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 September 30, 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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3700 Glenwood Avenue, Suite 530
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Raleigh, North Carolina
(Address and zip code of principal executive offices)
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27612
(Zip Code) |
Registrants telephone number, including area code: (919) 719-4770
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant 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
(Do not check if a smaller reporting company) |
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
The number of shares outstanding of the registrants Common Stock on November 1, 2008 was
6,917,363.
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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September 30, |
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December 31, |
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2008 |
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2007 |
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(Unaudited) |
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Assets |
|
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|
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Investments at fair value: |
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|
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Non-Control / Non-Affiliate investments (cost
of $129,405,482 and $66,129,119 at September 30,
2008 and December 31, 2007, respectively) |
|
$ |
126,979,495 |
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|
$ |
68,388,014 |
|
Affiliate investments (cost of $30,283,922 and $24,023,264
at September 30, 2008 and December 31, 2007,
respectively) |
|
|
33,725,587 |
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|
24,576,462 |
|
Control investments (cost of $11,636,897 and $15,727,418
at September 30, 2008 and December 31, 2007,
respectively) |
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17,058,874 |
|
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|
20,071,764 |
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|
Total investments at fair value |
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177,763,956 |
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|
113,036,240 |
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Cash and cash equivalents |
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15,931,088 |
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21,787,750 |
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Interest and fees receivable |
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268,488 |
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|
305,159 |
|
Prepaid expenses and other current assets |
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113,367 |
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|
47,477 |
|
Deferred financing fees |
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3,106,419 |
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|
999,159 |
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Property and equipment, net |
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48,086 |
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|
34,166 |
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Total assets |
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$ |
197,231,404 |
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$ |
136,209,951 |
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Liabilities |
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Accounts payable and accrued liabilities |
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$ |
1,116,926 |
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$ |
1,144,222 |
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Interest payable |
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266,973 |
|
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|
698,735 |
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Dividends payable |
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|
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2,041,159 |
|
Income taxes payable |
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52,598 |
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Deferred revenue |
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50,000 |
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30,625 |
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Short-term borrowings |
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5,100,000 |
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Deferred income taxes |
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2,418,178 |
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1,760,259 |
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SBA guaranteed debentures payable |
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93,110,000 |
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37,010,000 |
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Total liabilities |
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102,062,077 |
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42,737,598 |
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Net Assets |
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Common stock, $0.001 par value per share (150,000,000
shares authorized, 6,917,363 and 6,803,863 shares issued
and outstanding as of September 30, 2008 and December 31,
2007, respectively) |
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6,917 |
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6,804 |
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Additional paid-in capital |
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87,121,265 |
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86,949,189 |
|
Investment income in excess of distributions |
|
|
4,589,197 |
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|
1,738,797 |
|
Accumulated realized losses on investments |
|
|
(567,531 |
) |
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|
(618,620 |
) |
Net unrealized appreciation of investments |
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4,019,479 |
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5,396,183 |
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Total net assets |
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95,169,327 |
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|
93,472,353 |
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Total liabilities and net assets |
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$ |
197,231,404 |
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$ |
136,209,951 |
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Net asset value per share |
|
$ |
13.76 |
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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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Nine Months |
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Nine Months |
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Ended |
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Ended |
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Ended |
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Ended |
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September 30, |
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September 30, |
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September 30, |
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September 30, |
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2008 |
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2007 |
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2008 |
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2007 |
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(Consolidated) |
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(Consolidated) |
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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 |
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$ |
3,447,176 |
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$ |
1,728,682 |
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$ |
8,166,903 |
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$ |
4,233,318 |
|
Affiliate investments |
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936,965 |
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574,964 |
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2,572,546 |
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1,368,578 |
|
Control investments |
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315,408 |
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361,395 |
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1,194,603 |
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845,136 |
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Total loan interest, fee and dividend income |
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4,699,549 |
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2,665,041 |
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11,934,052 |
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6,447,032 |
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Paid-in-kind interest income: |
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Non-Control / Non-Affiliate investments |
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840,543 |
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213,850 |
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1,709,348 |
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|
590,655 |
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Affiliate investments |
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|
175,491 |
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|
63,556 |
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|
489,005 |
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159,098 |
|
Control investments |
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96,393 |
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|
143,188 |
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|
356,700 |
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|
294,501 |
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|
Total paid-in-kind interest income |
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1,112,427 |
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|
420,594 |
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2,555,053 |
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1,044,254 |
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|
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Interest income from cash and cash equivalent
investments |
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57,661 |
|
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|
508,652 |
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|
264,607 |
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|
1,502,341 |
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|
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|
Total investment income |
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|
5,869,637 |
|
|
|
3,594,287 |
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|
14,753,712 |
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8,993,627 |
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Expenses: |
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Interest expense |
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1,125,469 |
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|
525,081 |
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2,586,279 |
|
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|
1,545,798 |
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Amortization of deferred financing fees |
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|
64,596 |
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28,515 |
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160,765 |
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|
83,731 |
|
Management fees |
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232,423 |
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General and administrative expenses |
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1,467,866 |
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1,048,690 |
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4,338,825 |
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2,690,946 |
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Total expenses |
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|
2,657,931 |
|
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|
1,602,286 |
|
|
|
7,085,869 |
|
|
|
4,552,898 |
|
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|
Net investment income |
|
|
3,211,706 |
|
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|
1,992,001 |
|
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|
7,667,843 |
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|
4,440,729 |
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|
|
|
|
|
|
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|
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|
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Net realized gain (loss) on investment Non
Control / Non-Affiliate |
|
|
51,089 |
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|
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|
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|
51,089 |
|
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|
(1,464,224 |
) |
Net realized gain on investment Affiliate |
|
|
|
|
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|
141,014 |
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|
|
|
|
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|
141,014 |
|
Net
unrealized appreciation (depreciation) of investments |
|
|
(736,636 |
) |
|
|
1,233,666 |
|
|
|
(1,376,704 |
) |
|
|
3,545,081 |
|
|
|
|
Total net gain (loss) on investments before income
taxes |
|
|
(685,547 |
) |
|
|
1,374,680 |
|
|
|
(1,325,615 |
) |
|
|
2,221,871 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
49,813 |
|
|
|
|
|
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|
251,984 |
|
|
|
|
|
|
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|
Net increase in net assets resulting from operations |
|
$ |
2,476,346 |
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|
$ |
3,366,681 |
|
|
$ |
6,090,244 |
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$ |
6,662,600 |
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|
|
|
|
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|
|
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|
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|
Net investment income per share basic and diluted |
|
$ |
0.46 |
|
|
$ |
0.30 |
|
|
$ |
1.12 |
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|
$ |
0.66 |
|
|
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|
Net increase in net assets resulting from
operations per share basic and diluted |
|
$ |
0.36 |
|
|
$ |
0.50 |
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|
$ |
0.89 |
|
|
$ |
0.99 |
|
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|
Dividends declared per common share |
|
$ |
0.35 |
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|
$ |
0.26 |
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|
$ |
0.66 |
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|
$ |
0.41 |
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|
Weighted average number of shares outstanding
basic and diluted |
|
|
6,917,363 |
|
|
|
6,735,177 |
|
|
|
6,864,341 |
|
|
|
6,703,414 |
|
|
|
|
See accompanying notes.
4
TRIANGLE CAPITAL CORPORATION
Unaudited Statements of Changes in Net Assets
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|
Investment |
|
|
Accumulated |
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|
Net |
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|
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|
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|
|
|
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|
|
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|
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|
|
Income |
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|
Realized |
|
|
Unrealized |
|
|
|
|
|
|
General |
|
|
Limited |
|
|
Common Stock |
|
|
Additional |
|
|
in Excess of |
|
|
Gains |
|
|
Appreciation |
|
|
Total |
|
|
|
Partners |
|
|
Partners |
|
|
Number |
|
|
Par |
|
|
Paid In |
|
|
(Less Than) |
|
|
(Losses) on |
|
|
(Depreciation) of |
|
|
Net |
|
|
|
Capital |
|
|
Capital |
|
|
of Shares |
|
|
Value |
|
|
Capital |
|
|
Distributions |
|
|
Investments |
|
|
Investments |
|
|
Assets |
|
|
|
|
Balance, January 1, 2007 |
|
$ |
100 |
|
|
$ |
21,250,000 |
|
|
|
100 |
|
|
$ |
|
|
|
$ |
1,500 |
|
|
$ |
1,570,135 |
|
|
$ |
|
|
|
$ |
2,335,076 |
|
|
$ |
25,156,811 |
|
Public offering of common
stock |
|
|
|
|
|
|
|
|
|
|
4,770,000 |
|
|
|
4,770 |
|
|
|
64,723,267 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64,728,037 |
|
Formation transactions |
|
|
(100 |
) |
|
|
(21,250,000 |
) |
|
|
1,916,660 |
|
|
|
1,917 |
|
|
|
21,248,183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,440,729 |
|
|
|
|
|
|
|
|
|
|
|
4,440,729 |
|
Realized gain (loss) on
investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,323,210 |
) |
|
|
1,464,224 |
|
|
|
141,014 |
|
Net unrealized gains on
investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,080,857 |
|
|
|
2,080,857 |
|
Dividends declared |
|
|
|
|
|
|
|
|
|
|
117,103 |
|
|
|
117 |
|
|
|
1,626,096 |
|
|
|
(2,753,555 |
) |
|
|
|
|
|
|
|
|
|
|
(1,127,342 |
) |
Tax distribution to partners |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(220,047 |
) |
|
|
|
|
|
|
|
|
|
|
(220,047 |
) |
|
|
|
|
|
|
|
|
|
Balance, September 30, 2007 |
|
$ |
|
|
|
$ |
|
|
|
|
6,803,863 |
|
|
$ |
6,804 |
|
|
$ |
87,599,046 |
|
|
$ |
3,037,262 |
|
|
$ |
(1,323,210 |
) |
|
$ |
5,880,157 |
|
|
$ |
95,200,059 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,667,843 |
|
|
|
|
|
|
|
|
|
|
|
7,667,843 |
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
172,189 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
172,189 |
|
Realized gain (loss) on
investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,089 |
|
|
|
33,167 |
|
|
|
84,256 |
|
Net unrealized losses on
investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,409,871 |
) |
|
|
(1,409,871 |
) |
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(251,984 |
) |
|
|
|
|
|
|
|
|
|
|
(251,984 |
) |
Dividends declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,565,459 |
) |
|
|
|
|
|
|
|
|
|
|
(4,565,459 |
) |
Issuance of restricted stock |
|
|
113,500 |
|
|
|
113 |
|
|
|
(113 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2008 |
|
|
6,917,363 |
|
|
$ |
6,917 |
|
|
$ |
87,121,265 |
|
|
$ |
4,589,197 |
|
|
$ |
(567,531 |
) |
|
$ |
4,019,479 |
|
|
$ |
95,169,327 |
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
5
TRIANGLE CAPITAL CORPORATION
Unaudited Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
Nine Months |
|
|
Ended |
|
Ended |
|
|
September 30, |
|
September 30, |
|
|
2008 |
|
2007 |
|
|
(Consolidated) |
|
(Combined) |
|
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net increase in net assets resulting from operations |
|
$ |
6,090,244 |
|
|
$ |
6,662,600 |
|
Adjustments to reconcile net increase in net assets resulting
from operations to net cash provided by (used in) operating
activities: |
|
|
|
|
|
|
|
|
Purchases of portfolio investments |
|
|
(73,645,254 |
) |
|
|
(42,534,975 |
) |
Repayments received/sales of portfolio investments |
|
|
9,060,478 |
|
|
|
4,878,207 |
|
Loan origination and other fees received |
|
|
1,401,996 |
|
|
|
894,904 |
|
Net realized loss (gain) on investments |
|
|
(51,089 |
) |
|
|
1,323,210 |
|
Net unrealized depreciation (appreciation) of investments |
|
|
718,784 |
|
|
|
(3,545,081 |
) |
Deferred income taxes |
|
|
657,919 |
|
|
|
|
|
Paid-in-kind interest accrued, net of payments received |
|
|
(1,788,984 |
) |
|
|
(845,033 |
) |
Amortization of deferred financing fees |
|
|
160,765 |
|
|
|
83,731 |
|
Recognition of loan origination and other fees |
|
|
(309,140 |
) |
|
|
(543,466 |
) |
Accretion of loan discounts |
|
|
(95,132 |
) |
|
|
(158,751 |
) |
Depreciation expense |
|
|
11,110 |
|
|
|
4,605 |
|
Stock-based compensation |
|
|
172,189 |
|
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Interest and fees receivable |
|
|
36,671 |
|
|
|
(170,012 |
) |
Prepaid expenses and other current assets |
|
|
(65,890 |
) |
|
|
(30,382 |
) |
Accounts payable and accrued liabilities |
|
|
(27,296 |
) |
|
|
(54,683 |
) |
Interest payable |
|
|
(431,762 |
) |
|
|
(435,074 |
) |
Income taxes payable |
|
|
(52,598 |
) |
|
|
|
|
Receivable from / payable to Triangle Capital Partners, LLC |
|
|
|
|
|
|
(30,000 |
) |
|
|
|
Net cash provided by (used in) operating activities |
|
|
(58,156,989 |
) |
|
|
(34,500,200 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(25,030 |
) |
|
|
(39,306 |
) |
|
|
|
Net cash used in investing activities |
|
|
(25,030 |
) |
|
|
(39,306 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Borrowings under SBA guaranteed debentures payable |
|
|
56,100,000 |
|
|
|
4,000,000 |
|
Short-term borrowings |
|
|
5,100,000 |
|
|
|
|
|
Financing fees paid |
|
|
(2,268,025 |
) |
|
|
(97,000 |
) |
Proceeds from initial public offering, net of expenses |
|
|
|
|
|
|
64,728,037 |
|
Change in deferred offering costs |
|
|
|
|
|
|
1,020,646 |
|
Cash dividends paid |
|
|
(6,606,618 |
) |
|
|
(1,127,342 |
) |
Tax distribution to partners |
|
|
|
|
|
|
(751,613 |
) |
|
|
|
Net cash provided by financing activities |
|
|
52,325,357 |
|
|
|
67,772,728 |
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
(5,856,662 |
) |
|
|
33,233,222 |
|
Cash and cash equivalents, beginning of period |
|
|
21,787,750 |
|
|
|
2,556,502 |
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
15,931,088 |
|
|
$ |
35,789,724 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
3,018,042 |
|
|
$ |
1,980,873 |
|
|
|
|
See accompanying notes.
6
TRIANGLE CAPITAL CORPORATION
Unaudited Consolidated Schedule of Investments
September 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment |
|
Principal |
|
|
|
|
|
|
Fair |
|
Portfolio Company |
|
|
Industry |
|
|
(1) (2) |
|
Amount |
|
|
Cost |
|
|
Value (3) |
|
Non-Control / Non-Affiliate Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ambient Air Corporation (6%)* |
|
Specialty Trade |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractors |
|
(12%, Due 03/11) |
|
$ |
3,166,022 |
|
|
$ |
3,048,141 |
|
|
$ |
3,048,141 |
|
|
|
|
|
|
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14%, Due 03/11) |
|
|
1,897,581 |
|
|
|
1,866,205 |
|
|
|
1,866,205 |
|
|
|
|
|
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants (455 shares) |
|
|
|
|
|
|
142,361 |
|
|
|
510,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,063,603 |
|
|
|
5,056,707 |
|
|
|
5,425,146 |
|
American De-Rosa Lamparts, LLC and Hallmark Lighting (8%)* |
|
Wholesale and |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution |
|
(15.25%, Due 10/13) |
|
|
8,130,004 |
|
|
|
7,980,785 |
|
|
|
7,980,785 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,130,004 |
|
|
|
7,980,785 |
|
|
|
7,980,785 |
|
American Direct Marketing Resources, LLC (4%)* |
|
Direct Marketing |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services |
|
(15%, Due 03/15) |
|
|
4,005,000 |
|
|
|
3,925,000 |
|
|
|
3,925,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,005,000 |
|
|
|
3,925,000 |
|
|
|
3,925,000 |
|
APO Newco, LLC (3%)* |
|
Commercial and |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer |
|
(14%, Due 03/13) |
|
|
2,630,957 |
|
|
|
2,541,463 |
|
|
|
2,541,463 |
|
|
|
Marketing Products |
|
Unit purchase warrant |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(87,302 Class C units) |
|
|
|
|
|
|
25,200 |
|
|
|
466,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,630,957 |
|
|
|
2,566,663 |
|
|
|
3,007,563 |
|
ARC Industries, LLC (3%)* |
|
Remediation |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services |
|
(19%, Due 11/10) |
|
|
2,496,550 |
|
|
|
2,473,666 |
|
|
|
2,473,666 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,496,550 |
|
|
|
2,473,666 |
|
|
|
2,473,666 |
|
Art Headquarters, LLC (2%)* |
|
Retail, Wholesale |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and Distribution |
|
(14%, Due 01/10) |
|
|
2,333,488 |
|
|
|
2,304,519 |
|
|
|
2,110,899 |
|
|
|
|
|
|
|
Membership unit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
warrants (15% of units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(150 units)) |
|
|
|
|
|
|
40,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,333,488 |
|
|
|
2,345,319 |
|
|
|
2,110,899 |
|
Assurance Operations Corporation (4%)* |
|
Auto Components / |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metal Fabrication |
|
(17%, Due 03/12) |
|
|
3,976,079 |
|
|
|
3,932,122 |
|
|
|
3,572,600 |
|
|
|
|
|
|
|
Common Stock (57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shares) |
|
|
|
|
|
|
257,143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,976,079 |
|
|
|
4,189,265 |
|
|
|
3,572,600 |
|
Bruce Plastics, Inc. (0%)* |
|
Plastic Component |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing |
|
(14%, Due 10/11) |
|
|
1,500,000 |
|
|
|
1,392,208 |
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants (12% of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common stock) |
|
|
|
|
|
|
108,534 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,500,000 |
|
|
|
1,500,742 |
|
|
|
|
|
CV Holdings, LLC (6%)* |
|
Specialty Healthcare |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products |
|
(16%, Due 03/10) |
|
|
5,208,281 |
|
|
|
5,178,206 |
|
|
|
5,178,206 |
|
|
|
Manufacturer |
|
Royalty rights |
|
|
|
|
|
|
|
|
|
|
274,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,208,281 |
|
|
|
5,178,206 |
|
|
|
5,452,806 |
|
Cyrus Networks, LLC (6%)* |
|
Data Center |
|
Senior Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services Provider |
|
(6%, Due 07/13) |
|
|
4,882,336 |
|
|
|
4,866,686 |
|
|
|
4,866,686 |
|
|
|
|
|
|
|
2nd Lien Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10%, Due 01/14) |
|
|
1,056,385 |
|
|
|
1,056,385 |
|
|
|
1,056,385 |
|
|
|
|
|
|
|
Revolving Line of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit (6%) |
|
|
253,144 |
|
|
|
253,144 |
|
|
|
253,144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,191,865 |
|
|
|
6,176,215 |
|
|
|
6,176,215 |
|
DataPath, Inc. (0%)* |
|
Satellite |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Communication |
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturer |
|
(210,263 shares) |
|
|
|
|
|
|
101,500 |
|
|
|
57,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101,500 |
|
|
|
57,700 |
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment |
|
Principal |
|
|
|
|
|
|
Fair |
|
Portfolio Company |
|
|
Industry |
|
|
(1) (2) |
|
Amount |
|
|
Cost |
|
|
Value (3) |
|
Electronic Systems Protection, Inc. (4%)* |
|
Power Protection |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Systems |
|
(14%, Due 12/15) |
|
$ |
3,044,048 |
|
|
$ |
3,016,709 |
|
|
$ |
3,016,709 |
|
|
|
Manufacturing |
|
Senior Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7%, Due 01/14) |
|
|
991,329 |
|
|
|
991,329 |
|
|
|
991,329 |
|
|
|
|
|
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(500 shares) |
|
|
|
|
|
|
250,000 |
|
|
|
250,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,035,377 |
|
|
|
4,258,038 |
|
|
|
4,258,038 |
|
Energy Hardware Holdings, LLC (4%)* |
|
Machined Parts |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution |
|
(14.5%, Due 10/12) |
|
|
3,327,799 |
|
|
|
3,266,814 |
|
|
|
3,266,814 |
|
|
|
|
|
|
|
Junior Subordinated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8%, Due 10/12) |
|
|
207,667 |
|
|
|
207,667 |
|
|
|
207,667 |
|
|
|
|
|
|
|
Voting Units (4,833 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
units) |
|
|
|
|
|
|
4,833 |
|
|
|
339,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,535,466 |
|
|
|
3,479,314 |
|
|
|
3,814,281 |
|
FCL Graphics, Inc. (7%)* |
|
Commercial Printing |
|
Senior Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services |
|
(6%, Due 10/12) |
|
|
1,729,200 |
|
|
|
1,722,682 |
|
|
|
1,722,682 |
|
|
|
|
|
|
|
Senior Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10%, Due 10/13) |
|
|
2,000,000 |
|
|
|
1,992,895 |
|
|
|
1,992,895 |
|
|
|
|
|
|
|
2nd Lien Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18%, Due 4/14) |
|
|
3,328,971 |
|
|
|
3,317,584 |
|
|
|
3,317,584 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,058,171 |
|
|
|
7,033,161 |
|
|
|
7,033,161 |
|
Fire Sprinkler Systems, Inc. (1%)* |
|
Specialty Trade |
|
Subordinated Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractors |
|
(13%-17.5%, Due |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
04/11) |
|
|
2,438,362 |
|
|
|
2,403,782 |
|
|
|
1,400,000 |
|
|
|
|
|
|
|
Common Stock (250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shares) |
|
|
|
|
|
|
271,186 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,438,362 |
|
|
|
2,674,968 |
|
|
|
1,400,000 |
|
Garden Fresh Restaurant Corp. (4%)* |
|
Restaurant |
|
2nd Lien Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10%, Due 12/11) |
|
|
3,000,000 |
|
|
|
3,000,000 |
|
|
|
3,000,000 |
|
|
|
|
|
|
|
Membership Units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,000 units) |
|
|
|
|
|
|
500,000 |
|
|
|
583,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000,000 |
|
|
|
3,500,000 |
|
|
|
3,583,600 |
|
Gerli & Company (3%)* |
|
Specialty Woven |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fabrics |
|
(14%, Due 08/11) |
|
|
3,161,439 |
|
|
|
3,085,389 |
|
|
|
2,752,100 |
|
|
|
Manufacturer |
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants (56,559 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shares) |
|
|
|
|
|
|
83,414 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,161,439 |
|
|
|
3,168,803 |
|
|
|
2,752,100 |
|
Inland Pipe Rehabilitation Holding Company LLC (8%)* |
|
Cleaning and |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repair Services |
|
(14%, Due 01/14) |
|
|
8,053,914 |
|
|
|
7,356,718 |
|
|
|
7,356,718 |
|
|
|
|
|
|
|
Membership Interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase Warrant |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.5%) |
|
|
|
|
|
|
563,300 |
|
|
|
563,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,053,914 |
|
|
|
7,920,018 |
|
|
|
7,920,018 |
|
Jenkins Service, LLC (10%)* |
|
Restoration |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services |
|
(17.5%, Due 04/14) |
|
|
8,258,167 |
|
|
|
8,108,109 |
|
|
|
8,108,109 |
|
|
|
|
|
|
|
Convertible Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10%, Due 04/14) |
|
|
1,375,000 |
|
|
|
1,335,629 |
|
|
|
1,335,629 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,633,167 |
|
|
|
9,443,738 |
|
|
|
9,443,738 |
|
Library Systems & Services, LLC (3%)* |
|
Municipal Business |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services |
|
(12%, Due 03/11) |
|
|
2,000,000 |
|
|
|
1,942,958 |
|
|
|
1,942,958 |
|
|
|
|
|
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants (112 shares) |
|
|
|
|
|
|
58,995 |
|
|
|
521,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000,000 |
|
|
|
2,001,953 |
|
|
|
2,463,958 |
|
Syrgis Holdings, Inc. (6%)* |
|
Specialty Chemical |
|
Senior Note (7%, Due |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturer |
|
|
08/12-02/14) |
|
|
4,730,000 |
|
|
|
4,698,643 |
|
|
|
4,698,643 |
|
|
|
|
|
|
|
Common Units (2,114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
units) |
|
|
|
|
|
|
1,000,000 |
|
|
|
696,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,730,000 |
|
|
|
5,698,643 |
|
|
|
5,395,443 |
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment |
|
Principal |
|
|
|
|
|
|
Fair |
|
Portfolio Company |
|
|
Industry |
|
|
(1) (2) |
|
Amount |
|
|
Cost |
|
|
Value (3) |
|
TrustHouse Services Group, Inc. (5%)* |
|
Food Management |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services |
|
(14%, Due 03/15) |
|
$ |
4,242,808 |
|
|
$ |
4,162,780 |
|
|
$ |
4,162,780 |
|
|
|
|
|
|
|
Class A Units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,495 units) |
|
|
|
|
|
|
475,000 |
|
|
|
475,000 |
|
|
|
|
|
|
|
Class B Units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(79 units) |
|
|
|
|
|
|
25,000 |
|
|
|
25,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,242,808 |
|
|
|
4,662,780 |
|
|
|
4,662,780 |
|
Twin-Star International, Inc. (6%)* |
|
Consumer Home |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Furnishings |
|
(13%, Due 04/14) |
|
|
4,500,000 |
|
|
|
4,436,605 |
|
|
|
4,436,605 |
|
|
|
Manufacturer |
|
Senior Note (6%, Due |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
04/13) |
|
|
1,305,225 |
|
|
|
1,305,225 |
|
|
|
1,305,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,805,225 |
|
|
|
5,741,830 |
|
|
|
5,741,830 |
|
Waste Recyclers Holdings, LLC (13%)* |
|
Environmental and |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facilities Services |
|
(15.5%, Due 01/13) |
|
|
9,028,000 |
|
|
|
8,848,000 |
|
|
|
8,848,000 |
|
|
|
|
|
|
|
Class A Preferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units (300 Units) |
|
|
|
|
|
|
2,251,100 |
|
|
|
2,251,100 |
|
|
|
|
|
|
|
Common Unit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase Warrant |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,170,083 Units) |
|
|
|
|
|
|
748,900 |
|
|
|
748,900 |
|
|
|
|
|
|
|
Common Units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(153,219 Units) |
|
|
|
|
|
|
153,219 |
|
|
|
153,219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,028,000 |
|
|
|
12,001,219 |
|
|
|
12,001,219 |
|
Wholesale Floors, Inc. (4%)* |
|
Commercial |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services |
|
(14%, Due 06/14) |
|
|
3,500,000 |
|
|
|
3,336,997 |
|
|
|
3,336,997 |
|
|
|
|
|
|
|
Membership Interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase Warrant |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4.0%) |
|
|
|
|
|
|
132,800 |
|
|
|
132,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,500,000 |
|
|
|
3,469,797 |
|
|
|
3,469,797 |
|
Yellowstone Landscape Group, Inc. (13%)* |
|
Landscaping |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services |
|
(15%, Due 04/14) |
|
|
13,162,988 |
|
|
|
12,857,152 |
|
|
|
12,857,152 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,162,988 |
|
|
|
12,857,152 |
|
|
|
12,857,152 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Non-Control / Non-Affiliate Investments |
|
|
|
|
|
|
124,920,744 |
|
|
|
129,405,482 |
|
|
|
126,979,495 |
|
Affiliate Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Point, LLC (6%)* |
|
Asset Management |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software Provider |
|
(15%, Due 03/13) |
|
|
5,084,840 |
|
|
|
4,992,395 |
|
|
|
4,992,395 |
|
|
|
|
|
|
|
Membership Units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10 units) |
|
|
|
|
|
|
500,000 |
|
|
|
500,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,084,840 |
|
|
|
5,492,395 |
|
|
|
5,492,395 |
|
Axxiom Manufacturing, Inc. (3%)* |
|
Industrial |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment |
|
(14%, Due 01/11) |
|
|
2,113,218 |
|
|
|
2,090,191 |
|
|
|
2,090,191 |
|
|
|
Manufacturer |
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34,100 shares) |
|
|
|
|
|
|
200,000 |
|
|
|
356,400 |
|
|
|
|
|
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,000 shares) |
|
|
|
|
|
|
|
|
|
|
8,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,113,218 |
|
|
|
2,290,191 |
|
|
|
2,454,591 |
|
Brantley
Transportation, LLC (Brantley Transportation) and |
|
Oil and Gas |
|
Subordinated Note - |
|
|
|
|
|
|
|
|
|
|
|
|
Pine Street Holdings, LLC (Pine Street) (4) (4%)* |
|
Services |
|
Brantley Transportation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14%, Due 12/12) |
|
|
3,800,000 |
|
|
|
3,685,252 |
|
|
|
3,685,252 |
|
|
|
|
|
|
|
Common Unit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants - Brantley |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation (4,560 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common units) |
|
|
|
|
|
|
33,600 |
|
|
|
42,300 |
|
|
|
|
|
|
|
Preferred Units - Pine |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Street (200 units) |
|
|
|
|
|
|
200,000 |
|
|
|
163,500 |
|
|
|
|
|
|
|
Common Unit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants - Pine Street |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,220 units) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,800,000 |
|
|
|
3,918,852 |
|
|
|
3,891,052 |
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment |
|
Principal |
|
|
|
|
|
|
Fair |
|
Portfolio Company |
|
|
Industry |
|
|
(1) (2) |
|
Amount |
|
|
Cost |
|
|
Value (3) |
|
Dyson Corporation (12%)* |
|
Custom Forging |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and Fastener |
|
(15%, Due 12/13) |
|
$ |
10,240,042 |
|
|
$ |
10,038,140 |
|
|
$ |
10,038,140 |
|
|
|
Supplies |
|
Class A Units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,000,000 units) |
|
|
|
|
|
|
1,000,000 |
|
|
|
1,255,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,240,042 |
|
|
|
11,038,140 |
|
|
|
11,293,740 |
|
Equisales, LLC (9%)* |
|
Energy Products |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and Services |
|
(15%, Due 04/12) |
|
|
6,271,114 |
|
|
|
6,172,409 |
|
|
|
6,172,409 |
|
|
|
|
|
|
|
Class A Units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(500,000 units) |
|
|
|
|
|
|
500,000 |
|
|
|
1,995,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,271,114 |
|
|
|
6,672,409 |
|
|
|
8,168,309 |
|
Flint Acquisition Corporation (2%)* |
|
Specialty Chemical |
|
Preferred Stock (9,875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturer |
|
shares) |
|
|
|
|
|
|
308,333 |
|
|
|
1,894,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
308,333 |
|
|
|
1,894,000 |
|
Genapure Corporation (Genapure) and Genpref, LLC |
|
Lab Testing |
|
Genapure Common |
|
|
|
|
|
|
|
|
|
|
|
|
(Genpref) (5) (1%)* |
|
Services |
|
Stock (4,286 shares) |
|
|
|
|
|
|
500,000 |
|
|
|
471,521 |
|
|
|
|
|
|
|
Genpref Preferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock (455 shares) |
|
|
|
|
|
|
63,602 |
|
|
|
59,979 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
563,602 |
|
|
|
531,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Affiliate Investments |
|
|
|
|
|
|
|
|
|
|
27,509,214 |
|
|
|
30,283,922 |
|
|
|
33,725,587 |
|
Control Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fischbein, LLC (13%)* |
|
Packaging and |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Materials Handling |
|
(16.5%, Due 05/13) |
|
|
7,102,078 |
|
|
|
6,965,643 |
|
|
|
6,965,643 |
|
|
|
Equipment |
|
Membership Units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturer |
|
(4,200,000 units) |
|
|
|
|
|
|
4,200,000 |
|
|
|
5,407,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,102,078 |
|
|
|
11,165,643 |
|
|
|
12,373,043 |
|
Porters Group, LLC (5%)* |
|
Metal Fabrication |
|
Membership Units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,730 units) |
|
|
|
|
|
|
471,254 |
|
|
|
4,685,831 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
471,254 |
|
|
|
4,685,831 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Control Investments |
|
|
|
|
|
|
|
|
|
|
7,102,078 |
|
|
|
11,636,897 |
|
|
|
17,058,874 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments, September 30, 2008 (186%)* |
|
|
|
|
|
$ |
159,532,036 |
|
|
$ |
171,326,301 |
|
|
$ |
177,763,956 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
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, where applicable, 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 |
|
Principal |
|
|
|
|
|
|
Fair |
|
Portfolio Company |
|
|
Industry |
|
|
(1) (2) |
|
Amount |
|
|
Cost |
|
|
Value (3) |
|
Non-Control / Non-Affiliate Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ambient Air Corporation (6%)* |
|
Specialty Trade |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractors |
|
(12%, Due 03/11) |
|
$ |
3,144,654 |
|
|
$ |
2,997,686 |
|
|
$ |
2,997,686 |
|
|
|
|
|
|
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14%, Due 03/11) |
|
|
1,872,075 |
|
|
|
1,833,206 |
|
|
|
1,833,206 |
|
|
|
|
|
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants (455 shares) |
|
|
|
|
|
|
142,361 |
|
|
|
929,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,016,729 |
|
|
|
4,973,253 |
|
|
|
5,760,592 |
|
APO Newco, LLC (5%)* |
|
Commercial and |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer |
|
(14%, Due 03/13) |
|
|
4,315,262 |
|
|
|
4,214,957 |
|
|
|
4,214,957 |
|
|
|
Marketing Products |
|
Unit purchase warrant |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(87,302 Class C units) |
|
|
|
|
|
|
25,200 |
|
|
|
199,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,315,262 |
|
|
|
4,240,157 |
|
|
|
4,413,957 |
|
Art Headquarters, LLC (3%)* |
|
Retail, Wholesale |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and Distribution |
|
(14%, Due 01/10) |
|
|
2,441,824 |
|
|
|
2,397,556 |
|
|
|
2,397,556 |
|
|
|
|
|
|
|
Membership unit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
warrants (15% of units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(150 units)) |
|
|
|
|
|
|
40,800 |
|
|
|
9,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,441,824 |
|
|
|
2,438,356 |
|
|
|
2,407,356 |
|
Assurance Operations Corporation (4%)* |
|
Auto Components / |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metal Fabrication |
|
(17%, Due 03/12) |
|
|
3,828,527 |
|
|
|
3,776,608 |
|
|
|
3,776,608 |
|
|
|
|
|
|
|
Common Stock (200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shares) |
|
|
|
|
|
|
200,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,828,527 |
|
|
|
3,976,608 |
|
|
|
3,776,608 |
|
Bruce Plastics, Inc. (1%)* |
|
Plastic Component |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing |
|
(14%, Due 10/11) |
|
|
1,500,000 |
|
|
|
1,371,527 |
|
|
|
1,371,527 |
|
|
|
|
|
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants (12% of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common stock) |
|
|
|
|
|
|
108,534 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,500,000 |
|
|
|
1,480,061 |
|
|
|
1,371,527 |
|
CV Holdings, LLC (5%)* |
|
Specialty Healthcare |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products |
|
(16%, Due 03/10) |
|
|
4,976,360 |
|
|
|
4,932,535 |
|
|
|
4,932,535 |
|
|
|
Manufacturer |
|
Royalty rights |
|
|
|
|
|
|
|
|
|
|
197,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,976,360 |
|
|
|
4,932,535 |
|
|
|
5,130,435 |
|
Cyrus Networks, LLC (6%)* |
|
Data Center |
|
Senior Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services Provider |
|
(9%, Due 07/13) |
|
|
4,382,257 |
|
|
|
4,364,705 |
|
|
|
4,364,705 |
|
|
|
|
|
|
|
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 |
|
|
|
5,343,248 |
|
|
|
5,343,248 |
|
DataPath, Inc. (1%)* |
|
Satellite |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Communication |
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturer |
|
(210,263 shares) |
|
|
|
|
|
|
101,500 |
|
|
|
576,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101,500 |
|
|
|
576,400 |
|
Eastern Shore Ambulance, Inc. (1%)* |
|
Specialty Health |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Care Services |
|
(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 |
|
Principal |
|
|
|
|
|
|
Fair |
|
Portfolio Company |
|
|
Industry |
|
|
(1) (2) |
|
Amount |
|
|
Cost |
|
|
Value (3) |
|
Energy Hardware Holdings, LLC (4%)* |
|
Machined Parts |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution |
|
(14.5%, Due 10/12) |
|
$ |
3,265,142 |
|
|
$ |
3,196,108 |
|
|
$ |
3,196,108 |
|
|
|
|
|
|
|
Junior Subordinated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8%, Due 10/12) |
|
|
207,667 |
|
|
|
207,667 |
|
|
|
207,667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,472,809 |
|
|
|
3,403,775 |
|
|
|
3,403,775 |
|
FCL Graphics, Inc. (8%)* |
|
Commercial Printing |
|
Senior Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services |
|
(9%, Due 10/12) |
|
|
1,920,000 |
|
|
|
1,912,331 |
|
|
|
1,912,331 |
|
|
|
|
|
|
|
Senior Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13%, Due 10/13) |
|
|
2,000,000 |
|
|
|
1,992,061 |
|
|
|
1,992,061 |
|
|
|
|
|
|
|
2nd Lien Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18%, Due 4/14) |
|
|
3,145,481 |
|
|
|
3,133,096 |
|
|
|
3,133,096 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,065,481 |
|
|
|
7,037,488 |
|
|
|
7,037,488 |
|
Fire Sprinkler Systems, Inc. (3%)* |
|
Specialty Trade |
|
Subordinated Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractors |
|
(13%-17.5%, Due |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
04/11) |
|
|
2,517,986 |
|
|
|
2,474,943 |
|
|
|
2,474,943 |
|
|
|
|
|
|
|
Common Stock (250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shares) |
|
|
|
|
|
|
250,000 |
|
|
|
41,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,517,986 |
|
|
|
2,724,943 |
|
|
|
2,516,643 |
|
Flint Acquisition Corporation (5%)* |
|
Specialty Chemical |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturer |
|
(12.5%, Due 09/09) |
|
|
3,750,000 |
|
|
|
3,719,770 |
|
|
|
3,719,770 |
|
|
|
|
|
|
|
Preferred Stock (9,875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shares) |
|
|
|
|
|
|
308,333 |
|
|
|
1,074,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,750,000 |
|
|
|
4,028,103 |
|
|
|
4,793,870 |
|
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 |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturer |
|
(14%, Due 08/11) |
|
|
3,114,063 |
|
|
|
3,017,205 |
|
|
|
3,017,205 |
|
|
|
|
|
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants (56,559 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shares) |
|
|
|
|
|
|
83,414 |
|
|
|
84,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,114,063 |
|
|
|
3,100,619 |
|
|
|
3,101,705 |
|
Library Systems & Services, LLC (3%)* |
|
Municipal Business |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services |
|
(12%, Due 03/11) |
|
|
2,000,000 |
|
|
|
1,927,075 |
|
|
|
1,927,075 |
|
|
|
|
|
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants (112 shares) |
|
|
|
|
|
|
58,995 |
|
|
|
594,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000,000 |
|
|
|
1,986,070 |
|
|
|
2,521,375 |
|
Syrgis Holdings, Inc. (6%)* |
|
Specialty Chemical |
|
Senior Note (9%, Due |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturer |
|
|
08/12-02/14) |
|
|
4,932,500 |
|
|
|
4,896,481 |
|
|
|
4,896,481 |
|
|
|
|
|
|
|
Common Units (2,114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
units) |
|
|
|
|
|
|
1,000,000 |
|
|
|
1,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,932,500 |
|
|
|
5,896,481 |
|
|
|
5,896,481 |
|
Twin-Star International, Inc. (6%)* |
|
Consumer Home |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Furnishings |
|
(13%, Due 04/14) |
|
|
4,500,000 |
|
|
|
4,429,439 |
|
|
|
4,429,439 |
|
|
|
Manufacturer |
|
Senior Note (8%, Due |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
04/13) |
|
|
1,492,500 |
|
|
|
1,492,500 |
|
|
|
1,492,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,992,500 |
|
|
|
5,921,939 |
|
|
|
5,921,939 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Non-Control / Non-Affiliate Investments |
|
|
|
|
|
|
|
|
|
|
64,284,841 |
|
|
|
66,129,119 |
|
|
|
68,388,014 |
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment |
|
Principal |
|
|
|
|
|
|
Fair |
|
Portfolio Company |
|
|
Industry |
|
|
(1) (2) |
|
Amount |
|
|
Cost |
|
|
Value (3) |
|
Affiliate Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Axxiom Manufacturing, Inc. (3%)* |
|
Industrial |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment |
|
(14%, Due 01/11) |
|
$ |
2,081,321 |
|
|
$ |
2,051,882 |
|
|
$ |
2,051,882 |
|
|
|
Manufacturer |
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34,100 shares) |
|
|
|
|
|
|
200,000 |
|
|
|
543,600 |
|
|
|
|
|
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,000 shares) |
|
|
|
|
|
|
|
|
|
|
12,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,081,321 |
|
|
|
2,251,882 |
|
|
|
2,607,682 |
|
Brantley
Transportation, LLC (Brantley Transportation) and |
|
Oil and Gas |
|
Subordinated Note - |
|
|
|
|
|
|
|
|
|
|
|
|
Pine Street Holdings, LLC (Pine Street) (4) (4%)* |
|
Services |
|
Brantley Transportation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14%, Due 12/12) |
|
|
3,800,000 |
|
|
|
3,670,336 |
|
|
|
3,670,336 |
|
|
|
|
|
|
|
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 |
|
|
|
3,903,936 |
|
|
|
3,903,936 |
|
Dyson Corporation (12%)* |
|
Custom Forging |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and Fastener |
|
(15%, Due 12/13) |
|
|
10,009,167 |
|
|
|
9,789,167 |
|
|
|
9,789,167 |
|
|
|
Supplies |
|
Class A Units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,000,000 units) |
|
|
|
|
|
|
1,000,000 |
|
|
|
1,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,009,167 |
|
|
|
10,789,167 |
|
|
|
10,789,167 |
|
Equisales, LLC (7%)* |
|
Energy Products |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and Services |
|
(15%, Due 04/12) |
|
|
6,129,723 |
|
|
|
6,014,677 |
|
|
|
6,014,677 |
|
|
|
|
|
|
|
Class A Units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(500,000 units) |
|
|
|
|
|
|
500,000 |
|
|
|
500,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,129,723 |
|
|
|
6,514,677 |
|
|
|
6,514,677 |
|
Genapure Corporation
(Genapure) and Genpref, LLC |
|
Lab Testing |
|
Genapure Common |
|
|
|
|
|
|
|
|
|
|
|
|
(Genpref) (5) (1%)* |
|
Services |
|
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 |
|
|
|
24,023,264 |
|
|
|
24,576,462 |
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment |
|
Principal |
|
|
|
|
|
|
Fair |
|
Portfolio Company |
|
|
Industry |
|
|
(1) (2) |
|
Amount |
|
|
Cost |
|
|
Value (3) |
|
Control Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARC Industries, LLC (3%)* |
|
Remediation |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services |
|
(19%, Due 11/10) |
|
$ |
2,403,521 |
|
|
$ |
2,373,358 |
|
|
$ |
2,373,358 |
|
|
|
|
|
|
|
Membership Units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,000 units) |
|
|
|
|
|
|
175,000 |
|
|
|
118,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,403,521 |
|
|
|
2,548,358 |
|
|
|
2,492,058 |
|
Fischbein, LLC (14%)* |
|
Packaging and |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Materials Handling |
|
(16.5%, Due 05/13) |
|
|
8,660,723 |
|
|
|
8,507,806 |
|
|
|
8,507,806 |
|
|
|
Equipment |
|
Membership Units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturer |
|
(4,200,000 units) |
|
|
|
|
|
|
4,200,000 |
|
|
|
4,200,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,660,723 |
|
|
|
12,707,806 |
|
|
|
12,707,806 |
|
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 |
|
|
|
15,727,418 |
|
|
|
20,071,764 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments, December 31, 2007 (121%)* |
|
|
|
|
|
$ |
97,369,296 |
|
|
$ |
105,879,801 |
|
|
$ |
113,036,240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
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, where
applicable, 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 closedend, nondiversified investment company and has
elected to be treated as a BDC under the 1940 Act. The Company is internally managed by its
executive officers (previously employed by the Funds external manager) under the supervision of
its board of directors. For all periods subsequent to the consummation of the Offering and the
Formation Transactions, the Company does not pay management or advisory fees, but instead incurs
the operating costs associated with employing executive management and investment and portfolio
management professionals.
Basis of Presentation
The financial statements of the Company include the accounts of the Company and its
wholly-owned 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 nine months ended September 30, 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 described
above.
The accompanying unaudited financial statements are presented in conformity with United States
generally accepted accounting principles (U.S. GAAP) for interim financial information and
pursuant to the requirements for reporting on Form 10-Q and
Article 10 of Regulation S-X.
Accordingly, certain disclosures accompanying annual consolidated financial statements prepared in
15
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 nine months ended September 30, 2007, the Fund distributed $751,613 in cash to the
former General and Limited Partners of the Fund. After consummation of the Formation Transactions,
distributions of the Fund are allocated 100% to the Company.
Management Fee
Prior to the consummation of the Formation Transactions, the Fund was managed by Triangle
Capital Partners, LLC, a related party that is majority-owned by the Companys Chief Executive
Officer and two of the Companys 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 nine
months ended September 30, 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 Companys adoption of SFAS 157 resulted in additional unrealized depreciation of
approximately $0.2 million in the three months ended
March 31, 2008. 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 FASBs 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 adoption of SFAS
159 did not have a material impact on the Companys financial statements.
16
2. INVESTMENTS
As described above, effective January 1, 2008, the Company adopted SFAS 157 for its financial
assets. The Company has changed its balance sheet presentation for all periods to reclassify
deferred loan origination revenue to the associated debt investments. Prior to the adoption of
SFAS 157, the Company reported deferred loan origination revenue as a single line item on the
Consolidated Balance Sheets. This change in presentation had no impact on the aggregate net cost
or fair value of the Companys investment portfolio and had no impact on the Companys financial
position or results of operations.
Summaries of the composition of the Companys investment portfolio at cost and fair value as a
percentage of total investments are shown in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of |
|
|
|
|
|
Percentage of |
|
|
Cost |
|
|
Total Portfolio |
|
Fair Value |
|
|
Total Portfolio |
|
|
|
September 30, 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debt and 2nd lien notes |
|
$ |
140,325,623 |
|
|
|
82 |
% |
|
$ |
137,043,202 |
|
|
|
77 |
% |
Senior debt |
|
|
15,830,604 |
|
|
|
9 |
|
|
|
15,830,604 |
|
|
|
9 |
|
Equity shares |
|
|
13,232,170 |
|
|
|
8 |
|
|
|
21,622,350 |
|
|
|
12 |
|
Equity warrants |
|
|
1,937,904 |
|
|
|
1 |
|
|
|
2,993,200 |
|
|
|
2 |
|
Royalty rights |
|
|
|
|
|
|
|
|
|
|
274,600 |
|
|
|
|
|
|
|
|
|
|
$ |
171,326,301 |
|
|
|
100 |
% |
|
$ |
177,763,956 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debt and 2nd lien notes |
|
$ |
80,902,982 |
|
|
|
76 |
% |
|
$ |
80,902,982 |
|
|
|
72 |
% |
Senior debt |
|
|
14,728,958 |
|
|
|
14 |
|
|
|
14,728,958 |
|
|
|
13 |
|
Equity shares |
|
|
9,699,689 |
|
|
|
9 |
|
|
|
15,335,900 |
|
|
|
13 |
|
Equity warrants |
|
|
548,172 |
|
|
|
1 |
|
|
|
1,870,500 |
|
|
|
2 |
|
Royalty rights |
|
|
|
|
|
|
|
|
|
|
197,900 |
|
|
|
|
|
|
|
|
|
|
$ |
105,879,801 |
|
|
|
100 |
% |
|
$ |
113,036,240 |
|
|
|
100 |
% |
|
|
|
During the three months ended September 30, 2008, the Company made two new investments
totaling $16.2 million, one additional debt investment in an existing portfolio company of $0.2
million and one additional equity investment in an existing portfolio company of approximately
$5,000. During the nine months ended September 30, 2008, the Company made ten new investments
totaling $72.5 million, one additional debt investment in an existing portfolio company of $1.0
million and three additional equity investments in existing portfolio companies of approximately
$0.1 million.
During the three months ended September 30, 2007, the Company made two new investments
totaling $11.2 million and one additional debt investment in an existing portfolio company of $1.9
million. During the nine months ended September 30, 2007, the Company made six new investments
totaling $40.5 million, one additional debt investment in an existing portfolio company of $1.9
million and one additional equity investment in an existing portfolio company of approximately $0.1
million.
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.
17
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
paymentinkind (PIK) interest, if any. The Company also uses a risk rating system to estimate the
probability of default on the debt securities and the probability of loss if there is a default.
The risk rating system covers both qualitative and quantitative aspects of the business and the
securities held. In valuing debt securities, management utilizes an income approach model that
considers factors including, but not limited to, (i) the portfolio investments current risk rating
(discussed below), (ii) the portfolio companys current trailing twelve months (TTM) results of
operations as compared to the portfolio companys TTM results of operations as of the date the
investment was made, (iii) the portfolio companys current leverage as compared to its leverage as
of the date the investment was made, and (iv) current pricing and credit metrics for similar
proposed and executed investment transactions. In valuing equity securities of private companies,
the Company considers valuation methodologies consistent with industry practice, including (i)
valuation using a valuation model based on original transaction multiples and the portfolio
companys recent financial performance, (ii) valuation of the securities based on recent sales in
comparable transactions, and (iii) a review of similar companies that are publicly traded and the
market multiple of their equity securities.
The following table presents the Companys financial instruments carried at fair value as of
September 30, 2008, on the consolidated balance sheet by SFAS 157 valuation hierarchy, as
previously described:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at September 30, 2008 |
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
|
|
Portfolio company investments |
|
$ |
|
|
|
$ |
|
|
|
$ |
177,763,956 |
|
|
$ |
177,763,956 |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
177,763,956 |
|
|
$ |
177,763,956 |
|
|
|
- |
The following table reconciles the beginning and ending balances of our portfolio company
investments measured at fair value on a recurring basis using significant unobservable inputs
(Level 3) for the nine months ended September 30, 2008:
|
|
|
|
|
|
|
Nine Months |
|
|
|
Ended |
|
|
|
September 30, |
|
|
|
2008 |
|
Fair value of portfolio, January 1, 2008 |
|
$ |
113,036,240 |
|
New investments |
|
|
73,645,254 |
|
Proceeds from sale of investment |
|
|
(275,361 |
) |
Loan origination fees received |
|
|
(1,351,996 |
) |
Principal repayments received |
|
|
(8,785,117 |
) |
Payment in kind interest earned |
|
|
2,555,053 |
|
Payment in kind interest payments received |
|
|
(766,069 |
) |
Accretion of loan discounts |
|
|
95,132 |
|
Accretion of deferred loan origination revenue |
|
|
278,515 |
|
Realized gains on investments |
|
|
51,089 |
|
Unrealized losses on investments |
|
|
(718,784 |
) |
|
|
|
|
|
|
|
|
|
Fair value of portfolio, September 30, 2008 |
|
$ |
177,763,956 |
|
|
|
|
|
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. Pre-tax net
unrealized gains (losses) on investments of $(480,125) and $(851,052), respectively, during the
three and nine months ended September 30, 2008 are related to portfolio company investments that
are still held by the Company as of September 30, 2008.
18
Duff & Phelps, LLC (Duff & Phelps), an independent valuation firm, provides third party
valuation consulting services to the Company which consist of certain limited procedures that the
Company identified and requested Duff & Phelps to perform (hereinafter referred to as the
procedures). We generally request Duff & Phelps to perform the procedures on each portfolio
company at least once in every calendar year and for new portfolio companies, at least once in the
twelve-month period subsequent to the initial investment. In certain instances, we may determine
that it is not cost-effective, and as a result is not in our stockholders best interest, to
request Duff & Phelps to perform the procedures on one or more portfolio companies. Such instances
include, but are not limited to, situations where the fair value of our investment in the portfolio
company is determined to be insignificant relative to our total investment portfolio.
For the quarter ended March 31, 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. For the quarter ended June 30, 2008, the Company asked Duff & Phelps to
perform the procedures on investments in five portfolio companies comprising approximately 18% of
the total investments at fair value (exclusive of the fair value of new investments made during the
quarter) as of June 30, 2008. For the quarter ended September 30, 2008, the Company asked Duff &
Phelps to perform the procedures on investments in eight portfolio companies comprising
approximately 29% of the total investments at fair value (exclusive of the fair value of new
investments made during the quarter) as of September 30, 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.
Warrants
When originating a debt or preferred security, the Company will sometimes receive warrants or
other equityrelated securities as part of the investment transaction. The Company determines the
cost basis of the warrants or other equityrelated securities received based upon their respective
fair values on the date of receipt in proportion to the total fair value of the debt and warrants
or other equityrelated securities received. Any resulting difference between the face amount of
the debt and its recorded fair value resulting from the assignment of value to the warrant or other
equity instruments is treated as original issue discount and accreted into interest income over the
life of the loan.
Realized Gain or Loss and Unrealized Appreciation or Depreciation of Portfolio Investments
Realized gains or losses are recorded upon the sale or liquidation of investments and
calculated as the difference between the net proceeds from the sale or liquidation, if any, and the
cost basis of the investment using the specific identification method. Unrealized appreciation or
depreciation reflects the difference between the valuation of the investments and the cost basis of
the investments.
Investment Classification
In accordance with the provisions of the 1940 Act, the Company classifies investments by level
of control. As defined in the 1940 Act, Control Investments are investments in those companies
that the Company is deemed to Control. Affiliate Investments are investments in those companies
that are Affiliated Companies of the Company, as defined in the 1940 Act, other than Control
Investments. NonControl/NonAffiliate Investments are those that are neither Control Investments
nor Affiliate Investments. Generally, under the 1940 Act, the Company is deemed to control a
company in which it has invested if the Company owns more than 25.0% of the voting securities of
such company or has greater than 50.0% representation on its board. The Company is deemed to be an
affiliate of a company in which the Company has invested if it owns between 5.0% and 25.0% of the
voting securities of such company.
Investment Income
Interest income, adjusted for amortization of premium and accretion of original issue
discount, is recorded on the accrual basis to the extent that such amounts are expected to be
collected. The Company will stop accruing interest on investments and write off any previously
accrued and uncollected interest when it is determined that interest is no longer collectible.
Dividend income is recorded on the exdividend date.
Fee Income
Loan origination, facility, commitment, consent and other advance fees received in connection
with loan agreements are recorded as deferred income and recognized as income over the term of the
loan. Loan prepayment penalties 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.
19
Payment in Kind Interest
The Company holds loans in its portfolio that contain a paymentinkind (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 middlemarket companies in a variety of
industries. At September 30, 2008, the Company had no investments that were individually greater
than or equal to 10% of the total fair value of its investment portfolio. At 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 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.
3. INCOME TAXES
The Company intends to continue to qualify 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 passthrough entities) and still satisfy the RIC tax
requirement that at least 90% of the RICs gross revenue for income tax purposes must consist of
investment income. Absent the Taxable Subsidiaries, a proportionate amount of any gross income of
an LLC (or other passthrough entity) portfolio investment would flow through directly to the RIC.
To the extent that such income did not consist of investment income, it could jeopardize the
Companys ability to qualify as a RIC and therefore cause the Company to incur significant amounts
of federal income taxes. 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 September 30, 2008 was
approximately $174.1 million.
20
4. LONGTERM DEBT
The Company has the following debentures outstanding guaranteed by the SBA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prioritized |
|
September 30, |
|
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
|
|
|
6.580 |
% |
|
|
4,840,000 |
|
|
|
|
April 11, 2008
|
|
September 1, 2018
|
|
|
6.442 |
% |
|
|
9,400,000 |
|
|
|
|
April 28, 2008
|
|
September 1, 2018
|
|
|
6.442 |
% |
|
|
15,160,000 |
|
|
|
|
May 29, 2008
|
|
September 1, 2018
|
|
|
6.442 |
% |
|
|
5,000,000 |
|
|
|
|
May 29, 2008
|
|
September 1, 2018
|
|
|
6.442 |
% |
|
|
5,000,000 |
|
|
|
|
June 11, 2008
|
|
September 1, 2018
|
|
|
6.442 |
% |
|
|
5,000,000 |
|
|
|
|
June 24, 2008
|
|
September 1, 2018
|
|
|
6.442 |
% |
|
|
2,500,000 |
|
|
|
|
August 28, 2008
|
|
September 1, 2018
|
|
|
6.442 |
% |
|
|
1,000,000 |
|
|
|
|
August 28, 2008
|
|
September 1, 2018
|
|
|
6.442 |
% |
|
|
2,000,000 |
|
|
|
|
August 28, 2008
|
|
September 1, 2018
|
|
|
6.442 |
% |
|
|
1,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
93,110,000 |
|
|
$ |
37,010,000 |
|
|
|
|
|
|
|
|
|
|
Interest payments are payable semiannually. There are no principal payments required on these
issues prior to maturity. Debentures issued prior to September 2006 were subject to prepayment
penalties during their first five years. Those pre-payment penalties no longer apply to debentures
issued after September 1, 2006.
Under the Small Business Investment Act and current SBA policy applicable to SBICs, an SBIC
(or group of SBICs under common control) can have outstanding at any time SBA guaranteed debentures
up to twice the amount of its regulatory capital. As of September 30, 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 an annual inflation adjustment). With $65.3 million of
regulatory capital as of September 30, 2008, the Fund has the current capacity to issue up to a
total of $130.6 million of SBA guaranteed debentures. In addition to the onetime 1.0% fee on the
total commitment from the SBA, the Company also pays a onetime 2.425% fee on the amount of each
debenture issued. These fees are capitalized as deferred financing costs and are amortized over the
term of the debt agreements using the effective interest method. The weighted average interest
rates for all SBA guaranteed debentures as of September 30, 2008 and December 31, 2007 were 6.194%
and 5.826%, respectively.
The Company has an uncommitted short-term offering basis loan agreement with a financial
institution (the Loan Agreement) under which the financial institution may make loans to the
Company in amounts not exceeding $15.0 million in the aggregate. The term of any advances made
under the Loan Agreement may not exceed 45 days and bear interest at LIBOR plus 275 basis points.
As of September 30, 2008, the Company had $5.1 million outstanding under the Loan Agreement.
5. EQUITY-BASED COMPENSATION
The Companys Board of Directors and stockholders have approved the Triangle Capital
Corporation Amended and Restated 2007 Equity Incentive Plan (the Plan), under which there are
900,000 shares of the Companys Common Stock authorized for issuance. The terms of equity-based
awards granted under the Plan generally will vest ratably over one- to four-year periods.
The Company accounts for its equity-based compensation plan using the fair value method, as
prescribed by Statement of Accounting Standards No. 123R, Share-Based Payment. Accordingly, for
restricted stock awards, we measure the grant date fair value based upon the market price of our
common stock on the date of the grant and amortize this fair value to compensation expense over the
requisite service period or vesting term.
On May 7, 2008, the Companys Board of Directors granted 113,500 restricted shares of our
common stock to certain employees and independent directors. These restricted shares had a total
grant date fair value of approximately $1.3 million, which will be expensed on a straight-line
basis over each respective awards vesting period. In the nine months ended September 30, 2008,
the Company recognized equity-based compensation expense of approximately $0.2 million. This
expense is included in general and administrative expenses in the Companys consolidated statements
of operations. As of September 30, 2008, the Company has a total of 113,500 restricted shares
outstanding.
21
As of September 30, 2008, there was approximately $1.1 million of total unrecognized
compensation cost, related to the Companys non-vested restricted shares. This cost is expected to
be recognized over a weighted-average period of approximately 3.2 years.
6. FINANCIAL HIGHLIGHTS
The following is a schedule of financial highlights for the nine months ended September 30,
2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
2008 |
|
2007(1) |
|
|
|
Per share data: |
|
|
|
|
|
|
|
|
Net asset value at beginning of period(1) |
|
$ |
13.74 |
|
|
$ |
13.44 |
|
|
Net investment income(2) |
|
|
1.12 |
|
|
|
0.66 |
|
Net realized gain (loss) on investments(2) |
|
|
0.01 |
|
|
|
(0.20 |
) |
Net unrealized appreciation (depreciation) on investments(2) |
|
|
(0.20 |
) |
|
|
0.53 |
|
|
|
|
Total increase from investment operations(2) |
|
|
0.93 |
|
|
|
0.99 |
|
|
Cash dividends paid |
|
|
(0.66 |
) |
|
|
(0.17 |
) |
Stock-based compensation |
|
|
0.03 |
|
|
|
|
|
Distribution to partners(2) |
|
|
|
|
|
|
(0.03 |
) |
Income tax provision(2) |
|
|
(0.04 |
) |
|
|
|
|
Other (3) |
|
|
(0.24 |
) |
|
|
(0.24 |
) |
|
|
|
|
Net asset value at end of period |
|
$ |
13.76 |
|
|
$ |
13.99 |
|
|
|
|
Market value at end of period(4) |
|
$ |
11.94 |
|
|
$ |
13.60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares outstanding at end of period |
|
|
6,917,363 |
|
|
|
6,803,863 |
|
Net assets at end of period |
|
$ |
95,169,327 |
|
|
$ |
95,200,059 |
|
Average net assets(1) |
|
$ |
94,934,623 |
|
|
$ |
91,788,558 |
|
Ratio of operating expenses to average net assets (annualized) |
|
|
10.0 |
% |
|
|
6.6 |
% |
Ratio of net investment income to average net assets
(annualized) |
|
|
10.8 |
% |
|
|
6.5 |
% |
Portfolio turnover ratio |
|
|
6.6 |
% |
|
|
7.4 |
% |
Total Return(5) |
|
|
1.6 |
% |
|
|
(6.6 |
%) |
|
|
|
(1) |
|
Net asset value as of January 1, 2007 and average net assets for the nine months
ended September 30, 2007 are presented as if the Offering and Formation Transactions had
occurred on January 1, 2007. See Note 1 for a further description of the basis of
presentation of the Companys financial statements. |
|
(2) |
|
Weighted average basic per share data. |
|
(3) |
|
Represents the impact of the different share amounts used in calculating per share
data as a result of calculating certain per share data based upon the weighted average
shares outstanding during the period and certain per share data based on the shares
outstanding as of a period end or transaction date. |
|
(4) |
|
Represents the closing price of the Companys common stock on the last day of the
period. |
|
(5) |
|
The total return for the nine months ended September 30, 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 nine months ended
September 30, 2007 equals the change in the ending market value of the Companys common
stock from the Offering price of $15.00 per share plus dividends paid per share during the
period, divided by the Offering price. Total return is not annualized. |
22
7. SUBSEQUENT EVENTS
On October 1, 2008, the Companys loan to CV Holdings, LLC of approximately $5.2 million
(including approximately $1.0 million in PIK interest) was repaid in full. Concurrent with the
repayment, the Company made a $10.7 million subordinated debt investment in CV Holdings, LLC. This
investment bears interest at a rate of 16% per annum and matures in September 2013.
On October 9, 2008, the Companys Board of Directors declared a cash dividend of $0.38 per
share payable on November 20, 2008 to all holders of record on October 30, 2008.
On October 28, 2008, the Company repaid all of the outstanding short-term borrowings under the
Loan Agreement totaling $5.1 million, plus accrued interest.
On
October 31, 2008, Triangle invested $7.8 million in Novolyte
Technologies LP (Novolyte) consisting of
$7.0 million in subordinated debt and $0.8 million in
equity. Novolyte is a leading manufacturer of electrolytes used in
the manufacture of lithium ion batteries, as well as high performance
intermediates for other key end products.
23
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 nine months ended September 30, 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 $20.0 million.
We invest primarily in senior and subordinated debt securities secured by first and second
lien security interests in portfolio company assets, coupled with equity interests. Our investments
generally range from $5.0 to $15.0 million per portfolio company. In certain situations, we have
partnered with other funds to provide larger financing commitments.
We generate revenues in the form of interest income, primarily from our investments in debt
securities, loan origination and other fees and dividend income. Fees generated in connection with
our debt investments are recognized over the life of the loan using the effective interest method
or, in some cases, recognized as earned. In addition, we generate revenue in the form of capital
gains, if any, on warrants or other equity-related securities that we acquire from our portfolio
companies. Our debt investments generally have a term of between three and seven years and
typically bear interest at fixed rates between 11.0% and 16.0% per annum. Certain of our debt
investments have a form of interest, referred to as payment in kind, or PIK, interest, that is not
paid currently but that is accrued and added to the loan balance and paid at the end of the term.
In our negotiations with potential portfolio companies, we generally seek to minimize PIK interest.
Cash interest on our debt investments is generally payable monthly; however some of our debt
investments pay cash interest on a quarterly basis. As of September 30, 2008 and December 31,
2007, the weighted average yield on all of our outstanding debt investments (including PIK
interest) was approximately 14.2% and 13.9%, respectively. The weighted average yield on all of our
outstanding investments (including equity and equity-linked investments) was approximately 13.0%
and 12.6% as of September 30, 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.
Portfolio Composition
The total value of our investment portfolio was $177.8 million as of September 30, 2008, as
compared to $113.0 million as of December 31, 2007. As of September 30, 2008, we had investments
in 35 portfolio companies with an aggregate cost of $171.3 million. As of December 31, 2007, we
had investments in 26 portfolio companies with an aggregate cost of $105.9 million. As of
24
September 30, 2008, we had no portfolio investments that represented greater than 10% of the
total fair value of our investment portfolio. As of December 31, 2007, we had one portfolio
investment that represented greater than 10% of the total fair value of our investment portfolio.
As of September 30, 2008 and December 31, 2007, our investment portfolio consisted of the
following investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of |
|
|
|
|
|
Percentage of |
|
|
Cost |
|
|
Total Portfolio |
|
Fair Value |
|
|
Total Portfolio |
|
|
|
September 30, 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debt and 2nd lien notes(1) |
|
$ |
140,325,623 |
|
|
|
82 |
% |
|
$ |
137,043,202 |
|
|
|
77 |
% |
Senior debt(1) |
|
|
15,830,604 |
|
|
|
9 |
|
|
|
15,830,604 |
|
|
|
9 |
|
Equity shares |
|
|
13,232,170 |
|
|
|
8 |
|
|
|
21,622,350 |
|
|
|
12 |
|
Equity warrants |
|
|
1,937,904 |
|
|
|
1 |
|
|
|
2,993,200 |
|
|
|
2 |
|
Royalty rights |
|
|
|
|
|
|
|
|
|
|
274,600 |
|
|
|
|
|
|
|
|
|
|
$ |
171,326,301 |
|
|
|
100 |
% |
|
$ |
177,763,956 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debt and 2nd lien notes(1) |
|
$ |
80,902,982 |
|
|
|
76 |
% |
|
$ |
80,902,982 |
|
|
|
72 |
% |
Senior debt(1) |
|
|
14,728,958 |
|
|
|
14 |
|
|
|
14,728,958 |
|
|
|
13 |
|
Equity shares |
|
|
9,699,689 |
|
|
|
9 |
|
|
|
15,335,900 |
|
|
|
13 |
|
Equity warrants |
|
|
548,172 |
|
|
|
1 |
|
|
|
1,870,500 |
|
|
|
2 |
|
Royalty rights |
|
|
|
|
|
|
|
|
|
|
197,900 |
|
|
|
|
|
|
|
|
|
|
$ |
105,879,801 |
|
|
|
100 |
% |
|
$ |
113,036,240 |
|
|
|
100 |
% |
|
|
|
|
|
|
(1) |
|
We have changed our balance sheet presentation for all periods to net deferred loan
origination revenue against the associated debt investments for all periods subsequent to the
adoption of SFAS 157 on January 1, 2008. |
Investment Activity
During the nine months ended September 30, 2008, we made ten new investments totaling $72.5
million, one additional debt investment in an existing portfolio company of $1.0 million and three
additional equity investments in existing portfolio companies of approximately $0.1 million. We
also sold two investments in portfolio companies for approximately $0.3 million, resulting in
realized gains totaling $0.1 million. We had two portfolio company loans repaid at par in the
amount of $4.8 million. In addition, we received normal principal repayments, partial loan
prepayments and payment in kind (PIK) interest repayments totaling approximately $4.0 million in
the nine months ended September 30, 2008. Total portfolio investment activity for the nine months
ended September 30, 2008 was as follows:
|
|
|
|
|
|
|
Nine Months Ended September 30, 2008(1) |
|
Fair value of portfolio, January 1, 2008 |
|
$ |
113,036,240 |
|
New investments |
|
|
73,645,254 |
|
Proceeds from sale of investment |
|
|
(275,361 |
) |
Loan origination fees received |
|
|
(1,351,996 |
) |
Principal repayments received |
|
|
(8,785,117 |
) |
Payment in kind interest earned |
|
|
2,555,053 |
|
Payment in kind interest payments received |
|
|
(766,069 |
) |
Accretion of loan discounts |
|
|
95,132 |
|
Accretion of deferred loan origination revenue |
|
|
278,515 |
|
Realized gains on investments |
|
|
51,089 |
|
Unrealized losses on investments |
|
|
(718,784 |
) |
|
|
|
|
|
|
|
|
|
Fair value of portfolio, September 30, 2008 |
|
$ |
177,763,956 |
|
|
|
|
|
Weighted average yield on debt investments as of September 30, 2008 |
|
|
14.2 |
% |
|
|
|
|
Weighted average yield on total investments as of September 30, 2008 |
|
|
13.0 |
% |
|
|
|
|
|
|
|
(1) |
|
We have changed our balance sheet presentation for all periods to net deferred loan
origination revenue against the associated debt investments for all periods subsequent to
the adoption of SFAS 157 on January 1, 2008. |
25
Non-Accrual Assets
Bruce Plastics, Inc.
In the first quarter of 2008, based on the financial difficulties of the borrower, we
recognized an unrealized loss of $0.9 million on our subordinated note investment in Bruce
Plastics, Inc. (Bruce), which has a cost of approximately $1.4 million. This unrealized loss
reduced the fair value of our investment in Bruce to
$0.5 million as of March 31, 2008. During the first quarter
of 2008, we continued to receive interest payments in accordance with
our loan agreement. In April
2008, we placed our investment in Bruce on non-accrual status. As a result, under generally
accepted accounting principles (GAAP), we no longer recognize interest income on our investment
in Bruce. Concurrent with this decision to place Bruce on non-accrual status, we recognized an
additional unrealized loss on our investment in Bruce of $0.5 million. As of September 30, 2008,
the fair value of our investment in Bruce is zero.
Fire Sprinkler Systems, Inc.
In the second quarter of 2008, we recognized an unrealized loss of $0.3 million on our
subordinated note investment in another of our portfolio companies, Fire Sprinkler Systems, Inc.
(Fire Sprinkler Systems). This unrealized loss reduced the fair value of our investment in Fire
Sprinkler Systems to $2.1 million as of June 30, 2008. In the third quarter of 2008, based on the
continued underperformance of Fire Sprinkler Systems, we recognized an additional unrealized loss
on our investment of $0.7 million. As of September 30, 2008, the fair value of our investment in
Fire Sprinkler Systems is $1.4 million. During both the second
and the third quarter
of 2008, we continued to receive interest payments in accordance with
our loan agreement. In October 2008, we placed our investment in Fire
Sprinkler Systems on non-accrual status. As a result, under generally accepted accounting
principles (GAAP), we no longer recognize interest income on our investment in Fire Sprinkler
Systems.
Results of Operations
Comparison of three months ended September 30, 2008 and September 30, 2007
Investment Income
For the three months ended September 30, 2008, total investment income was $5.9 million, a 63%
increase from $3.6 million of total investment income for the three months ended September 30,
2007. This increase was primarily attributable to a $2.0 million increase in total loan interest,
fee and dividend income and a $0.7 million increase in total paid-in-kind interest income due to a
net increase in our portfolio investments from September 30, 2007 to September 30, 2008, partially
offset by a $0.4 million decrease in interest income from cash and cash equivalent investments due
to (i) a significant decrease in average cash balances in the third quarter of 2008 over the
comparable period in 2007 and (ii) a decrease in overall interest rates. Non-recurring fee income
was $0.1 million for the three months ended September 30, 2008 as compared to $0.3 million for the
three months ended September 30, 2007.
Expenses
For the three months ended September 30, 2008, expenses increased by 66% to $2.7 million from
$1.6 million for the three months ended September 30, 2007. The increase in expenses was primarily
attributable to a $0.6 million increase in interest expense and a $0.4 million increase in general
and administrative expenses. The increase in interest expense is related to higher average
balances of SBA-guaranteed debentures outstanding during the three months ended September 30, 2008
than in the comparable period in 2007. 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 September 30, 2008, we had 14 full-time employees,
as compared to 10 full-time employees as of September 30, 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.
Net Investment Income
As a result of the $2.3 million increase in total investment income and the $1.1 million
increase in expenses, net investment income for the three months ended September 30, 2008 was
$3.2 million compared to net investment income of $2.0 million during the three months ended
September 30, 2007.
Net Increase in Net Assets Resulting From Operations
In the three months ended September 30, 2008, we recorded net unrealized depreciation of
investments in the amount of $0.7 million, comprised of unrealized gains on ten investments
totaling $1.8 million and unrealized losses on ten investments totaling $2.5 million. In addition,
we recognized a realized gain of $0.1 million during the three months ended September 30, 2008,
related to the sale of an investment in a portfolio company.
26
During the three months ended September 30, 2007, we recorded net unrealized appreciation of
investments in the amount of $1.2 million, comprised of unrealized gains on eight investments
totaling $2.4 million and unrealized losses on ten investments totaling $1.2 million. In addition,
we recognized a realized gain of $0.1 million on an investment in a portfolio company during the
three months ended September 30, 2007. This realized gain resulted from the writeoff of original
issue discount related to the prepayment of the portfolio companys outstanding subordinated note.
As a result of these events, our net increase in net assets from operations during the three
months ended September 30, 2008 was $2.5 million as compared to $3.4 million for the three months
ended September 30, 2007.
Comparison of nine months ended September 30, 2008 and September 30, 2007
Investment Income
For the nine months ended September 30, 2008, total investment income was $14.8 million, a 64%
increase from $9.0 million of total investment income for the nine months ended September 30, 2007.
This increase was primarily attributable to a $5.5 million increase in total loan interest, fee and
dividend income and a $1.5 million increase in total paid-in-kind interest income due to a net
increase in our portfolio investments from September 30, 2007 to September 30, 2008, partially
offset by a $1.2 million decrease in interest income from cash and cash equivalent investments due
to (i) a significant decrease in average cash balances in the first nine months of 2008 over the
comparable period in 2007 and (ii) a decrease in overall interest rates. Non-recurring fee income
was $0.4 million for the nine months ended September 30, 2008 as compared to $0.5 million for the
nine months ended September 30, 2007.
Expenses
For the nine months ended September 30, 2008, expenses increased by 56% to $7.1 million from
$4.6 million for the nine months ended September 30, 2007. The increase in expenses was primarily
attributable to a $1.6 million increase in general and administrative expenses and a $1.0 million
increase in interest expense. 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 September 30, 2008, we had 14 full-time employees, as
compared to 10 full-time employees as of September 30, 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. The
increase in interest expense is related to higher average balances of SBA-guaranteed debentures
outstanding during the nine months ended September 30, 2008 than in the comparable period in 2007.
These increases in general and administrative costs and interest costs were partially offset by a
$0.2 million decrease in management fees. We incurred no management fees in the first nine months
of 2008 compared to $0.2 million in management fees in the first nine months of 2007.
Net Investment Income
As a result of the $5.8 million increase in total investment income and the $2.5 million
increase in expenses, net investment income for the nine months ended September 30, 2008 was
$7.7 million compared to net investment income of $4.4 million during the nine months ended
September 30, 2007.
Net Increase in Net Assets Resulting From Operations
For the nine months ended September 30, 2008, net realized gain on non-control/non-affiliate
investments was $0.1 million which related to a realized gain on one investment. For the nine
months ended September 30, 2007, net realized loss on non-control/non-affiliate investments was
$1.5 million, all of which related to one investment. In addition, we recognized a realized gain
of $0.1 million on an affiliate investment during the nine months ended September 30, 2007. This
realized gain resulted from the writeoff of original issue discount related to the prepayment of
the portfolio companys outstanding subordinated note.
In the nine months ended September 30, 2008, we recorded net unrealized depreciation of
investments in the amount of $1.4 million, comprised of unrealized gains on ten investments
totaling $4.0 million and unrealized losses on thirteen investments totaling $5.4 million. During
the nine months ended September 30, 2007, we recorded net unrealized appreciation of investments in
the amount of $3.5 million, comprised primarily of an unrealized gain reclassification adjustment
of approximately $1.5 million related to the realized loss noted above. In addition, in the nine
months ended September 30, 2007, we recorded unrealized gains on eleven other investments totaling
$4.3 million and unrealized losses on ten investments totaling $2.3 million.
As a result of these events, our net increase in net assets from operations during the nine
months ended September 30, 2008 was $6.1 million as compared to $6.7 million for the nine months
ended September 30, 2007.
27
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 nine months ended September 30, 2008, we experienced a net decrease in cash and cash
equivalents in the amount of $5.9 million. During that period, our operating activities used
$58.2 million in cash, consisting primarily of new portfolio investments of $73.6 million, offset
by repayments of loans received and proceeds from sales of investments of $9.1 million. We
generated $52.3 million of cash from financing activities, consisting of proceeds from borrowings
under SBA guaranteed debentures payable of $56.1 million and short-term borrowings of $5.1 million,
partially offset by financing fees paid of $2.3 million and cash dividends paid of $6.6 million.
At September 30, 2008, we had $15.9 million of cash and cash equivalents on hand.
For the nine months ended September 30, 2007, we experienced a net increase in cash and cash
equivalents in the amount of $33.2 million. During that period, our operating activities used
$34.5 million in cash, and we generated $67.8 million of cash from financing activities, consisting
primarily of (i) proceeds from our Offering of $64.7 million, (ii) proceeds from the issuance of
SBA guaranteed debentures of $4.0 million and (iii) a decrease in deferred offering costs of $1.0
million, partially offset by cash dividends paid of $1.1 million, tax distributions to partners of
$0.8 million and financing fees paid to the SBA of $0.1 million. At September 30, 2007, we had
$35.8 million of cash and cash equivalents on hand.
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 September 30, 2008 is currently $130.6 million (which amount is subject to an
annual inflation adjustment). 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 September 30, 2008, the Fund has the current
capacity to issue up to a total of $130.6 million of SBA guaranteed debentures. In addition to the
onetime 1.0% fee on the total commitment from the SBA, the Company also pays a onetime 2.425% fee
on the amount of each debenture issued. These fees are capitalized as deferred financing costs and
are amortized over the term of the debt agreements using the effective interest method. The
weighted average interest rate for all SBA guaranteed debentures as of September 30, 2008 was
6.194%.
Current Market Conditions
During 2008, the debt and equity capital markets in the United States have been severely
impacted by significant write-offs in the financial services sector relating to subprime mortgages
and the re-pricing of credit risk in the broadly syndicated bank loan market, among other things.
These events, along with the deterioration of the housing market, have led to worsening general
economic conditions in the U.S and abroad, which many believe is a recession and could be
long-term. Banks and others in the financial services industry have continued to report
significant write-downs in the fair value of their assets, which has led to the failure of a number
of banks and investment companies, a number of distressed mergers and acquisitions, the government
take-over of the nations two largest government-sponsored mortgage companies, and the passage of
the $700 billion Emergency Economic Stabilization of 2008 in early October 2008. These events have
significantly impacted the financial and credit markets and have reduced the availability of debt
and equity capital for the market as a whole, and for financial firms in particular. While we have
capacity to issue additional SBA guaranteed debentures as discussed above, we may not be able to
access additional equity capital, which could result in the slowing of our origination activity
during 2009 and beyond.
In the event that the United States economy enters into a protracted recession, it is possible
that the results of some of the middle market companies in which we invest could experience
deterioration, which could ultimately lead to difficulty in meeting debt service requirements and
an increase in defaults. While we are not seeing signs of an overall, broad deterioration in our
portfolio company results at this time, there can be no assurance that the performance of certain
of our portfolio companies will not be negatively impacted by economic conditions which could have
a negative impact on our future results.
28
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:
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Level 1
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inputs to the valuation methodology are quoted prices (unadjusted) for identical
assets or liabilities in active markets. |
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Level 2
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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. |
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Level 3
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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:
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financial standing of the issuer of the security; |
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comparison of the business and financial plan of the issuer with actual results; |
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the size of the security held as it relates to the liquidity of the market for such
security; |
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pending public offering of common stock by the issuer of the security; |
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pending reorganization activity affecting the issuer, such as merger or debt
restructuring; |
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ability of the issuer to obtain needed financing; |
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changes in the economy affecting the issuer; |
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financial statements and reports from portfolio company senior management and
ownership; |
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the type of security, the securitys cost at the date of purchase and any
contractual restrictions on the disposition of the security; |
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discount from market value of unrestricted securities of the same class at the time
of purchase; |
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special reports prepared by analysts; |
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information as to any transactions or offers with respect to the security and/or
sales to third parties of similar securities; |
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the issuers ability to make payments and the type of collateral; |
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the current and forecasted earnings of the issuer; |
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statistical ratios compared to lending standards and to other similar
securities; and |
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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 paymentinkind
(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.
Duff & Phelps, LLC (Duff & Phelps), an independent valuation firm, provides third party
valuation consulting services to us, which consist of certain limited procedures that we identified
and requested Duff & Phelps to perform (hereinafter referred to as the procedures). We generally
request Duff & Phelps to perform the procedures on each portfolio company at least once in every
calendar year and for new portfolio companies, at least once in the twelve-month period subsequent
to the initial investment. In certain instances, we may determine that it is not cost-effective,
and as a result is not in our stockholders best interest, to request Duff & 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. For the quarter ended June 30, 2008, we asked Duff & Phelps to perform the procedures on
investments in five portfolio companies comprising approximately 18% of the total investments at
fair value (exclusive of the fair value of new investments made during the quarter) as of June 30,
2008. For the quarter ended September 30, 2008, we asked Duff & Phelps to perform the procedures
on investments in eight portfolio companies comprising approximately 29% of the total investments
at fair value (exclusive of the fair value of new investments made during the quarter) as of
September 30, 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.
30
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 in the three months ended March 31, 2008. 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 FASBs 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 adoption of SFAS
159 did not have a material impact on our financial statements.
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 September 30, 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 nine months ended September 30, 2007.
This agreement terminated upon the closing of the Offering.
31
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.
32
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. We regularly measure exposure to interest rate risk and determine whether or not
any hedging transactions are necessary to mitigate exposure to changes in interest rates. As of
September 30, 2008, we were not a party to any hedging arrangements.
As of September 30, 2008, approximately 87.0%, or $133.0 million of our debt portfolio
investments bore interest at fixed rates and approximately 13.0%, or $19.9 million of our debt
portfolio investments bore interest at variable rates. A 100 basis point decrease in the interest
rates on our variable-rate debt investments would decrease our investment income by approximately
$0.2 million on an annual basis. All of our pooled SBA debentures bear interest at fixed rates.
Because we currently borrow, and plan to borrow in the future, money to make investments, our
net investment income is dependent upon the difference between the rate at which we borrow funds
and the rate at which we invest the funds borrowed. Accordingly, there can be no assurance that a
significant change in market interest rates will not have a material adverse effect on our net
investment income. In periods of rising interest rates, our cost of funds would increase, which
could reduce our net investment income if there is not a corresponding increase in interest income
generated by floating rate assets in our investment portfolio.
Item 4T. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information
required to be disclosed in the reports that we file or submit under the Securities Exchange Act of
1934 is recorded, processed, summarized, and reported within the time periods specified in the
SECs rules and forms and that such information is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure. Our Chief Executive Officer and Chief Financial Officer
carried out an evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures as of the end of the period covered by this report. Based on the evaluation
of these disclosure controls and procedures, the Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures were effective. It should be noted
that any system of controls, however well designed and operated, can provide only reasonable, and
not absolute, assurance that the objectives of the system are met. In addition, the design of any
control system is based in part upon certain assumptions about the likelihood of future events.
Because of these and other inherent limitations of control systems, there can be no assurance that
any design will succeed in achieving its stated goals under all potential future conditions,
regardless of how remote.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the third
quarter of 2008 that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
33
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.
Except for the risk factors set forth below, there have been 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.
The current state of the economy and the capital markets increases the possibility of adverse
effects on our financial position and results of operations. Further economic downturns or
recessions could impair our portfolio companies financial position and operating results and
disproportionately affect the industries in which we invest, which could, in turn, harm our
operating results and reduce our volume of new investments.
During 2007 and 2008, the capital markets in the United States and abroad appear to have
entered into an economic downturn and possible recession. Disruptions in the capital markets have
increased the spread between the yields realized on risk-free and higher risk securities, resulting
in illiquidity in parts of the debt capital markets. The longer this economic downturn persists,
the greater the probability that these risks could have an adverse effect on our operations and
financial results.
Many of the companies in which we have made or will make investments may be susceptible to
economic downturns or recessions. An economic downturn or recession may affect the ability of a
company to repay our loans or engage in a liquidity event, such as a sale, recapitalization or
initial public offering. An economic downturn could also disproportionately impact the industries
in which we invest, causing us to be more vulnerable to losses in our portfolio. Therefore, our
non-performing assets are likely to increase and the value of our portfolio is likely to decrease
during these periods. Adverse economic conditions also may decrease the value of collateral
securing some of our loans and the value of our equity investments. Economic downturns or
recessions could lead to financial losses in our portfolio and decreases in revenue, net income and
assets.
Unfavorable economic conditions also could increase our funding costs, limit our access to the
capital markets or result in a decision by lenders not to extend credit to us. These events could
prevent us from increasing our investment originations and negatively impact our operating results.
Our financial results may be affected adversely if one or more of our portfolio investments
defaults on its loans or fails to perform as we expect.
Our portfolio consists primarily of debt and equity investments in privately owned
middle-market businesses. Compared to larger publicly owned companies, these middle-market
companies may be in a weaker financial position and experience wider variations in their operating
results, which may make them more vulnerable to economic downturns. Typically, these companies need
more capital to compete; however, their access to capital is limited and their cost of capital is
often higher than that of their competitors. Our portfolio companies face intense competition from
larger companies with greater financial, technical and marketing resources and their success
typically depends on the management talents and efforts of an individual or a small group of
persons. The loss of any of their key employees could affect their ability to compete effectively
and harm their financial condition. Further, some of these companies conduct business in regulated
industries that are susceptible to regulatory changes. These factors could impair the cash flow of
our portfolio companies and result in other events, such as bankruptcy. These events could limit a
portfolio companys ability to repay their obligations to us, which may have an adverse affect on
the return on, or the recovery of, our investment in these businesses. Deterioration in a
borrowers financial condition and prospects may be accompanied by deterioration in the value of
the loans collateral.
Some of these companies cannot obtain financing from public capital markets or from
traditional credit sources, such as commercial banks. Accordingly, loans made to these types of
companies pose a higher default risk, than loans made to companies who have access to traditional
credit sources.
Generally, little, if any, public information is available about such companies. Therefore, we
must rely on our employees diligence to obtain the information needed to make well-informed
investment decisions. If we do not uncover material information about these companies, we may not
make a fully informed investment decision, which could, in turn cause us to lose money on our
investments.
34
There may be circumstances where our debt investments could be subordinated to claims of other
creditors or we could be subject to lender liability claims.
Even though we may have structured certain of our investments as senior loans, if one of our
portfolio companies were to go bankrupt, depending on the facts and circumstances and based upon
principles of equitable subordination as defined by existing case law, a bankruptcy court could
subordinate all or a portion of our claim to that of other creditors and transfer any lien securing
such subordinated claim to the bankruptcy estate. The principles of equitable subordination defined
by case law have generally indicated that a claim may be subordinated only if its holder is guilty
of misconduct or where the senior loan is re-characterized as an equity investment and the senior
lender has actually provided significant managerial assistance to the bankrupt debtor. We may also
be subject to lender liability claims for actions taken by us with respect to a borrowers business
or instances where we exercise control over the borrower. It is possible that we could become
subject to a lenders liability claim, including as a result of actions taken in rendering
significant managerial assistance or actions to compel and collect payments from the borrower
outside the ordinary course of business.
Regulations governing our operation as a business development company may affect our ability to
raise additional capital through the issuance of our common stock.
Due to restrictions under the Investment Company Act of 1940 (the 1940 Act), we are not generally
able to issue and sell our common stock at a price below net asset value per share. We may,
however, sell our common stock, warrants, options or rights to acquire our common stock, at a price
below the current net asset value of the common stock if our board of directors determines that
such sale is in the best interests of our stockholders, and our stockholders approve such sale. At
our Annual Stockholders Meeting on May 7, 2008, our stockholders voted to allow us to issue common
stock at a price below net asset value per share for a period of one year ending May 6, 2009. Our
stockholders did not specify a maximum discount below net asset value at which we are able to issue
our common stock; however, we do not intend to issue shares of our common stock below net asset
value unless our board of directors determines that it would be in our stockholders best interests
to do so. For an explanation as to the potential dilutive effect of an offering of our common stock
at a price below net asset value, please see the illustration below.
Illustration: Example of Dilutive Effect of the Issuance of Shares Below Net Asset
Value. Assume that Company XYZ has 1,000,000 total shares outstanding, $15,000,000 in total assets
and $5,000,000 in total liabilities. The net asset value per share of the common stock of Company
XYZ is $10.00. The following table illustrates the reduction to net asset value, or NAV, and the
dilution experienced by Stockholder A following the sale of 40,000 shares of the common stock of
Company XYZ at $9.50 per share, a price below its NAV per share.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior to Sale |
|
Following Sale |
|
Percentage |
|
|
Below NAV |
|
Below NAV |
|
Change |
Reduction to NAV |
|
|
|
|
|
|
|
|
|
|
|
|
Total Shares Outstanding |
|
|
1,000,000 |
|
|
|
1,040,000 |
|
|
|
4.0 |
% |
NAV per share |
|
$ |
10.00 |
|
|
$ |
9.98 |
|
|
|
(0.2 |
%) |
Dilution to Existing Stockholder |
|
|
|
|
|
|
|
|
|
|
|
|
Shares Held by Stockholder A |
|
|
10,000 |
|
|
|
10,000 |
(1) |
|
|
0.0 |
% |
Percentage Held by Stockholder A |
|
|
1.00 |
% |
|
|
0.96 |
% |
|
|
(3.8 |
%) |
Total Interest of Stockholder A |
|
$ |
100,000 |
|
|
$ |
99,808 |
|
|
|
(0.2 |
%) |
|
|
|
(1) |
|
Assumes that Stockholder A does not purchase additional shares in equity offering of
shares below NAV. |
If we do not invest a sufficient portion of our assets in qualifying assets, we could fail to
qualify as a business development company or be precluded from investing according to our
current business strategy.
As a business development company (BDC), we may not acquire any assets other than
qualifying assets unless, at the time of and after giving effect to such acquisition, at least
70.0% of our total assets are qualifying assets.
We believe that substantially all of our investments are currently or will in the future
constitute qualifying assets. However, we may be precluded from investing in what we believe are
attractive investments if such investments are not qualifying assets for purposes of the 1940 Act.
If we do not invest a sufficient portion of our assets in qualifying assets, we could lose our
status as a BDC, which could have a material adverse effect on our business, financial condition
and results of operations. Similarly, these rules could prevent us from making follow-on
investments in existing portfolio companies (which could result in the dilution of our position).
35
We are a non-diversified investment company within the meaning of the 1940 Act, and therefore we
are not limited with respect to the proportion of our assets that may be invested in securities
of a single issuer.
We are classified as a non-diversified investment company within the meaning of the 1940 Act,
which means that we are not limited by the 1940 Act with respect to the proportion of our assets
that we may invest in securities of a single issuer. To the extent that we assume large positions
in the securities of a small number of issuers, our net asset value may fluctuate to a greater
extent than that of a diversified investment company as a result of changes in the financial
condition or the markets assessment of the issuer. We may also be more susceptible to any single
economic or regulatory occurrence than a diversified investment company. Beyond our regulated
investment company asset diversification requirements and certain SBA diversification requirements
for our investments held by our wholly-owned subsidiary, Triangle Mezzanine Fund LLLP, we do not
have fixed guidelines for diversification, and our investments could be concentrated in relatively
few portfolio companies.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer Purchases of Equity Securities
During the three months ended September 30, 2008, in connection with our Dividend Reinvestment
Plan for our common stockholders, we directed the plan administrator to purchase 65,580 shares of
our common stock for $860,419.79 in the open market in order to satisfy our obligations to deliver
shares of common stock to our stockholders with respect to our dividend for the third quarter of
2008. The following chart summarizes repurchases of our common stock for the three months ended
September 30, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number (or |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar Value) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of Shares that |
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
May Yet Be |
|
|
|
|
|
|
|
|
|
|
Shares Purchased as |
|
Purchased |
|
|
|
|
|
|
|
|
|
|
Part of Publicly |
|
Under the |
|
|
Total Number of |
|
Average Price Paid |
|
Announced Plans or |
|
Plans or |
Period |
|
Shares(1) |
|
per Share |
|
Programs |
|
Programs |
July 1-31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 1-30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 1-30, 2008 |
|
|
65,580 |
|
|
$ |
13.12 |
|
|
|
|
|
|
|
|
|
Total |
|
|
65,580 |
|
|
$ |
13.12 |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
All shares purchased in the open market pursuant to the terms of our Registrants Dividend
Reinvestment Plan. |
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.
36
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). |
|
|
|
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). |
|
|
|
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. |
37
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
|
|
TRIANGLE CAPITAL CORPORATION |
|
|
|
|
|
|
|
Date: November 6, 2008
|
|
/s/ Garland S. Tucker, III
Garland S. Tucker, III
|
|
|
|
|
President, Chief Executive Officer and |
|
|
|
|
Chairman of the Board of Directors |
|
|
|
|
|
|
|
Date: November 6, 2008
|
|
/s/ Steven C. Lilly |
|
|
|
|
|
|
|
|
|
Steven C. Lilly |
|
|
|
|
Chief Financial Officer and Director |
|
|
|
|
|
|
|
Date: November 6, 2008
|
|
/s/ C. Robert Knox, Jr. |
|
|
|
|
|
|
|
|
|
C. Robert Knox, Jr. |
|
|
|
|
Principal Accounting Officer |
|
|
38
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). |
|
|
|
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. |