10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on May 6, 2009
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2009
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 001-33130
Triangle Capital Corporation
(Exact name of registrant as specified in its charter)
Maryland | 06-1798488 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) | |
3700 Glenwood Avenue, Suite 530 | ||
Raleigh, North Carolina | 27612 | |
(Address and zip code of principal executive offices) | (Zip Code) |
Registrants telephone number, including area code: (919) 719-4770
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site,
if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post
such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company.
See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ (Do not check if a smaller reporting company) |
Smaller Reporting Company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
The number of shares outstanding of the registrants Common Stock on May 1, 2009 was 8,247,663.
TRIANGLE CAPITAL CORPORATION
TABLE OF CONTENTS
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
QUARTERLY REPORT ON FORM 10-Q
Page | ||||||||
PART I FINANCIAL INFORMATION |
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3 | ||||||||
4 | ||||||||
5 | ||||||||
6 | ||||||||
7 | ||||||||
11 | ||||||||
15 | ||||||||
22 | ||||||||
28 | ||||||||
29 | ||||||||
PART II OTHER INFORMATION |
||||||||
30 | ||||||||
30 | ||||||||
30 | ||||||||
30 | ||||||||
31 | ||||||||
31 | ||||||||
31 | ||||||||
32 | ||||||||
EX-31.1 | ||||||||
EX-31.2 | ||||||||
EX-32.1 | ||||||||
EX-32.2 |
2
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
TRIANGLE
CAPITAL CORPORATION
Consolidated Balance Sheets
March 31, | December 31, | |||||||
2009 | 2008 | |||||||
(Unaudited) | ||||||||
Assets |
||||||||
Investments at fair value: |
||||||||
Non-Control / Non-Affiliate investments (cost
of $145,837,889 and $138,413,589 at March 31, 2009
and December 31, 2008, respectively) |
$ | 140,399,949 | $ | 135,712,877 | ||||
Affiliate investments (cost of $30,683,269 and $30,484,491
at March 31, 2009 and December 31, 2008, respectively) |
33,744,178 | 33,894,556 | ||||||
Control investments (cost of $11,340,584 and $11,253,458
at March 31, 2009 and December 31, 2008, respectively) |
12,066,784 | 12,497,858 | ||||||
Total investments at fair value |
186,210,911 | 182,105,291 | ||||||
Cash and cash equivalents |
17,432,238 | 27,193,287 | ||||||
Interest and fees receivable |
468,625 | 679,828 | ||||||
Prepaid expenses and other current assets |
295,045 | 95,325 | ||||||
Deferred financing fees |
3,454,749 | 3,545,410 | ||||||
Property and equipment, net |
42,449 | 48,020 | ||||||
Total assets |
$ | 207,904,017 | $ | 213,667,161 | ||||
Liabilities |
||||||||
Accounts payable and accrued liabilities |
$ | 809,372 | $ | 1,608,909 | ||||
Interest payable |
512,333 | 1,881,761 | ||||||
Dividends payable |
2,819,065 | 2,766,945 | ||||||
Taxes payable |
| 30,436 | ||||||
Deferred income taxes |
844,507 | 843,947 | ||||||
SBA guaranteed debentures payable |
115,110,000 | 115,110,000 | ||||||
Total liabilities |
120,095,277 | 122,241,998 | ||||||
Net Assets |
||||||||
Common stock, $0.001 par value per share (150,000,000
shares authorized, 7,047,663 and 6,917,363 shares issued
and outstanding as of March 31, 2009 and December 31, 2008,
respectively) |
7,047 | 6,917 | ||||||
Additional paid-in capital |
87,972,856 | 87,836,786 | ||||||
Investment income in excess of distributions |
2,320,044 | 2,115,157 | ||||||
Accumulated realized gains on investments |
4,129 | 356,495 | ||||||
Net unrealized appreciation (depreciation) of investments |
(2,495,336 | ) | 1,109,808 | |||||
Total net assets |
87,808,740 | 91,425,163 | ||||||
Total liabilities and net assets |
$ | 207,904,017 | $ | 213,667,161 | ||||
Net asset value per share |
$ | 12.46 | $ | 13.22 | ||||
See accompanying notes.
3
Table of Contents
TRIANGLE
CAPITAL CORPORATION
Unaudited Consolidated Statements of Operations
Three Months | Three Months | |||||||
Ended | Ended | |||||||
March 31, 2009 | March 31, 2008 | |||||||
Investment income: |
||||||||
Loan interest, fee and dividend income: |
||||||||
Non-Control / Non-Affiliate investments |
$ | 4,191,620 | $ | 1,921,769 | ||||
Affiliate investments |
931,836 | 748,766 | ||||||
Control investments |
237,957 | 487,434 | ||||||
Total loan interest, fee and dividend income |
5,361,413 | 3,157,969 | ||||||
Paid-in-kind interest income: |
||||||||
Non-Control / Non-Affiliate investments |
819,942 | 296,636 | ||||||
Affiliate investments |
174,261 | 142,552 | ||||||
Control investments |
81,123 | 129,395 | ||||||
Total paid-in-kind interest income |
1,075,326 | 568,583 | ||||||
Interest income from cash and cash equivalent investments |
67,761 | 137,432 | ||||||
Total investment income |
6,504,500 | 3,863,984 | ||||||
Expenses: |
||||||||
Interest expense |
1,656,991 | 561,815 | ||||||
Amortization of deferred financing fees |
90,661 | 40,141 | ||||||
General and administrative expenses |
1,719,266 | 1,348,333 | ||||||
Total expenses |
3,466,918 | 1,950,289 | ||||||
Net investment income |
3,037,582 | 1,913,695 | ||||||
Net unrealized depreciation of investments |
(3,605,144 | ) | (1,021,883 | ) | ||||
Total net loss on investments before income taxes |
(3,605,144 | ) | (1,021,883 | ) | ||||
Income tax expense |
15,795 | 126,421 | ||||||
Net increase (decrease) in net assets resulting from operations |
$ | (583,357 | ) | $ | 765,391 | |||
Net investment income per share basic and diluted |
$ | 0.43 | $ | 0.28 | ||||
Net increase (decrease) in net assets resulting from operations
per share basic and diluted |
$ | (0.08 | ) | $ | 0.11 | |||
Dividends declared per common share |
$ | 0.40 | $ | | ||||
Distributions of capital gains declared per common share |
$ | 0.05 | $ | | ||||
Weighted average number of shares outstanding basic and diluted |
6,997,411 | 6,803,863 | ||||||
See accompanying notes.
4
Table of Contents
TRIANGLE CAPITAL CORPORATION
Unaudited Consolidated Statements of Changes in Net Assets
Investment | Net | |||||||||||||||||||||||||||
Income | Accumulated | Unrealized | ||||||||||||||||||||||||||
Common Stock | Additional | in Excess of | Realized | Appreciation | Total | |||||||||||||||||||||||
Number | Par | Paid In | (Less Than) | Losses on | (Depreciation) of | Net | ||||||||||||||||||||||
of Shares | Value | Capital | Distributions | Investments | Investments | Assets | ||||||||||||||||||||||
Balance, January 1, 2008 |
6,803,863 | $ | 6,804 | $ | 86,949,189 | $ | 1,738,797 | $ | (618,620 | ) | $ | 5,396,183 | $ | 93,472,353 | ||||||||||||||
Net investment income |
| | | 1,913,695 | | | 1,913,695 | |||||||||||||||||||||
Net unrealized losses on investments |
| | | | | (1,021,883 | ) | (1,021,883 | ) | |||||||||||||||||||
Income tax expense |
| | | (126,421 | ) | | | (126,421 | ) | |||||||||||||||||||
Balance, March 31, 2008 |
6,803,863 | $ | 6,804 | $ | 86,949,189 | $ | 3,526,071 | $ | (618,620 | ) | $ | 4,374,300 | $ | 94,237,744 | ||||||||||||||
Net | ||||||||||||||||||||||||||||
Investment | Accumulated | Unrealized | ||||||||||||||||||||||||||
Common Stock | Additional | Income | Realized | Appreciation | Total | |||||||||||||||||||||||
Number | Par | Paid In | in Excess of | Gains on | (Depreciation) of | Net | ||||||||||||||||||||||
of Shares | Value | Capital | Distributions | Investments | Investments | Assets | ||||||||||||||||||||||
Balance, January 1, 2009 |
6,917,363 | $ | 6,917 | $ | 87,836,786 | $ | 2,115,157 | $ | 356,495 | $ | 1,109,808 | $ | 91,425,163 | |||||||||||||||
Net investment income |
| | | 3,037,582 | | | 3,037,582 | |||||||||||||||||||||
Stock-based compensation |
| | 136,200 | | | | 136,200 | |||||||||||||||||||||
Net unrealized losses on investments |
| | | | | (3,605,144 | ) | (3,605,144 | ) | |||||||||||||||||||
Income tax expense |
| | | (15,795 | ) | | | (15,795 | ) | |||||||||||||||||||
Dividends/distributions declared |
| | | (2,816,900 | ) | (352,366 | ) | | (3,169,266 | ) | ||||||||||||||||||
Issuance of restricted stock |
133,000 | 133 | (133 | ) | | | | | ||||||||||||||||||||
Forfeiture of restricted stock |
(2,700 | ) | (3 | ) | 3 | | | | | |||||||||||||||||||
Balance, March 31, 2009 |
7,047,663 | $ | 7,047 | $ | 87,972,856 | $ | 2,320,044 | $ | 4,129 | $ | (2,495,336 | ) | $ | 87,808,740 | ||||||||||||||
See accompanying notes.
5
Table of Contents
TRIANGLE
CAPITAL CORPORATION
Unaudited Consolidated Statements of Cash Flows
Three Months | Three Months | |||||||
Ended | Ended | |||||||
March 31, | March 31, | |||||||
2009 | 2008 | |||||||
Cash flows from operating activities: |
||||||||
Net increase (decrease) in net assets resulting from operations |
$ | (583,357 | ) | $ | 765,391 | |||
Adjustments to reconcile net increase in net assets resulting
from operations to net cash provided by (used in) operating
activities: |
||||||||
Purchases of portfolio investments |
(9,193,735 | ) | (14,123,791 | ) | ||||
Repayments received/sales of portfolio investments |
2,246,284 | 475,404 | ||||||
Loan origination and other fees received |
175,000 | 403,889 | ||||||
Net unrealized depreciation of investments |
3,604,584 | 1,196,243 | ||||||
Deferred income taxes |
560 | (174,360 | ) | |||||
Paid-in-kind interest accrued, net of payments received |
(648,221 | ) | (541,434 | ) | ||||
Amortization of deferred financing fees |
90,661 | 40,141 | ||||||
Recognition of loan origination and other fees |
(184,906 | ) | (200,670 | ) | ||||
Accretion of loan discounts |
(104,626 | ) | (24,420 | ) | ||||
Depreciation expense |
5,571 | 3,265 | ||||||
Stock-based compensation |
136,200 | | ||||||
Changes in operating assets and liabilities: |
||||||||
Interest and fees receivable |
211,203 | (98,925 | ) | |||||
Prepaid expenses |
(199,720 | ) | (130,485 | ) | ||||
Accounts payable and accrued liabilities |
(799,537 | ) | (500,589 | ) | ||||
Interest payable |
(1,369,428 | ) | (512,736 | ) | ||||
Taxes payable |
(30,436 | ) | 42,982 | |||||
Net cash used in operating activities |
(6,643,903 | ) | (13,380,095 | ) | ||||
Cash flows from investing activities: |
||||||||
Purchases of property and equipment |
| (2,015 | ) | |||||
Net cash used in investing activities |
| (2,015 | ) | |||||
Cash flows from financing activities: |
||||||||
Borrowings under SBA guaranteed debentures payable |
| 10,040,000 | ||||||
Financing fees paid |
| (793,470 | ) | |||||
Cash dividends paid |
(2,764,780 | ) | (2,041,159 | ) | ||||
Cash distributions paid |
(352,366 | ) | | |||||
Net cash provided by (used in) financing activities |
(3,117,146 | ) | 7,205,371 | |||||
Net decrease in cash and cash equivalents |
(9,761,049 | ) | (6,176,739 | ) | ||||
Cash and cash equivalents, beginning of period |
27,193,287 | 21,787,750 | ||||||
Cash and cash equivalents, end of period |
$ | 17,432,238 | $ | 15,611,011 | ||||
Supplemental disclosure of cash flow information: |
||||||||
Cash paid for interest |
$ | 3,026,419 | $ | 1,074,552 | ||||
See accompanying notes.
6
Table of Contents
TRIANGLE CAPITAL CORPORATION
Unaudited Consolidated Schedule of Investments
March 31, 2009
Type of Investment | Principal | Fair | ||||||||||||||
Portfolio Company | Industry | (1)(2) | Amount | Cost | Value (3) | |||||||||||
NonControl / NonAffiliate Investments: |
||||||||||||||||
Ambient Air Corporation (AAC) and Peaden-Hobbs Mechanical, LLC (PHM) (6%)*
|
Specialty Trade Contractors | Subordinated Note-AAC (14%, Due 03/11) | $ | 3,198,169 | $ | 3,101,162 | $ | 3,101,162 | ||||||||
Subordinated Note-AAC (18%, Due 03/11) | 1,936,279 | 1,910,345 | 1,910,345 | |||||||||||||
Common Stock-PHM (126,634 shares) | 128,571 | 96,400 | ||||||||||||||
Common Stock Warrants-AAC (455 shares) | 142,361 | 549,100 | ||||||||||||||
5,134,448 | 5,282,439 | 5,657,007 | ||||||||||||||
American De-Rosa Lamparts, LLC and Hallmark Lighting (6%)*
|
Wholesale and Distribution | Subordinated Note (15.25%, Due 10/13) | 8,285,358 | 8,147,549 | 5,032,401 | |||||||||||
8,285,358 | 8,147,549 | 5,032,401 | ||||||||||||||
American Direct Marketing Resources, LLC (5%)*
|
Direct Marketing Services | Subordinated Note (15%, Due 03/15) | 4,065,301 | 3,989,513 | 3,989,513 | |||||||||||
4,065,301 | 3,989,513 | 3,989,513 | ||||||||||||||
APO Newco, LLC (2%)*
|
Commercial and Consumer Marketing Products | Unit purchase warrant (87,302 Class C units) | 25,200 | 1,591,500 | ||||||||||||
25,200 | 1,591,500 | |||||||||||||||
ARC Industries, LLC (3%)*
|
Remediation Services | Subordinated Note (19%, Due 11/10) | 2,560,326 | 2,542,666 | 2,542,666 | |||||||||||
2,560,326 | 2,542,666 | 2,542,666 | ||||||||||||||
Art Headquarters, LLC (3%)*
|
Retail, Wholesale and Distribution | Subordinated Note (14%, Due 01/10) | 2,268,488 | 2,250,558 | 2,250,558 | |||||||||||
Membership unit warrants (15% of units (150 units)) | 40,800 | | ||||||||||||||
2,268,488 | 2,291,358 | 2,250,558 | ||||||||||||||
Assurance Operations Corporation (4%)*
|
Auto Components / Metal Fabrication | Subordinated Note (17%, Due 03/12) | 4,026,884 | 3,988,641 | 3,250,000 | |||||||||||
Common Stock (57 shares) | 257,143 | | ||||||||||||||
4,026,884 | 4,245,784 | 3,250,000 | ||||||||||||||
CV Holdings, LLC (12%)*
|
Specialty Healthcare Products | Subordinated Note (16%, Due 09/13) | 10,884,535 | 9,928,282 | 9,928,282 | |||||||||||
Manufacturer | Royalty rights | 874,400 | 874,400 | |||||||||||||
10,884,535 | 10,802,682 | 10,802,682 | ||||||||||||||
Cyrus Networks, LLC (8%)*
|
Data Center Services Provider | Senior Note (5%, Due 07/13) | 5,529,637 | 5,515,331 | 5,515,331 | |||||||||||
2nd Lien Note (8%, Due 01/14) | 1,196,809 | 1,196,809 | 1,196,809 | |||||||||||||
Revolving Line of Credit (5%) | 455,659 | 455,659 | 455,659 | |||||||||||||
7,182,105 | 7,167,799 | 7,167,799 | ||||||||||||||
DataPath, Inc. (0%)*
|
Satellite Communication Manufacturer | Common Stock (210,263 shares) | 101,500 | 88,300 | ||||||||||||
101,500 | 88,300 |
7
Table of Contents
Type of Investment | Principal | Fair | ||||||||||||||
Portfolio Company | Industry | (1)(2) | Amount | Cost | Value (3) | |||||||||||
Electronic Systems Protection, Inc. (5%)*
|
Power Protection Systems | Subordinated Note (14%, Due 12/15) | $ | 3,074,563 | $ | 3,048,452 | $ | 3,048,452 | ||||||||
Manufacturing | Senior Note (5%, Due 01/14) | 910,404 | 910,404 | 910,404 | ||||||||||||
Common Stock (500 shares) | 285,000 | 285,000 | ||||||||||||||
3,984,967 | 4,243,856 | 4,243,856 | ||||||||||||||
Energy Hardware Holdings, LLC (0%)*
|
Machined Parts Distribution | Voting Units (4,833 units) | 4,833 | 365,100 | ||||||||||||
4,833 | 365,100 | |||||||||||||||
FCL Graphics, Inc. (6%)*
|
Commercial Printing Services | Senior Note (8%, Due 5/12) | 1,609,200 | 1,603,493 | 1,603,493 | |||||||||||
Senior Note (12%, Due 5/13) | 2,000,000 | 1,993,497 | 1,993,497 | |||||||||||||
2nd Lien Note (20%, Due 11/13) | 3,403,754 | 3,393,109 | 1,699,000 | |||||||||||||
7,012,954 | 6,990,099 | 5,295,990 | ||||||||||||||
Fire Sprinkler Systems, Inc. (1%)*
|
Specialty Trade Contractors | Subordinated Notes (12%, Due 04/11) | 2,388,362 | 2,359,874 | 836,000 | |||||||||||
Common Stock (283 shares) | 294,624 | | ||||||||||||||
2,388,362 | 2,654,498 | 836,000 | ||||||||||||||
Garden Fresh Restaurant Corp. (4%)*
|
Restaurant | 2nd Lien Note (9%, Due 12/11) | 3,000,000 | 3,000,000 | 3,000,000 | |||||||||||
Membership Units (5,000 units) | 500,000 | 791,400 | ||||||||||||||
3,000,000 | 3,500,000 | 3,791,400 | ||||||||||||||
Gerli & Company (2%)*
|
Specialty Woven Fabrics | Subordinated Note (14%, Due 08/11) | 3,161,439 | 3,100,427 | 1,865,000 | |||||||||||
Manufacturer | Common Stock Warrants (56,559 shares) | 83,414 | | |||||||||||||
3,161,439 | 3,183,841 | 1,865,000 | ||||||||||||||
Inland Pipe Rehabilitation Holding Company LLC (14%)*
|
Cleaning and Repair Services | Subordinated Note (14%, Due 01/14) | 8,109,091 | 7,180,299 | 7,180,299 | |||||||||||
Subordinated Note (18%, Due 01/14) | 3,750,000 | 3,678,301 | 3,678,301 | |||||||||||||
Membership Interest Purchase Warrant (2.9%) | 853,500 | 1,743,000 | ||||||||||||||
11,859,091 | 11,712,100 | 12,601,600 | ||||||||||||||
Jenkins Service, LLC (11%)*
|
Restoration Services | Subordinated Note (17.5%, Due 04/14) | 8,563,625 | 8,424,025 | 8,424,025 | |||||||||||
Convertible Note (10%, Due 04/18) | 1,375,000 | 1,338,391 | 1,338,391 | |||||||||||||
9,938,625 | 9,762,416 | 9,762,416 | ||||||||||||||
Library Systems & Services, LLC (3%)*
|
Municipal Business Services | Subordinated Note (12%, Due 03/11) | 2,000,000 | 1,954,356 | 1,954,356 | |||||||||||
Common Stock Warrants (112 shares) | 58,995 | 1,114,000 | ||||||||||||||
2,000,000 | 2,013,351 | 3,068,356 | ||||||||||||||
Novolyte Technologies, Inc. (9%)*
|
Specialty Manufacturing | Subordinated Note (16%, Due 04/15) | 7,118,704 | 6,958,876 | 6,958,876 | |||||||||||
Preferred Units (600 units) | 600,000 | 600,000 | ||||||||||||||
Common Units (22,960 units) | 150,000 | 150,000 | ||||||||||||||
7,118,704 | 7,708,876 | 7,708,876 | ||||||||||||||
Syrgis Holdings, Inc. (5%)*
|
Specialty Chemical Manufacturer | Senior Note (5%, Due 08/12-02/14) | 4,535,000 | 4,506,942 | 4,506,942 | |||||||||||
Common Units (2,114 units) | 1,000,000 | 247,800 | ||||||||||||||
4,535,000 | 5,506,942 | 4,754,742 |
8
Table of Contents
Type of Investment | Principal | Fair | ||||||||||||||
Portfolio Company | Industry | (1)(2) | Amount | Cost | Value (3) | |||||||||||
TrustHouse Services Group, Inc. (5%)*
|
Food Management Services | Subordinated Note (14%, Due 09/15) | $ | 4,285,816 | $ | 4,210,002 | $ | 4,210,002 | ||||||||
Class A Units (1,495 units) | 475,000 | 406,400 | ||||||||||||||
Class B Units (79 units) | 25,000 | | ||||||||||||||
4,285,816 | 4,710,002 | 4,616,402 | ||||||||||||||
Tulsa Inspection Resources, Inc. (TIR) and Regent TIR Partners,
|
Pipeline Inspection Services | Subordinated Note (14%, Due 03/14) | 5,000,000 | 4,579,000 | 4,579,000 | |||||||||||
LLC (RTIR) (6%)*
|
Common Units RTIR (11 units) | 200,000 | 200,000 | |||||||||||||
Common Stock Warrants TIR (7 shares) | 321,000 | 321,000 | ||||||||||||||
5,000,000 | 5,100,000 | 5,100,000 | ||||||||||||||
Twin-Star International, Inc. (7%)*
|
Consumer Home Furnishings | Subordinated Note (15%, Due 04/14) | 4,511,625 | 4,453,369 | 4,453,369 | |||||||||||
Manufacturer | Senior Note (8%, Due 04/13) | 1,298,617 | 1,298,617 | 1,298,617 | ||||||||||||
5,810,242 | 5,751,986 | 5,751,986 | ||||||||||||||
Waste Recyclers Holdings, LLC (14%)*
|
Environmental and Facilities Services | Subordinated Note (15.5%, Due 01/13) | 9,186,681 | 9,023,471 | 9,023,471 | |||||||||||
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) | 180,783 | 180,783 | ||||||||||||||
9,186,681 | 12,204,254 | 12,204,254 | ||||||||||||||
Wholesale Floors, Inc. (4%)*
|
Commercial Services | Subordinated Note (14%, Due 06/14) | 3,500,000 | 3,347,050 | 3,347,050 | |||||||||||
Membership Interest Purchase Warrant (4.0%) | 132,800 | | ||||||||||||||
3,500,000 | 3,479,850 | 3,347,050 | ||||||||||||||
Yellowstone Landscape Group, Inc. (14%)*
|
Landscaping Services | Subordinated Note (15%, Due 04/14) | 13,000,000 | 12,714,495 | 12,714,495 | |||||||||||
13,000,000 | 12,714,495 | 12,714,495 | ||||||||||||||
Subtotal NonControl / NonAffiliate Investments
|
140,189,326 | 145,837,889 | 140,399,949 | |||||||||||||
Affiliate Investments: |
||||||||||||||||
Asset Point, LLC (6%)*
|
Asset Management Software Provider | Subordinated Note (15%, Due 03/13) | 5,162,451 | 5,078,021 | 5,078,021 | |||||||||||
Membership Units (10 units) | 500,000 | 437,300 | ||||||||||||||
5,162,451 | 5,578,021 | 5,515,321 | ||||||||||||||
Axxiom Manufacturing, Inc. (3%)*
|
Industrial Equipment | Subordinated Note (14%, Due 01/11) | 2,134,675 | 2,116,250 | 2,116,250 | |||||||||||
Manufacturer | Common Stock (34,100 shares) | 200,000 | 514,900 | |||||||||||||
Common Stock Warrant (1,000 shares) | | 13,300 | ||||||||||||||
2,134,675 | 2,316,250 | 2,644,450 |
9
Table of Contents
Type of Investment | Principal | Fair | ||||||||||||||
Portfolio Company | Industry | (1)(2) | Amount | Cost | Value (3) | |||||||||||
Brantley Transportation, LLC (Brantley Transportation) and Pine Street Holdings, LLC (Pine Street) (4) (3%)*
|
Oil and Gas Services | Subordinated Note Brantley Transportation (14%, Due 12/12) | $ | 3,800,000 | $ | 3,695,956 | $ | 2,500,000 | ||||||||
Common Unit Warrants Brantley Transportation (4,560 common units) | 33,600 | | ||||||||||||||
Preferred Units Pine Street (200 units) | 200,000 | | ||||||||||||||
Common Unit Warrants Pine Street (2,220 units) | | | ||||||||||||||
3,800,000 | 3,929,556 | 2,500,000 | ||||||||||||||
Dyson Corporation (14%)*
|
Custom Forging and Fastener | Subordinated Note (15%, Due 12/13) | 10,396,334 | 10,207,657 | 10,207,657 | |||||||||||
Supplies | Class A Units (1,000,000 units) | 1,000,000 | 1,786,000 | |||||||||||||
10,396,334 | 11,207,657 | 11,993,657 | ||||||||||||||
Equisales, LLC (10%)*
|
Energy Products and Services | Subordinated Note (15%, Due 04/12) | 6,366,828 | 6,279,850 | 6,279,850 | |||||||||||
Class A Units (500,000 units) | 500,000 | 2,251,000 | ||||||||||||||
6,366,828 | 6,779,850 | 8,530,850 | ||||||||||||||
Flint Acquisition Corporation (2%)*
|
Specialty Chemical Manufacturer | Preferred Stock (9,875 shares) | 308,333 | 1,954,300 | ||||||||||||
308,333 | 1,954,300 | |||||||||||||||
Genapure Corporation (1%)*
|
Lab Testing Services | Genapure Common Stock (5,594 shares) | 563,602 | 605,600 | ||||||||||||
563,602 | 605,600 | |||||||||||||||
Subtotal Affiliate Investments
|
27,860,288 | 30,683,269 | 33,744,178 | |||||||||||||
Control Investments: |
||||||||||||||||
Fischbein, LLC (14%)*
|
Packaging and Materials Handling | Subordinated Note (16.5%, Due 05/13) | 7,265,190 | 7,140,584 | 7,140,584 | |||||||||||
Equipment Manufacturer | Membership Units (4,200,000 units) | 4,200,000 | 4,926,200 | |||||||||||||
7,265,190 | 11,340,584 | 12,066,784 | ||||||||||||||
Subtotal Control Investments
|
7,265,190 | 11,340,584 | 12,066,784 | |||||||||||||
Total Investments, March 31, 2009(212%)*
|
$ | 175,314,804 | $ | 187,861,742 | $ | 186,210,911 | ||||||||||
* | Value as a percent of net assets | |
(1) | All debt investments are income producing. Common stock, preferred stock and all warrants are nonincome producing. | |
(2) | Interest rates on subordinated debt include cash interest rate and paidinkind 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. |
See accompanying notes.
10
Table of Contents
TRIANGLE CAPITAL CORPORATION
Consolidated Schedule of Investments
December 31, 2008
Principal | Fair | |||||||||||||||
Portfolio Company | Industry | Type of Investment (1) (2) | Amount | Cost | Value (3) | |||||||||||
NonControl / NonAffiliate Investments: |
||||||||||||||||
Ambient Air Corporation (AAC) and Peaden-Hobbs Mechanical, LLC (PHM) (6%)*
|
Specialty Trade Contractors | Subordinated Note-AAC (14%, Due 03/11) | $ | 3,182,231 | $ | 3,074,633 | $ | 3,074,633 | ||||||||
Subordinated Note-AAC (18%, Due 03/11) | 1,917,045 | 1,888,343 | 1,888,343 | |||||||||||||
Common Stock-PHM (126,634 shares) | 126,634 | 126,634 | ||||||||||||||
Common Stock Warrants-AAC (455 shares) | 142,361 | 600,100 | ||||||||||||||
5,099,276 | 5,231,971 | 5,689,710 | ||||||||||||||
American De-Rosa Lamparts, LLC and Hallmark Lighting (8%)*
|
Wholesale and Distribution | Subordinated Note (15.25%, Due 10/13) | 8,208,166 | 8,064,571 | 6,894,500 | |||||||||||
8,208,166 | 8,064,571 | 6,894,500 | ||||||||||||||
American Direct Marketing Resources, LLC (4%)*
|
Direct Marketing Services | Subordinated Note (15%, Due 03/15) | 4,035,038 | 3,957,113 | 3,957,113 | |||||||||||
4,035,038 | 3,957,113 | 3,957,113 | ||||||||||||||
APO Newco, LLC (3%)*
|
Commercial and Consumer | Subordinated Note (14%, Due 03/13) | 1,993,336 | 1,907,664 | 1,907,664 | |||||||||||
Marketing Products | Unit purchase warrant (87,302 Class C units) | 25,200 | 1,033,400 | |||||||||||||
1,993,336 | 1,932,864 | 2,941,064 | ||||||||||||||
ARC Industries, LLC (3%)*
|
Remediation Services | Subordinated Note (19%, Due 11/10) | 2,528,587 | 2,508,276 | 2,508,276 | |||||||||||
2,528,587 | 2,508,276 | 2,508,276 | ||||||||||||||
Art Headquarters, LLC (3%)*
|
Retail, Wholesale and Distribution | Subordinated Note (14%, Due 01/10) | 2,333,488 | 2,309,951 | 2,309,951 | |||||||||||
Membership unit warrants (15% of units (150 units)) | 40,800 | | ||||||||||||||
2,333,488 | 2,350,751 | 2,309,951 | ||||||||||||||
Assurance Operations Corporation (4%)*
|
Auto Components / Metal Fabrication | Subordinated Note (17%, Due 03/12) | 4,026,884 | 3,985,742 | 3,261,800 | |||||||||||
Common Stock (57 shares) | 257,143 | | ||||||||||||||
4,026,884 | 4,242,885 | 3,261,800 | ||||||||||||||
CV Holdings, LLC (12%)*
|
Specialty Healthcare Products | Subordinated Note (16%, Due 09/13) | 10,776,412 | 9,780,508 | 9,780,508 | |||||||||||
Manufacturer | Royalty rights | 874,400 | 874,400 | |||||||||||||
10,776,412 | 10,654,908 | 10,654,908 | ||||||||||||||
Cyrus Networks, LLC (8%)*
|
Data Center Services Provider | Senior Note (6%, Due 07/13) | 5,539,867 | 5,524,881 | 5,524,881 | |||||||||||
2nd Lien Note (9%, Due 01/14) | 1,196,809 | 1,196,809 | 1,196,809 | |||||||||||||
Revolving Line of Credit (6%) | 253,144 | 253,144 | 253,144 | |||||||||||||
6,989,820 | 6,974,834 | 6,974,834 | ||||||||||||||
DataPath, Inc. (0%)*
|
Satellite Communication Manufacturer | Common Stock (210,263 shares) | 101,500 | | ||||||||||||
101,500 | |
11
Table of Contents
Principal | Fair | |||||||||||||||
Portfolio Company | Industry | Type of Investment (1) (2) | Amount | Cost | Value (3) | |||||||||||
Electronic Systems Protection, Inc. (5%)*
|
Power Protection Systems | Subordinated Note (14%, Due 12/15) | $ | 3,059,267 | $ | 3,032,533 | $ | 3,032,533 | ||||||||
Manufacturing | Senior Note (6%, Due 01/14) | 930,635 | 930,635 | 930,635 | ||||||||||||
Common Stock (500 shares) | 285,000 | 285,000 | ||||||||||||||
3,989,902 | 4,248,168 | 4,248,168 | ||||||||||||||
Energy Hardware Holdings, LLC (0%)*
|
Machined Parts Distribution | Voting Units (4,833 units) | 4,833 | 292,300 | ||||||||||||
4,833 | 292,300 | |||||||||||||||
FCL Graphics, Inc. (8%)*
|
Commercial Printing Services | Senior Note (8%, Due 5/12) | 1,669,200 | 1,663,083 | 1,663,083 | |||||||||||
Senior Note (12%, Due 5/13) | 2,000,000 | 1,993,191 | 1,993,191 | |||||||||||||
2nd Lien Note (18%, Due 11/13) | 3,393,186 | 3,382,162 | 3,382,162 | |||||||||||||
7,062,386 | 7,038,436 | 7,038,436 | ||||||||||||||
Fire Sprinkler Systems, Inc. (1%)*
|
Specialty Trade Contractors | Subordinated Notes (12%, Due 04/11) | 2,388,362 | 2,356,781 | 1,000,000 | |||||||||||
Common Stock (283 shares) | 282,905 | 11,719 | ||||||||||||||
2,388,362 | 2,639,686 | 1,011,719 | ||||||||||||||
Garden Fresh Restaurant Corp. (4%)*
|
Restaurant | 2nd Lien Note (11%, Due 12/11) | 3,000,000 | 3,000,000 | 3,000,000 | |||||||||||
Membership Units (5,000 units) | 500,000 | 583,600 | ||||||||||||||
3,000,000 | 3,500,000 | 3,583,600 | ||||||||||||||
Gerli & Company (2%)*
|
Specialty Woven Fabrics | Subordinated Note (14%, Due 08/11) | 3,161,439 | 3,092,786 | 1,865,000 | |||||||||||
Manufacturer | Common Stock Warrants (56,559 shares) | 83,414 | | |||||||||||||
3,161,439 | 3,176,200 | 1,865,000 | ||||||||||||||
Inland Pipe Rehabilitation Holding Company LLC (10%)*
|
Cleaning and Repair Services | Subordinated Note (14%, Due 01/14) | 8,095,149 | 7,422,265 | 7,422,265 | |||||||||||
Membership Interest Purchase Warrant (2.5%) | 563,300 | 1,407,300 | ||||||||||||||
8,095,149 | 7,985,565 | 8,829,565 | ||||||||||||||
Jenkins Service, LLC (10%)*
|
Restoration Services | Subordinated Note (17.5%, Due 04/14) | 8,411,172 | 8,266,277 | 8,266,277 | |||||||||||
Convertible Note (10%, Due 04/18) | 1,375,000 | 1,336,993 | 1,336,993 | |||||||||||||
9,786,172 | 9,603,270 | 9,603,270 | ||||||||||||||
Library Systems & Services, LLC (3%)*
|
Municipal Business Services | Subordinated Note (12%, Due 03/11) | 2,000,000 | 1,948,573 | 1,948,573 | |||||||||||
Common Stock Warrants (112 shares) | 58,995 | 802,500 | ||||||||||||||
2,000,000 | 2,007,568 | 2,751,073 | ||||||||||||||
Novolyte Technologies, Inc. (8%)*
|
Specialty Manufacturing | Subordinated Note (16%, Due 04/15) | 7,048,222 | 6,880,696 | 6,880,696 | |||||||||||
Preferred Units (600 units) | 600,000 | 600,000 | ||||||||||||||
Common Units (22,960 units) | 150,000 | 150,000 | ||||||||||||||
7,048,222 | 7,630,696 | 7,630,696 | ||||||||||||||
Syrgis Holdings, Inc. (6%)*
|
Specialty Chemical Manufacturer | Senior Note (7%, Due 08/12-02/14) | 4,632,500 | 4,602,773 | 4,602,773 | |||||||||||
Common Units (2,114 units) | 1,000,000 | 532,700 | ||||||||||||||
4,632,500 | 5,602,773 | 5,135,473 |
12
Table of Contents
Type of Investment | Principal | Fair | ||||||||||||||||||
Portfolio Company | Industry | (1) (2) | Amount | Cost | Value (3) | |||||||||||||||
TrustHouse Services Group, Inc. (5%)* |
Food Management Services | Subordinated Note (14%, Due 09/15) | $ | 4,264,494 | $ | 4,186,542 | $ | 4,186,542 | ||||||||||||
Class A Units (1,495 units) | 475,000 | 207,500 | ||||||||||||||||||
Class B Units (79 units) | 25,000 | | ||||||||||||||||||
4,264,494 | 4,686,542 | 4,394,042 | ||||||||||||||||||
Twin-Star International, Inc. (6%)* |
Consumer Home Furnishings | Subordinated Note (15%, Due 04/14) | 4,500,000 | 4,439,137 | 4,439,137 | |||||||||||||||
Manufacturer | Senior Note (8%, Due 04/13) | 1,301,921 | 1,301,921 | 1,301,921 | ||||||||||||||||
5,801,921 | 5,741,058 | 5,741,058 | ||||||||||||||||||
Waste Recyclers Holdings, LLC (13%)* |
Environmental and Facilities Services | Subordinated Note (15.5%, Due 01/13) | 9,106,995 | 8,935,266 | 8,935,266 | |||||||||||||||
Class A Preferred Units (300 Units) | 2,251,100 | 2,251,100 | ||||||||||||||||||
Common Unit Purchase Warrant (1,170,083 Units) | 748,900 | 748,900 | ||||||||||||||||||
Common Units (153,219 Units) | 153,219 | 153,219 | ||||||||||||||||||
9,106,995 | 12,088,485 | 12,088,485 | ||||||||||||||||||
Wholesale Floors, Inc. (4%)* |
Commercial Services | Subordinated Note (14%, Due 06/14) | 3,500,000 | 3,341,947 | 3,341,947 | |||||||||||||||
Membership Interest Purchase Warrant (4.0%) | 132,800 | | ||||||||||||||||||
3,500,000 | 3,474,747 | 3,341,947 | ||||||||||||||||||
Yellowstone Landscape Group, Inc. (14%)* |
Landscaping Services | Subordinated Note (15%, Due 04/14) | 13,261,710 | 12,965,889 | 12,965,889 | |||||||||||||||
13,261,710 | 12,965,889 | 12,965,889 | ||||||||||||||||||
Subtotal NonControl / NonAffiliate Investments | 133,090,259 | 138,413,589 | 135,712,877 | |||||||||||||||||
Affiliate Investments: | ||||||||||||||||||||
Asset Point, LLC (6%)* |
Asset Management Software Provider | Subordinated Note (15%, Due 03/13) | 5,123,925 | 5,035,428 | 5,035,428 | |||||||||||||||
Membership Units (10 units) | 500,000 | 371,400 | ||||||||||||||||||
5,123,925 | 5,535,428 | 5,406,828 | ||||||||||||||||||
Axxiom Manufacturing, Inc. (3%)* |
Industrial Equipment | Subordinated Note (14%, Due 01/11) | 2,124,037 | 2,103,277 | 2,103,277 | |||||||||||||||
Manufacturer | Common Stock (34,100 shares) | 200,000 | 408,900 | |||||||||||||||||
Common Stock Warrant (1,000 shares) | | 10,600 | ||||||||||||||||||
2,124,037 | 2,303,277 | 2,522,777 | ||||||||||||||||||
Brantley Transportation, LLC (Brantley Transportation) and Pine Street Holdings, LLC (Pine Street) (4) (4%)* |
Oil and Gas Services | Subordinated Note Brantley Transportation (14%, Due 12/12) | 3,800,000 | 3,690,525 | 3,690,525 | |||||||||||||||
Common Unit Warrants Brantley Transportation (4,560 common units) | 33,600 | 41,800 | ||||||||||||||||||
Preferred Units Pine Street (200 units) | 200,000 | 139,200 | ||||||||||||||||||
Common Unit Warrants Pine Street (2,220 units) | | | ||||||||||||||||||
3,800,000 | 3,924,125 | 3,871,525 |
13
Table of Contents
Type of Investment | Principal | Fair | ||||||||||||||||||
Portfolio Company | Industry | (1) (2) | Amount | Cost | Value (3) | |||||||||||||||
Dyson Corporation (12%)* |
Custom Forging and Fastener | Subordinated Note (15%, Due 12/13) | $ | 10,318,750 | $ | 10,123,339 | $ | 10,123,339 | ||||||||||||
Supplies | Class A Units (1,000,000 units) | 1,000,000 | 964,700 | |||||||||||||||||
10,318,750 | 11,123,339 | 11,088,039 | ||||||||||||||||||
Equisales, LLC (9%)* |
Energy Products and Services | Subordinated Note (15%, Due 04/12) | 6,319,315 | 6,226,387 | 6,226,387 | |||||||||||||||
Class A Units (500,000 units) | 500,000 | 2,322,400 | ||||||||||||||||||
6,319,315 | 6,726,387 | 8,548,787 | ||||||||||||||||||
Flint Acquisition Corporation (2%)* |
Specialty Chemical Manufacturer | Preferred Stock (9,875 shares) | 308,333 | 1,984,500 | ||||||||||||||||
308,333 | 1,984,500 | |||||||||||||||||||
Genapure Corporation (1%)* |
Lab Testing Services | Genapure Common Stock (5,594 shares) | 563,602 | 472,100 | ||||||||||||||||
563,602 | 472,100 | |||||||||||||||||||
Subtotal Affiliate Investments | 27,686,027 | 30,484,491 | 33,894,556 | |||||||||||||||||
Control Investments: | ||||||||||||||||||||
Fischbein, LLC (14%)* |
Packaging and Materials Handling | Subordinated Note (16.5%, Due 05/13) | 7,184,066 | 7,053,458 | 7,053,458 | |||||||||||||||
Equipment Manufacturer | Membership Units (4,200,000 units) | 4,200,000 | 5,444,400 | |||||||||||||||||
7,184,066 | 11,253,458 | 12,497,858 | ||||||||||||||||||
Subtotal Control Investments | 7,184,066 | 11,253,458 | 12,497,858 | |||||||||||||||||
Total Investments, December 31, 2008 (199%)* | $ | 167,960,352 | $ | 180,151,538 | $ | 182,105,291 | ||||||||||||||
* | Value as a percent of net assets | |
(1) | All debt investments are income producing. Common stock, preferred stock and all warrants are nonincome producing. | |
(2) | Interest rates on subordinated debt include cash interest rate and paidinkind 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. |
See accompanying notes
14
Table of Contents
TRIANGLE CAPITAL CORPORATION
Notes to Unaudited Financial Statements
1. ORGANIZATION, BASIS OF PRESENTATION AND BUSINESS
Organization
Triangle Capital Corporation and its wholly owned subsidiary, Triangle Mezzanine Fund LLLP
(the Fund) (collectively, the Company) operate as a Business Development Company (BDC) under
the Investment Company Act of 1940 (the 1940 Act). The Fund is a specialty finance limited
liability limited partnership formed to make investments primarily in middle market companies
located throughout the United States. The Funds term is ten years from the date of formation
(August 14, 2002) unless terminated earlier or extended in accordance with provisions of the
limited partnership agreement. On September 11, 2003, the Fund was licensed to operate as a Small
Business Investment Company (SBIC) under the authority of the United States Small Business
Administration (SBA). As an SBIC, the Fund is subject to a variety of regulations concerning,
among other things, the size and nature of the companies in which it may invest and the structure
of those investments.
The Company currently operates as a closed-end, non-diversified investment company and has
elected to be treated as a BDC under the 1940 Act. The Company is internally managed by its
executive officers under the supervision of its board of directors. The Company does not pay
management or advisory fees, but instead incurs the operating costs associated with employing
executive management and investment and portfolio management professionals.
Basis of Presentation
The financial statements of the Company include the accounts of the Company and its
wholly-owned subsidiaries, including the Fund. The Fund does not consolidate portfolio company
investments. The effects of all intercompany transactions between the Company and its subsidiaries
have been eliminated in consolidation/combination.
The accompanying unaudited financial statements are presented in conformity with United States
generally accepted accounting principles (U.S. GAAP) for interim financial information and
pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X.
Accordingly, certain disclosures accompanying annual consolidated financial statements prepared in
accordance with U.S. GAAP are omitted. In the opinion of management, all adjustments, consisting
solely of normal recurring accruals considered necessary for the fair presentation of financial
statements for the interim period, have been included. The current periods results of operations
are not necessarily indicative of results that ultimately may be achieved for the year. Therefore,
the unaudited financial statements and notes should be read in conjunction with the audited
financial statements and notes thereto for the period ended December 31, 2008. 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.
Recently Issued Accounting Standards
On January 1, 2009, the Company adopted FASB Staff Position EITF 03-06-1, Determining Whether
Instruments Granted in Share-based Payment Transactions are Participating Securities (FSP EITF
03-06-1), which requires companies to include unvested share-based payment awards that contain
non-forfeitable rights to dividends in the computation of earnings per share pursuant to the
two-class method. In effect, FSP EITF 03-06-1 requires companies to report earnings per share in
two broad categories. First, companies must report earnings per share associated with the unvested
share-based payments with non-forfeitable rights. Second, companies must report separately
earnings per share for their remaining common stock. As required, the Company applied this
standard retroactively to all reported periods. The Companys adoption of this standard did not
have a material impact on its financial position or results of operations.
15
Table of Contents
2. INVESTMENTS
Summaries of the composition of the Companys investment portfolio at cost and fair value as a
percentage of total investments are shown in the following tables:
Percentage of | Percentage of | |||||||||||||||
Cost | Total Portfolio | Fair Value | Total Portfolio | |||||||||||||
March 31, 2009: |
||||||||||||||||
Subordinated debt and 2nd lien notes |
$ | 154,337,340 | 82 | % | $ | 144,834,185 | 78 | % | ||||||||
Senior debt |
16,283,943 | 9 | 16,283,943 | 9 | ||||||||||||
Equity shares |
13,925,489 | 8 | 18,137,583 | 10 | ||||||||||||
Equity warrants |
2,440,570 | 1 | 6,080,800 | 3 | ||||||||||||
Royalty rights |
874,400 | | 874,400 | | ||||||||||||
$ | 187,861,742 | 100 | % | $ | 186,210,911 | 100 | % | |||||||||
December 31, 2008: |
||||||||||||||||
Subordinated debt and 2nd lien notes |
$ | 147,493,871 | 82 | % | $ | 143,015,291 | 79 | % | ||||||||
Senior debt |
16,269,628 | 9 | 16,269,628 | 9 | ||||||||||||
Equity shares |
13,684,269 | 8 | 17,301,372 | 9 | ||||||||||||
Equity warrants |
1,829,370 | 1 | 4,644,600 | 3 | ||||||||||||
Royalty rights |
874,400 | | 874,400 | | ||||||||||||
$ | 180,151,538 | 100 | % | $ | 182,105,291 | 100 | % | |||||||||
During the three months ended March 31, 2009, the Company made one new investment totaling
$5.2 million and five investments in existing portfolio companies totaling approximately $4.0
million. During the three months ended March 31, 2008, the Company made three new investments
totaling $13.8 million, one additional debt investment in an existing portfolio company of $0.3
million and one additional equity investment in an existing portfolio company of approximately $0.1
million.
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 Statement of
Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157). Under SFAS 157, a
financial instruments categorization within the valuation hierarchy is based upon the lowest level
of input that is significant to the fair value measurement. The three levels of valuation hierarchy
established by SFAS 157 are defined as follows:
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical
assets or liabilities in active markets.
Level 2 - inputs to the valuation methodology include quoted prices for similar assets and
liabilities in active markets, and inputs that are observable for the asset or liability, either
directly or indirectly, for substantially the full term of the financial instrument.
Level 3 - inputs to the valuation methodology are unobservable and significant to the fair
value measurement.
The Company invests primarily in debt and equity of privately held companies for which quoted
prices falling within the categories of Level 1 and Level 2 inputs are not available. Therefore,
the Company values all of its investments at fair value, as determined in good faith by the Board
of Directors (Level 3 inputs, as further described below). Due to the inherent uncertainty in the
valuation process, the Board of Directors estimate of fair value may differ significantly from the
values that would have been used had a ready market for the securities existed, and the differences
could be material. In addition, changes in the market environment and other events that may occur
over the life of the investments may cause the gains or losses ultimately realized on these
investments to be different than the valuations currently assigned.
Debt and equity securities that are not publicly traded and for which a limited market does
not exist are valued at fair value as determined in good faith by the Board of Directors. There is
no single standard for determining fair value in good faith, as fair value depends upon
circumstances of each individual case. In general, fair value is the amount that the Company might
reasonably expect to receive upon the current sale of the security.
Management evaluates the investments in portfolio companies using the most recent portfolio
company financial statements and forecasts. Management also consults with the portfolio companys
senior management to obtain further updates on the portfolio companys performance, including
information such as industry trends, new product development and other operational issues.
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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
paid-in-kind (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
March 31, 2009 and December 31, 2008, on the consolidated balance sheet by FAS 157 valuation
hierarchy, as previously described:
Fair Value at March 31, 2009 | ||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||
Portfolio company investments
|
$ | $ | $ | 186,210,911 | $ | 186,210,911 | ||||||
$ | $ | $ | 186,210,911 | $ | 186,210,911 | |||||||
Fair Value at December 31, 2008 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Portfolio company investments |
$ | | $ | | $ | 182,105,291 | $ | 182,105,291 | ||||||||
$ | | $ | | $ | 182,105,291 | $ | 182,105,291 | |||||||||
The following table reconciles the beginning and ending balances of our portfolio company
investments measured at fair value on a recurring basis using significant unobservable inputs
(Level 3) for the three months ended March 31, 2009 and 2008:
Three Months | Three Months | |||||||
Ended | Ended | |||||||
March 31, 2009 | March 31, 2008 | |||||||
Fair value of portfolio, Beginning of Period |
$ | 182,105,291 | $ | 113,036,240 | ||||
New investments |
9,193,735 | 14,123,791 | ||||||
Loan origination fees received |
(175,000 | ) | (212,496 | ) | ||||
Proceeds from sale of investment |
| (175,000 | ) | |||||
Principal repayments received |
(2,246,284 | ) | (300,404 | ) | ||||
Paid-in-kind interest earned |
1,075,326 | 568,583 | ||||||
Paid-in-kind interest received |
(427,105 | ) | (27,149 | ) | ||||
Accretion of loan discounts |
104,626 | 24,420 | ||||||
Accretion of deferred loan origination revenue |
184,906 | 65,156 | ||||||
Unrealized losses on investments |
(3,604,584 | ) | (1,196,243 | ) | ||||
Fair value of portfolio, End of Period |
$ | 186,210,911 | $ | 125,906,898 | ||||
All realized and unrealized gains and losses are included in earnings (changes in net assets)
and are reported on separate line items within the Companys statements of operations. Unrealized
losses on investments of $3,604,584 during the three months ended March 31, 2009 are related to
portfolio company investments that are still held by the Company as of March 31, 2009. Unrealized
losses on investments of $1,252,543 during the three months ended March 31, 2008 are related to
portfolio company investments that were still held by the Company as of March 31, 2008.
Duff & Phelps, LLC (Duff & Phelps), an independent valuation firm, provides third party
valuation consulting services to the Company which consist of certain limited procedures that the
Company identified and requested Duff & Phelps to perform (hereinafter referred to as the
procedures). We generally request Duff & Phelps to perform the procedures on each portfolio
company at least once in every calendar year and for new portfolio companies, at least once in the
twelve-month period subsequent to
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the initial investment. In certain instances, we may determine that it is not cost-effective,
and as a result is not in our stockholders best interest, to request Duff & Phelps to perform the
procedures on one or more portfolio companies. Such instances include, but are not limited to,
situations where the fair value of our investment in the portfolio company is determined to be
insignificant relative to our total investment portfolio.
For the quarter ended March 31, 2009, the Company asked Duff & Phelps to perform the
procedures on investments in seven portfolio companies comprising approximately 26% of the total
investments at fair value (exclusive of the fair value of new investments made during the quarter)
as of March 31, 2009. Upon completion of the procedures, Duff & Phelps concluded that the fair
value, as determined by the Board of Directors, of those investments subjected to the procedures
did not appear to be unreasonable. The Board of Directors of Triangle Capital Corporation is
ultimately and solely responsible for determining the fair value of the Companys investments in
good faith.
Warrants
When originating a debt security, the Company will sometimes receive warrants or other
equity-related securities from the borrower. The Company determines the cost basis of the warrants
or other equity-related securities received based upon their respective fair values on the date of
receipt in proportion to the total fair value of the debt and warrants or other equity-related
securities received. Any resulting difference between the face amount of the debt and its recorded
fair value resulting from the assignment of value to the warrant or other equity instruments is
treated as original issue discount and accreted into interest income over the life of the loan.
Realized Gain or Loss and Unrealized Appreciation or Depreciation of Portfolio Investments
Realized gains or losses are recorded upon the sale or liquidation of investments and
calculated as the difference between the net proceeds from the sale or liquidation, if any, and the
cost basis of the investment using the specific identification method. Unrealized appreciation or
depreciation reflects the difference between the valuation of the investments and the cost basis of
the investments.
Investment Classification
In accordance with the provisions of the 1940 Act, the Company classifies investments by level
of control. As defined in the 1940 Act, Control Investments are investments in those companies
that the Company is deemed to Control. Affiliate Investments are investments in those companies
that are Affiliated Companies of the Company, as defined in the 1940 Act, other than Control
Investments. Non-Control/Non-Affiliate Investments are those that are neither Control Investments
nor Affiliate Investments. Generally, under the 1940 Act, the Company is deemed to control a
company in which it has invested if the Company owns more than 25.0% of the voting securities of
such company or has greater than 50.0% representation on its board. The Company is deemed to be an
affiliate of a company in which the Company has invested if it owns between 5.0% and 25.0% of the
voting securities of such company.
Investment Income
Interest income, adjusted for amortization of premium and accretion of original issue
discount, is recorded on the accrual basis to the extent that such amounts are expected to be
collected. Generally, when interest and/or principal payments on a loan become past due, or if the
Company otherwise does not expect the borrower to be able to service its debt and other
obligations, the Company will place the loan on non-accrual status and will generally cease
recognizing interest income on that loan until all principal and interest has been brought current
through payment or due to a restructuring such that the interest income is deemed to be
collectible. The Company writes off any previously accrued and uncollected interest when it is
determined that interest is no longer considered collectible. Dividend income is recorded on the
ex-dividend date.
Fee Income
Loan origination, facility, commitment, consent and other advance fees received in connection
with loan agreements are recorded as deferred income and recognized as income over the term of the
loan. Loan prepayment penalties and loan amendment fees are recorded into income when received. Any
previously deferred fees are immediately recorded into income upon prepayment of the related loan.
Paid-in-Kind Interest
The Company holds loans in its portfolio that contain a paid-in-kind (PIK) interest
provision. The PIK interest, computed at the contractual rate specified in each loan agreement, is
added to the principal balance of the loan and is recorded as interest income. To maintain the
Companys status as a RIC, this non-cash source of income must be paid out to stockholders in the
form of dividends, even though the Company has not yet collected the cash. Generally, when current
cash interest and/or principal payments on a loan
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become past due, or if the Company otherwise does not expect the borrower to be able to
service its debt and other obligations, the Company will place the loan on non-accrual status and
will generally cease recognizing PIK interest income on that loan until all principal and interest
has been brought current through payment or due to a restructuring such that the interest income is
deemed to be collectible. The Company writes off any accrued and uncollected PIK interest when it
is determined that the PIK interest is no longer collectible.
Concentration of Credit Risk
The Companys investees are generally lower middle-market companies in a variety of
industries. At both March 31, 2009 and December 31, 2008, there were no individual investments
greater than 10% of the fair value of the Companys portfolio. Income, consisting of interest,
dividends, fees, other investment income, and realization of gains or losses on equity interests,
can fluctuate dramatically upon repayment of an investment or sale of an equity interest and in any
given year can be highly concentrated among several investees.
The Companys investments carry a number of risks including, but not limited to: 1) investing
in lower middle market companies which 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 has elected to be treated as a Regulated Investment Company (RIC) under
Subchapter M of the Code. As a RIC, so long as the Company meets certain minimum distribution,
source-of-income and asset diversification requirements, it generally is required to pay income
taxes only on the portion of its taxable income and gains it does not distribute (actually or
constructively) and certain built-in gains.
In addition, the Company has certain wholly owned taxable subsidiaries (the Taxable
Subsidiaries), each of which holds one or more of its portfolio investments that are listed on the
Consolidated Schedule of Investments. The Taxable Subsidiaries are consolidated for GAAP purposes,
such that the Companys consolidated financial statements reflect the Companys investments in the
portfolio companies owned by the Taxable Subsidiaries. The purpose of the Taxable Subsidiaries is
to permit the Company to hold certain portfolio companies that are organized as limited liability
companies (LLCs) (or other forms of pass-through entities) and still satisfy the RIC tax
requirement that at least 90% of the RICs gross revenue for income tax purposes must consist of
investment income. Absent the Taxable Subsidiaries, a proportionate amount of any gross income of
an LLC (or other pass-through entity) portfolio investment would flow through directly to the RIC.
To the extent that such income did not consist of investment income, it could jeopardize the
Companys ability to qualify as a RIC and therefore cause the Company to incur significant amounts
of federal income taxes. Where the LLCs (or other pass-through entities) are owned by the Taxable
Subsidiaries, however, their income is taxed to the Taxable Subsidiaries and does not flow through
to the RIC, thereby helping the Company preserve its RIC status and resultant tax advantages. The
Taxable Subsidiaries are not consolidated for income tax purposes and may generate income tax
expense as a result of their ownership of the portfolio companies. This income tax expense is
reflected in the Companys Statements of Operations.
For federal income tax purposes, the cost of investments owned at March 31, 2009 was
approximately $188.1 million.
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4. LONG-TERM DEBT
At both March 31, 2009 and December 31, 2008, the Company has the following debentures
outstanding guaranteed by the SBA:
Prioritized | ||||||||||
Return | ||||||||||
Issuance/Pooling Date | Maturity Date | (Interest) Rate | ||||||||
September 22, 2004 | September 1, 2014 |
5.539% | $ | 8,700,000 | ||||||
March 23, 2005 | March 1, 2015 |
5.893% | 13,600,000 | |||||||
September 28, 2005 | September 1, 2015 |
5.796% | 9,500,000 | |||||||
February 1, 2007 | March 1, 2017 |
6.231% | 4,000,000 | |||||||
March 26, 2008 | March 1, 2018 |
6.191% | 6,410,000 | |||||||
March 27, 2008 | September 1, 2018 |
6.580% | 4,840,000 | |||||||
April 11, 2008 | September 1, 2018 |
6.442% | 9,400,000 | |||||||
April 28, 2008 | September 1, 2018 |
6.442% | 15,160,000 | |||||||
May 29, 2008 | September 1, 2018 |
6.442% | 5,000,000 | |||||||
May 29, 2008 | September 1, 2018 |
6.442% | 5,000,000 | |||||||
June 11, 2008 | September 1, 2018 |
6.442% | 5,000,000 | |||||||
June 24, 2008 | September 1, 2018 |
6.442% | 2,500,000 | |||||||
August 28, 2008 | September 1, 2018 |
6.442% | 1,000,000 | |||||||
August 28, 2008 | September 1, 2018 |
6.442% | 2,000,000 | |||||||
August 28, 2008 | September 1, 2018 |
6.442% | 1,000,000 | |||||||
October 24, 2008 | March 1, 2019 |
5.337% | 4,000,000 | |||||||
October 28, 2008 | March 1, 2019 |
5.337% | 4,000,000 | |||||||
October 31, 2008 | March 1, 2019 |
5.337% | 4,000,000 | |||||||
October 31, 2008 | March 1, 2019 |
5.337% | 4,000,000 | |||||||
November 4, 2008 | March 1, 2019 |
5.337% | 4,000,000 | |||||||
November 4, 2008 | March 1, 2019 |
5.337% | 2,000,000 | |||||||
$ | 115,110,000 | |||||||||
Interest payments are payable semi-annually. There are no principal payments required on these
issues prior to maturity. Debentures issued prior to September 2006 were subject to prepayment
penalties during their first five years. Those pre-payment penalties no longer apply to debentures
issued after September 1, 2006.
Under the Small Business Investment Act and current SBA policy applicable to SBICs, an SBIC
(or group of SBICs under common control) can have outstanding at any time SBA guaranteed debentures
up to twice the amount of its regulatory capital. As of March 31, 2009, the maximum statutory limit
on the dollar amount of outstanding SBA guaranteed debentures issued by a single SBIC is
$150.0 million (which amount is subject to an annual inflation adjustment). With $65.3 million of
regulatory capital as of March 31, 2009, the Fund has the current capacity to issue up to a total
of $130.6 million of SBA guaranteed debentures. In addition to the one-time 1.0% fee on the total
commitment from the SBA, the Company also pays a one-time 2.425% fee on the amount of each
debenture issued. These fees are capitalized as deferred financing costs and are amortized over the
term of the debt agreements using the effective interest method. The weighted average interest
rates for all SBA guaranteed debentures as of March 31, 2009 and December 31, 2008 were 6.03% and
5.81%, respectively. The weighted average interest rate as of December 31, 2008 includes $93.1
million of pooled SBA-guaranteed debentures with a weighted average fixed interest rate of 6.19%
and $22.0 million of unpooled SBA-guaranteed debentures with a weighted average interim interest
rate of 4.19%. As of March 31, 2009, all SBA-guaranteed debentures have been pooled and assigned
fixed rates.
5. EQUITY-BASED COMPENSATION
The Companys Board of Directors and stockholders have approved the Triangle Capital
Corporation Amended and Restated 2007 Equity Incentive Plan (the Plan), under which there are
900,000 shares of the Companys Common Stock authorized for issuance. The terms of equity-based
awards granted under the Plan generally will vest ratably over one- 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.
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On February 4, 2009, the Companys Board of Directors granted 133,000 restricted shares of our
common stock to certain employees. These restricted shares had a total grant date fair value of
approximately $1.4 million, which will be expensed on a straight-line basis over each respective
awards vesting period. In the three months ended March 31, 2009, the Company recognized
equity-based compensation expense of approximately $0.1 million. This expense is included in
general and administrative expenses in the Companys consolidated statements of operations. As of
March 31, 2009, the Company has a total of 243,800 restricted shares outstanding.
As of March 31, 2009, there was approximately $2.2 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 3.4 years.
6. FINANCIAL HIGHLIGHTS
The following is a schedule of financial highlights for the three months ended March 31, 2009
and 2008:
Three Months Ended March 31, | ||||||||
2009 | 2008 | |||||||
Per share data: |
||||||||
Net asset value at beginning of period |
$ | 13.22 | $ | 13.74 | ||||
Net investment income(1) |
0.43 | 0.28 | ||||||
Net unrealized appreciation (depreciation) on investments(1) |
(0.51 | ) | (0.15 | ) | ||||
Total increase (decrease) from investment operations(1) |
(0.08 | ) | 0.13 | |||||
Cash dividends/distributions declared |
(0.45 | ) | | |||||
Stock-based compensation |
0.02 | | ||||||
Income tax provision(1) |
| (0.02 | ) | |||||
Other(2) |
(0.25 | ) | | |||||
Net asset value at end of period |
$ | 12.46 | $ | 13.85 | ||||
Market value at end of period(3) |
$ | 7.68 | $ | 11.92 | ||||
Shares outstanding at end of period |
7,047,663 | 6,803,863 | ||||||
Net assets at end of period |
$ | 87,808,740 | $ | 94,237,744 | ||||
Average net assets |
$ | 91,158,655 | $ | 93,727,483 | ||||
Ratio of operating expenses to average net assets (annualized) |
15 | % | 8 | % | ||||
Ratio of net investment income to average net assets
(annualized) |
13 | % | 8 | % | ||||
Portfolio turnover ratio |
1 | % | 0 | % | ||||
Total Return(4) |
(20 | %) | (4 | %) |
(1) | Weighted average basic per share data. | |
(2) | Represents the impact of the different share amounts used in calculating per share data as a result of calculating certain per share data based upon the weighted average basic shares outstanding during the period and certain per share data based on the shares outstanding as of a period end or transaction date. | |
(3) | Represents the closing price of the Companys common stock on the last day of the period. | |
(4) | Total return equals the change in the ending market value of the Companys common stock during the period, plus dividends declared per share during the period, divided by the market value of the Companys common stock on the first day of the period. Total return is not annualized. |
7. SUBSEQUENT EVENT
On April 23, 2009, the Company filed a Prospectus Supplement whereby 1,200,000 shares of
common stock were offered for sale at a price of $10.75 per share. Pursuant to this offering, all
shares were sold and delivered on April 27, 2009 resulting in net proceeds to the Company, after
underwriting discounts and estimated offering expenses, of $11,855,000. Additionally, the
underwriters in this transaction were granted an option to purchase up to 180,000 additional shares
of common stock at the public offering price, less underwriting discounts and commissions. This
option will expire on May 22, 2009.
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion is designed to provide a better understanding of our unaudited
consolidated financial statements, including a brief discussion of our business, key factors that
impacted our performance and a summary of our operating results. The following discussion should
be read in conjunction with the Unaudited Financial Statements and the notes thereto included in
Item 1 of this Quarterly Report on Form 10-Q, and the Consolidated Financial Statements and notes
thereto and Managements Discussion and Analysis of Financial Condition and Results of Operations
contained in our Annual Report on Form 10-K for the year ended December 31, 2008. Historical
results and percentage relationships among any amounts in the financial statements are not
necessarily indicative of trends in operating results for any future periods.
Overview of Our Business
We are a Maryland corporation which has elected to be treated and operates as an internally
managed business development company, or BDC, under the Investment Company Act of 1940, or 1940
Act. Our wholly owned subsidiary, Triangle Mezzanine Fund LLLP (the Fund) is licensed as a small
business investment company, or SBIC, by the United States Small Business Administration, or SBA,
and has also elected to be treated as a BDC under the 1940 Act. We and the Fund invest primarily in
debt instruments, equity investments, warrants and other securities of lower middle market
privately held companies located in the United States.
Our business is to provide capital to lower middle market companies in the United States. We
define lower middle market companies as those with annual revenues between $10.0 and
$100.0 million. We focus on investments in companies with a history of generating revenues and
positive cash flows, an established market position and a proven management team with a strong
operating discipline. Our target portfolio company has annual revenues between $20.0 and
$75.0 million and annual earnings before interest, taxes, depreciation and amortization, or EBITDA,
between $2.0 and $20.0 million.
We invest primarily in senior and subordinated debt securities secured by first and second
lien security interests in portfolio company assets, coupled with equity interests. Our investments
generally range from $5.0 to $15.0 million per portfolio company. In certain situations, we have
partnered with other funds to provide larger financing commitments.
We generate revenues in the form of interest income, primarily from our investments in debt
securities, loan origination and other fees and dividend income. Fees generated in connection with
our debt investments are recognized over the life of the loan using the effective interest method
or, in some cases, recognized as earned. In addition, we generate revenue in the form of capital
gains, if any, on warrants or other equity-related securities that we acquire from our portfolio
companies. Our debt investments generally have a term of between three and seven years and
typically bear interest at fixed rates between 11.0% and 16.0% per annum. Certain of our debt
investments have a form of interest, referred to as paid-in-kind, or PIK, interest, that is not
paid currently but that is accrued and added to the loan balance and paid at the end of the term.
In our negotiations with potential portfolio companies, we generally seek to minimize PIK interest.
Cash interest on our debt investments is generally payable monthly; however, some of our debt
investments pay cash interest on a quarterly basis. As of March 31, 2009 and December 31, 2008,
the weighted average yield on all of our outstanding debt investments (including PIK interest) was
approximately 14.3% and 14.4%, respectively. The weighted average yield on all of our outstanding
investments (including equity and equity-linked investments) was approximately 13.1% and 13.2% as
of March 31, 2009 and December 31, 2008, respectively.
The Fund is eligible to sell debentures guaranteed by the SBA in the capital markets at
favorable interest rates and invest these funds in portfolio companies. We intend to continue to
operate the Fund as an SBIC, subject to SBA approval, and to utilize the proceeds of the sale of
the Funds SBA-guaranteed debentures, referred to herein as SBA leverage, to enhance returns to our
stockholders.
Portfolio Composition
The total value of our investment portfolio was $186.2 million as of March 31, 2009, as
compared to $182.1 million as of December 31, 2008. As of March 31, 2009, we had investments in 35
portfolio companies with an aggregate cost of $187.9 million. As of December 31, 2008, we had
investments in 34 portfolio companies with an aggregate cost of $180.2 million. As of both March
31, 2009 and December 31, 2008, none of our portfolio investments represented greater than 10% of
the total fair value of our investment portfolio.
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As of March 31, 2009 and December 31, 2008, our investment portfolio consisted of the
following investments:
Percentage of | Percentage of | |||||||||||||||
Cost | Total Portfolio | Fair Value | Total Portfolio | |||||||||||||
March 31, 2009: |
||||||||||||||||
Subordinated debt and 2nd lien notes |
$ | 154,337,340 | 82 | % | $ | 144,834,185 | 78 | % | ||||||||
Senior debt |
16,283,943 | 9 | 16,283,943 | 9 | ||||||||||||
Equity shares/membership interests |
13,925,489 | 8 | 18,137,583 | 10 | ||||||||||||
Equity warrants |
2,440,570 | 1 | 6,080,800 | 3 | ||||||||||||
Royalty rights |
874,400 | | 874,400 | | ||||||||||||
$ | 187,861,742 | 100 | % | $ | 186,210,911 | 100 | % | |||||||||
December 31, 2008: |
||||||||||||||||
Subordinated debt and 2nd lien notes |
$ | 147,493,871 | 82 | % | $ | 143,015,291 | 79 | % | ||||||||
Senior debt |
16,269,628 | 9 | 16,269,628 | 9 | ||||||||||||
Equity shares/membership interests |
13,684,269 | 8 | 17,301,372 | 9 | ||||||||||||
Equity warrants |
1,829,370 | 1 | 4,644,600 | 3 | ||||||||||||
Royalty rights |
874,400 | | 874,400 | | ||||||||||||
$ | 180,151,538 | 100 | % | $ | 182,105,291 | 100 | % | |||||||||
Investment Activity
During the quarter ended March 31, 2009, we made one new investment totaling $5.2 million and
five additional investments in existing portfolio companies totaling approximately $4.0 million.
We also received a full repayment from one portfolio company totaling approximately $2.0 million.
In addition, we received normal principal repayments totaling approximately $0.3 million in the
three months ended March 31, 2009. Total portfolio investment activity for the three months ended
March 31, 2009 was as follows:
Three Months | ||||
Ended | ||||
March 31, 2009 | ||||
Fair value of portfolio, January 1, 2009 |
$ | 182,105,291 | ||
New investments |
9,193,735 | |||
Loan origination fees received |
(175,000 | ) | ||
Principal repayments received |
(2,246,284 | ) | ||
Paid-in-kind interest earned |
1,075,326 | |||
Paid-in-kind interest received |
(427,105 | ) | ||
Accretion of loan discounts |
104,626 | |||
Accretion of deferred loan origination revenue |
184,906 | |||
Unrealized losses on investments |
(3,604,584 | ) | ||
Fair value of portfolio, March 31, 2009 |
$ | 186,210,911 | ||
Weighted average yield on debt investments as of March 31, 2009 |
14.3 | % | ||
Weighted average yield on total investments as of March 31, 2009 |
13.1 | % | ||
Non-Accrual Assets
As of March 31, 2009, the fair value of our non-accrual assets comprised 1.5% of the total
fair value of our portfolio, and the cost of our non-accrual assets comprised 3.1% of the total
cost of our portfolio. Our non-accrual assets as of March 31, 2009 are the following:
Gerli and Company
In the third quarter of 2008, we recognized an unrealized loss of $0.3 million on our
subordinated note investment in Gerli and Company (Gerli), which has a cost of approximately $3.1
million. This unrealized loss reduced the fair value of our investment in Gerli to $2.8 million as
of September 30, 2008. During the third quarter of 2008, we continued to receive interest payments
in accordance with our loan agreement. In November 2008, we placed our investment in Gerli on
non-accrual status. As a result, under generally accepted accounting principles (GAAP), we no
longer recognize interest income on our investment in Gerli. Additionally, in the fourth quarter
of 2008, we recognized an additional unrealized loss on our investment in Gerli of $0.9 million.
As of March 31, 2009, the fair value of our investment in Gerli is $1.9 million.
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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), which has a cost of approximately $2.4 million. 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 was $1.4 million.
During both the second and third quarters of 2008, we continued to receive interest and principal
payments in accordance with our loan agreement. In October 2008, we placed our investment in Fire
Sprinkler Systems on non-accrual status. As a result, under generally accepted accounting
principles (GAAP), we no longer recognize interest income on our investment in Fire Sprinkler
Systems. In the fourth quarter of 2008, we recognized an additional unrealized loss on our
investment in Fire Sprinkler Systems of $0.4 million and in the first quarter of 2009, we
recognized an additional unrealized loss on our investment in Fire Sprinkler Systems of $0.2
million. As of March 31, 2009, the fair value of our investment in Fire Sprinkler Systems is $0.8
million.
Results of Operations
Comparison of three months ended March 31, 2009 and March 31, 2008
Investment Income
For the three months ended March 31, 2009, total investment income was $6.5 million, a 68%
increase from $3.9 million of total investment income for the three months ended March 31, 2008.
This increase was primarily attributable to a $2.7 million increase in total loan interest, fee and
dividend income due to net increase in our portfolio investments from March 31, 2008 to March 31,
2009 offset by a $0.1 million decrease in interest income from cash and cash equivalent investments
due primarily to a decrease in overall interest rates.
Expenses
For the three months ended March 31, 2009, expenses increased by 78% to $3.5 million from
$2.0 million for the three months ended March 31, 2008. The increase in expenses was primarily
attributable to a $1.1 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 March 31, 2009 than
in the comparable period in 2008. In addition, we experienced an increase in general and
administrative costs in 2009, primarily related to compensation costs and facility costs. As of
March 31, 2009, we had 14 full-time employees, as compared to 12 full-time employees as of March
31, 2008.
Net Investment Income
As a result of the $2.6 million increase in total investment income and the $1.5 million
increase in expenses, net investment income for the three months ended March 31, 2009 was
$3.0 million compared to net investment income of $1.9 million during the three months ended March
31, 2008.
Net Increase/Decrease in Net Assets Resulting From Operations
During the three months ended March 31, 2009, we recorded net unrealized depreciation of
investments in the amount of $3.6 million, comprised of unrealized losses on eleven other
investments totaling $6.2 million and unrealized gains on eleven investments totaling $2.6 million.
In the three months ended March 31, 2008, we recorded net unrealized depreciation of investments
in the amount of $1.0 million, comprised of unrealized gains on seven investments totaling $0.7
million and unrealized losses on nine investments totaling $1.7 million.
As a result of these events, our net decrease in net assets from operations during the three
months ended March 31, 2009 was $0.6 million as compared a net increase in net assets from
operations of $0.8 million for the three months ended March 31, 2008.
Liquidity and Capital Resources
We believe that our current cash and cash equivalents on hand, our available SBA leverage and
our anticipated cash flows from operations will be adequate to meet our cash needs for our daily
operations for at least the next twelve months.
The Fund may be limited by the Small Business Investment Act of 1958, and SBA regulations
governing SBICs, from making certain distributions to Triangle Capital Corporation that may be
necessary to enable Triangle Capital Corporation to make the minimum required distributions to its
stockholders and qualify as a RIC.
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Cash Flows
For the three months ended March 31, 2009, we experienced a net decrease in cash and cash
equivalents in the amount of $9.8 million. During that period, our operating activities used
$6.6 million in cash, consisting primarily of purchases of investments totaling $9.2 million, net
of repayments received totaling $2.2 million. In the three months ended March 31, 2009, we used
$3.1 million of cash from financing activities, consisting of cash dividends and distributions to
stockholders. At March 31, 2009, we had $17.4 million of cash and cash equivalents on hand.
For the three months ended March 31, 2008, we experienced a net decrease in cash and cash
equivalents in the amount of $6.2 million. During that period, our operating activities used
$13.4 million in cash, consisting primarily of new portfolio investments of $14.1 million, and we
generated $7.2 million of cash from financing activities, consisting of proceeds from borrowings
under SBA guaranteed debentures payable of $10.0 million, partially offset by financing fees paid
to the SBA of $0.8 million and cash dividends paid of $2.0 million. At March 31, 2008, we had
$15.6 million of cash and cash equivalents on hand.
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 is currently $150.0 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 March 31, 2009, the Fund has the current
capacity to issue up to a total of $130.6 million of SBA guaranteed debentures. As of March 31,
2009, the Fund has $115.1 million of SBA guaranteed debentures outstanding. In addition to the
one-time 1.0% fee on the total commitment from the SBA, the Company also pays a one-time 2.425% fee
on the amount of each debenture issued. These fees are capitalized as deferred financing costs and
are amortized over the term of the debt agreements using the effective interest method. The
weighted average interest rate for all SBA guaranteed debentures as of March 31, 2009 was 6.03%.
Current Market Conditions
During 2008 and 2009, the debt and equity capital markets in the United States have been
severely impacted by significant write-offs in the financial services sector relating to subprime
mortgages and the re-pricing of credit risk in the broadly syndicated bank loan market, among other
things. These events, along with the deterioration of the housing market, have led to an economic
recession in the U.S and abroad, which could be long-term. Banks and others in the financial
services industry have continued to report significant write-downs in the fair value of their
assets, which has led to the failure of a number of banks and investment companies, a number of
distressed mergers and acquisitions, the government take-over of the nations two largest
government-sponsored mortgage companies, and the passage of the $700 billion Emergency Economic
Stabilization of 2008 in October 2008 and the American Recovery and Reinvestment Act of 2009 in
February 2009. These events have significantly impacted the financial and credit markets and have
reduced the availability of debt and equity capital for the market as a whole, and for financial
firms in particular. While we have capacity to issue additional SBA guaranteed debentures as
discussed above, we may not be able to access additional equity capital, which could result in the
slowing of our origination activity during 2009 and beyond.
In the event that the United States economy remains in a recession, it is possible that the
results of some of the middle market companies in which we invest could experience 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.
Recent Developments
On April 23, 2009, we filed a Prospectus Supplement whereby 1,200,000 shares of our common
stock were offered for sale at a price of $10.75 per share. Pursuant to this offering, all shares
were sold and delivered on April 27, 2009 resulting in net proceeds to us, after underwriting
discounts and estimated offering expenses, of $11,855,000. Additionally, the underwriters in this
transaction were granted an option to purchase up to 180,000 additional shares of our common stock
at the public offering price, less underwriting discounts and commissions. This option will expire
on May 22, 2009.
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Critical Accounting Policies and Use of Estimates
The preparation of our financial statements in accordance with accounting principles generally
accepted in the United States requires management to make certain estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses for the periods covered by such financial statements.
We have identified investment valuation and revenue recognition as our most critical accounting
estimates. On an on-going basis, we evaluate our estimates, including those related to the matters
described below. These estimates are based on the information that is currently available to us and
on various other assumptions that we believe to be reasonable under the circumstances. Actual
results could differ materially from those estimates under different assumptions or conditions. A
discussion of our critical accounting policies follows.
Investment Valuation
The most significant estimate inherent in the preparation of our financial statements is the
valuation of investments and the related amounts of unrealized appreciation and depreciation of
investments recorded. We have established and documented processes and methodologies for
determining the fair values of portfolio company investments on a recurring (quarterly) basis. As
discussed below, we have engaged an independent valuation firm to assist us in our valuation
process.
On January 1, 2008, we adopted Statement of Financial Accounting Standards No. 157, Fair Value
Measurements, which defines fair value, establishes a framework for measuring fair value in
accordance with generally accepted accounting principles and expands disclosures about fair value
measurements.
SFAS 157 clarifies that the exchange price is the price in an orderly transaction between
market participants to sell an asset or transfer a liability in the market in which the reporting
entity would transact for the asset or liability, that is, the principal or most advantageous
market for the asset or liability. The transaction to sell the asset or transfer the liability is a
hypothetical transaction at the measurement date, considered from the perspective of a market
participant that holds the asset or owes the liability. SFAS 157 provides a consistent definition
of fair value which focuses on exit price and prioritizes, within a measurement of fair value, the
use of market-based inputs over entity-specific inputs. In addition, SFAS 157 provides a framework
for measuring fair value and establishes a three-level hierarchy for fair value measurements based
upon the transparency of inputs to the valuation of an asset or liability as of the measurement
date. The three levels of valuation hierarchy established by SFAS 157 are defined as follows:
Level 1 - | inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. | |||
Level 2 - | inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. | |||
Level 3 - | inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
A financial instruments categorization within the valuation hierarchy is based upon the
lowest level of input that is significant to the fair value measurement. We invest primarily in
debt and equity of privately held companies for which quoted prices falling within the categories
of Level 1 and Level 2 inputs are not available. Therefore, we value all of our investments at fair
value, as determined in good faith by our Board of Directors, using Level 3 inputs, as further
described below. Due to the inherent uncertainty in the valuation process, our Board of Directors
estimate of fair value may differ significantly from the values that would have been used had a
ready market for the securities existed, and the differences could be material. In addition,
changes in the market environment and other events that may occur over the life of the investments
may cause the gains or losses ultimately realized on these investments to be different than the
valuations currently assigned.
Debt and equity securities that are not publicly traded and for which a limited market does
not exist are valued at fair value as determined in good faith by our Board of Directors. There is
no single standard for determining fair value in good faith, as fair value depends upon
circumstances of each individual case. In general, fair value is the amount that we might
reasonably expect to receive upon the current sale of the security.
We evaluate the investments in portfolio companies using the most recently available portfolio
company financial statements and forecasts. We also consult with the portfolio companys senior
management to obtain further updates on the portfolio companys performance, including information
such as industry trends, new product development and other operational issues. Additionally, we
consider some or all of the following factors:
| financial standing of the issuer of the security; | ||
| comparison of the business and financial plan of the issuer with actual results; | ||
| the size of the security held as it relates to the liquidity of the market for such security; |
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| pending public offering of common stock by the issuer of the security; | ||
| pending reorganization activity affecting the issuer, such as merger or debt restructuring; | ||
| ability of the issuer to obtain needed financing; | ||
| changes in the economy affecting the issuer; | ||
| financial statements and reports from portfolio company senior management and ownership; | ||
| the type of security, the securitys cost at the date of purchase and any contractual restrictions on the disposition of the security; | ||
| discount from market value of unrestricted securities of the same class at the time of purchase; | ||
| special reports prepared by analysts; | ||
| information as to any transactions or offers with respect to the security and/or sales to third parties of similar securities; | ||
| the issuers ability to make payments and the type of collateral; | ||
| the current and forecasted earnings of the issuer; | ||
| statistical ratios compared to lending standards and to other similar securities; and | ||
| other pertinent factors. |
In making the good faith determination of the value of debt securities, we start with the cost
basis of the security, which includes the amortized original issue discount, and paid-in-kind (PIK)
interest, if any. We also use a risk rating system to estimate the probability of default on the
debt securities and the probability of loss if there is a default. The risk rating system covers
both qualitative and quantitative aspects of the business and the securities held. In valuing debt
securities, we utilize an income approach model that considers factors including, but not limited
to, (i) the portfolio investments current risk rating (discussed below), (ii) the portfolio
companys current trailing twelve months (TTM) results of operations as compared to the
portfolio companys TTM results of operations as of the date the investment was made, (iii) the
portfolio companys current leverage as compared to its leverage as of the date the investment was
made, and (iv) current pricing and credit metrics for similar proposed and executed investment
transactions. In valuing equity securities of private companies, we consider valuation
methodologies consistent with industry practice, including (i) valuation using a valuation model
based on original transaction multiples and the portfolio companys recent financial performance,
(ii) valuation of the securities based on recent sales in comparable transactions, and (iii) a
review of similar companies that are publicly traded and the market multiple of their equity
securities.
Unrealized appreciation or depreciation on portfolio investments are recorded as increases or
decreases in investments on the balance sheets and are separately reflected on the statements of
operations in determining net increase or decrease in net assets resulting from operations.
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, 2009, we asked Duff & Phelps to perform the procedures on
investments in seven portfolio companies comprising approximately 26% of the total investments at
fair value (exclusive of the fair value of new investments made during the quarter) as of March 31,
2009. Upon completion of the procedures, Duff & Phelps concluded that the fair value, as
determined by the Board of Directors, of those investments subjected to the procedures did not
appear to be unreasonable. Our Board of Directors is ultimately and solely responsible for
determining the fair value of our investments in good faith.
Revenue Recognition
Interest and Dividend Income
Interest income, adjusted for amortization of premium and accretion of original issue
discount, is recorded on the accrual basis to the extent that such amounts are expected to be
collected. Generally, when interest and/or principal payments on a loan become past due, or if we
otherwise do not expect the borrower to be able to service its debt and other obligations, we will
place the loan on non-accrual status and will generally cease recognizing interest income on that
loan until all principal and interest have been brought current through payment or due to a
restructuring such that the interest income is deemed to be collectible. We write off any
previously accrued and uncollected interest when it is determined that interest is no longer
considered collectible. Dividend income is recorded on the ex-dividend date.
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Fee Income
Loan origination, facility, commitment, consent and other advance fees received by us on loan
agreements or other investments are recorded as deferred income and recognized as income over the
term of the loan.
Paid-in-Kind Interest (PIK)
We currently hold, and we expect to hold in the future, some loans in our portfolio that
contain a PIK interest provision. The PIK interest, computed at the contractual rate specified in
each loan agreement, is added to the principal balance of the loan, rather than being paid to us in
cash, and 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. Generally, when current cash interest and/or principal payments on a loan
become past due, or if we otherwise do not expect the borrower to be able to service its debt and
other obligations, we will place the loan on non-accrual status and will generally cease
recognizing PIK interest income on that loan until all principal and interest has been brought
current through payment or due to a restructuring such that the interest income is deemed to be
collectible. We write off any accrued and uncollected PIK interest when it is determined that the
PIK interest is no longer collectible.
Recently Issued Accounting Standards
On January 1, 2009, we adopted FASB Staff Position EITF 03-06-1, Determining Whether
Instruments Granted in Share-based Payment Transactions are Participating Securities (FSP EITF
03-06-1), which requires companies to include unvested share-based payment awards that contain
non-forfeitable rights to dividends in the computation of earnings per share pursuant to the
two-class method. In effect, FSP EITF 03-06-1 requires companies to report earnings per share in
two broad categories. First, companies must report earnings per share associated with the unvested
share-based payments with non-forfeitable rights. Second, companies must report separately
earnings per share for their remaining common stock. As required, we applied this standard
retroactively to all reported periods. Our adoption of this standard did not have a material
impact on our financial position or results of operations.
Off-Balance Sheet Arrangements
We currently have no off-balance sheet arrangements.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
This Quarterly Report contains forward-looking statements which are subject to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Statements that are not
historical are forward-looking statements within the meaning of Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Exchange Act of 1934. Some of the statements in this
Quarterly Report constitute forward-looking statements because they relate to future events or our
future performance or financial condition. Forward-looking statements may include, among other
things, statements as to our future operating results, our business prospects and the prospects of
our portfolio companies, the impact of the investments that we expect to make, the ability of our
portfolio companies to achieve their objectives, our expected financings and investments, the
adequacy of our cash resources and working capital, and the timing of cash flows, if any, from the
operations of our portfolio companies. Words such as expect, anticipate, target, goals,
project, intend, plan, believe, seek, estimate, continue, forecast, may,
should, potential, variations of such words, and similar expressions indicate a forward-looking
statement, although not all forward-looking statements include these words. Readers are cautioned
that the forward-looking statements contained in this Quarterly Report are only predictions, are
not guarantees of future performance, and are subject to risks, events, uncertainties and
assumptions that are difficult to predict. Our actual results could differ materially from those
implied or expressed in the forward-looking statements for any reason, including the factors
discussed in Item 1A entitled Risk Factors in Part I of our 2008 Annual Report on Form 10-K.
Other factors that could cause actual results to differ materially include changes in the economy,
risks associated with possible disruption due to terrorism in our operations or the economy
generally, and future changes in laws or regulations and conditions in our operating areas. These
statements are based on our current expectations, estimates, forecasts, information and projections
about the industry in which we operate and the beliefs and assumptions of our management as of the
date of this Quarterly Report. We assume no obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise, unless we are
required to do so by law. Although we undertake no obligation to revise or update any
forward-looking statements, whether as a result of new information, future events or otherwise, you
are advised to consult any additional disclosures that we may make directly to you or through
reports that we in the future may file with the SEC, including annual reports on Form 10-K,
quarterly reports on Form 10-Q and current reports on Form 8-K.
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
March 31, 2009, we were not a party to any hedging arrangements.
As of March 31, 2009, approximately 87.3%, or $140.6 million of our debt portfolio investments
bore interest at fixed rates and
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approximately 12.7%, or $20.5 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-guaranteed debentures bear interest at fixed rates.
Because we currently borrow, and plan to borrow in the future, money to make investments, our
net investment income is dependent upon the difference between the rate at which we borrow funds
and the rate at which we invest the funds borrowed. Accordingly, there can be no assurance that a
significant change in market interest rates will not have a material adverse effect on our net
investment income. In periods of rising interest rates, our cost of funds would increase, which
could reduce our net investment income if there is not a corresponding increase in interest income
generated by 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 first
quarter of 2009 that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
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PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
Neither Triangle Capital Corporation nor any of its subsidiaries is a party to any material
pending legal proceedings.
Item 1A. Risk Factors.
Recent developments may increase the risks associated with our business and an investment in
us.
The U.S. economy and financial markets have been experiencing a high level of volatility,
disruption and stress, which was exacerbated by the failure of several major financial institutions
in the last few months of 2008. In addition, the U.S. economy has entered a recession, which is
likely to be severe and prolonged. Similar conditions have occurred in the financial markets and
economies of numerous other countries and could worsen, both in the U.S. and globally. These
conditions have raised the level of many of the risks described in the accompanying prospectus and
could have an adverse effect on our portfolio companies and on their results of operations,
financial conditions, access to credit and capital. The stress in the credit market and upon banks
has led other creditors to tighten credit and the terms of credit. In certain cases, senior lenders
to our customers can block payments by our customers in respect of our loans to such customers. In
turn, these could have adverse effects on our business, financial condition, results of operations,
dividend payments, access to capital, valuation of our assets and our stock price.
We are dependent upon our key investment personnel for our future success.
We depend on the members of our senior management team, particularly executive officers
Garland S. Tucker, III, Brent P.W. Burgess and Steven C. Lilly, for the identification, final
selection, structuring, closing and monitoring of our investments. These executive officers have
critical industry experience and relationships that we rely on to implement our business plan. If
we lose the services of these individuals, we may not be able to operate our business as we expect,
and our ability to compete could be harmed, which could cause our operating results to suffer.
Effective February 21, 2009, Messrs. Tucker, Burgess and Lilly are no longer employed by us
pursuant to an employment agreement. Rather, each is currently employed by us on an at-will basis.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer Purchases of Equity Securities
During the three months ended March 31, 2009, in connection with our Dividend Reinvestment
Plan for our common stockholders, we directed the plan administrator to purchase 12,288 shares of
our common stock for $110,013.63 in the open market in order to satisfy our obligations to deliver
shares of common stock to our stockholders with respect to our capital gains distribution declared
on February 13, 2009. The following chart summarizes repurchases of our common stock for the three
months ended March 31, 2009.
Total Number of Shares | Maximum Number (or | |||||||||||||||
Total | Average | Purchased as Part of | Approximate Dollar Value) of | |||||||||||||
Number of | Price Paid | Publicly Announced Plans or | Shares that May Yet Be Purchased | |||||||||||||
Period | Shares(1) | per Share | Programs | Under the Plans or Programs | ||||||||||||
January 1-31, 2009 |
| | | | ||||||||||||
February 1-28, 2009 |
| | | | ||||||||||||
March 1-31, 2009 |
12,288 | $ | 8.9525 | | | |||||||||||
Total |
12,288 | $ | 8.9525 | | |
(1) | All shares purchased in the open market pursuant to the terms of our Dividend Reinvestment Plan. |
Item 3. Defaults Upon Senior Securities.
Not applicable.
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Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits.
Number | Exhibit | |||
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 7, 2007 and
incorporated herein by reference). |
|||
3.4 | Second Amended and Restated Bylaws of the Registrant (Filed as
Exhibit 3.4 to the Registrants Annual Report of Form 10-K filed
with the Securities and Exchange Commission on February 25, 2009
and incorporated herein by reference). |
|||
4.1 | Form of Common Stock Certificate (Filed as Exhibit (d) to the
Registrants Amendment No. 1 to the Registration Statement on Form
8-A (File No. 001-33130) filed with the Securities and Exchange
Commission on February 14, 2007 and incorporated herein by
reference). |
|||
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). |
|||
4.3 | Agreement to Furnish Certain Instruments (Filed as Exhibit 4.19 to
the Registrants Annual Report on Form 10-K filed with the
Securities and Exchange Commission on February 25, 2009 and
incorporated herein by reference). |
|||
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. |
31
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
TRIANGLE CAPITAL CORPORATION | ||||
Date: May 6, 2009
|
/s/ Garland S. Tucker, III | |||
Garland S. Tucker, III | ||||
President, Chief Executive Officer and | ||||
Chairman of the Board of Directors | ||||
Date: May 6, 2009
|
/s/ Steven C. Lilly | |||
Steven C. Lilly | ||||
Chief Financial Officer and Director | ||||
Date: May 6, 2009
|
/s/ C. Robert Knox, Jr. | |||
C. Robert Knox, Jr. | ||||
Principal Accounting Officer |
32
Table of Contents
EXHIBIT INDEX
Number | Exhibit | |||
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 7, 2007 and
incorporated herein by reference). |
|||
3.4 | Second Amended and Restated Bylaws of the Registrant (Filed as
Exhibit 3.4 to the Registrants Annual Report of Form 10-K filed
with the Securities and Exchange Commission on February 25, 2009
and incorporated herein by reference). |
|||
4.1 | Form of Common Stock Certificate (Filed as Exhibit (d) to the
Registrants Amendment No. 1 to the Registration Statement on Form
8-A (File No. 001-33130) filed with the Securities and Exchange
Commission on February 14, 2007 and incorporated herein by
reference). |
|||
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). |
|||
4.3 | Agreement to Furnish Certain Instruments (Filed as Exhibit 4.19 to
the Registrants Annual Report on Form 10-K filed with the
Securities and Exchange Commission on February 25, 2009 and
incorporated herein by reference). |
|||
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. |