|
$ |
127,392,216 |
|
|
|
|
|
All realized and unrealized gains and losses are included in earnings (changes in net assets)
and are reported on separate line items within the Companys statements of operations. Unrealized
losses on investments of $1,252,543 during the three months ended March 31, 2008 are related to
portfolio company investments that are still held by the Company as of March 31, 2008.
Duff & Phelps, LLC (Duff & Phelps), an independent valuation firm, provides third party
valuation consulting services to the Company which consist of certain limited procedures that the
Company identified and requested Duff & Phelps to perform (hereinafter referred to as the
procedures). We generally request Duff & Phelps to perform the procedures on each portfolio
company at least once in every calendar year and for new portfolio companies, at least once in the
twelve-month period subsequent to the initial investment. In certain instances, we may determine
that it is not cost-effective, and as a result is not in our shareholders best interest, to
request Duff & Phelps to perform the procedures on one or more portfolio companies. Such instances
include, but are not limited to, situations where the fair value of our investment in the portfolio
company is determined to be insignificant relative to our total investment portfolio.
For the quarter ended March 31, 2008, the Company asked Duff & Phelps to perform the
procedures on investments in six portfolio companies comprising approximately 35% of the total
investments at fair value (exclusive of the fair value of new investments made during the quarter)
as of March 31, 2008. Upon completion of the procedures, Duff & Phelps concluded that the fair
value, as determined by the Board of Directors, of those investments subjected to the procedures
did not appear to be unreasonable. The Board of Directors of Triangle Capital Corporation is
ultimately and solely responsible for determining the fair value of the Companys investments in
good faith.
18
Warrants
When originating a debt security, the Company will sometimes receive warrants or other
equity-related securities from the borrower. The Company determines the cost basis of the warrants
or other equity-related 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 equity-related
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 valuation of the investments and the cost basis of
the investments.
Investment Classification
In accordance with the provisions of the 1940 Act, the Company classifies investments by level
of control. As defined in the 1940 Act, Control Investments are investments in those companies
that the Company is deemed to Control. Affiliate Investments are investments in those companies
that are Affiliated Companies of the Company, as defined in the 1940 Act, other than Control
Investments. Non-Control/Non-Affiliate Investments are those that are neither Control Investments
nor Affiliate Investments. Generally, under the 1940 Act, the Company is deemed to control a
company in which it has invested if the Company owns more than 25.0% of the voting securities of
such company or has greater than 50.0% representation on its board. The Company is deemed to be an
affiliate of a company in which the Company has invested if it owns between 5.0% and 25.0% of the
voting securities of such company.
Investment Income
Interest income, adjusted for amortization of premium and accretion of original issue
discount, is recorded on the accrual basis to the extent that such amounts are expected to be
collected. 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 ex-dividend 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 and loan amendment fees are recorded into income when received. Any
previously deferred fees are immediately recorded into income upon prepayment of the related loan.
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 investees are generally lower middle-market companies in a variety of
industries. At both March 31, 2008 and December 31, 2007, the Company had one investment that was
individually greater than or equal to 10% of the total fair value of its investment portfolio.
This investment represented approximately 11% of the total fair value of the Companys investment
portfolio as of March 31, 2008 and December 31, 2007. 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 and other risks common to investing in below investment grade debt and
equity instruments.
19
3. INCOME TAXES
For 2007 and 2008, the Company intends to elect to be treated as a Regulated Investment
Company (RIC) under Subchapter M of the Code. As a RIC, so long as the Company meets certain
minimum distribution, source-of-income and asset diversification requirements, it generally is
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.
In addition, the Company has certain wholly owned taxable subsidiaries (the Taxable
Subsidiaries), each of which holds one or more of its portfolio investments that are listed on the
Consolidated Schedule of Investments. The Taxable Subsidiaries are consolidated for GAAP purposes,
such that the Companys consolidated financial statements reflect the Companys investments in the
portfolio companies owned by the Taxable Subsidiaries. The purpose of the Taxable Subsidiaries is
to permit the Company to hold certain portfolio companies that are organized as limited liability
companies (LLCs) (or other forms of pass-through entities) and still satisfy the RIC tax
requirement that at least 90% of the RICs gross revenue for income tax purposes must consist of
investment income. Absent the Taxable Subsidiaries, a proportionate amount of any gross income of
an LLC (or other pass-through entity) portfolio investment would flow through directly to the RIC.
To the extent that such income did not consist of investment income, it could jeopardize the
Companys ability to qualify as a RIC and therefore cause the Company to incur significant amounts
of federal income taxes. Where the LLCs (or other pass-through entities) are owned by the Taxable
Subsidiaries, however, their income is taxed to the Taxable Subsidiaries and does not flow through
to the RIC, thereby helping the Company preserve its RIC status and resultant tax advantages. The
Taxable Subsidiaries are not consolidated for income tax purposes and may generate income tax
expense as a result of their ownership of the portfolio companies. This income tax expense is
reflected in the Companys Statements of Operations.
For federal income tax purposes, the cost of investments owned at March 31, 2008 was
approximately $123.3 million.
4. LONG-TERM DEBT
The Company has the following debentures outstanding guaranteed by the SBA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prioritized |
|
March 31, |
|
December 31, |
Issuance/Pooling Date |
|
Maturity Date |
|
Return Rate |
|
2008 |
|
2007 |
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 |
|
|
|
4,000,000 |
|
March 26, 2008 |
|
March 1, 2018 |
|
|
6.191 |
% |
|
|
6,410,000 |
|
|
|
1,210,000 |
|
March 27, 2008 |
|
September 1, 2018 |
|
|
3.788 |
% |
|
|
4,840,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
47,050,000 |
|
|
$ |
37,010,000 |
|
|
|
|
|
|
|
|
|
|
Interest payments are payable semi-annually. There are no principal payments required on these
issues prior to maturity. Debentures issued prior to September 2006 were subject to prepayment
penalties during their first five years. Those pre-payment penalties no longer apply to debentures
issued after September 1, 2006.
Under the Small Business Investment Act and current SBA policy applicable to SBICs, an SBIC
(or group of SBICs under common control) can have outstanding at any time SBA guaranteed debentures
up to twice the amount of its regulatory capital. As of March 31, 2008, the maximum statutory limit
on the dollar amount of outstanding SBA guaranteed debentures issued by a single SBIC is
$130.6 million (which amount is subject to increase on an annual basis based on cost of living
increases). With $65.3 million of regulatory capital as of March 31, 2008, the Fund has the
current capacity to issue up to a total of $130.6 million of SBA guaranteed debentures, subject to
the payment of a 1% commitment fee to the SBA on the amount of the commitment. As of March 31,
2008, the Fund had paid commitment fees for and had a commitment from the SBA to issue a total of
$96.9 million of SBA guaranteed debentures, of which $47.1 million are outstanding as of March 31,
2008. In order to access the remaining $33.7 million in borrowing capacity for which the Fund is
currently eligible, the Fund would incur non-refundable commitment fees of $337,000. In addition
to the one-time 1.0% fee on the total commitment from the SBA, the Company also pays a one-time
2.425% fee on the amount of each debenture issued. These fees are capitalized as deferred financing
costs and are amortized over the term of the debt agreements using the effective interest method.
The weighted average interest rates for all SBA guaranteed debentures as of March 31, 2008 and
December 31, 2007 were 5.661% and 5.826%, respectively.
20
5. FINANCIAL HIGHLIGHTS
The following is a schedule of financial highlights for the three months ended March 31, 2008
and 2007:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2008 |
|
2007(1) |
|
|
|
Per share data: |
|
|
|
|
|
|
|
|
Net asset value at beginning of period(1) |
|
$ |
13.74 |
|
|
$ |
13.44 |
|
|
|
|
|
|
|
|
|
|
Net investment income(2) |
|
|
0.28 |
|
|
|
0.12 |
|
Net realized loss on investments(2) |
|
|
|
|
|
|
(0.22 |
) |
Net unrealized appreciation (depreciation) on investments(2) |
|
|
(0.15 |
) |
|
|
0.26 |
|
|
|
|
Total increase from investment operations(2) |
|
|
0.13 |
|
|
|
0.16 |
|
|
|
|
|
|
|
|
|
|
Accrued distribution to partners(2) |
|
|
|
|
|
|
(0.03 |
) |
Income tax provision(2) |
|
|
(0.02 |
) |
|
|
|
|
|
|
|
Net asset value at end of period |
|
$ |
13.85 |
|
|
$ |
13.57 |
|
|
|
|
Market value at end of period(3) |
|
$ |
11.92 |
|
|
$ |
13.65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares outstanding at end of period |
|
|
6,803,863 |
|
|
|
6,686,760 |
|
Net assets at end of period |
|
$ |
94,237,744 |
|
|
$ |
90,730,636 |
|
Average net assets(1) |
|
$ |
93,727,483 |
|
|
$ |
90,166,777 |
|
Ratio of operating expenses to average net assets (annualized) |
|
|
8 |
% |
|
|
6 |
% |
Ratio of net investment income to average net assets
(annualized) |
|
|
8 |
% |
|
|
4 |
% |
Portfolio turnover ratio |
|
|
0 |
% |
|
|
0 |
% |
Total Return(4) |
|
|
(4 |
%) |
|
|
(9 |
%) |
|
|
|
(1) |
|
Net asset value as of January 1, 2007 and average net assets for the three months
ended March 31, 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. |
|
(2) |
|
Weighted average basic per share data. |
|
(3) |
|
Represents the closing price of the Companys common stock on the last day of the
period. |
|
(4) |
|
The total return for the three months ended March 31, 2008 equals the change in the
ending market value of the Companys common stock during the period, plus dividends
declared per share during the period, divided by the market value of the Companys common
stock on the first day of the period. The total return for the three months ended March
31, 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
SBA Guaranteed Debentures Payable
On April 11, 2008, the Company borrowed an additional $9.4 million under the SBA debenture
commitment.
On April 28, 2008, the Company borrowed an additional $15.2 million under the SBA debenture
commitment.
Repayment of Loan to Flint Acquisition Corporation
On April 17, 2008, the Companys loan to Flint Acquisition Corporation of approximately $3.8
million was repaid in full. In connection with the repayment, the Company recognized a prepayment
fee of $37,500.
New Portfolio Company Investments
On April 25, 2008, the Company invested $9.4 million in Jenkins Restoration, Inc. (Jenkins)
consisting of $8.0 million in subordinated debt and $1.4 million in convertible debt. Jenkins,
headquartered in Sterling, Virginia, is a provider of insurance restoration services, focusing on
reconstruction and repair of damage to residential and commercial buildings caused by fire, wind,
21
storm, vandalism, or burglary.
On April 29, 2008, the Company made an $8.0 million subordinated debt investment in American
De-Rosa Lamparts, LLC (ADL). ADL headquartered in Commerce, California, markets a wide variety
of lighting products, including fixtures, bulbs, electrical components, glass, and hardware, to
maintenance and repair organizations, lighting wholesalers, retailers, and original equipment
manufacturers.
On April 30, 2008, the Company invested $13.0 million in subordinated debt in Yellowstone
Landscape Group, Inc. (Yellowstone). Yellowstone, headquartered in Dallas, Texas, is a
full-service lawn care provider focused primarily on the commercial market with services including
lawn and landscape maintenance, construction/installation, irrigation, turf management, and tree
care throughout Texas and the Southeast.
22
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 months ended March 31, 2007 are
presented as if the acquisition had occurred as of January 1, 2007.
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, 2007. 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 investments, 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. 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. Our investments
generally range from $5.0 to $15.0 million per portfolio company. In certain situations, we have
partnered with other funds to provide larger financing commitments.
We generate revenues in the form of interest income, primarily from our investments in debt
securities, loan origination and other fees and dividend income. Fees generated in connection with
our debt investments are recognized over the life of the loan using the effective interest method
or, in some cases, recognized as earned. In addition, we generate revenue in the form of capital
gains, if any, on warrants or other equity-related securities that we acquire from our portfolio
companies. Our debt investments generally have a term of between three and seven years and
typically bear interest at fixed rates between 11.0% and 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 March 31, 2008 and December 31, 2007,
the weighted average yield on all of our outstanding debt investments (including PIK interest) was
approximately 13.7% and 13.9%, respectively. The weighted average yield on all of our outstanding
investments (including equity and equity-linked investments) was approximately 12.5% and 12.6% as
of March 31, 2008 and December 31, 2007, 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.
23
Portfolio Composition
The total value of our investment portfolio was $127.4 million as of March 31, 2008, as
compared to $114.4 million as of December 31, 2007. As of March 31, 2008, we had investments in 29
portfolio companies with an aggregate cost of $121.4 million. As of December 31, 2007, we had
investments in 26 portfolio companies with an aggregate cost of $107.2 million. As of both March
31, 2008 and December 31, 2007, we had one portfolio investment that represented greater than 10%
of the total fair value of our investment portfolio.
As of March 31, 2008 and December 31, 2007, our investment portfolio consisted of the
following investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of |
|
|
|
|
|
Percentage of |
|
|
Cost |
|
Total Portfolio |
|
Fair Value |
|
Total Portfolio |
|
|
|
March 31, 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debt and 2nd lien notes |
|
$ |
94,155,068 |
|
|
|
78 |
% |
|
$ |
93,043,068 |
|
|
|
73 |
% |
Senior debt |
|
|
15,896,948 |
|
|
|
13 |
|
|
|
15,896,948 |
|
|
|
12 |
|
Equity shares |
|
|
10,831,832 |
|
|
|
9 |
|
|
|
16,376,800 |
|
|
|
13 |
|
Equity warrants |
|
|
548,172 |
|
|
|
|
|
|
|
1,800,800 |
|
|
|
2 |
|
Royalty rights |
|
|
|
|
|
|
|
|
|
|
274,600 |
|
|
|
|
|
|
|
|
|
|
$ |
121,432,020 |
|
|
|
100 |
% |
|
$ |
127,392,216 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debt and 2nd lien notes |
|
$ |
82,171,781 |
|
|
|
76 |
% |
|
$ |
82,171,781 |
|
|
|
72 |
% |
Senior debt |
|
|
14,798,137 |
|
|
|
14 |
|
|
|
14,798,137 |
|
|
|
13 |
|
Equity shares |
|
|
9,699,689 |
|
|
|
9 |
|
|
|
15,335,900 |
|
|
|
13 |
|
Equity warrants |
|
|
548,172 |
|
|
|
1 |
|
|
|
1,870,500 |
|
|
|
2 |
|
Royalty rights |
|
|
|
|
|
|
|
|
|
|
197,900 |
|
|
|
|
|
|
|
|
|
|
$ |
107,217,779 |
|
|
|
100 |
% |
|
$ |
114,374,218 |
|
|
|
100 |
% |
|
|
|
Investment Activity
During the quarter ended March 31, 2008, we made three new investments totaling $13.8 million,
one additional debt investment in an existing portfolio company of $0.3 million and one additional
equity investment in an existing portfolio company of approximately $0.1 million. We also sold one
investment in a portfolio company for approximately $0.2 million, resulting in no realized gain or
loss as the proceeds from the sale equaled the cost basis of the investment. In addition, we
received normal principal repayments and payment in kind (PIK) interest repayments totaling
approximately $0.3 million in the three months ended March 31, 2008. Total portfolio investment
activity for the three months ended March 31, 2008 was as follows:
|
|
|
|
|
|
|
Three Months |
|
|
|
Ended |
|
|
|
March 31, 2008 |
|
Fair value of portfolio, January 1, 2008 |
|
$ |
114,374,218 |
|
New investments |
|
|
14,123,791 |
|
Proceeds from sale of investment |
|
|
(175,000 |
) |
Principal repayments and payment in kind interest payments received |
|
|
(327,553 |
) |
Payment in kind interest earned |
|
|
568,583 |
|
Accretion of loan discounts |
|
|
24,420 |
|
Unrealized loss on investments |
|
|
(1,196,243 |
) |
|
|
|
|
|
|
|
|
|
Fair value of portfolio, March 31, 2008 |
|
$ |
127,392,216 |
|
|
|
|
|
Weighted average yield on debt investments as of March 31, 2008 |
|
|
13.7 |
% |
|
|
|
|
Weighted average yield on total investments as of March 31, 2008 |
|
|
12.5 |
% |
|
|
|
|
24
Results of Operations
Comparison of three months ended March 31, 2008 and March 31, 2007
Investment Income
For the three months ended March 31, 2008, total investment income was $3.9 million, an 83%
increase from $2.1 million of total investment income for the three months ended March 31, 2007.
This increase was primarily attributable to a $2.0 million increase in total loan interest, fee and
dividend income due to net increase in our portfolio investments from March 31, 2007 to March 31,
2008 offset by a $0.2 million decrease in interest income from cash and cash equivalent investments
due to (i) a significant decrease in average cash balances in the first quarter of 2008 over the
comparable period in 2007 and (ii) a decrease in overall interest rates.
Expenses
For the three months ended March 31, 2008, expenses increased by 49% to $2.0 million from
$1.3 million for the three months ended March 31, 2007. The increase in expenses was primarily
attributable to a $0.8 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. As of March 31,
2008, we had 12 full-time employees, as compared to nine full-time employees as of March 31, 2007.
In addition, we experienced an increase in general and administrative costs in 2008 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 $0.2
million decrease in management fees. We incurred no management fees in the first quarter of 2008
compared to $0.2 million in management fees in the first quarter of 2007.
Net Investment Income
As a result of the $1.8 million increase in total investment income and the $0.6 million
increase in expenses, net investment income for the three months ended March 31, 2008 was
$1.9 million compared to net investment income of $0.8 million during the three months ended March
31, 2007.
Net Increase in Net Assets Resulting From Operations
We recorded no realized gains or losses on investments in the three months ended March 31,
2008. For the three months ended March 31, 2007, net realized loss on investment was $1.5 million,
all of which related to one investment.
In the three months ended March 31, 2008, we recorded net unrealized depreciation of
investments in the amount of $1.0 million, comprised of unrealized gains on seven investments
totaling $0.7 million and unrealized losses on nine investments totaling $1.7 million. During the
three months ended March 31, 2007, we recorded net unrealized appreciation of investments in the
amount of $1.7 million, comprised primarily of an unrealized gain reclassification adjustment of
approximately $1.5 million related to the realized loss noted above. In addition, in the three
months ended March 31, 2007, we recorded unrealized gains on eleven other investments totaling $0.9
million and unrealized losses on five investments totaling $0.6 million.
As a result of these events, our net increase in net assets from operations during the three
months ended March 31, 2008 was $0.8 million as compared to $1.1 million for the three months ended
March 31, 2007.
Liquidity and Capital Resources
We believe that our current cash and cash equivalents on hand, our available SBA leverage and
our anticipated cash flows from operations will be adequate to meet our cash needs for our daily
operations for at least the next twelve months.
Cash Flows
For the three months ended March 31, 2008, we experienced a net decrease in cash and cash
equivalents in the amount of $6.2 million. During that period, our operating activities used
$13.4 million in cash, consisting primarily of new portfolio investments of $14.1 million, and we
generated $7.2 million of cash from financing activities, consisting of proceeds from borrowings
under SBA guaranteed debentures payable of $10.0 million, partially offset by financing fees paid
to the SBA of $0.8 million and cash dividends paid of $2.0 million. At March 31, 2008, we had
$15.6 million of cash and cash equivalents on hand.
For the three months ended March 31, 2007, we experienced a net increase in cash and cash
equivalents in the amount of $70.2 million. During that period, our operating activities provided
$1.1 million in cash, and we generated $69.1 million of cash from
25
financing activities, consisting primarily of (i) proceeds from our Offering of $64.7 million,
(ii) proceeds from borrowings under SBA guaranteed debentures payable of $4.0 million and (iii) a
decrease in deferred offering costs of $1.0 million, partially offset by financing fees paid to the
SBA of $0.1 million. At March 31, 2007, we had $72.8 million of cash and cash equivalents on hand.
Financing Transactions
Due to the Funds status as a licensed SBIC, the Fund has the ability to issue debentures
guaranteed by the SBA at favorable interest rates. Under the Small Business Investment Act and the
SBA rules applicable to SBICs, an SBIC (or group of SBICs under common control) can have
outstanding at any time debentures guaranteed by the SBA in an amount up to twice the amount of its
regulatory capital, which generally is the amount raised from private investors. The maximum
statutory limit on the dollar amount of outstanding debentures guaranteed by the SBA issued by a
single SBIC as of March 31, 2008 is currently $130.6 million (which amount is subject to increase
on an annual basis based on cost of living increases). Debentures guaranteed by the SBA have a
maturity of ten years, with interest payable semi-annually. The principal amount of the debentures
is not required to be paid before maturity but may be pre-paid at any time. Debentures issued prior
to September 2006 were subject to pre-payment penalties during their first five years. Those
pre-payment penalties no longer apply to debentures issued after September 1, 2006.
With $65.3 million of regulatory capital as of March 31, 2008, the Fund has the current
capacity to issue up to a total of $130.6 million of SBA guaranteed debentures, subject to the
payment of a 1% commitment fee to the SBA on the amount of the commitment. As of March 31, 2008,
the Fund had paid commitment fees for and had a commitment from the SBA to issue a total of $96.9
million of SBA guaranteed debentures, of which $47.1 million are outstanding as of March 31, 2008.
In order to access the remaining $33.7 million in borrowing capacity for which the Fund is
currently eligible, the Fund would incur non-refundable commitment fees of $337,000. In addition
to the one-time 1.0% fee on the total commitment from the SBA, the Company also pays a one-time
2.425% fee on the amount of each debenture issued. These fees are capitalized as deferred financing
costs and are amortized over the term of the debt agreements using the effective interest method.
The weighted average interest rate for all SBA guaranteed debentures as of March 31, 2008 was
5.661%.
Critical Accounting Policies and Use of Estimates
The preparation of our financial statements in accordance with accounting principles generally
accepted in the United States requires management to make certain estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses for the periods covered by such financial statements.
We have identified investment valuation and revenue recognition as our most critical accounting
estimates. On an on-going basis, we evaluate our estimates, including those related to the matters
described below. These estimates are based on the information that is currently available to us and
on various other assumptions that we believe to be reasonable under the circumstances. Actual
results could differ materially from those estimates under different assumptions or conditions. A
discussion of our critical accounting policies follows.
Investment Valuation
The most significant estimate inherent in the preparation of our financial statements is the
valuation of investments and the related amounts of unrealized appreciation and depreciation of
investments recorded. We have established and documented processes and methodologies for
determining the fair values of portfolio company investments on a recurring (quarterly) basis. As
discussed below, we have engaged an independent valuation firm to assist us in our valuation
process.
On January 1, 2008, we adopted Statement of Financial Accounting Standards No. 157, Fair Value
Measurements, which defines fair value, establishes a framework for measuring fair value in
accordance with generally accepted accounting principles and expands disclosures about fair value
measurements.
SFAS 157 clarifies that the exchange price is the price in an orderly transaction between
market participants to sell an asset or transfer a liability in the market in which the reporting
entity would transact for the asset or liability, that is, the principal or most advantageous
market for the asset or liability. The transaction to sell the asset or transfer the liability is a
hypothetical transaction at the measurement date, considered from the perspective of a market
participant that holds the asset or owes the liability. SFAS 157 provides a consistent definition
of fair value which focuses on exit price and prioritizes, within a measurement of fair value, the
use of market-based inputs over entity-specific inputs. In addition, SFAS 157 provides a framework
for measuring fair value, and establishes a three-level hierarchy for fair value measurements based
upon the transparency of inputs to the valuation of an asset or liability as of the measurement
date. The three levels of valuation hierarchy established by SFAS 157 are defined as follows:
|
Level 1 |
|
- inputs to the valuation methodology are quoted prices (unadjusted) for identical
assets or liabilities in active markets. |
26
|
Level 2 |
|
- inputs to the valuation methodology include quoted prices for similar assets and
liabilities in active markets, and inputs that are observable for the asset or liability,
either directly or indirectly, for substantially the full term of the financial instrument. |
|
|
Level 3 |
|
- inputs to the valuation methodology are unobservable and significant to the fair
value measurement. |
A financial instruments categorization within the valuation hierarchy is based upon the
lowest level of input that is significant to the fair value measurement. We invest primarily in
debt and equity of privately held companies for which quoted prices falling within the categories
of Level 1 and Level 2 inputs are not available. Therefore, we value all of our investments at fair
value, as determined in good faith by our Board of Directors, using Level 3 inputs, as further
described below. Due to the inherent uncertainty in the valuation process, our Board of Directors
estimate of fair value may differ significantly from the values that would have been used had a
ready market for the securities existed, and the differences could be material. In addition,
changes in the market environment and other events that may occur over the life of the investments
may cause the gains or losses ultimately realized on these investments to be different than the
valuations currently assigned.
Debt and equity securities that are not publicly traded and for which a limited market does
not exist are valued at fair value as determined in good faith by our Board of Directors. There is
no single standard for determining fair value in good faith, as fair value depends upon
circumstances of each individual case. In general, fair value is the amount that we might
reasonably expect to receive upon the current sale of the security.
We evaluate the investments in portfolio companies using the most recent portfolio company
financial statements and forecasts. We also consult with the portfolio companys senior management
to obtain further updates on the portfolio companys performance, including information such as
industry trends, new product development and other operational issues. Additionally, we consider
some or all of the following factors:
|
|
|
financial standing of the issuer of the security; |
|
|
|
|
comparison of the business and financial plan of the issuer with actual results; |
|
|
|
|
the size of the security held as it relates to the liquidity of the market for such
security; |
|
|
|
|
pending public offering of common stock by the issuer of the security; |
|
|
|
|
pending reorganization activity affecting the issuer, such as merger or debt
restructuring; |
|
|
|
|
ability of the issuer to obtain needed financing; |
|
|
|
|
changes in the economy affecting the issuer; |
|
|
|
|
financial statements and reports from portfolio company senior management and
ownership; |
|
|
|
|
the type of security, the securitys cost at the date of purchase and any
contractual restrictions on the disposition of the security; |
|
|
|
|
discount from market value of unrestricted securities of the same class at the time
of purchase; |
|
|
|
|
special reports prepared by analysts; |
|
|
|
|
information as to any transactions or offers with respect to the security and/or
sales to third parties of similar securities; |
|
|
|
|
the issuers ability to make payments and the type of collateral; |
|
|
|
|
the current and forecasted earnings of the issuer; |
|
|
|
|
statistical ratios compared to lending standards and to other similar
securities; and |
|
|
|
|
other pertinent factors. |
In making the good faith determination of the value of debt securities, we start with the cost
basis of the security, which includes the amortized original issue discount, and payment-in-kind
(PIK) interest, if any. We also use a risk rating system to estimate the probability of default on
the debt securities and the probability of loss if there is a default. The risk rating system
covers both qualitative and quantitative aspects of the business and the securities held. In
valuing debt securities, we utilize an income approach model that considers factors including,
but not limited to, (i) the portfolio investments current risk rating (discussed below), (ii) the
portfolio companys current trailing twelve months (TTM) results of operations as compared to
the portfolio companys TTM results of operations as of the date the investment was made, (iii) the
portfolio companys current leverage as compared to its leverage as of the date the investment was
made, and (iv) current pricing and credit metrics for similar proposed and executed investment
transactions. In valuing equity securities of private companies, we consider valuation
methodologies consistent with industry practice, including (i) valuation using a valuation model
based on original transaction multiples and the portfolio companys recent financial performance,
(ii) valuation of the securities based on recent sales in comparable transactions, and (iii) a
review of similar companies that are publicly traded and the market multiple of their equity
securities.
Unrealized appreciation or depreciation on portfolio investments are recorded as increases or
decreases in investments on the balance sheets and are separately reflected on the statements of
operations in determining net increase or decrease in net assets resulting from operations.
27
Duff & Phelps, LLC (Duff & Phelps), an independent valuation firm, provides third party
valuation consulting services to us, which consist of certain limited procedures that we identified
and requested Duff & Phelps to perform (hereinafter referred to as the procedures). We generally
request Duff & Phelps to perform the procedures on each portfolio company at least once in every
calendar year and for new portfolio companies, at least once in the twelve-month period subsequent
to the initial investment. In certain instances, we may determine that it is not cost-effective,
and as a result is not in our shareholders best interest, to request Duff & Phelps to perform the
procedures on one or more portfolio companies. Such instances include, but are not limited to,
situations where the fair value of our investment in the portfolio company is determined to be
insignificant relative to our total investment portfolio.
For the quarter ended March 31, 2008, we asked Duff & Phelps to perform the procedures on
investments in six portfolio companies comprising approximately 35% of the total investments at
fair value (exclusive of the fair value of new investments made during the quarter) as of March 31,
2008. 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.
New Accounting Standards
On January 1, 2008, we adopted Statement of Financial Accounting Standards No. 157, Fair Value
Measurements (SFAS 157), which defines fair value, establishes a framework for measuring fair
value in accordance with generally accepted accounting principles (GAAP) and expands disclosures
about fair value measurements. The changes to previous practice resulting from the application of
SFAS 157 relate to the definition of fair value, the methods used to measure fair value, and the
expanded disclosures about fair value measurements. The definition of fair value retains the
exchange price notion used in earlier definitions of fair value. SFAS 157 clarifies that the
exchange price is the price in an orderly transaction between market participants to sell the asset
or transfer the liability in the market in which the reporting entity would transact for the asset
or liability, that is, the principal or most advantageous market for the asset or liability. The
transaction to sell the asset or transfer the liability is a hypothetical transaction at the
measurement date, considered from the perspective of a market participant that holds the asset or
owes the liability. SFAS 157 provides a consistent definition of fair value which focuses on exit
price and prioritizes, within a measurement of fair value, the use of market-based inputs over
entity-specific inputs. In addition, SFAS 157 provides a framework for measuring fair value, and
establishes a three-level hierarchy for fair value measurements based upon the transparency of
inputs to the valuation of an asset or liability as of the
measurement date. Our adoption of SFAS 157 resulted in additional
unrealized depreciation of approximately $0.2 million. See Note 2 to our
unaudited financial statements for a further discussion of the impact of the adoption of SFAS 157
on our financial statements and for expanded disclosures about our fair value measurements.
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
28
earnings (or another performance indicator if the business entity does not report earnings) at
each subsequent reporting date. We did not adopt FAS 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 at that time were owned by our Chief Executive Officer, Chief
Financial Officer, Chief Investment 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, collectively own
approximately 67% of Triangle Capital Partners, LLC. As of March 31, 2008, Triangle Capital
Partners, LLC does not own any 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 in management fees from the Fund during the three months ended March 31, 2007. 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 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 2007 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.
Interest rate risk is defined as the sensitivity of our current and future earnings to
interest rate volatility, variability of spread relationships, the difference in re-pricing
intervals between our assets and liabilities and the effect that interest rates may have on our
cash flows. Changes in the general level of interest rates can affect our net interest income,
which is the difference between the interest income earned on interest earning assets and our
interest expense incurred in connection with our interest bearing debt and liabilities. Changes in
interest rates can also affect, among other things, our ability to acquire and originate loans and
securities and the value of our investment portfolio.
Our investment income is affected by fluctuations in various interest rates, including LIBOR
and prime rates. As of March 31, 2008, approximately 81.8% of our investment portfolio bore
interest at fixed rates. All of our SBA leverage is currently at fixed rates.
Because we currently borrow, and plan to borrow in the future, money to make investments, our
net investment income is
29
dependent upon the difference between the rate at which we borrow funds and the rate at which
we invest the funds borrowed. Accordingly, there can be no assurance that a significant change in
market interest rates will not have a material adverse effect on our net investment income. In
periods of rising interest rates, our cost of funds would increase, which could reduce our net
investment income if there is not a corresponding increase in interest income generated by floating
rate assets in our investment portfolio.
Item 4. 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 first
quarter of 2008 that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
30
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, 2007.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
In February 2007, we acquired 100% of the equity interests in Triangle Mezzanine LLC (TML),
the general partner of Triangle Mezzanine Fund LLLP (the Fund). We issued to the members of TML
500,000 shares of our common stock, having an aggregate value based on the initial public offering
price of $7,500,000, in exchange for their equity interests in TML. Under the then-current
agreement of limited partnership, or partnership agreement, of the Fund, TML was entitled to 20.0%
of the Funds profits and capital after the limited partners had received distributions of their
entire investment and a 7.0% compound annual return on their investment. TML did not make a capital
contribution to the Fund, but rather received this interest in exchange for performing the function
of and assuming the risks as general partner of the Fund. These securities were issued to United
States investors in reliance upon the exemption from the registration requirements of the
Securities Act of 1933 (the Securities Act), as set forth in Section 4(2) under the Securities
Act and Rule 506 of Regulation D promulgated thereunder relative to sales by an issuer not
involving any public offering. All recipients of common units described above represented to us in
connection with their receipt of common units that they were acquiring the shares for investment
and not with a view to distribution in violation of applicable securities laws, that they could
bear the risks of the investment and could hold the securities for an indefinite period of time.
The recipients received written disclosures that the securities had not been registered under the
Securities Act and that any resale must be made pursuant to a registration statement or an
available exemption from such registration requirement.
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
|
|
Second Amended and Restated Agreement of Limited Partnership of
Triangle Mezzanine Fund LLLP (Filed as Exhibit 3.4 to the
Registrants Quarterly Report on Form 10-Q filed with the
Securities and Exchange Commission on November 11, 2007 and
incorporated herein by reference). |
31
|
|
|
Number |
|
Exhibit |
3.4
|
|
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). |
|
|
|
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
|
|
Triangle Capital Corporation Dividend Reinvestment Plan (Filed as
Exhibit 4.2 to the Registrants Annual Report on Form 10-K filed
with the Securities and Exchange Commission on March 12, 2008 and
incorporated herein by reference). |
|
|
|
10.1
|
|
Employment Agreement between Triangle Capital Corporation and
Garland S. Tucker, III dated February 21, 2007 (Filed as Exhibit
10.1 to the Registrants Annual Report on Form 10-K for the year
ended December 31, 2006 filed with the Securities and Exchange
Commission on March 29, 2007 and incorporated herein by reference). |
|
|
|
10.2
|
|
Employment Agreement between Triangle Capital Corporation and Brent
P.W. Burgess dated February 21, 2007 (Filed as Exhibit 10.2 to the
Registrants Annual Report on Form 10-K for the year ended December
31, 2006 filed with the Securities and Exchange Commission on March
29, 2007 and incorporated herein by reference). |
|
|
|
10.3
|
|
Employment Agreement between Triangle Capital Corporation and
Steven C. Lilly dated February 21, 2007 (Filed as Exhibit 10.3 to
the Registrants Annual Report on Form 10-K for the year ended
December 31, 2006 filed with the Securities and Exchange Commission
on March 29, 2007 and incorporated herein by reference). |
|
|
|
10.4
|
|
Triangle Capital Corporation 2007 Equity Incentive Plan (Filed as
Exhibit (i) to the Registrants pre-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 13, 2007
and incorporated herein by reference). |
|
|
|
10.5
|
|
Form of Triangle Capital Corporation Amended and Restated 2007
Equity Incentive Plan (Filed as 10.7 to the Registrants Annual
Report on Form 10-K for the year ended December 31, 2007 filed with
the Securities and Exchange Commission on March 12, 2008 and
incorporated herein by reference). |
|
|
|
10.6
|
|
Custodian Agreement with U.S. Bank National Association (Filed as
Exhibit 10.7 to the Registrants Annual Report on Form 10-K for the
year ended December 31, 2006 filed with the Securities and Exchange
Commission on March 29, 2007 and incorporated herein by reference). |
|
|
|
10.7
|
|
Amendment to Custody Agreement between the Registrant and U.S. Bank
National Association dated February 5, 2008 (Filed as 10.9 to the
Registrants Annual Report on Form 10-K for the year ended December
31, 2007 filed with the Securities and Exchange Commission on March
12, 2008 and incorporated herein by reference). |
|
|
|
10.8
|
|
Sublease Assignment and Assumption of Assignors Interest dated
January 17, 2007 (Filed as Exhibit 10.8 to the Registrants Annual
Report on Form 10-K for the year ended December 31, 2006 filed with
the Securities and Exchange Commission on March 29, 2007 and
incorporated herein by reference). |
|
|
|
10.9
|
|
Stock Transfer Agency Agreement between Triangle Capital
Corporation and The Bank of New York (Filed as Exhibit 10.11 to the
Registrants Annual Report on Form 10-K for the year ended December
31, 2007 filed with the Securities and Exchange Commission on March
12, 2008 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. |
|
|
|
|
|
Management contract or compensatory plan or arrangement. |
32
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: May 7, 2008
|
|
/s/ Garland S. Tucker, III
|
|
|
|
|
Garland S. Tucker, III |
|
|
|
|
President, Chief Executive Officer and |
|
|
|
|
Chairman of the Board of Directors |
|
|
|
|
|
|
|
Date: May 7, 2008
|
|
/s/ Steven C. Lilly |
|
|
|
|
|
|
|
|
|
Steven C. Lilly |
|
|
|
|
Chief Financial Officer and Director |
|
|
|
|
|
|
|
Date: May 7, 2008
|
|
/s/ C. Robert Knox, Jr. |
|
|
|
|
|
|
|
|
|
C. Robert Knox, Jr. |
|
|
|
|
Principal Accounting Officer |
|
|
33
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
|
|
Second Amended and Restated Agreement of Limited Partnership of
Triangle Mezzanine Fund LLLP (Filed as Exhibit 3.4 to the
Registrants Quarterly Report on Form 10-Q filed with the
Securities and Exchange Commission on November 11, 2007 and
incorporated herein by reference). |
|
|
|
3.4
|
|
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). |
|
|
|
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
|
|
Triangle Capital Corporation Dividend Reinvestment Plan (Filed as
Exhibit 4.2 to the Registrants Annual Report on Form 10-K filed
with the Securities and Exchange Commission on March 12, 2008 and
incorporated herein by reference). |
|
|
|
10.1
|
|
Employment Agreement between Triangle Capital Corporation and
Garland S. Tucker, III dated February 21, 2007 (Filed as Exhibit
10.1 to the Registrants Annual Report on Form 10-K for the year
ended December 31, 2006 filed with the Securities and Exchange
Commission on March 29, 2007 and incorporated herein by reference). |
|
|
|
10.2
|
|
Employment Agreement between Triangle Capital Corporation and Brent
P.W. Burgess dated February 21, 2007 (Filed as Exhibit 10.2 to the
Registrants Annual Report on Form 10-K for the year ended December
31, 2006 filed with the Securities and Exchange Commission on March
29, 2007 and incorporated herein by reference). |
|
|
|
10.3
|
|
Employment Agreement between Triangle Capital Corporation and
Steven C. Lilly dated February 21, 2007 (Filed as Exhibit 10.3 to
the Registrants Annual Report on Form 10-K for the year ended
December 31, 2006 filed with the Securities and Exchange Commission
on March 29, 2007 and incorporated herein by reference). |
|
|
|
10.4
|
|
Triangle Capital Corporation 2007 Equity Incentive Plan (Filed as
Exhibit (i) to the Registrants pre-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 13, 2007
and incorporated herein by reference). |
|
|
|
10.5
|
|
Form of Triangle Capital Corporation Amended and Restated 2007
Equity Incentive Plan (Filed as Exhibit 10.7 to the Registrants
Annual Report on Form 10-K for the year ended December 31, 2007
filed with the Securities and Exchange Commission on March 12, 2008
and incorporated herein by reference). |
|
|
|
10.6
|
|
Custodian Agreement with U.S. Bank National Association (Filed as
Exhibit 10.7 to the Registrants Annual Report on Form 10-K for the
year ended December 31, 2006 filed with the Securities and Exchange
Commission on March 29, 2007 and incorporated herein by reference). |
|
|
|
10.7
|
|
Amendment to Custody Agreement between the Registrant and U.S. Bank
National Association dated February 5, 2008 (Filed as Exhibit 10.9
to the Registrants Annual Report on Form 10-K for the year ended
December 31, 2007 filed with the Securities and Exchange Commission
on March 12, 2008 and incorporated herein by reference). |
|
|
|
10.8
|
|
Sublease Assignment and Assumption of Assignors Interest dated
January 17, 2007 (Filed as Exhibit 10.8 to the Registrants Annual
Report on Form 10-K for the year ended December 31, 2006 filed with
the Securities and Exchange Commission on March 29, 2007 and
incorporated herein by reference). |
|
|
|
Number |
|
Exhibit |
10.9
|
|
Stock Transfer Agency Agreement between Triangle Capital
Corporation and The Bank of New York (Filed as Exhibit 10.11 to the
Registrants Annual Report on Form 10-K for the year ended December
31, 2007 filed with the Securities and Exchange Commission on March
12, 2008 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. |
|
|
|
|
|
Management contract or compensatory plan or arrangement. |