As filed with the Securities and Exchange Commission on October 15, 2021

Securities Act Registration No. 333-258913

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM N-2

 

☒

Registration Statement under the Securities Act of 1933

 

☒

Pre-Effective Amendment No. 1

 

☐

Post-Effective Amendment No.

 

 

PHENIXFIN CORPORATION

(Exact Name of Registrant as Specified in Declaration of Trust)

 

 

445 Park Avenue, 10^th Floor, New York NY 10022

(Address of Principal Executive Offices)

 

(212) 859-0390
(Registrant’s Telephone Number, Including Area Code)

 

Ellida McMillan
PhenixFIN Corporation
445 Park Avenue, 10^th Floor
New York, NY 10022
(Name and Address of Agent for Service)

 

 

Copies to:

 

George Silfen
Kramer Levin Naftalis & Frankel LLP
1177 Avenue of the Americas
New York, New York 10036
Telephone: (212) 715-9522

 

Approximate Date of Commencement of Proposed Public Offering:
As soon as practicable after the effective date of this Registration Statement.

 

If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, check the following box   ☐

 

If any securities being registered on this Form will be offered on a delayed or continuous basis in reliance on Rule 415 under the Securities Act of 1933 (“Securities Act”), other than securities offered in connection with a dividend reinvestment plan, check the following box.   ☒

 

If this Form is a registration statement pursuant to General Instruction A.2 or a post-effective amendment thereto, check the following box   ☒

 

If this Form is a registration statement pursuant to General Instruction B or a post-effective amendment thereto that will become effective upon filing with the Commission pursuant to Rule 462(e) under the Securities Act, check the following box   ☐

 

If this Form is a post-effective amendment to a registration statement filed pursuant to General Instruction B to register additional securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act, check the following box    ☐

 

It is proposed that this filing will become effective (check appropriate box):

 

☒

when declared effective pursuant to section 8(c) of the Securities Act

 

 

Check each box that appropriately characterizes the Registrant:

 

☐

Registered Closed-End Fund (closed-end company that is registered under the Investment Company Act of 1940 (the “Investment Company Act”)).

 

☒

Business Development Company (closed-end company that intends or has elected to be regulated as a business development company under the Investment Company Act).

 

☐

Interval Fund (Registered Closed-End Fund or a Business Development Company that makes periodic repurchase offers under Rule 23c-3 under the Investment Company Act).

 

☒

A.2 Qualified (qualified to register securities pursuant to General Instruction A.2 of this Form).

 

☐

Well-Known Seasoned Issuer (as defined by Rule 405 under the Securities Act).

 

☐

Emerging Growth Company (as defined by Rule 12b-2 under the Securities and Exchange Act of 1934).

 

☐

If an Emerging Growth Company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.

 

☐

New Registrant (registered or regulated under the Investment Company Act for less than 12 calendar months preceding this filing).

 

CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933

 

Title of Securities Being Registered

Amount Being Registered

Proposed Maximum Offering Price per Unit

Proposed Maximum Aggregate Offering Price(1)

Amount of Registration Fee(1)

Common Stock, $0.001 par value per share(2)(3)

Preferred Stock, $0.001 par value per share(2)

Subscription Rights(2)

Warrants(4)

Debt Securities(5)

Total

$

200,000,000

(6)

$

21,820.00

(7)

 

(1)

Estimated pursuant to Rule 457(o) under the Securities Act solely for purposes of calculating the registration fee. The proposed maximum offering price per security will be determined, from time to time, by the Registrant in connection with the sale by the Registrant of the securities registered under this registration statement.

 

(2)

Subject to Note 6 below, there is being registered hereunder an indeterminate number of shares of common stock, preferred stock, or subscription rights to purchase our common stock as may be sold, from time to time.

 

(3)

Includes such indeterminate number of shares of common stock as may, from time to time, be issued upon conversion or exchange of other securities registered hereunder, to the extent any such securities are, by their terms, convertible or exchangeable for common stock.

 

(4)

Subject to Note 6 below, there is being registered hereunder an indeterminate number of warrants as may be sold, from time to time, representing rights to purchase our common stock, preferred stock or debt securities.

 

(5)

Subject to Note 6 below, there is being registered hereunder an indeterminate principal amount of debt securities as may be sold, from time to time. If any debt securities are issued at an original issue discount, then the offering price shall be in such greater principal amount as shall result in an aggregate price to investors not to exceed $200,000,000.

 

(6)

In no event will the aggregate offering price of all securities issued from time to time pursuant to this registration statement exceed $200,000,000.

 

(7)

Previously paid.

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer and sale is not permitted.

 

PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION DATED OCTOBER 15, 2021

 

PHENIXFIN CORPORATION

 

 

$200,000,000
Common Stock
Preferred Stock
Warrants
Subscription Rights
Debt Securities

 

PhenixFIN Corporation (f/k/a Medley Capital Corporation) (“PhenixFIN”, the “Company,” “we” and “us”) is a non-diversified closed-end management investment company incorporated in Delaware that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). We completed our initial public offering (“IPO”) and commenced operations on January 20, 2011. The Company’s investment objective is to generate current income and capital appreciation. The management team seeks to achieve this objective primarily through making loans, private equity or other investments in privately-held companies. The Company may also make debt, equity or other investments in publicly-traded companies. (These investments may also include investments in other BDCs, closed-end funds or real estate investment trusts (“REITs”).) We may also pursue other strategic opportunities and invest in other assets or operate other businesses to achieve our investment objective. The portfolio generally consists of senior secured first lien term loans, senior secured second lien term loans, senior secured bonds, preferred equity and common equity. Occasionally, we will receive warrants or other equity participation features which we believe will have the potential to increase total investment returns. Our loan and other debt investments are primarily rated below investment grade or are unrated. Investments in below investment grade securities are considered predominantly speculative with respect to the issuer’s capacity to pay interest and repay principal when due.

 

On November 18, 2020, the board of directors of the Company approved the adoption of an internalized management structure, effective January 1, 2021. Since that date, the Company has been managed pursuant to an internalized management structure. Until close of business on December 31, 2020 we were externally managed and advised by MCC Advisors LLC, pursuant to an investment management agreement. MCC Advisors is a wholly owned subsidiary of Medley LLC, which is controlled by Medley Management Inc. (NYSE: MDLY), a publicly traded asset management firm, which in turn is controlled by Medley Group LLC, an entity wholly owned by the senior professionals of Medley LLC.

 

We may offer, from time to time, in one or more offerings, together or separately, up to $200,000,000 of our common stock, preferred stock, warrants representing rights to purchase shares of our common stock, preferred stock or debt securities, debt securities or subscription rights representing rights to purchase shares of our common stock, which we refer to, collectively, as the “securities.” The securities may be offered at prices and on terms to be described in one or more supplements to this prospectus.

 

Our common stock is traded on the NASDAQ Global Market under the symbol “PFX”. The last reported closing price for our common stock on October 4, 2021 was $42.90 per share. The net asset value (“NAV”) of our common stock as of June 30, 2021 (the last date prior to the date of this prospectus as of which we determined NAV) was $58.49 per share. Our 6.125% unsecured notes that mature on March 30, 2023 (the “2023 Notes”) are traded on the NASDAQ Global Market under the trading symbol “PFXNL.” The last reported closing price for our 2023 Notes on October 4, 2021 was $25.41 per unit. The average market value per unit for the quarter ended June 30, 2021 was $25.32 per unit.

 

 

This prospectus and any accompanying prospectus supplement contain important information you should know before investing in our securities. We will provide the specific terms of these offerings and securities in one or more supplements to this prospectus. We may also authorize one or more free writing prospectuses to be provided to you in connection with these offerings. The prospectus supplement and any related free writing prospectus may also add, update, or change information contained in this prospectus. You should carefully read and retain for future reference this prospectus, the applicable prospectus supplement, and any related free writing prospectus, and the documents incorporated by reference, before buying any of the securities being offered. We file annual, quarterly and current reports, proxy statements and other information about us with the Securities and Exchange Commission (the “SEC”), which we incorporate by reference herein. See “Incorporation by Reference.” This information will be available by written or oral request and free of charge by contacting us at PhenixFIN Corporation, 445 Park Avenue, 10^th Floor, New York NY 10022, Attention: Investor Relations, on our website at http://www.phenixfc.com, or by calling us at (212) 859-0390. Information contained on our website is not incorporated by reference into this prospectus, and you should not consider that information to be a part of this prospectus. The SEC also maintains a website at http://www.sec.gov that contains this information.

 

Shares of closed-end investment companies that are listed on an exchange, including BDCs, frequently trade at a discount to their NAV per share. If our shares trade at a discount to our NAV (as our common stock currently does), it may increase the risk of loss for purchasers in this offering. Before buying any securities, you should read the discussion of the material risks of investing in our securities in “Risk Factors” beginning on page 10 of this prospectus.

 

Neither the SEC nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

You should rely only on the information contained in this prospectus and any accompanying prospectus supplement. We have not authorized any dealer, salesman or other person to give any information or to make any representation other than those contained in this prospectus or any prospectus supplement to this prospectus. You must not rely upon any information or representation not contained in this prospectus or any such supplements as if we had authorized it. This prospectus and any such supplements do not constitute an offer to sell or a solicitation of any offer to buy any security other than the registered securities to which they relate, nor do they constitute an offer to sell or a solicitation of an offer to buy any securities in any jurisdiction to any person to whom it is unlawful to make such an offer or solicitation in such jurisdiction. The information contained in this prospectus and any such supplements is accurate as of the dates on their covers. Our business, financial condition, results of operations and prospects may have changed since then.

 

The references in this prospectus to the SEC’s website are not intended to and do not include or incorporate by reference into this prospectus the information on that website. Similarly, references to our website are not intended to and do not include or incorporate by reference into this prospectus the information on that website.

 

The date of this prospectus is October 15, 2021.

 

 

TABLE OF CONTENTS

 

	Page
PROSPECTUS SUMMARY	1
FEES AND EXPENSES	8
RISK FACTORS	10
FORWARD-LOOKING STATEMENTS	11
USE OF PROCEEDS	13
DISTRIBUTIONS	14
PRICE RANGE OF COMMON STOCK	15
SALES OF COMMON STOCK BELOW NET ASSET VALUE	16
PLAN OF DISTRIBUTION	20
SELECTED FINANCIAL AND OTHER INFORMATION	22
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	23
SENIOR SECURITIES	24
BUSINESS	26
REGULATION	27
MANAGEMENT	28
RELATED PARTY TRANSACTIONS AND CERTAIN RELATIONSHIPS	30
CONTROL PERSONS AND PRINCIPAL STOCKHOLDERS	31
PORTFOLIO COMPANIES	32
DETERMINATION OF NET ASSET VALUE	41
DESCRIPTION OF CAPITAL STOCK	43
DESCRIPTION OF WARRANTS	47
DESCRIPTION OF DEBT SECURITIES	48
DESCRIPTION OF SUBSCRIPTION RIGHTS	61
DIVIDEND REINVESTMENT PLAN	62
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS	63
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT	72
PORTFOLIO TRANSACTIONS AND BROKERAGE	73
LEGAL MATTERS	74
EXPERTS	75
ADDITIONAL INFORMATION	76
INCORPORATION BY REFERENCE	77

 

 

ABOUT THIS PROSPECTUS

 

This prospectus is part of a registration statement that we have filed with the SEC using the “shelf” registration process. Under the shelf registration process, which constitutes a delayed offering in reliance on Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”), we may offer, from time to time, up to $200,000,000 of our common stock, preferred stock, warrants representing rights to purchase shares of our common stock, preferred stock or debt securities, debt securities or subscription rights representing rights to purchase shares of our common stock on the terms to be determined at the time of the offering. The securities may be offered at prices and on terms described in one or more supplements to this prospectus. We may sell our securities through underwriters or dealers, “at-the-market” to or through a market maker, into an existing trading market or otherwise directly to one or more purchasers or through agents or through a combination of methods of sale. The identities of such underwriters, dealers, market makers or agents, as the case may be, will be described in one or more supplements to this prospectus. This prospectus provides you with a general description of the securities that we may offer. Each time we use this prospectus to offer securities, we will provide a prospectus supplement that will contain specific information about the terms of that offering.

 

We may also authorize one or more free writing prospectuses to be provided to you that may contain material information relating to the offerings. In a prospectus supplement or free writing prospectus, we may also add, update, or change any of the information contained in this prospectus or in the documents we incorporate by reference into this prospectus. This prospectus, together with the applicable prospectus supplement, any related free writing prospectus, and the documents incorporated by reference into this prospectus and the applicable prospectus supplement, will include all material information relating to the applicable offering. Before buying any of the securities being offered, you should carefully read both this prospectus and the applicable prospectus supplement and any related free writing prospectus, together with any exhibits and the additional information described in the sections titled “additional information,” “incorporation by reference,” “prospectus summary” and “risk factors” before making an investment decision.

 

This prospectus includes summaries of certain provisions contained in some of the documents described in this prospectus, but reference is made to the actual documents for complete information. All of the summaries are qualified in their entirety by the actual documents. Copies of some of the documents referred to herein have been filed, will be filed, or will be incorporated by reference as exhibits to the registration statement of which this prospectus is a part, and you may obtain copies of those documents as described in the section titled “Additional Information.”

 

 

RISK FACTORS

 

Investing in our securities involves certain risks. There can be no assurance that our investment objectives will be achieved or that an investor will receive a return of its capital. Because we use borrowed funds to make investments or fund our business operations, we are exposed to risks typically associated with leverage which increase the risk of investing in us. In addition to the risk factors discussed in our most recent annual report on Form 10-K and our most recent quarterly report on Form 10-Q, we may invest in, or obtain exposure to obligations that may be “covenant-lite,” which means such obligations lack certain financial maintenance covenants and may carry more risk than a covenant-heavy loan made by the same borrower. We may also invest in unitranche debt instruments that combine both senior and subordinated debt into one debt instrument which typically pays a higher rate of interest but is subject to greater risk associated with a lesser amount of asset coverage. You should carefully consider the risks and uncertainties in the section titled “Risk Factors” in the applicable prospectus supplement and any related free writing prospectus, and the risk factors discussed in our most recent annual report on Form 10-K, our most recent quarterly report filed on Form 10-Q, our current reports filed on Form 8-K, as applicable, as well as any amendments related to the foregoing reflected in subsequent filings with the SEC, all incorporated by reference herein, together with all of the other information contained or incorporated by reference into this prospectus, including our consolidated financial statements and the related notes thereto, before you decide whether to make an investment in our securities. If any of these risks occur, our business, financial condition and results of operations could be materially adversely affected. In such case, our NAV and the price per share of our common stock could decline or the value of our preferred stock, warrants, subscription rights, debt securities or units may decline, and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or not presently deemed material by us may also impair our operations and performance.

 

 

FORWARD-LOOKING STATEMENTS

 

This prospectus, including the documents we incorporate by reference herein, contains, and any applicable prospectus supplement or free writing prospectus, including the documents we incorporate by reference therein, contain forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by the use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “project,” “estimate,” “intend,” “continue” or “believe” or the negatives thereof or other variations thereon or comparable terminology. You should read statements that contain these words carefully because they discuss our plans, strategies, prospects and expectations concerning our business, operating results, financial condition and other similar matters. We believe that it is important to communicate our future expectations to our investors. Our forward-looking statements include information in this prospectus, and any applicable prospectus supplement or free writing prospectus, regarding general domestic and global economic conditions, our future financing plans, our ability to operate as a BDC and the expected performance of, and the yield on, our portfolio companies. In particular, there are forward-looking statements under “Prospectus Summary — PhenixFIN Corporation,” “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” There may be events in the future, however, that we are not able to predict accurately or control. The factors listed under “Risk Factors,” as well as any cautionary language in this prospectus, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Before you invest in our securities, you should be aware that the occurrence of the events described in these risk factors and elsewhere in this prospectus could have a material adverse effect on our business, results of operation and financial position.

 

The following factors are among those that may cause actual results to differ materially from our forward-looking statements:

 

●

our future operating results;

 

●

our business prospects and the prospects of our portfolio companies including as to the impact of COVID-19 on our portfolio companies;

 

●

changes in political, economic or industry conditions, the interest rate environment or conditions affecting the financial and capital markets, including changes from the impact of the COVID-19 pandemic;

 

●

our ability to locate suitable investments for us and to monitor and administer our investments;

 

●

our ability to attract and retain highly talented professionals;

 

●

risk associated with possible disruptions in our operations or the economy generally;

 

●

the timing of cash flows, if any, from the operations of our portfolio companies;

 

●

the ability of our portfolio companies to achieve their objectives, including as a result of the COVID-19 pandemic;

 

●

changes in laws, policies or regulations (including the interpretation thereof) affecting our operations or the operations of our portfolio companies;

 

●

the valuation of our investments in portfolio companies, particularly those having no liquid trading market;

 

●

our ability to recover unrealized losses;

 

●

market conditions and our ability to access alternative debt markets and additional debt and equity capital;

 

●

competition with other entities for investment opportunities;

 

 

●

the dependence of our future success on the general economy and its effect on the industries in which we invest;

 

●

our ability to maintain our qualification as a BDC and as a RIC;

 

●

the use of borrowed money to finance a portion of our investments and how much money we may borrow;

 

●

the adequacy of our financing sources and working capital;

 

●

the speculative and illiquid nature of our investments;

 

●

our ability to make distributions;

 

●

general price and volume fluctuations in the stock market;

 

●

the costs associated with being a publicly traded company;

 

●

the impact of future acquisitions and divestitures;

 

●

our contractual arrangements and relationships with third parties; and

 

●

the risks, uncertainties and other factors we identify under “Risk Factors” and elsewhere in this prospectus.

 

Any forward-looking statement made by us in this prospectus speaks only as of the date on which we make it. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. You are advised to consult any additional disclosures that we may make directly to you or through reports that we have filed or in the future may file with the SEC, including our annual reports on Form 10-K, registration statements on Form N-2, quarterly reports on Form 10-Q, current reports on Form 8-K and definitive proxy statements on Schedule 14A. Under Sections 27A(b)(2)(B) of the Securities Act and Section 21E(b)(2)(B) of the Exchange Act, the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 do not apply to statements made in connection with any offering of securities pursuant to this prospectus or in the periodic reports we file under the Exchange Act.

 

 

USE OF PROCEEDS

 

Unless otherwise specified in a prospectus supplement or a free writing prospectus we have authorized for use in connection with a specific offering, we intend to use the net proceeds from the sale of our securities pursuant to this prospectus for general corporate or strategic purposes, such as repaying outstanding indebtedness and making investments in portfolio companies, in accordance with our investment objective and strategies.

 

We anticipate that we will use substantially all of the net proceeds of an offering of securities for the above purposes within approximately six months after the completion of this offering, though this may depend on the availability of appropriate investment opportunities consistent with our investment objective and market conditions.

 

The supplement to this prospectus relating to an offering will more fully identify the use of the proceeds from such offering.

 

 

DISTRIBUTIONS

 

We have elected to be treated, and intend to operate in a manner so as to qualify annually, as a RIC under Subchapter M of the Code. To maintain our RIC tax status, we must, among other requirements, distribute the sum of our (i) investment company taxable income (which is generally our net ordinary income plus the excess of realized net short-term capital gains over realized net long-term capital losses) determined without regard to the deduction for dividends paid and (ii) net tax exempt interest income (which is the excess of our gross tax exempt interest income over certain disallowed deductions). If we qualify as a RIC, we (but not our stockholders) generally will not be subject to U.S. federal income tax on investment company taxable income and net capital gains that we distribute to our stockholders. We intend to distribute annually all or substantially all of such income and gains, but we may also elect to periodically spill over certain excess undistributed taxable income from one tax year to the next tax year. To the extent that we retain our net capital gains or any investment company taxable income, we will be subject to U.S. federal income tax. We may choose to retain our net capital gains or any investment company taxable income, and pay the associated federal corporate income tax, including the U.S. federal excise tax described below.

 

Amounts not distributed on a timely basis in accordance with a calendar year distribution requirement are subject to a nondeductible 4% U.S. federal excise tax payable by us. To avoid this tax, we must distribute (or be deemed to have distributed) during each calendar year an amount equal to the sum of:

 

●

98% of our net ordinary income (not taking into account any capital gains or losses) recognized during a calendar year;

 

●

at least 98.2% of the amount by which our capital gains exceed our capital losses (adjusted for certain ordinary losses) for a one-year period ending on October 31st of the calendar year; and

 

●

income realized, but not distributed, in preceding years and on which we did not pay federal income tax.

 

While we intend to distribute any income and capital gains in the manner necessary to minimize imposition of the 4% U.S. federal excise tax, sufficient amounts of our taxable income and capital gains may not be distributed to avoid entirely the imposition of the tax. In that event, we will be liable for the tax only on the amount by which we do not meet the foregoing distribution requirement.

 

We intend to pay quarterly dividends to our stockholders out of assets legally available for distribution. We cannot assure you that we will achieve investment results that will allow us to pay a specified level of dividends or year-to-year increases in dividends. In addition, the inability to satisfy the asset coverage test applicable to us as a BDC could limit our ability to pay dividends. All dividends will be paid at the discretion of our board of directors and will depend on our earnings, our financial condition, maintenance of our RIC tax status, compliance with applicable BDC regulations and such other factors as our board of directors may deem relevant from time to time. We cannot assure you that we will pay dividends to our stockholders in the future.

 

To the extent our taxable earnings fall below the total amount of our distributions for a taxable year, a portion of those distributions may be deemed a return of capital to our stockholders for U.S. federal income tax purposes. Stockholders should read any written disclosure accompanying a distribution carefully and should not assume that the source of any distribution is our ordinary income or gains.

 

We have adopted an “opt out” dividend reinvestment plan for our common stockholders. As a result, if we declare a cash dividend or other distribution, each stockholder that has not “opted out” of our dividend reinvestment plan will have their dividends or other distributions automatically reinvested in additional shares of our common stock rather than receiving cash dividends or distributions. Stockholders who receive dividends or distributions in the form of shares of common stock will be subject to the same federal, state and local tax consequences as if they received cash dividends or distributions.

 

There were no dividend distributions during the nine months ended June 30, 2021.

 

The federal income tax characterization of distributions declared and paid for the taxable year will be determined at taxable year-end based upon the amount of distributions paid and the sources and amounts of income and realized gains and our earnings and profits as determined for federal income tax purposes for the full taxable year.  

 

 

PRICE RANGE OF COMMON STOCK

 

Shares of common stock of the Company began trading on the NASDAQ Global Market under the symbol “PFX” on January 4, 2021. Prior to such date, shares of common stock of the Company traded on the New York Stock Exchange under the symbol “MCC.” The following table sets forth, for each fiscal quarter since October 1, 2018, the net asset value per share of our common stock, the high and low closing market price for our common stock, such closing market price as a premium or discount to our net asset value per share and quarterly distributions per share.

 

		Closing Market Price												(Discount) of High Market Price to				(Discount) of Low Market Price to
		NAV(1)				High				Low				NAV(2)				NAV(2)
Fiscal year ending September 30, 2021
Third Quarter		$	58.49			$	42.76			$	32.80				(73.11	)%			(56.08	)%
Second Quarter		$	55.91			$	33.99			$	27.71				(60.79	)%			(49.56	)%
First Quarter		$	52.94			$	29.88			$	18.14				(56.44	)%			(34.27	)%
Fiscal year ending September 30, 2020
Fourth Quarter		$	55.30			$	18.19			$	12.40				(32.89	)%			(22.42	)%
Third Quarter			54.83				18.70				9.00				(34.11	)%			(16.41	)%
Second Quarter			52.00				45.00				7.00				(86.54	)%			(13.46	)%
First Quarter			81.00				52.60				38.60				(64.94	)%			(47.65	)%
Fiscal year ending September 30, 2019
Fourth Quarter		$	79.46			$	56.20			$	44.80				(70.73	)%			(56.38	)%
Third Quarter			91.00				69.00				44.00				(75.82	)%			(48.35	)%
Second Quarter			102.20				72.00				52.40				(70.45	)%			(51.27	)%
First Quarter			112.20				79.00				53.20				(70.41	)%			(47.42	)%

 

(1)

Net asset value per share is determined as of the last day in the relevant quarter and therefore may not reflect the net asset value per share on the date of the high and low market prices. The net asset value per share shown is based on outstanding shares at the end of the period.

 

(2)

Calculated as of the respective high or low closing market price divided by the quarter end net asset value.

 

For all periods presented in the table above, there was no return of capital included in any distribution.

 

Shares of business development companies may trade at a market price that is less than the value of the net assets attributable to those shares. The possibility that our shares of common stock will trade at a discount or premium to net asset value is separate and distinct from the risk that our net asset value will decrease.

 

The last reported closing price of our common stock on October 4, 2021 was $42.90 per share, approximately 75% of the Company’s then-current NAV. As of October 4, 2021 we had 12 stockholders of record of our common stock.

 

 

SALES OF COMMON STOCK BELOW NET ASSET VALUE

 

Our stockholders have in the past and may again approve our ability to sell shares of our common stock below our then current NAV per share in one or more public offerings of our common stock.

 

In making a determination that an offering below NAV per share is in our and our stockholders’ best interests, our Board, including a majority of our Independent Directors, may consider a variety of factors, including:

 

●

The effect that an offering below NAV per share would have on our stockholders, including the potential dilution they would experience as a result of the offering;

 

●

The amount per share by which the offering price per share and the net proceeds per share are less than the most recently determined NAV per share;

 

●

The relationship of recent market prices of our common stock to NAV per share and the potential impact of the offering on the market price per share of our common stock;

  

●

Whether the estimated offering price would closely approximate the market value of our shares, less distributing commissions or discounts, and would not be below current market price;

 

●

The potential market impact of being able to raise capital in the current financial market;

 

●

The nature of any new investors anticipated to acquire shares in the offering;

 

●

The anticipated rate of return on and quality, type and availability of investments;

 

●

The leverage available to us, both before and after the offering and other borrowing terms; and

 

●

The potential investment opportunities available relative to the potential dilutive effect of additional capital at the time of the offering.

 

Sales by us of our common stock at a discount from NAV pose potential risks for our existing stockholders whether or not they participate in the offering, as well as for new investors who participate in the offering.

 

The following three headings and accompanying tables explain and provide hypothetical examples assuming proceeds are temporarily invested in cash equivalents on the impact of an offering at a price less than NAV per share on three different sets of investors:

 

●

existing stockholders who do not purchase any shares in the offering;

 

●

existing stockholders who purchase a relatively small amount of shares in the offering or a relatively large amount of shares in the offering; and

 

●

new investors who become stockholders by purchasing shares in the offering.

 

Impact on Existing Stockholders who do not Participate in the Offering

 

Our existing stockholders who do not participate, or who are not given the opportunity to participate, in an offering below NAV per share or who do not buy additional shares in the secondary market at the same or lower price we obtain in the offering (after any underwriting discounts and commissions) face the greatest potential risks. All stockholders will experience an immediate decrease (often called dilution) in the NAV of the shares they hold. Stockholders who do not participate in the offering will also experience a disproportionately greater decrease in their participation in our earnings and assets and their voting power than stockholders who do participate in the offering. All stockholders may also experience a decline in the market price of their shares, which often reflects, to some degree, announced or potential increases and decreases in NAV per share. This decrease could be more pronounced as the size of the offering and level of discounts increase.

 

 

The following examples illustrate the level of NAV dilution that would be experienced by a nonparticipating stockholder in three different hypothetical common stock offerings of different sizes and levels of discount from NAV per share, although it is not possible to predict the level of market price decline that may occur. Actual sales prices and discounts may differ from the presentation below.

 

The examples assume that Company XYZ has 25,000,000 common shares outstanding, $600,000,000 in total assets and $300,000,000 in total liabilities. The current net asset value and net asset value per share are thus $300,000,000 and $12.00. The table illustrates the dilutive effect on nonparticipating Stockholder A of (1) an offering of 2,500,000 shares (10% of the outstanding shares) at $10.80 per share after offering expenses and commissions (a 10% discount from net asset value), (2) an offering of 6,250,000 shares (25% of the outstanding shares) at $10.20 per share after offering expenses and commissions (a 15% discount from net asset value) and (3) an offering of 6,250,000 shares (25% of the outstanding shares) at $0.00 per share after offering expenses and commissions (a 100% discount from net asset value).

 

		Prior to Sale				Example 1 – 10% Offering at 10% Discount(1)								Example 2 – 25% Offering at 15% Discount(1)								Example 3 – 25% Offering at 100% Discount(1)
		Below NAV Per Share				Following Sale				Percent Change				Following Sale				Percent Change				Following Sale				Percent Change
Offering Price
Price per Share to Public			—			$	11.37				—			$	10.74				—			$	—				—
Net Proceeds per Share to Issuer			—			$	10.80				—			$	10.20				—			$	—				—
Increase in Shares and Decrease to NAV Per Share
Total Shares Outstanding			25,000,000				27,500,000				10.00	%			31,250,000				25.00	%			31,250,000				25.00	%
NAV per Share		$	12.00			$	11.89				-0.92	%		$	11.64				-3.00	%		$	9.60				-20.00	%
Dilution to Nonparticipating Stockholder A
Share Dilution
Shares Held by Stockholder A			250,000				250,000				—				250,000				—				250,000				—
Percentage of Shares Held by Stockholder A			1.00	%			0.91	%			-9.09	%			0.80	%			-20.00	%			0.80	%			-20.00	%
NAV Dilution
Total NAV Held by Stockholder A		$	3,000,000			$	2,972,500				-0.92	%		$	2,910,000				-3.00	%		$	2,400,000				-20.00	%
Total Investment by Stockholder A (Assumed to be $12.00 per Share)		$	3,000,000			$	3,000,000				—			$	3,000,000				—			$	3,000,000				—
Total Dilution to Stockholder A (Change in Total NAV Held by Stockholder)			—			$	-27,500				—			$	-90,000				—			$	-600,000				—
NAV Dilution Per Share
NAV per Share Held by Stockholder A			—			$	11.89				—			$	11.64				—			$	9.60				—
Investment per Share Held by Stockholder A		$	12.00			$	12.00				—			$	12.00				—			$	12.00				—
NAV Dilution per Share Experienced by Stockholder A (NAV per Share Less Investment per Share)			—			$	-0.11				—			$	-0.36				—			$	-2.40				—
Percentage NAV Dilution Experienced by Stockholder A (NAV Dilution per Share Divided by Investment per Share)			—				—				-0.92	%			—				-3.00	%			—				-20.00	%

 

(1)

Assumes a 5% selling compensation and expenses paid by us.

 

Impact on Existing Stockholders who Participate in the Offering

 

Our existing stockholders who participate in an offering below NAV per share or who buy additional shares in the secondary market at the same or lower price as we obtain in the offering (after any underwriting discounts and commissions) will experience the same types of NAV dilution as the nonparticipating stockholders, albeit at a lower level, to the extent they purchase less than the same percentage of the offering below NAV as their interest in our shares immediately prior to the offering. The level of NAV dilution on an aggregate basis will decrease as the number of shares such stockholders purchase increases. Existing stockholders who buy more than such percentage will experience NAV dilution but will, in contrast to existing stockholders who purchase less than their proportionate share of the offering, experience an increase (often called accretion) in NAV per share over their investment per share and will also experience a disproportionately greater increase in their participation in our earnings and assets and their voting power than our increase in assets, potential earning power and voting interests due to the offering. The level of accretion will increase as the excess number of shares such stockholder purchases increases. Even a stockholder who over-participates will, however, be subject to the risk that we may make additional offerings below NAV in which such stockholder does not participate, in which case such a stockholder will experience NAV dilution as described above in such subsequent offerings. These stockholders may also experience a decline in the market price of their shares, which often reflects to some degree announced or potential increases and decreases in NAV per share. This decrease could be more pronounced as the size of the offering and level of discount to NAV increases.

 

The following chart illustrates the level of dilution and accretion in the hypothetical 25% offering at a 15% discount from the prior chart (Example 2) for a stockholder that acquires shares equal to (1) 50% of its proportionate share of the offering (i.e., 31,250 shares, which is 0.5% of an offering of 6,250,000 shares rather than its 1.0% proportionate share) and (2) 150% of such percentage (i.e., 93,750 shares, which is 1.5% of an offering of 6,250,000 shares rather than its 1.0% proportionate share). It is not possible to predict the level of market price decline that may occur.

 

		Prior to Sale				50% Participation								150% Participation
		Below NAV Per Share				Following Sale				Percent Change				Following Sale				Percent Change
Offering Price
Price per Share to Public			—			$	10.74				—			$	10.74				—
Net Proceeds per Share to Issuer			—			$	10.20				—			$	10.20				—
Increase in Shares and Decrease to NAV Per  Share
Total Shares Outstanding			25,000,000				31,250,000				25.00	%			31,250,000				25.00	%
NAV per Share		$	12.00			$	11.64				-3.00	%		$	11.64				-3.00	%
Dilution/Accretion to Participating Stockholder A
Share Dilution/Accretion
Shares Held by Stockholder A			250,000				281,250				—				343,750				—
Percentage of Shares Held by  Stockholder A			1.00	%			0.90	%			—				1.10	%			—
NAV Dilution/Accretion
Total NAV Held by Stockholder A		$	3,000,000			$	3,273,750				9.13	%		$	4,001,250				33.38	%
Total Investment by Stockholder A (Assumed to be $12.00 per Share on Shares Held Prior to Sale)		$	3,000,000			$	3,335,526				—			$	4,006,579				—
Total Dilution/Accretion to Stockholder A  (Total NAV Less Total Investment)			—			$	-61,776				—			$	-5,329				—
NAV Dilution/Accretion per Share
NAV per Share Held by Stockholder A			—			$	11.64				—			$	11.64				—
Investment per Share Held by Stockholder  A (Assumed to be $12.00 per Share on  Shares Held Prior to  Sale)		$	12.00			$	11.86				-1.17	%		$	11.66				-2.83	%
NAV Dilution/Accretion per Share  Experienced by Stockholder A (NAV per  Share Less Investment per Share)			—			$	-0.22				—			$	-0.02				—
Percentage NAV Dilution/Accretion  Experienced by Stockholder A (NAV  Dilution/Accretion per Share Divided by  Investment per Share)			—				—				-1.83	%			—				-0.17	%

 

 

Impact on New Investors

 

Investors who are not currently stockholders, but who participate in an offering below NAV and whose investment per share is greater than the resulting NAV per share due to any underwriting discounts and commissions paid by us will experience an immediate decrease, albeit small, in the NAV of their shares and their NAV per share compared to the price they pay for their shares. Investors who are not currently stockholders and who participate in an offering below NAV per share and whose investment per share is also less than the resulting NAV per share due to any underwriting discounts and commissions paid by us being significantly less than the discount per share, will experience an immediate increase in the NAV of their shares and their NAV per share compared to the price they pay for their shares. All these investors will experience a disproportionately greater participation in our earnings and assets and their voting power than our increase in assets, potential earning power and voting interests. These investors will, however, be subject to the risk that we may make additional offerings below NAV in which such new stockholder does not participate, in which case such new stockholder will experience dilution as described above in such subsequent offerings. These investors may also experience a decline in the market price of their shares, which often reflects to some degree announced or potential increases and decreases in NAV per share. Their decrease could be more pronounced as the size of the offering and level of discounts increases.

 

The following chart illustrates the level of dilution or accretion for new investors that would be experienced by a new investor in the same hypothetical discounted offerings as described in the first chart above. The illustration is for a new investor who purchases the same percentage (1.00%) of the shares in the offering as Stockholder A in the prior examples held immediately prior to the offering. The prospectus supplement pursuant to which any discounted offering is made will include a chart for these examples based on the actual number of shares in such offering and the actual discount from the most recently determined net asset value per share.

 

		Prior to Sale				Example 1 – 10% Offering at 10% Discount(1)								Example 2 – 25% Offering at 15% Discount(1)								Example 3 – 25% Offering at 100% Discount(1)
		Below NAV  Per Share				Following Sale				Percent Change				Following Sale				Percent Change				Following Sale				Percent Change
Offering Price
Price per Share to Public			—			$	11.37				—			$	10.74				—			$	—				—
Net Proceeds per Share to Issuer			—			$	10.80				—			$	10.20				—			$	—				—
Increase in Shares and Decrease to NAV Per Share
Total Shares Outstanding			25,000,000				27,500,000				10.00	%			31,250,000				25.00	%			31,250,000				25.00	%
NAV per Share		$	12.00			$	11.89				-0.92	%		$	11.64				-3.00	%		$	9.60				-20.00	%
Accretion to Participating Investor A
Share Accretion
Shares Held by Investor A			—				25,000				—				62,500				—				62,500				—
Percentage of Shares Held by Investor A			—				0.09	%			—				0.20	%			—				0.20	%			—
NAV Accretion
Total NAV Held by Investor A			—			$	297,250				—			$	727,500				—			$	600,000				—
Total Investment by Investor A (At Price to Public)			—			$	284,211				—			$	671,053				—			$	—				—
Total Accretion to Investor A (Total NAV Less  Total Investment)			—			$	13,039				—			$	56,447				—			$	600,000				—
NAV Accretion Per Share
NAV per Share Held by Investor A			—			$	11.89				—			$	11.64				—			$	9.60				—
Investment per Share Held by Investor A			—			$	11.37				—			$	10.74				—			$	—				—
NAV Accretion per Share Experienced by  Investor A (NAV per Share Less Investment  per Share)			—			$	0.52				—			$	0.90				—			$	9.60				—
Percentage NAV Accretion Experienced by Investor A (NAV Accretion per Share Divided by Investment per Share)			—				—				4.57	%			—				8.4	%			—				—

 

 

PLAN OF DISTRIBUTION

 

We may sell the securities in any of three ways (or in any combination): (a) through underwriters or dealers; (b) directly to a limited number of purchasers or to a single purchaser; or (c) through agents. The securities may also be sold “at-the-market” to or through a market maker or into an existing trading market for the securities, on an exchange or otherwise. The prospectus supplement will set forth the terms of the offering of such securities, including:

 

●

the name or names of any underwriters, dealers or agents and the amounts of securities underwritten or purchased by each of them;

 

●

the offering price of the securities and the proceeds to us and any discounts, commissions or concessions allowed or reallowed or paid to dealers; and

 

●

any securities exchanges on which the securities may be listed.

 

Any offering price and any discounts or concessions allowed or reallowed or paid to dealers may be changed from time to time.

 

We may offer our shares of common stock in a public offering at-the-market to a select group of investors, in which case a stockholder may not be able to participate in such offering and a stockholder will experience dilution unless the stockholder purchases additional shares of our common stock in the secondary market at the same or lower price.

 

If underwriters are used in the sale of any securities, the securities will be acquired by the underwriters for their own accounts and may be resold from time to time in one or more transactions, including negotiated transactions, at a fixed public offering price or at varying prices determined at the time of sale. The securities may be either offered to the public through underwriting syndicates represented by managing underwriters, or directly by underwriters. Generally, the underwriters’ obligations to purchase the securities will be subject to certain conditions precedent. The underwriters will be obligated to purchase all of the securities if they purchase any of the securities.

 

In compliance with the guidelines of FINRA, the maximum compensation to the underwriters or dealers in connection with the sale of our securities pursuant to this prospectus and the accompanying supplement to this prospectus may not exceed 8% of the aggregate offering price of the securities as set forth on the cover page of the supplement to this prospectus.

 

We may sell the securities through agents from time to time. The prospectus supplement will name any agent involved in the offer or sale of the securities and any commissions we pay to them. Generally, any agent will be acting on a best efforts basis for the period of its appointment.

 

 

We may authorize underwriters, dealers or agents to solicit offers by certain purchasers to purchase the securities from us at the public offering price set forth in the prospectus supplement pursuant to delayed delivery contracts providing for payment and delivery on a specified date in the future.

 

The contracts will be subject only to those conditions set forth in the prospectus supplement, and the prospectus supplement will set forth any commissions we pay for soliciting these contracts.

 

Agents and underwriters may be entitled to indemnification by us against certain civil liabilities, including liabilities under the Securities Act, or to contribution with respect to payments which the agents or underwriters may be required to make in respect thereof. Agents and underwriters may be customers of, engage in transactions with, or perform services for us in the ordinary course of business. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the Registrant pursuant to the foregoing provisions, the Registrant has been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

 

We may enter into derivative transactions with third parties, or sell securities not covered by this prospectus to third parties in privately negotiated transactions. If the applicable prospectus supplement indicates, in connection with those derivatives, the third parties may sell securities covered by this prospectus and the applicable prospectus supplement, including in short sale transactions. If so, the third party may use securities pledged by us or borrowed from us or others to settle those sales or to close out any related open borrowings of stock, and may use securities received from us in settlement of those derivatives to close out any related open borrowings of stock. The third party in such sale transactions will be an underwriter and, if not identified in this prospectus, will be identified in the applicable prospectus supplement (or a post-effective amendment). We or one of our affiliates may loan or pledge securities to a financial institution or other third party that in turn may sell the securities using this prospectus. Such financial institution or third party may transfer its short position to investors in our securities or in connection with a simultaneous offering of other securities offered by this prospectus or otherwise.

 

In order to comply with the securities laws of certain states, if applicable, the securities offered hereby will be sold in such jurisdictions only through registered or licensed brokers or dealers.

 

We may not sell securities pursuant to this prospectus without delivering a prospectus supplement describing the method and terms of the offering of such securities.

 

 

SELECTED FINANCIAL AND OTHER INFORMATION

 

The information in “Item 6. Selected Consolidated Financial Data” of our most recent annual report on Form 10-K, “Part I — Consolidated Statements of Assets and Liabilities” of our most recent quarterly report on Form 10-Q and “Part I — Consolidated Statements of Operations” of our most recent quarterly report on Form 10-Q is incorporated by reference herein.

 

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The information in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our most recent annual report on Form 10-K and in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our most recent quarterly report on Form 10-Q is incorporated by reference herein.

 

 

SENIOR SECURITIES

 

Information about our senior securities (including debt securities and other indebtedness) is shown in the following table as of the dates indicated in the table below which is derived from our consolidated financial statements and related notes. This information about our senior securities should be read in conjunction with our consolidated financial statements and related notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our most recent quarterly report on Form 10-Q.

 

Class and Year		Total Amount Outstanding Exclusive of Treasury Securities(1)				Asset Coverage Per Unit(2)				Involuntary Liquidating Preference Per Unit(3)				Average Market Value Per Unit
Revolving Facility
September 30, 2011		$	—				—				N/A	(4)			N/A	(5)
September 30, 2012		$	15,000				3,630				N/A	(4)			N/A	(5)
September 30, 2013		$	2,500				3,256				N/A	(4)			N/A	(5)
September 30, 2014		$	146,500				2,732				N/A	(4)			N/A	(5)
September 30, 2015		$	192,700				2,318				N/A	(4)			N/A	(5)
September 30, 2016		$	14,000				2,414				N/A	(4)			N/A	(5)
September 30, 2017		$	68,000				2,327				N/A	(4)			N/A	(5)
September 30, 2018		$	—				—				N/A	(4)			N/A	(5)
September 30, 2019		$	—				—				N/A	(4)			N/A	(5)
September 30, 2020		$	—				—				N/A	(4)			N/A	(5)
September 30, 2021 (through June 30, 2021)		$	—				—				N/A	(4)			N/A	(5)
Term Loan Facility
September 30, 2011		$	—				—				N/A	(4)			N/A	(5)
September 30, 2012		$	55,000				3,630				N/A	(4)			N/A	(5)
September 30, 2013		$	120,000				3,256				N/A	(4)			N/A	(5)
September 30, 2014		$	171,500				2,732				N/A	(4)			N/A	(5)
September 30, 2015		$	174,000				2,318				N/A	(4)			N/A	(5)
September 30, 2016		$	174,000				2,414				N/A	(4)			N/A	(5)
September 30, 2017		$	102,000				2,327				N/A	(4)			N/A	(5)
September 30, 2018		$	—				—				N/A	(4)			N/A	(5)
September 30, 2019		$	—				—				N/A	(4)			N/A	(5)
September 30, 2020		$	—				—				N/A	(4)			N/A	(5)
September 30, 2021 (through June 30, 2021)		$	—				—				N/A	(4)			N/A	(5)
2019 Notes
September 30, 2011		$	—				—				N/A	(4)		$	N/A	(5)
September 30, 2012		$	40,000				3,630				N/A	(4)		$	25.47
September 30, 2013		$	40,000				3,256				N/A	(4)		$	25.61
September 30, 2014		$	40,000				2,732				N/A	(4)		$	25.62
September 30, 2015		$	40,000				2,318				N/A	(4)		$	25.26
September 30, 2016		$	40,000				2,414				N/A	(4)		$	25.44
September 30, 2017		$	—				—				N/A	(4)		$	25.39
September 30, 2018		$	—				—				N/A	(4)		$	N/A	(5)
September 30, 2019		$	—				—				N/A	(4)			N/A	(5)
September 30, 2020		$	—				—				N/A	(4)			N/A	(5)
September 30, 2021 (through June 30, 2021)		$	—				—				N/A	(4)			N/A	(5)
2021 Notes
September 30, 2011		$	—				—				N/A	(4)		$	N/A	(5)
September 30, 2012		$	—				—				N/A	(4)		$	N/A	(5)
September 30, 2013		$	—				—				N/A	(4)		$	N/A	(5)
September 30, 2014		$	—				—				N/A	(4)		$	N/A	(5)
September 30, 2015		$	—				—				N/A	(4)		$	N/A	(5)
September 30, 2016		$	74,013				2,414				N/A	(4)		$	25.48
September 30, 2017		$	74,013				2,327				N/A	(4)		$	25.80
September 30, 2018		$	74,013				2,126				N/A	(4)		$	25.48
September 30, 2019		$	74,013				1,842				N/A	(4)		$	24.82
September 30, 2020		$	74,013				1,992				N/A	(4)			23.61
September 30, 2021 (through June 30, 2021)		$	—				—				N/A	(4)			N/A	(5)

 

Class and Year		Total Amount Outstanding Exclusive of Treasury Securities(1)				Asset Coverage Per Unit(2)				Involuntary Liquidating Preference Per Unit(3)				Average Market Value Per Unit
2023 Notes
September 30, 2011		$	—				—				N/A	(4)		$	N/A	(5)
September 30, 2012		$	—				—				N/A	(4)		$	N/A	(5)
September 30, 2013		$	63,500				3,256				N/A	(4)		$	23.74
September 30, 2014		$	63,500				2,732				N/A	(4)		$	24.76
September 30, 2015		$	63,500				2,318				N/A	(4)		$	24.79
September 30, 2016		$	63,500				2,414				N/A	(4)		$	25.19
September 30, 2017		$	102,847				2,327				N/A	(4)		$	25.18
September 30, 2018		$	89,847				2,126				N/A	(4)		$	25.02
September 30, 2019		$	77,847				1,842				N/A	(4)		$	24.28
September 30, 2020		$	77,847				1,992				N/A	(4)			21.68
September 30, 2021 (through June 30, 2021)		$	77,847	(6)			3,025				N/A	(4)			24.80
2024 Notes
September 30, 2011		$	—				—				N/A	(4)		$	N/A	(5)
September 30, 2012		$	—				—				N/A	(4)		$	N/A	(5)
September 30, 2013		$	—				—				N/A	(4)		$	N/A	(5)
September 30, 2014		$	—				—				N/A	(4)		$	N/A	(5)
September 30, 2015		$	—				—				N/A	(4)		$	N/A	(5)
September 30, 2016		$	—				—				N/A	(4)		$	N/A	(5)
September 30, 2017		$	—				—				N/A	(4)		$	N/A	(5)
September 30, 2018		$	121,276				2,126				N/A	(4)		$	273.95
September 30, 2019		$	105,137				1,842				N/A	(4)		$	254.43
September 30, 2020		$	—				—				N/A	(4)			N/A
September 30, 2021 (through June 30, 2021)		$	—				—				N/A	(4)			N/A
SBA Debentures
September 30, 2011		$	—				—				N/A	(4)			N/A	(5)
September 30, 2012		$	—				—				N/A	(4)			N/A	(5)
September 30, 2013		$	30,000				3,256				N/A	(4)			N/A	(5)
September 30, 2014		$	100,000				2,732				N/A	(4)			N/A	(5)
September 30, 2015		$	150,000				2,318				N/A	(4)			N/A	(5)
September 30, 2016		$	150,000				2,414				N/A	(4)			N/A	(5)
September 30, 2017		$	150,000				2,327				N/A	(4)			N/A	(5)
September 30, 2018		$	135,000				2,126				N/A	(4)			N/A	(5)
September 30, 2019		$	—				—				N/A	(4)			N/A	(5)
September 30, 2020		$	—				—				N/A	(4)			N/A	(5)
September 30, 2021 (through June 30, 2021)		$	—				—				N/A	(4)			N/A	(5)

 

(1)

Total amount of each class of senior securities outstanding at the end of the period presented.

 

(2)

The asset coverage ratio for a class of senior securities representing indebtedness is calculated as our consolidated total assets, less all liabilities and indebtedness not represented by senior securities, divided by total senior securities representing indebtedness. This asset coverage ratio is multiplied by $1,000 to determine the Asset Coverage Per Unit.

 

(3)

The amount to which such class of senior security would be entitled upon the involuntary liquidation of the issuer in preference to any security junior to it.

 

(4)

Information that the SEC expressly does not require to be disclosed for certain types of senior securities.

 

(5)

Not applicable as these classes of securities are not registered for public trading.

 

(6)

As of October 4, 2021, there was $77.8 million in aggregate principal amount of the 2023 Notes (unaudited).

 

 

BUSINESS

 

Our business is described in “Item 1 — Business” of our most recent annual report on Form 10-K and in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our most recent quarterly report on Form 10-Q, which are incorporated by reference herein.

 

 

REGULATION

 

We are subject to regulation as described in “Item 1 — Business — Regulation as a Business Development Company” of our most recent annual report on Form 10-K, and in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview” of our most recent quarterly report on Form 10-Q, which are incorporated by reference herein.

 

 

MANAGEMENT

 

The information in the sections entitled “Election of Director Nominees” in our most recent definitive proxy statement on Schedule 14A for our annual meeting of stockholders (the “Annual Proxy Statement”) and the information in the section titled “Note 6 – Agreements” in our most recent quarterly report on Form 10-Q are incorporated herein by reference.

 

 

EXECUTIVE COMPENSATION

 

The information in the sections entitled “Compensation of Executive Officers,” “Compensation Discussion and Analysis” and “Compensation of Directors” in our most recent Annual Proxy Statement are incorporated herein by reference.

 

 

RELATED PARTY TRANSACTIONS AND CERTAIN RELATIONSHIPS

 

Please refer to “Note 7 — Related Party Transactions” in the Notes to Consolidated Financial Statements in our most recent annual report filed on Form 10-K; “Note 7 — Related Party Transactions” in the Notes to Consolidated Financial Statements and “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Related Party Transactions” in our most recent quarterly report filed on Form 10-Q; and our current reports filed on Form 8-K, as applicable, as well as any amendments related to the foregoing reflected in subsequent filings with the SEC, which are incorporated by reference into this prospectus, for information relating to our related party transactions.

 

 

CONTROL PERSONS AND PRINCIPAL STOCKHOLDERS

 

As of October 4, 2021, there were 2,517,221 shares of common stock issued and outstanding and as of October 4, 2021, there were approximately 12 stockholders of record. The following table sets out, immediately prior to this offering, certain ownership information (rounded to the nearest whole share) with respect to our common stock for those persons who directly or indirectly own, control or hold with the power to vote 5% or more of our outstanding common stock, all of our directors and all officers and directors as a group. Beneficial ownership is determined in accordance with the rules and regulations of the SEC. These rules generally provide that a person is the beneficial owner of securities if the person has or shares the power to vote or direct the voting thereof, or to dispose or direct the disposition thereof or has the right to acquire these powers within 60 days. Ownership information for those persons who beneficially own 5% or more of the outstanding shares of our common stock is based upon Schedule 13D, Schedule 13G, Form 13F or other filings by such persons with the SEC and other information obtained from such persons.

 

Name and Address of Beneficial Owner		Number of Shares Owned Beneficially(1)				Percentage of Class(2)
Almitas Capital LLC(3)			162,430				6.45	%
Bradley L. Radoff(4)			207,700				8.25	%
Glacier Point Advisors, LLC(5)			248,705				9.88	%
Interested Director
David A. Lorber			110,648	(6)			4.40	%
Independent Directors
Arthur S. Ainsberg			850				*	%
Howard Amster			234,802	(7)			9.33	%
Karin Hirtler-Garvey			850				*	%
Lowell W. Robinson			150				*	%
Executive Officers
Ellida McMillan			100				*	%
All executive officers and directors as a group (6 persons)							13.80	%

 

*

Represents less than one percent.

 

(1)

Beneficial ownership has been determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This table assumes the beneficial owners have made no other purchases or sales of our common stock since the most recently available SEC filings. This assumption has been made under the rules and regulations of the SEC and does not reflect any knowledge that we have with respect to the present intent of the beneficial owners of our common stock listed in this table.

 

(2)

Based on a total of 2,517,221 shares of the Company’s common stock issued and outstanding on October 4, 2021.

 

(3)

Based on information included in the Schedule 13G filed by Almitas Capital LLC with the SEC on February 17, 2021. The address of Almitas Capital LLC is 1460 4th Street, Suite 300, Santa Monica, CA 90401.

 

(4)

Based on information included in the Schedule 13G filed by Bradley L. Radoff with the SEC on February 16, 2021. Per the Schedule 13G, Mr. Radoff directly owned 96,500 shares. Mr. Radoff, (i) may be deemed the beneficial owner of the 49,896 shares owned by BLR Partners LP, as the sole shareholder and sole director of each of BLRGP Inc. (the general partner of the general partner of BLR Partners LP) and FMLP Inc. (the general partner of the investment manager of BLR Partners LP), (ii) may be deemed the beneficial owner of the 58,804 shares owned by The Radoff Family Foundation, as a director of The Radoff Family Foundation, and (iii) may be deemed the beneficial owner of the 2,500 shares held in a certain donor advised charitable account, as an advisor to such charitable account, which, together with the 96,500 shares he directly owns, constitutes an aggregate of 207,700 shares beneficially owned by Mr. Radoff. The address of Bradley L. Radoff is 2727 Kirby Drive, Unit 29L, Houston, TX 77098.

 

(5)

Based on information included in the Schedule 13G filed by Glacier Point Advisors, LLC with the SEC on February 26, 2021. The address of Glacier Point Advisors, LLC is 13921 Gimbert Lane, North Tustin, CA 92705.

 

(6)

FrontFour Master Fund, Ltd., an exempted company formed under the laws of the Cayman Islands (“FrontFour Master Fund”), beneficially owns 81,662.416 of the reported shares. FrontFour Opportunity Fund, a mutual fund trust formed under the laws of British Columbia, Canada (“FrontFour Opportunity Fund”), beneficially owns 2,085.7 of the reported shares. Each of David A. Lorber, Stephen E. Loukas, and Zachary R. George is a managing member and principal owner of FrontFour Capital Group LLC (“FrontFour Capital”), which serves as an investment manager of FrontFour Master Fund, and a principal owner of FrontFour Capital Corp. (“FrontFour Corp.”), which serves as an investment manager to FrontFour Opportunity Fund. David A. Lorber disclaims beneficial ownership of such shares of common stock except to the extent of his pecuniary interest therein.

 

(7)

These shares are deemed to be beneficially owned by Howard Amster, as a result of his personal ownership and in his capacity as President of Pleasant Lakes Apts. Corp., which is the General Partner of Pleasant Lakes Apts. Limited Partnership, and in his capacity as the trustee of the various trusts listed in the Form 3 filed with the SEC by Howard Amster on August 24, 2020.

 

PORTFOLIO COMPANIES

 

The following table sets forth certain information as of June 30, 2021, for each portfolio company in which we had an investment. Other than these investments, our only formal relationships with our portfolio companies are the significant managerial assistance that we may provide upon request and the board observation or participation rights we may receive in connection with our investment. As indicated by footnote to the following table, we are deemed to “control” a portfolio company, as defined in the 1940 Act, because we own more than 25% of outstanding voting securities of such portfolio company. Where we directly or indirectly own 5% to 25% of the outstanding voting securities of such portfolio company, we are deemed to be an “affiliate.” In general, under the 1940 Act, we would be presumed to “control” a portfolio company if we owned more than 25% of its voting securities and would be an “affiliate” of a portfolio company if we owned more than 5% of its outstanding voting securities. Values for the percentage of class of securities held are approximate.

 

Company(1)		Industry		Type of Investment		Maturity		Par Amount(2)				Cost(3)				Fair Value(4)				% of Class				% of Net Assets(5)
Non-Controlled/Non-Affiliated Investments:
Alpine SG, LLC (8)		High Tech Industries		Senior Secured First Lien Term Loan (LIBOR + 5.75% Cash, 1.00% LIBOR Floor)(14)		11/16/2022		$	4,715,809			$	4,715,809			$	4,715,806								3.01	%
				Senior Secured Incremental First Lien Term Loan (LIBOR + 8.50% Cash, 1.00% LIBOR Floor)(14)		11/16/2022			472,087				472,087				472,087								0.30	%
				Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 5.75% Cash, 1.00% LIBOR Floor)(14)		11/16/2022			2,277,293				2,277,293				2,277,293								1.45	%
				Senior Secured Incremental First Lien Term Loan (LIBOR + 6.50% Cash, 1.00% LIBOR Floor)(14)		11/16/2022			4,174,037				4,094,287				4,174,037								2.66	%
									11,639,226				11,559,476				11,639,223								7.42	%
Autosplice, Inc.		Automotive		Senior Secured First Lien Term Loan (LIBOR + 8.00% Cash & 2.00% PIK, 1.00% LIBOR Floor)(14)		4/30/2022			11,854,234				11,854,234				11,854,234								7.57	%
									11,854,234				11,854,234				11,854,234								7.57	%
Be Green Packaging, LLC		Containers, Packaging & Glass		Equity - 417 Common Units					1				416,250				-				42	%			0.00	%
									1				416,250				-								0.00	%
Chimera Investment Corp.(11)		Banking, Finance, Insurance & Real Estate		Equity - 112,310 Class C Preferred Units(18)(21)		9/30/2025			112,310				2,755,253				2,904,337				1	%			1.85	%
									112,310				2,755,253				2,904,337								1.85	%
Cleaver-Brooks, Inc.		Manufacturing		7.875% Senior Secured Notes(19)		3/1/2023			3,764,000				3,756,540				3,726,360								2.38	%
									3,764,000				3,756,540				3,726,360								2.38	%
CM Finance SPV, LLC		Energy: Oil & Gas		Unsecured Debt(10)					101,463				101,463				-								0.00	%
									101,463				101,463				-								0.00	%

 

 

Company(1)		Industry		Type of Investment		Maturity		Par Amount(2)				Cost(3)				Fair Value(4)				% of Class				% of Net Assets(5)
CPI International, Inc.		Aerospace & Defense		Senior Secured Second Lien Term Loan (LIBOR + 7.25% Cash, 1.00% LIBOR Floor)(13)		7/28/2025			2,607,062				2,599,755				2,483,227								1.58	%
									2,607,062				2,599,755				2,483,227								1.58	%
Crow Precision Components, LLC		Aerospace & Defense		Equity - 350 Common Units					350				700,000				127,474				3	%			0.08	%
									350				700,000				127,474								0.08	%
DataOnline Corp.(8)		High Tech Industries		Senior Secured First Lien Term Loan (LIBOR + 6.25% Cash, 1.00% LIBOR Floor)(14)		11/13/2025			4,925,000				4,925,000				4,826,500								3.08	%
				Revolving Credit Facility (LIBOR + 6.25% Cash, 1.00% LIBOR Floor)(14)(16)		11/13/2025			607,143				607,143				592,857								0.38	%
									5,532,143				5,532,143				5,419,357								3.46	%
Dividend and Income Fund(11)		Banking, Finance, Insurance & Real Estate		Equity - 45,653 Common Units(18)					45,653				665,852				676,121				<1%				0.43	%
									45,653				665,852				676,121								0.43	%
Dream Finders Homes, LLC(11)		Construction & Building		Preferred Equity (8.00% PIK)					4,808,834				4,808,834				4,616,481				50	%			2.95	%
									4,808,834				4,808,834				4,616,481								2.95	%
Footprint Acquisition, LLC		Services: Business		Preferred Equity (8.75% PIK)(10)					4,049,398				4,049,398				2,348,651				71	%			1.50	%
				Equity - 150 Common Units					150				-				-				15	%			0.00	%
									4,049,548				4,049,398				2,348,651								1.50	%
Global Accessories Group, LLC		Consumer goods: Non-durable		Equity - 3.8% Membership Interest					380				151,337				-				4	%			0.00	%
									380				151,337				-								0.00	%
Great AJAX Corp.(11)		Banking, Finance, Insurance & Real Estate		Equity - 37,254 Common Units(18)					37,254				469,512				483,557				<1%				0.31	%
									37,254				469,512				483,557								0.31	%

 

 

Company(1)		Industry		Type of Investment		Maturity		Par Amount(2)				Cost(3)				Fair Value(4)				% of Class				% of Net Assets(5)
Non-Controlled/ Non-Affiliated Investments:
Impact Group, LLC		Services: Business		Senior Secured First Lien Term Loan (LIBOR + 7.37% Cash, 1.00% LIBOR Floor)(14)		6/27/2023			3,159,309				3,159,309				3,159,309								2.02	%
				Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 7.37% Cash, 1.00% LIBOR Floor)(14)		6/27/2023			9,155,136				9,155,136				9,155,136								5.84	%
									12,314,445				12,314,445				12,314,445								7.86	%
InterFlex Acquisition Company, LLC		Containers, Packaging & Glass		Senior Secured First Lien Term Loan (LIBOR + 9.00% Cash, 1.00% LIBOR Floor)(13)		8/18/2022			11,535,906				11,535,906				11,535,906								7.36	%
									11,535,906				11,535,906				11,535,906								7.36	%
Invesco Mortgage Capital, Inc.(11)		Banking, Finance, Insurance & Real Estate		Equity - 205,000 Class C Preferred Units(18)(22)		9/27/2027			205,000				5,035,506				5,139,350				2	%			3.28	%
									205,000				5,035,506				5,139,350								3.28	%
Lighting Science Group Corporation		Containers, Packaging & Glass		Warrants - 0.62% of OutstandingEquity					5,000,000				955,680				-				1	%			0.00	%
									5,000,000				955,680				-								0.00	%
New Residential Investment Corp.(11)		Banking, Finance, Insurance & Real Estate		Equity - 159,583 Class B Preferred Units(18)(23)		8/15/2024			159,583				3,948,103				4,096,496				1	%			2.61	%
									159,583				3,948,103				4,096,496								2.61	%
New York Mortgage Trust, Inc.(11)		Banking, Finance, Insurance & Real Estate		Equity - 135,000 Class E Preferred Units(18)(24)		1/15/2025			135,000				3,335,657				3,488,400				<1%				2.23	%
									135,000				3,335,657				3,488,400								2.23	%
Point.360		Services: Business		Senior Secured First Lien Term Loan (LIBOR + 6.00% PIK)(10)(15)		7/8/2020			2,777,366				2,103,712				-								0.00	%
									2,777,366				2,103,712				-								0.00	%

 

 

Company(1)		Industry		Type of Investment		Maturity		Par Amount(2)				Cost(3)				Fair Value(4)				% of Class				% of Net Assets(5)
RateGain Technologies, Inc.		Hotel, Gaming & Leisure		Unsecured Debt(10)(12)		10/2/2023			589,821				589,821				-								0.00	%
				Unsecured Debt(10)(12)		4/1/2024			761,905				761,905				-								0.00	%
									1,351,726				1,351,726				-								0.00	%
Redwood Services Group, LLC(8)		Services: Business		Revolving Credit Facility (LIBOR + 6.00% Cash, 1.00% LIBOR Floor)(13)(16)		6/6/2023			175,000				175,000				157,500								0.10	%
									175,000				175,000				157,500								0.10	%
Sendero Drilling Company, LLC		Energy: Oil & Gas		Unsecured Debt (9.00% Cash)(10)		8/1/2022			297,500				283,238				-								0.00	%
									297,500				283,238				-								0.00	%
Seotowncenter, Inc.		Services: Business		Equity - 3,434,169.6 Common Units					3,434,170				566,475				-				3	%			0.00	%
									3,434,170				566,475				-								0.00	%
SFP Holding, Inc.		Services: Business		Senior Secured First Lien Term Loan (LIBOR + 6.25% Cash, 1.00% LIBOR Floor)(14)		9/1/2022			4,744,636				4,744,636				4,697,190								3.00	%
				Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 6.25% Cash, 1.00% LIBOR Floor)(14)		9/1/2022			1,839,544				1,839,544				1,821,149								1.16	%
				Equity - 101,165.93 Common Units in CI (Summit) Investment Holdings LLC					101,166				1,067,547				863,957								0.55	%
									6,685,346				7,651,727				7,382,296								4.71	%
SMART Financial Operations, LLC		Retail		Equity - 700,000 Class A Preferred Units					700,000				700,000				-				9	%			0.00	%
									700,000				700,000				-								0.00	%

 

 

Company(1)		Industry		Type of Investment		Maturity		Par Amount(2)				Cost(3)				Fair Value(4)				% of Class				% of Net Assets(5)
Stancor, Inc.		Services: Business		Equity - 263,814.43 Class A Units					263,814				263,814				204,946				1	%			0.13	%
									263,814				263,814				204,946								0.13	%
Thryv Holdings, Inc.(11)		Services: Business		Senior Secured First Lien Term Loan B (LIBOR + 8.50% Cash, 1.00% LIBOR Floor)(13)(19)		3/1/2026			6,120,000				5,944,492				6,120,000								3.91	%
									6,120,000				5,944,492				6,120,000								3.91	%
Velocity Pooling Vehicle, LLC		Automotive		Senior Secured First Lien Term Loan (LIBOR + 11.00% PIK, 1.00% LIBOR Floor)(14)		4/28/2023			1,014,440				951,629				1,014,440								0.65	%
				Equity - 5,441 Class A Units					5,441				302,464				62,299				1	%			0.04	%
				Warrants - 0.65% of Outstanding Equity		3/30/2028			6,506				361,667				74,429				1	%			0.05	%
									1,026,387				1,615,760				1,151,168								0.74	%
Walker Edison Furniture Company LLC		Consumer goods: Durable		Equity - 10,244 Common Units					10,244				1,500,000				7,537,535				1	%			4.81	%
									10,244				1,500,000				7,537,535								4.81	%
Watermill-QMC Midco, Inc.		Automotive		Equity - 1.3% Partnership Interest(9)					518,283				518,283				-				2	%			-0.02	%
									518,283				518,283				-								-0.02	%
Subtotal Non-Controlled/ Non-Affiliated Investments								$	97,262,228			$	109,219,571			$	105,407,064								67.28	%

 

 

Company(1)		Industry		Type of Investment		Maturity		Par Amount(2)				Cost(3)				Fair Value(4)				% of Class				% of Net Assets(5)
Non-Controlled/Non-Affiliated Investments:
Affiliated Investments:(6)
1888 Industrial Services, LLC(8)		Energy: Oil & Gas		Senior Secured First Lien Term Loan A (LIBOR + 5.00% PIK, 1.00% LIBOR Floor)(10)(14)		9/30/2021			9,946,740				9,473,066				-								0.00	%
				Senior Secured First Lien Term Loan B (LIBOR + 8.00% PIK, 1.00% LIBOR Floor)(10)(14)		9/30/2021			25,937,520				19,468,870				-								0.00	%
				Senior Secured First Lien Term Loan C (LIBOR + 5.00%, 1.00% LIBOR Floor)(10)(14)		9/30/2021			1,231,932				1,191,257				197,109								0.13	%
				Revolving Credit Facility (LIBOR +5.00% PIK, 1.00% LIBOR Floor)(14)(16)(25)		9/30/2021			3,554,069				3,554,069				3,554,069								2.27	%
				Equity - 17,493.63 Class A Units					21,562				-				-				22	%			0.00	%
									40,691,823				33,687,262				3,751,178								2.40	%
Black Angus Steakhouses, LLC(8)		Hotel, Gaming & Leisure		Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 9.00% Cash, 1.00% LIBOR Floor)(13)		6/30/2022			758,929				758,929				758,929								0.48	%
				Senior Secured First Lien Term Loan (LIBOR + 9.00% PIK, 1.00% LIBOR Floor)(10)(13)		6/30/2022			8,412,596				7,767,533				2,136,799								1.36	%
				Senior Secured First Lien Super Priority DDTL (LIBOR + 9.00% Cash, 1.00% LIBOR Floor)(13)(16)		6/30/2022			1,500,000				1,500,000				1,500,000								0.96	%
									10,671,525				10,026,462				4,395,728								2.80	%
Caddo Investors Holdings 1 LLC(11)		Forest Products & Paper		Equity - 6.15% Membership Interest(20)					2,528,826				2,528,826				3,766,822				7	%			2.40	%
									2,528,826				2,528,826				3,766,822								2.40	%

 

 

Company(1)		Industry		Type of Investment		Maturity		Par Amount(2)				Cost(3)				Fair Value(4)				% of Class				% of Net Assets(5)
Dynamic Energy Services International LLC		Energy: Oil & Gas		Senior Secured First Lien Term Loan (LIBOR + 13.50% PIK)(10)(15)		12/31/2021			12,930,235				7,824,975				-				13	%			0.00	%
				Equity - 12,350,000 Class A Units					12,350,000				-				-								0.00	%
									25,280,235				7,824,975				-								0.00	%
JFL-NGS Partners, LLC		Construction & Building		Equity - 57,300 Class B Units					57,300				57,300				33,383,212				5	%			21.31	%
									57,300				57,300				33,383,212								21.31	%
JFL-WCS Partners, LLC		Environmental Industries		Equity - 129,588 Class B Units					129,588				129,588				10,070,454				6	%			6.43	%
									129,588				129,588				10,070,454								6.43	%
Kemmerer Operations, LLC(8)		Metals & Mining		Senior Secured First Lien Term Loan (15.00% PIK)		6/21/2023			2,294,047				2,294,047				2,294,047								1.45	%
				Senior Secured First Lien Delayed Draw Term Loan (15.00% PIK)(16)		6/21/2023			288,614				288,614				288,614								0.18	%
				Equity - 6.7797 Common Units					7				962,717				276,078				7	%			0.18	%
									2,582,668				3,545,378				2,858,739								1.81	%
Path Medical, LLC		Healthcare & Pharmaceuticals		Senior Secured First Lien Term Loan A (LIBOR + 9.50% Cash, 1.00% LIBOR Floor)(10)(13)		10/11/2021			5,905,080				5,905,080				2,911,204								1.85	%
				Senior Secured First Lien Term Loan B (LIBOR + 13.00% PIK, 1.00% LIBOR Floor)(10)(13)		10/11/2021			7,783,840				6,599,918				-								0.00	%
				Warrants - 7.68% of Outstanding Equity					123,867				499,751				-				8	%			0.00	%
									13,812,787				13,004,749				2,911,204								1.85	%
URT Acquisition Holdings Corporation		Services: Business		Unsecured Debt (10.00% Cash)(17)		12/4/2024			2,109,589				2,109,589				2,109,589								1.35	%
				Warrants					28,912				-				1,070,000				7	%			0.68	%
									2,138,501				2,109,589				3,179,589								2.03	%
US Multifamily, LLC (11)		Banking, Finance, Insurance & Real Estate		Senior Secured First Lien Term Loan (10.00% Cash)		12/31/2022			2,577,418				2,577,418				2,577,418								1.65	%
				Equity - 33,300 Preferred Units					33,300				3,330,000				1,828,639				13	%			1.17	%
									2,610,718				5,907,418				4,406,057								2.82	%
Subtotal Affiliated Investments								$	100,503,971			$	78,821,547			$	68,722,983								43.86	%

 

 

Company(1)		Industry		Type of Investment		Maturity		Par Amount(2)				Cost(3)				Fair Value(4)				% of Class				% of Net Assets(5)
Controlled Investments:(7)
NVTN LLC(8)		Hotel, Gaming & Leisure		Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 4.00% Cash, 1.00% LIBOR Floor)(10)(13)(16)		11/9/2021			6,565,875				6,565,875				6,027,473								3.85	%
				Senior Secured First Lien Super Priority DDTL (LIBOR + 4.00% Cash, 1.00% LIBOR Floor)(13)(16)		12/31/2024			1,500,000				1,497,224				1,461,000								0.93	%
				Senior Secured First Lien Term Loan B (LIBOR + 9.25% PIK, 1.00% LIBOR Floor)(10)(13)		11/9/2021			14,963,195				12,305,096				-								0.00	%
				Senior Secured First Lien Term Loan C (LIBOR + 12.00% PIK, 1.00% LIBOR Floor)(10)(13)		11/9/2021			10,014,223				7,570,054				-								0.00	%
				Equity - 787.4 Class A Units					9,550,922				9,550,922				-				78	%			0.00	%
									42,594,215				37,489,171				7,488,473								4.78	%
Subtotal Control Investments								$	42,594,215			$	37,489,171			$	7,488,473								4.78	%
Total Investments, June 30, 2021								$	240,360,414			$	225,530,289			$	181,618,520								115.92	%

 

(1)	All of our investments are domiciled in the United States. Certain investments also have international operations.
(2)	Par amount includes accumulated payment-in-kind (“PIK”) interest, as applicable, and is net of repayments.

 

(3)	Net unrealized depreciation for U.S. federal income tax purposes totaled $44,153,134.
	The tax cost basis of investments is $225, 771,654 as of June 30, 2021.
(4)	Unless otherwise indicated, all securities are valued using significant unobservable inputs, which are categorized as Level 3 assets under the definition of ASC 820 fair value hierarchy (see Note 4).
(5)	Percentage is based on net assets of $156,678,576 as of June 30, 2021.
(6)	Affiliated Investments are defined by the 1940 Act as investments in companies in which the Company owns between 5% and 25% outstanding voting securities or is under common control with such portfolio company.
(7)	Control Investments are defined by the Investment Company Act of 1940, as amended (the “1940 Act”), as investments in companies in which the Company owns more than 25% of the voting securities or maintains greater than 50% of the board representation.
(8)	The investment has an unfunded commitment as of June 30, 2021 (see Note 8), and fair value includes the value of any unfunded commitments.
(9)	Represents 1.3% partnership interest in Watermill-QMC Partners, LP and Watermill-EMI Partners, LP.
(10)	The investment was on non-accrual status as of June 30, 2021.
(11)	The investment is not a qualifying asset as defined under Section 55(a) of 1940 Act, in a whole, or in part. As of June 30, 2021, 14.51% of the Company’s portfolio investments were non-qualifying assets.
(12)	Security is non-income producing.
(13)	The interest rate on these loans is subject to the greater of a London Interbank Offering Rate (“LIBOR”) floor, or 1 month LIBOR plus a base rate. The 1 month LIBOR as of June 30, 2021 was 0.10%.
(14)	The interest rate on these loans is subject to the greater of a LIBOR floor, or 3 month LIBOR plus a base rate. The 3 month LIBOR as of June 30, 2021 was 0.15%.
(15)	The interest rate on these loans is subject to 3 month LIBOR plus a base rate. The 3 month LIBOR as of June 30, 2021 was 0.15%.

 

 

(16)	This investment earns 0.50% commitment fee on all unused commitment as of June 30, 2021, and is recorded as a component of interest income on the Consolidated Statements of Operations.
(17)	In lieu of paying 10.00% Cash, URT Acquisition Holdings Corporation may elect to pay 12.00% PIK. This security has been paying 10.00% Cash since 12/31/20.
(18)	This investment represents a Level 1 security in the ASC 820 table as of June 30, 2021 (see Note 4).
(19)	This investment represents a Level 2 security in the ASC 820 table as of June 30, 2021 (see Note 4).
(20)	As a practical expedient, the Company uses net asset value (“NAV”) to determine the fair value of this investment.
(21)	The interest rate on this loan is fixed-to-floating and will shift to 3 month LIBOR plus a 4.743% spread on 9/30/2025.
(22)	The interest rate on this loan is fixed-to-floating and will shift to 3 month LIBOR plus a 5.29% spread on 9/27/2027.
(23)	The interest rate on this loan is fixed-to-floating and will shift to 3 month LIBOR plus a 5.64% spread on 8/15/2024.
(24)	The interest rate on this loan is fixed-to-floating and will shift to 3 month LIBOR plus a 6.429% spread on 1/15/2025.
(25)	In lieu of paying 5.00% Cash, 1888 Industrial Services, LLC may elect to pay 5.00% PIK. This security has been paying 5.00% Cash.

 

 

DETERMINATION OF NET ASSET VALUE

 

The Company follows ASC 820 for measuring the fair value of portfolio investments. Fair value is the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters, or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation models involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity. The Company’s fair value analysis includes an analysis of the value of any unfunded loan commitments. Financial investments recorded at fair value in the consolidated financial statements are categorized for disclosure purposes based upon the level of judgment associated with the inputs used to measure their value. The valuation hierarchical levels are based upon the transparency of the inputs to the valuation of the investment as of the measurement date. Investments which are valued using NAV as a practical expedient are excluded from this hierarchy, and certain prior period amounts have been reclassified to conform to the current period presentation. The three levels are defined below:

 

●

Level 1 – Valuations based on quoted prices in active markets for identical assets or liabilities at the measurement date.

 

●

Level 2 — Valuations based on inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable at the measurement date. This category includes quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in non-active markets including actionable bids from third parties for privately held assets or liabilities, and observable inputs other than quoted prices such as yield curves and forward currency rates that are entered directly into valuation models to determine the value of derivatives or other assets or liabilities.

 

●

Level 3 — Valuations based on inputs that are unobservable and where there is little, if any, market activity at the measurement date. The inputs for the determination of fair value may require significant management judgment or estimation and are based upon management’s assessment of the assumptions that market participants would use in pricing the assets or liabilities. These investments include debt and equity investments in private companies or assets valued using the Market or Income Approach and may involve pricing models whose inputs require significant judgment or estimation because of the absence of any meaningful current market data for identical or similar investments. The inputs in these valuations may include, but are not limited to, capitalization and discount rates, beta and EBITDA multiples. The information may also include pricing information or broker quotes which include a disclaimer that the broker would not be held to such a price in an actual transaction. The non-binding nature of consensus pricing and/or quotes accompanied by disclaimer would result in classification as Level 3 information, assuming no additional corroborating evidence.

 

In addition to using the above inputs in investment valuations, the Company continues to employ a valuation policy approved by the board of directors that is consistent with ASC 820. Consistent with our valuation policy, we evaluate the source of inputs, including any markets in which our investments are trading, in determining fair value.

 

The Company applies fair value accounting to all of its financial instruments in accordance with the 1940 Act and ASC Topic 820 - Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value, establishes a framework used to measure fair value and requires disclosures for fair value measurements. In accordance with ASC 820, the Company has categorized its financial instruments carried at fair value, based on the priority of the valuation technique, into a three-level fair value hierarchy as discussed above. Fair value is a market-based measure considered from the perspective of the market participant who holds the financial instrument rather than an entity specific measure. Therefore, when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that management believes market participants would use in pricing the financial instrument at the measurement date.

 

Investments for which market quotations are readily available are valued at such market quotations, which are generally obtained from an independent pricing service or multiple broker-dealers or market makers. We weight the use of third-party broker quotations, if any, in determining fair value based on our understanding of the level of actual transactions used by the broker to develop the quote and whether the quote was an indicative price or binding offer. However, debt investments with remaining maturities within 60 days that are not credit impaired are valued at cost plus accreted discount, or minus amortized premium, which approximates fair value. Investments for which market quotations are not readily available are valued at fair value as determined by the Company’s board of directors based upon input from management and third-party valuation firms. Because these investments are illiquid and because there may not be any directly comparable companies whose financial instruments have observable market values, these loans are valued using a fundamental valuation methodology, consistent with traditional asset pricing standards, that is objective and consistently applied across all loans and through time.

 

Investments in investment funds are valued at fair value. Fair values are generally determined utilizing the NAV supplied by, or on behalf of, management of each investment fund, which is net of management and incentive fees or allocations charged by the investment fund and is in accordance with the “practical expedient”, as defined by FASB Accounting Standards Update (“ASU”) 2009-12, Investments in Certain Entities that Calculate Net Asset Value per Share. NAVs received by, or on behalf of, management of each investment fund are based on the fair value of the investment funds’ underlying investments in accordance with policies established by management of each investment fund, as described in each of their financial statements and offering memorandum. If the Company is in the process of the sale of an investment fund, fair value will be determined by actual or estimated sale proceeds.

 

The methodologies utilized by the Company in estimating the fair value of its investments categorized as Level 3 generally fall into the following two categories:

 

●

The “Market Approach” uses prices and other relevant information generated by market transactions involving identical or comparable (that is, similar) assets, liabilities, or a group of assets and liabilities, such as a business.

 

●

The “Income Approach” converts future amounts (for example, cash flows or income and expenses) to a single current (that is, discounted) amount. When the Income Approach is used, the fair value measurement reflects current market expectations about those future amounts.

 

The Company has engaged third-party valuation firms (the “Valuation Firms”) to assist it and its board of directors in the valuation of its portfolio investments. The valuation reports generated by the Valuation Firms consider the evaluation of financing and sale transactions with third parties, expected cash flows and market-based information, including comparable transactions, performance multiples, and movement in yields of debt instruments, among other factors. The Company uses a market yield analysis under the Income Approach or an enterprise model of valuation under the Market Approach, or a combination thereof. In applying the market yield analysis, the value of the Company’s loans is determined based upon inputs such as the coupon rate, current market yield, interest rate spreads of similar securities, the stated value of the loan, and the length to maturity. In applying the enterprise model, the Company uses a waterfall analysis, which takes into account the specific capital structure of the borrower and the related seniority of the instruments within the borrower’s capital structure into consideration. To estimate the enterprise value of the portfolio company, we weigh some or all of the traditional market valuation methods and factors based on the individual circumstances of the portfolio company in order to estimate the enterprise value.

 

We undertake a multi-step valuation process each quarter when valuing investments for which market quotations are not readily available, as described below:

 

●

our quarterly valuation process begins with each portfolio investment being initially valued by one or more Valuation Firms;

 

●

preliminary valuation conclusions will then be documented and discussed with senior management;

 

●

the audit committee of the board of directors reviews the preliminary valuations with management and the Valuation Firms;

 

●

the board of directors discusses the valuations and determines the fair value of each investment in the Company’s portfolio in good faith based on the input of management, the respective Valuation Firms and the audit committee.

 

Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may differ from the values that would have been used had a readily available market value existed for such investments, and the differences could be material. In addition, changes in the market environment (including the impact of COVID-19 on financial markets), portfolio company performance, and other events may occur over the lives of the investments that may cause the gains or losses ultimately realized on these investments to be materially different than the valuations currently assigned. Accordingly, the notes to our consolidated financial statements express the uncertainty with respect to the possible effect of such valuations, and any change in such valuations, on our consolidated financial statements.

 

 

DESCRIPTION OF CAPITAL STOCK

 

The following description of our capital stock is based on relevant portions of the DGCL and on our Certificate of Incorporation and Bylaws. We refer you to our Certificate of Incorporation and Bylaws, forms of which are incorporated by reference to the exhibits to the registration statement of which this prospectus is a part, for a more detailed description of the provisions summarized below.

 

Capital Stock

 

General

 

Under the terms of our Certificate of Incorporation, our authorized stock consists solely of 5,000,000 shares of common stock, par value $0.001 per share, and 100,000,000 shares of preferred stock, par value $0.001 per share. There are no outstanding options or warrants to purchase our stock. No stock has been authorized for issuance under any equity compensation plans. Under Delaware law, our stockholders generally are not personally liable for our debts or obligations. Unless our Board determines otherwise, we will issue all shares of our capital stock in uncertificated form.

 

The following are our outstanding classes of securities as of October 4, 2021: 

 

Title of Class		Amount Authorized				Amount Held by Us or for Our Account				Amount Outstanding Exclusive of Amount Held by Us or for Our Account
Common Stock			5,000,000				206,488				2,517,221
Preferred Stock			100,000,000				0				0

 

Common Stock

 

All shares of our common stock have equal rights as to earnings, assets, dividends and voting and, when they are issued, are duly authorized, validly issued, fully paid and non-assessable. Distributions may be paid to the holders of our common stock if, as and when authorized by our Board and declared by us out of funds legally available therefor. Shares of our common stock have no preemptive, exchange, conversion or redemption rights and are freely transferable, except when their transfer is restricted by the Certificate of Incorporation, federal and state securities laws or by contract. In the event of our liquidation, dissolution or winding up, each share of our common stock would be entitled to share ratably in all of our assets that are legally available for distribution after we pay all debts and other liabilities and subject to any preferential rights of holders of our preferred stock, if any preferred stock is outstanding at such time. Each share of our common stock is entitled to one vote on all matters submitted to a vote of stockholders, including the election of our directors. Accordingly, holders of a majority of the shares of common stock entitled to vote in any election of directors may elect all of the directors standing for election. The rights, preferences and privileges of holders of common stock are subject to the rights of the holders of any series of preferred stock which we may designate and issue in the future. In addition, holders of our common stock may participate in our dividend reinvestment plan.

 

Preferred Stock

 

Under the terms of our certificate of incorporation, our board of directors is authorized to issue shares of preferred stock in one or more series without stockholder approval. The board of directors has discretion to determine the rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences of each series of preferred stock. The 1940 Act limits our flexibility as to certain rights and preferences of the preferred stock that our certificate of incorporation may provide and requires, among other things, that immediately after issuance and before any distribution is made with respect to common stock, we meet a coverage ratio of total assets to total senior securities, which include all of our borrowings and our preferred stock, of at least 200% (or 150% if certain requirements under the 1940 Act are met), and the holders of shares of preferred stock, if any are issued, must be entitled as a class to elect two directors at all times and to elect a majority of the directors if and for so long as dividends on the preferred stock are unpaid in an amount equal to two full years of dividends on the preferred stock. The features of the preferred stock will be further limited by the requirements applicable to RICs under the Code. The purpose of authorizing our board of directors to issue preferred stock and determine its rights and preferences is to eliminate delays associated with a stockholder vote on specific issuances. The issuance of preferred stock, while providing desirable flexibility in connection with providing leverage for our investment program, possible acquisitions and other corporate purposes, could make it more difficult for a third party to acquire, or could discourage a third party from acquiring, a majority of our outstanding voting stock.

 

 

Provisions of the DGCL and Our Certificate of Incorporation and Bylaws

 

Limitation on Liability of Directors and Officers; Indemnification and Advance of Expenses

 

The indemnification of our officers and directors is governed by Section 145 of the DGCL, our Certificate of Incorporation and Bylaws. Section 145(a) of the DGCL empowers a Delaware corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that such person is or was a director, officer, employee or agent of such corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit or proceeding if (1) such person acted in good faith, (2) in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation and (3) with respect to any criminal action or proceeding, such person had no reasonable cause to believe such person’s conduct was unlawful.

 

Section 145(b) of the DGCL empowers a Delaware corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person is or was a director, officer, employee or agent of such corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner the person reasonably believed to be in, or not opposed to, the best interests of such corporation, and except that no indemnification may be made in respect of any claim, issue or matter as to which such person has been adjudged to be liable to the corporation unless and only to the extent that the Delaware Court of Chancery or the court in which such action or suit was brought determines upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court deems proper.

 

Section 145 of the DGCL further provides that to the extent that a present or former director or officer is successful, on the merits or otherwise, in the defense of any action, suit or proceeding referred to in subsections (a) and (b) of Section 145, or in defense of any claim, issue or matter therein, such person will be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with such action, suit or proceeding. In all cases in which indemnification is permitted under subsections (a) and (b) of Section 145 (unless ordered by a court), it will be made by the corporation only as authorized in the specific case upon a determination that indemnification of the present or former director, officer, employee or agent is proper in the circumstances because the applicable standard of conduct has been met by the party to be indemnified. Such determination must be made, with respect to a person who is a director or officer at the time of such determination, (1) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, (2) by a committee of such directors designated by majority vote of such directors, even though less than a quorum, (3) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion or (4) by the stockholders. The statute authorizes the corporation to pay expenses incurred by an officer or director in advance of the final disposition of a proceeding upon receipt of an undertaking by or on behalf of the person to whom the advance will be made, to repay the advances if it is ultimately determined that he or she was not entitled to indemnification. Section 145 of the DGCL also provides that indemnification and advancement of expenses permitted under such Section are not to be exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors, or otherwise. Section 145 of the DGCL also authorizes the corporation to purchase and maintain liability insurance on behalf of its directors, officers, employees and agents regardless of whether the corporation would have the statutory power to indemnify such persons against the liabilities insured.

 

Our Certificate of Incorporation requires us to indemnify to the full extent permitted by Section 145 of the DGCL all persons whom we may indemnify under that section. Our Certificate of Incorporation also provides that expenses incurred by our officers or directors in defending any action, suit or proceeding for which they may be entitled to indemnification under our Certificate of Incorporation shall be paid in advance of the final disposition of such action, suit or proceeding.

 

Our Certificate of Incorporation provides that our directors will not be liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director to the fullest extent permitted by the current DGCL or as the DGCL may hereafter be amended. Section 102(b)(7) of the DGCL provides that the personal liability of a director to a corporation or its stockholders for breach of fiduciary duty as a director may be eliminated except for liability (1) for any breach of the director’s duty of loyalty to the registrant or its stockholders, (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) under Section 174 of the DGCL, relating to unlawful payment of dividends or unlawful stock purchases or redemption of stock or (4) for any transaction from which the director derives an improper personal benefit.

 

Our Bylaws provide for the indemnification of any person to the full extent permitted, and in the manner provided, by the current DGCL.

 

 

As a BDC, we are not permitted to, and will not indemnify any of our executive officers and directors or any other person against liability arising from willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person’s office, or by reason of reckless disregard of obligations and duties of such person arising under contract or agreement.

 

Delaware Anti-takeover Law

 

The DGCL contains provisions that could make it more difficult for a potential acquirer to acquire us by means of a tender offer, proxy contest or otherwise. These provisions are expected to discourage certain coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of us to negotiate first with our Board. These measures may delay, defer or prevent a transaction or a change in control that might otherwise be in the best interests of our stockholders. We believe, however, that the benefits of these provisions outweigh the potential disadvantages of discouraging any such acquisition proposals because the negotiation of such proposals may improve their terms.

 

We are subject to the provisions of Section 203 of the DGCL regulating corporate takeovers. In general, these provisions prohibit a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the date that the stockholder became an interested stockholder, unless:

 

●

prior to such time, the board of directors approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder;

 

●

upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced; or

 

●

at or subsequent to such time, the business combination is approved by the board of directors and authorized at a meeting of stockholders, by at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder.

 

Section 203 of the DGCL defines “business combination” to include the following:

 

●

any merger or consolidation involving the corporation and the interested stockholder;

 

●

any sale, transfer, pledge or other disposition (in one transaction or a series of transactions) of 10% or more of either the aggregate market value of all the assets of the corporation or the aggregate market value of all the outstanding stock of the corporation involving the interested stockholder;

 

●

subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder;

 

●

any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation owned by the interested stockholder; or

 

●

the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation.

 

In general, Section 203 of the DGCL defines an “interested stockholder” as any entity or person beneficially owning 15% or more of our outstanding voting stock and any entity or person affiliated with or controlling or controlled by any of these entities or persons.

 

The statute could prohibit or delay mergers or other takeover or change in control attempts and, accordingly, may discourage attempts to acquire us.

 

Classified Board of Directors

 

Our Certificate of Incorporation provides that our Board is divided into three classes of directors, as nearly equal in number as possible, serving staggered three-year terms. The current terms of the first, second and third classes will expire at successive annual meetings of our stockholders and, in each case, those directors will serve until their successors are duly elected and qualify or until their resignation, removal from office, death or incapacity. A classified board may render a change in control of us or removal of our incumbent management more difficult. The Board had determined that the classified board provisions are in the best interest of the stockholders, as the longer time required to elect a majority of a classified board of directors help to ensure the continuity and stability of management and policies.

 

 

Election of Directors

 

Our Bylaws provide that, unless otherwise provided in our Certificate of Incorporation, the affirmative vote of the holders of a plurality of the votes cast by stockholders present in person or by proxy at an annual or special meeting of stockholders and entitled to vote at such meeting is required to elect a director. Under our Certificate of Incorporation, our Board may amend the Bylaws to alter the vote required to elect directors.

 

Number of Directors; Vacancies; Removal

 

Our Certificate of Incorporation provides that the number of directors is set only by the Board in accordance with our Bylaws. Our Bylaws provide that a 66 2/3% of our entire Board may at any time increase or decrease the number of directors. However, unless our Bylaws are amended, the number of directors shall be five. Under the DGCL, unless the certificate of incorporation provides otherwise (which our Certificate of Incorporation does not), directors on a classified board such as our Board may be removed only for cause. Under our Bylaws, the Board of Directors or any individual director may be removed from office, with cause, by affirmative vote of the holders of a majority of the capital stock entitled to vote at an election of directors, and a new director or directors elected by a vote of the remaining directors. Under our Certificate of Incorporation and Bylaws, subject to the applicable requirements of the 1940 Act and the rights of holders of one or more series of preferred stock, any vacancy on our Board, including a vacancy resulting from an enlargement of our Board, may be filled only by vote of a majority of our remaining directors then in office, even if our remaining directors do not constitute a quorum, and any director elected to fill a vacancy shall serve for the remainder of the full term of the directorship in which such vacancy occurred and until a successor is duly elected and qualifies. The limitations on the ability of our stockholders to remove directors and fill vacancies could make it more difficult for a third party to acquire, or discourage a third party from seeking to acquire, control of us.

 

Action by Stockholders

 

Our Certificate of Incorporation provides that stockholder action can be taken only at an annual or special meeting of stockholders or by unanimous written consent in lieu of a meeting. This provision, combined with the requirements by our Certificate of Incorporation regarding the calling of an annual meeting or special meeting of stockholders discussed below, may have the effect of delaying consideration of a stockholder proposal until the next annual meeting.

 

Advance Notice Provisions for Stockholder Nominations and Stockholder Proposals

 

Our Bylaws provide that with respect to an annual meeting of stockholders, nominations of persons for election to our Board and the proposal of business to be considered by stockholders may be made only (1) by or at the direction of our Board, (2) pursuant to our notice of meeting or (3) by a stockholder who is entitled to vote at the meeting and who has complied with the advance notice procedures of our Bylaws. Nominations of persons for election to our Board at a special meeting may be made only (1) by or at the direction of the Board or (2) by a stockholder who is entitled to vote at the meeting and who has complied with the advance notice provisions of our Bylaws.

 

The purpose of requiring stockholders to give us advance notice of nominations and other business is to afford our Board a meaningful opportunity to consider the qualifications of the proposed nominees and the advisability of any other proposed business and, to the extent deemed necessary or desirable by our Board, to inform stockholders and make recommendations about such qualifications or business, as well as to provide a more orderly procedure for conducting meetings of stockholders. Although our Bylaws do not give our Board any power to disapprove stockholder nominations for the election of directors or proposals recommending certain action, they may have the effect of precluding a contest for the election of directors or the consideration of stockholder proposals if proper procedures are not followed and of discouraging or deterring a third party from conducting a solicitation of proxies to elect its own slate of directors or to approve its own proposal without regard to whether consideration of such nominees or proposals might be harmful or beneficial to us and our stockholders.

 

Stockholder Meetings

 

Our Bylaws provide that any action required or permitted to be taken by stockholders at an annual meeting or special meeting of stockholders may only be taken if it is properly brought before such meeting. Our Certificate of Incorporation also provides that, except as otherwise required by law, special meetings of the stockholders can only be called by the Chairman of our Board, by the Chief Executive Officer or by resolution adopted by an affirmative majority of our Board. In addition, our Bylaws establish an advance notice procedure for stockholder proposals to be brought before an annual meeting of stockholders, including proposed nominations of candidates for election to our Board. Stockholders at an annual meeting may only consider proposals or nominations specified in the notice of meeting or brought before the meeting by or at the direction of our Board, or by a stockholder of record on the record date for the meeting who is entitled to vote at the meeting and who has delivered timely written notice in proper form to the Company of the stockholder’s intention to bring such business before the meeting. These provisions could have the effect of delaying until the next stockholder meeting stockholder actions that are favored by the holders of a majority of our outstanding voting securities.

 

Conflict with 1940 Act

 

Our Bylaws provide that, if and to the extent that any provision of the DGCL or any provision of our Certificate of Incorporation or Bylaws conflicts with any provision of the 1940 Act, the applicable provision of the 1940 Act will control.

 

 

DESCRIPTION OF WARRANTS

 

The following is a general description of the terms of the warrants we may issue from time to time. Particular terms of any warrants we offer will be described in the prospectus supplement relating to such warrants.

 

We may issue warrants to purchase shares of our common stock, preferred stock or debt securities. Such warrants may be issued independently or together with shares of common or preferred stock or a specified principal amount of debt securities and may be attached or separate from such securities. We will issue each series of warrants under a separate warrant agreement to be entered into between us and a warrant agent. The warrant agent will act solely as our agent and will not assume any obligation or relationship of agency for or with holders or beneficial owners of warrants.

 

A prospectus supplement will describe the particular terms of any series of warrants we may issue, including the following:

 

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the title of such warrants;

 

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the aggregate number of such warrants;

 

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the price or prices at which such warrants will be issued;

 

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the currency or currencies, including composite currencies, in which the price of such warrants may be payable;

 

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if applicable, the designation and terms of the securities with which the warrants are issued and the number of warrants issued with each such security or each principal amount of such security;

 

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in the case of warrants to purchase debt securities, the principal amount of debt securities purchasable upon exercise of one warrant and the price at which and the currency or currencies, including composite currencies, in which this principal amount of debt securities may be purchased upon such exercise;

 

●

in the case of warrants to purchase common stock or preferred stock, the number of shares of common stock or preferred stock, as the case may be, purchasable upon exercise of one warrant and the price at which and the currency or currencies, including composite currencies, in which these shares may be purchased upon such exercise;

 

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the date on which the right to exercise such warrants will commence and the date on which such right will expire;

 

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whether such warrants will be issued in registered form or bearer form; if applicable, the minimum or maximum amount of such warrants which may be exercised at any one time;

 

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if applicable, the date on and after which such warrants and the related securities will be separately transferable;

 

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information with respect to book-entry procedures, if any;

 

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the terms of the securities issuable upon exercise of the warrants;

 

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if applicable, a discussion of certain U.S. federal income tax considerations; and

 

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any other terms of such warrants, including terms, procedures and limitations relating to the exchange and exercise of such warrants.

 

We and the warrant agent may amend or supplement the warrant agreement for a series of warrants without the consent of the holders of the warrants issued thereunder to effect changes that are not inconsistent with the provisions of the warrants and that do not materially and adversely affect the interests of the holders of the warrants.

 

Prior to exercising their warrants, holders of warrants will not have any of the rights of holders of the securities purchasable upon such exercise, including, in the case of warrants to purchase debt securities, the right to receive principal, premium, if any, or interest payments, on the debt securities purchasable upon exercise or to enforce covenants in the applicable indenture or, in the case of warrants to purchase common stock or preferred stock, the right to receive dividends, if any, or payments upon our liquidation, dissolution or winding up or to exercise any voting rights.

 

Under the 1940 Act, we may generally only offer warrants provided that (1) the warrants expire by their terms within ten years, (2) the exercise price is not less than the market value of our common stock at the date of issuance, (3) if no such market value exists for our common stock, the exercise price is not less than the then current NAV per share of our common stock (unless the requirements of Section 63 of the 1940 Act are met), (4) our stockholders authorize the proposal to issue such warrants, and our board of directors approves such issuance on the basis that the issuance is in the best interests of us and our stockholders and (5) if the warrants are accompanied by other securities, the warrants are not separately transferable unless no class of such warrants and the securities accompanying them has been publicly distributed. The 1940 Act also provides that the amount of our voting securities that would result from the exercise of all outstanding warrants at the time of issuance may not exceed 25% of our outstanding voting securities.

 

DESCRIPTION OF DEBT SECURITIES

 

On March 18, 2013, the Company issued of $60 million in aggregate principal amount of its 6.125% senior unsecured notes due 2023 (the “2023 Notes”). On March 26, 2013, the Company closed an additional $3.5 million in aggregate principal amount of the 2023 Notes, pursuant to the partial exercise of the underwriters’ option to purchase additional notes. On December 12, 2016, the Company entered into an “At-The-Market” (“ATM”) debt distribution agreement with FBR Capital Markets & Co., through which the Company could offer for sale, from time to time, up to $40.0 million in aggregate principal amount of the 2023 Notes. The Company sold 1,573,872 of the 2023 Notes at an average price of $25.03 per note, and raised $38.6 million in net proceeds, through the ATM debt distribution agreement. On March 10, 2018, the Company redeemed $13.0 million in aggregate principal amount of the 2023 Notes. On December 31, 2018, the Company redeemed $12.0 million in aggregate principal amount of the 2023 Notes. As a result of the foregoing and as of June 30, 2021, the aggregate principal amount of 2023 Notes outstanding was $77.8 million. The 2023 Notes will mature on March 30, 2023. The 2023 Notes bear interest at a rate of 6.125% per year payable quarterly March 30, June 30, September 30 and December 30 of each year, beginning June 30, 2013. The 2023 Notes may be redeemed in whole or in part at any time or from time to time at the Company’s option. The 2023 Notes trade on the NASDAQ Global Market under the trading symbol “PFXNL.”

 

We may issue additional debt securities in one or more series. The specific terms of each additional series of debt securities will be described in the particular prospectus supplement relating to that series. The prospectus supplement may or may not modify the general terms found in this prospectus and will be filed with the SEC. For a complete description of the terms of a particular series of debt securities, you should read both this prospectus and the prospectus supplement relating to that particular series.

 

As required by federal law for all bonds and notes of companies that are publicly offered in the United States, the debt securities are governed by a document called an “indenture.” An indenture is a contract between us and a financial institution acting as trustee on your behalf, and is subject to and governed by the Trust Indenture Act of 1939, as amended. The trustee has two main roles. First, the trustee can enforce your rights against us if we default. There are some limitations on the extent to which the trustee acts on your behalf, see “Description of our Debt Securities — Events of Default” for more information. Second, the trustee performs certain administrative duties for us, such as sending interest and principal payments to holders.

 

Because this section is a summary, it does not describe every aspect of the debt securities and the indenture. We urge you to read the indenture, which is an exhibit to this prospectus, because it, and not this description, defines your rights as a holder of debt securities issued pursuant to this prospectus and any accompanying prospectus supplement. For example, in this section, we use capitalized words to signify terms that are specifically defined in the indenture. Some of the definitions are repeated in this prospectus, but for the rest, you will need to read the indenture. See “Available Information” for information on how to obtain a copy of the indenture.

 

A prospectus supplement, which will accompany this prospectus, will describe the particular series of debt securities being offered by including:

 

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the designation or title of the series of debt securities;

 

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the total principal amount of the series of debt securities and whether or not the offering may be reopened for additional securities of that series and on what terms;

 

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the percentage of the principal amount at which the series of debt securities will be offered;

 

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the date or dates on which principal will be payable;

 

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the rate or rates (which may be either fixed or variable) and/or the method of determining such rate or rates of interest, if any;

 

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the date or dates from which any interest will accrue, or the method of determining such date or dates, and the date or dates on which any interest will be payable;

 

 

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the terms for redemption, extension or early repayment, if any;

 

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the currencies in which the series of debt securities are issued and payable;

 

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whether the amount of payments of principal, premium or interest, if any, on a series of debt securities will be determined with reference to an index, formula or other method (which could be based on one or more currencies, commodities, equity indices or other indices) and how these amounts will be determined;

 

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the place or places, if any, other than or in addition to The City of New York, of payment, transfer, conversion and/or exchange of the debt securities;

 

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the denominations in which the offered debt securities will be issued;

 

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the provision for any sinking fund;

 

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any restrictive covenants;

 

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any Events of Default;

 

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whether the series of debt securities are issuable in certificated form;

 

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any provisions for defeasance or covenant defeasance;

 

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any special federal income tax implications, including, if applicable, federal income tax considerations relating to original issue discount (“OID”);

 

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whether and under what circumstances we will pay additional amounts in respect of any tax, assessment or governmental charge and, if so, whether we will have the option to redeem the debt securities rather than pay the additional amounts (and the terms of this option);

 

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any provisions for convertibility or exchangeability of the debt securities into or for any other securities;

 

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whether the debt securities are subject to subordination and the terms of such subordination;

 

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the listing, if any, on a securities exchange; and

 

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any other terms.

 

The debt securities may be secured or unsecured obligations. Under the provisions of the 1940 Act, we are permitted, as a BDC, to issue debt only in amounts such that we are in compliance with our asset coverage ratio, as defined in the 1940 Act. Unless the prospectus supplement states otherwise, principal (and premium, if any) and interest, if any, will be paid by us in immediately available funds.

 

General

 

The indenture provides that any debt securities proposed to be sold under this prospectus and any prospectus supplement, or offered debt securities, and any debt securities issuable upon the exercise of warrants or upon conversion or exchange of other offered securities, or underlying debt securities may be issued under the indenture in one or more series.

 

 

For purposes of this prospectus, any reference to the payment of principal of, or premium or interest, if any, on, debt securities will include additional amounts if required by the terms of the debt securities.

 

The indenture does not limit the amount of debt securities that may be issued thereunder from time to time. Debt securities issued under the indenture, when a single trustee is acting for all debt securities issued under the indenture, are called the “indenture securities.” The indenture also provides that there may be more than one trustee thereunder, each with respect to one or more different series of indenture securities. See “Description of our Debt Securities — Resignation of Trustee” below. At a time when two or more trustees are acting under the indenture, each with respect to only certain series, the term “indenture securities” means the one or more series of debt securities with respect to which each respective trustee is acting. In the event that there is more than one trustee under the indenture, the powers and trust obligations of each trustee described in this prospectus will extend only to the one or more series of indenture securities for which it is trustee. If two or more trustees are acting under the indenture, then the indenture securities for which each trustee is acting would be treated as if issued under separate indentures.

 

The indenture does not contain any provisions that give you protection in the event we issue a large amount of debt or we are acquired by another entity.

 

A prospectus supplement will contain information with respect to any deletions from, modifications of or additions to the Events of Default or our covenants that are described below, including any addition of a covenant or other provision providing event risk or similar protection.

 

We have the ability to issue indenture securities with terms different from those of indenture securities previously issued and, without the consent of the holders thereof, to reopen a previous issue of a series of indenture securities and issue additional indenture securities of that series unless the reopening was restricted when that series was created.

 

If any debt securities are convertible into shares of our common stock, the exercise price for such conversion will not be less than the NAV per share at the time of issuance of such debt securities (unless the majority of our board of directors determines that a lower exercise price is in the best interests of us and our stockholders, a majority of our stockholders (including stockholders who are not affiliated persons of us) have approved an issuance of common stock below the then current NAV per share in the 12 months preceding the issuance, and the exercise price closely approximates the market value of our common stock at the time the debt securities are issued).

 

Conversion and Exchange

 

If any debt securities are convertible into or exchangeable for other securities, the prospectus supplement will explain the terms and conditions of the conversion or exchange, including the conversion price or exchange ratio (or the calculation method), the conversion or exchange period (or how the period will be determined), if conversion or exchange will be mandatory or at the option of the holder or us, provisions for adjusting the conversion price or the exchange ratio and provisions affecting conversion or exchange in the event of the redemption of the underlying debt securities. These terms may also include provisions under which the number or amount of other securities to be received by the holders of the debt securities upon conversion or exchange would be calculated according to the market price of the other securities as of a time stated in the prospectus supplement.

 

Issuance of Securities in Registered Form

 

We may issue the debt securities in registered form, in which case we may issue them either in book-entry form only or in “certificated” form. Debt securities issued in book-entry form will be represented by global securities.

 

Book-Entry Holders

 

We will issue registered debt securities in book-entry form only, unless we specify otherwise in the applicable prospectus supplement. This means debt securities will be represented by one or more global securities registered in the name of a depositary that will hold them on behalf of financial institutions that participate in the depositary’s book-entry system. These participating institutions, in turn, hold beneficial interests in the debt securities held by the depositary or its nominee. These institutions may hold these interests on behalf of themselves or customers.

 

Under the indenture, only the person in whose name a debt security is registered is recognized as the holder of that debt security. Consequently, for debt securities issued in book-entry form, we will recognize only the depositary as the holder of the debt securities and we will make all payments on the debt securities to the depositary. The depositary will then pass along the payments it receives to its participants, which in turn will pass the payments along to their customers who are the beneficial owners. The depositary and its participants do so under agreements they have made with one another or with their customers; they are not obligated to do so under the terms of the debt securities.

 

 

As a result, investors will not own debt securities directly. Instead, they will own beneficial interests in a global security, through a bank, broker or other financial institution that participates in the depositary’s book-entry system or holds an interest through a participant. As long as the debt securities are represented by one or more global securities, investors will be indirect holders, and not holders, of the debt securities.

 

Street Name Holders

 

In the future, we may issue debt securities in certificated form or terminate a global security. In these cases, investors may choose to hold their debt securities in their own names or in “street name.” Debt securities held in street name are registered in the name of a bank, broker or other financial institution chosen by the investor, and the investor holds a beneficial interest in those debt securities through the account he or she maintains at that institution.

 

For debt securities held in street name, we will recognize only the intermediary banks, brokers and other financial institutions in whose names the debt securities are registered as the holders of those debt securities, and we will make all payments on those debt securities to them. These institutions will pass along the payments they receive to their customers who are the beneficial owners, but only because they agree to do so in their customer agreements or because they are legally required to do so. Investors who hold debt securities in street name will be indirect holders, and not holders, of the debt securities.

 

Legal Holders

 

Our obligations, as well as the obligations of the applicable trustee and those of any third parties employed by us or the applicable trustee, run only to the legal holders of the debt securities. We do not have obligations to investors who hold beneficial interests in global securities, in street name or by any other indirect means. This will be the case whether an investor chooses to be an indirect holder of a debt security or has no choice because we are issuing the debt securities only in book-entry form.

 

For example, once we make a payment or give a notice to the holder, we have no further responsibility for the payment or notice even if that holder is required, under agreements with depositary participants or customers or by law, to pass it along to the indirect holders but does not do so. Similarly, if we want to obtain the approval of the holders for any purpose (for example, to amend an indenture or to relieve us of the consequences of a default or of our obligation to comply with a particular provision of an indenture), we would seek the approval only from the holders, and not the indirect holders, of the debt securities. Whether and how the holders contact the indirect holders is up to the holders.

 

When we refer to you, we mean those who invest in the debt securities being offered by this prospectus, whether they are the holders or only indirect holders of those debt securities. When we refer to your debt securities, we mean the debt securities in which you hold a direct or indirect interest.

 

Special Considerations for Indirect Holders

 

If you hold debt securities through a bank, broker or other financial institution, either in book-entry form or in street name, we urge you to check with that institution to find out:

 

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how it handles securities payments and notices;

 

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whether it imposes fees or charges;

 

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how it would handle a request for the holders’ consent, if ever required;

 

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whether and how you can instruct it to send you debt securities registered in your own name so you can be a holder, if that is permitted in the future for a particular series of debt securities;

 

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how it would exercise rights under the debt securities if there were a default or other event triggering the need for holders to act to protect their interests; and

 

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if the debt securities are in book-entry form, how the depositary’s rules and procedures will affect these matters.

 

Global Securities

 

As noted above, we expect that we will issue debt securities as registered securities in book-entry form only. A global security represents one or any other number of individual debt securities. Generally, all debt securities represented by the same global securities will have the same terms.

 

Each debt security issued in book-entry form will be represented by a global security that we deposit with and register in the name of a financial institution or its nominee that we select. The financial institution that we select for this purpose is called the depositary. Unless we specify otherwise in the applicable prospectus supplement, The Depository Trust Company, New York, New York, known as DTC, will be the depositary for all debt securities issued in book-entry form.

 

 

A global security may not be transferred to or registered in the name of anyone other than the depositary or its nominee, unless special termination situations arise. We describe those situations below under “Description of our Debt Securities — Global Securities — Special Situations when a Global Security Will Be Terminated.” As a result of these arrangements, the depositary, or its nominee, will be the sole registered owner and holder of all debt securities represented by a global security, and investors will be permitted to own only beneficial interests in a global security. Beneficial interests must be held by means of an account with a broker, bank or other financial institution that in turn has an account with the depositary or with another institution that has an account with the depositary. Thus, an investor whose security is represented by a global security will not be a holder of the debt security, but only an indirect holder of a beneficial interest in the global security.

 

Special Considerations for Global Securities

 

As an indirect holder, an investor’s rights relating to a global security will be governed by the account rules of the investor’s financial institution and of the depositary, as well as general laws relating to securities transfers. The depositary that holds the global security will be considered the holder of the debt securities represented by the global security.

 

If debt securities are issued only in the form of a global security, an investor should be aware of the following:

 

	●	an investor cannot cause the debt securities to be registered in his or her name and cannot obtain certificates for his or her interest in the debt securities, except in the special situations we describe below;
	●	an investor will be an indirect holder and must look to his or her own bank or broker for payments on the debt securities and protection of his or her legal rights relating to the debt securities, as we describe under “Description of our Debt Securities — Issuance of Securities in Registered Form” above;
	●	an investor may not be able to sell interests in the debt securities to some insurance companies and other institutions that are required by law to own their securities in non-book-entry form;
	●	an investor may not be able to pledge his or her interest in a global security in circumstances where certificates representing the debt securities must be delivered to the lender or other beneficiary of the pledge in order for the pledge to be effective;
	●	the depositary’s policies, which may change from time to time, will govern payments, transfers, exchanges and other matters relating to an investor’s interest in a global security. We and the trustee have no responsibility for any aspect of the depositary’s actions or for its records of ownership interests in a global security. We and the trustee also do not supervise the depositary in any way;
	●	if we redeem less than all the debt securities of a particular series being redeemed, DTC’s practice is to determine by lot the amount to be redeemed from each of its participants holding that series;
	●	an investor is required to give notice of exercise of any option to elect repayment of its debt securities, through its participant, to the applicable trustee and to deliver the related debt securities by causing its participant to transfer its interest in those debt securities, on DTC’s records, to the applicable trustee;
	●	DTC requires that those who purchase and sell interests in a global security deposited in its book-entry system use immediately available funds. Your broker or bank may also require you to use immediately available funds when purchasing or selling interests in a global security; and
	●	financial institutions that participate in the depositary’s book-entry system, and through which an investor holds its interest in a global security, may also have their own policies affecting payments, notices and other matters relating to the debt securities. There may be more than one financial intermediary in the chain of ownership for an investor. We do not monitor and are not responsible for the actions of any of those intermediaries.

 

 

Special Situations when a Global Security Will Be Terminated

 

In a few special situations described below, a global security will be terminated and interests in it will be exchanged for certificates in non-book-entry form (certificated securities). After that exchange, the choice of whether to hold the certificated debt securities directly or in street name will be up to the investor. Investors must consult their own banks or brokers to find out how to have their interests in a global security transferred on termination to their own names, so that they will be holders. We have described the rights of holders and street name investors under “Description of our Debt Securities — Issuance of Securities in Registered Form” above.

 

The special situations for termination of a global security include the following:

 

	●	if the depositary notifies us that it is unwilling, unable or no longer qualified to continue as depositary for that global security, and we are unable to appoint another institution to act as depositary;
	●	if we notify the trustee that we wish to terminate that global security; or
	●	if an event of default has occurred with regard to the debt securities represented by that global security and has not been cured or waived; we discuss defaults later under “Description of our Debt Securities — Events of Default.”

 

The prospectus supplement may list situations for terminating a global security that would apply only to the particular series of debt securities covered by the prospectus supplement. If a global security is terminated, only the depositary, and not we or the applicable trustee, is responsible for deciding the names of the institutions in whose names the debt securities represented by the global security will be registered and, therefore, who will be the holders of those debt securities.

 

Payment and Paying Agents

 

We will pay interest (either in cash or by delivery of additional indenture securities, as applicable) to the person listed in the applicable trustee’s records as the owner of the debt security at the close of business on a particular day in advance of each due date for interest, even if that person no longer owns the debt security on the interest due date. That day, often about two weeks in advance of the interest due date, is called the “record date.” Because we will pay all the interest for an interest period to the holders on the record date, holders buying and selling debt securities must work out between themselves the appropriate purchase price. The most common manner is to adjust the sales price of the debt securities to prorate interest fairly between buyer and seller based on their respective ownership periods within the particular interest period. This prorated interest amount is called “accrued interest.”

 

Payments on Global Securities

 

We will make payments on a global security in accordance with the applicable policies of the depositary as in effect from time to time. Under those policies, we will make payments directly to the depositary, or its nominee, and not to any indirect holders who own beneficial interests in the global security. An indirect holder’s right to those payments will be governed by the rules and practices of the depositary and its participants, as described under “Description of our Debt Securities — Global Securities.”

 

Payments on Certificated Securities

 

We will make payments on a certificated debt security as follows. We will pay interest that is due on an interest payment date to the holder of debt securities as shown on the trustee’s records as of the close of business on the regular record date. We will make all payments of principal and premium, if any, by check at the office of the applicable trustee and/or at other offices that may be specified in the prospectus supplement or in a notice to holders against surrender of the debt security.

 

Alternatively, if the holder asks us to do so, we will pay any amount that becomes due on the debt security by wire transfer of immediately available funds to an account at a bank in the United States, on the due date. To request payment by wire, the holder must give the applicable trustee or other paying agent appropriate transfer instructions at least 15 business days before the requested wire payment is due. In the case of any interest payment due on an interest payment date, the instructions must be given by the person who is the holder on the relevant regular record date. Any wire instructions, once properly given, will remain in effect unless and until new instructions are given in the manner described above.

 

 

Payment When Offices Are Closed

 

If any payment is due on a debt security on a day that is not a business day, we will make the payment on the next day that is a business day. Payments made on the next business day in this situation will be treated under the indenture as if they were made on the original due date, except as otherwise indicated in the attached prospectus supplement. Such payment will not result in a default under any debt security or the indenture, and no interest will accrue on the payment amount from the original due date to the next day that is a business day.

 

Book-entry and other indirect holders should consult their banks or brokers for information on how they will receive payments on their debt securities.

 

Events of Default

 

You will have rights if an Event of Default occurs in respect of the debt securities of your series and is not cured, as described later in this subsection.

 

The term “Event of Default” in respect of the debt securities of your series may include any of the following:

 

	●	we do not pay the principal of, or any premium on, a debt security of the series on its due date;
	●	we do not pay interest on a debt security of the series within 30 days of its due date;
	●	we do not deposit any sinking fund payment in respect of debt securities of the series within 2 business days of its due date;
	●	we remain in breach of a covenant in respect of debt securities of the series for 60 days after we receive a written notice of default stating we are in breach. The notice must be sent by either the trustee or holders of at least 25% of the principal amount of debt securities of the series;
	●	we file for bankruptcy or certain other events of bankruptcy, insolvency or reorganization occur;
	●	any class of securities has an asset coverage of less than 100 per centum on the last business day of each twenty-four consecutive calendar months; and
	●	any other Event of Default in respect of debt securities of the series described in the prospectus supplement occurs.

 

An Event of Default for a particular series of debt securities does not necessarily constitute an Event of Default for any other series of debt securities issued under the same or any other indenture. The trustee may withhold notice to the holders of debt securities of any default, except in the payment of principal, premium or interest or in the payment of any sinking or purchase fund installment, if it in good faith considers the withholding of notice to be in the best interests of the holders.

 

Remedies if an Event of Default Occurs

 

If an Event of Default has occurred and has not been cured or waived, the trustee or the holders of not less than 25% in principal amount of the debt securities of the affected series may declare the entire principal amount of all the debt securities of that series to be due and immediately payable. This is called a declaration of acceleration of maturity. A declaration of acceleration of maturity may be canceled by the holders of a majority in principal amount of the debt securities of the affected series if (i) we have deposited with the trustee all amounts due and owing with respect to the securities, and (ii) no other Events of Default are continuing.

 

 

Except in cases of default, where the trustee has some special duties, the trustee is not required to take any action under the indenture at the request of any holders unless the holders offer the trustee reasonable protection from expenses and liability (called an “indemnity”). If reasonable indemnity and/or security is provided, the holders of a majority in principal amount of the outstanding debt securities of the relevant series may direct the time, method and place of conducting any lawsuit or other formal legal action seeking any remedy available to the trustee. The trustee may refuse to follow those directions in certain circumstances. No delay or omission in exercising any right or remedy will be treated as a waiver of that right, remedy or Event of Default.

 

Before you are allowed to bypass your trustee and bring your own lawsuit or other formal legal action or take other steps to enforce your rights or protect your interests relating to the debt securities, the following must occur:

 

	●	you must give the trustee written notice that an Event of Default has occurred and remains uncured;
	●	the holders of at least 25% in principal amount of all outstanding debt securities of the relevant series must make a written request that the trustee take action because of the default and must offer reasonable indemnity to the trustee against the cost and other liabilities of taking that action;
	●	the trustee must not have taken action for 60 days after receipt of the above notice and offer of indemnity; and
	●	the holders of a majority in principal amount of the debt securities must not have given the trustee a direction inconsistent with the above notice during that 60-day period.

 

However, you are entitled at any time to bring a lawsuit for the payment of money due on your debt securities on or after the due date.

 

Holders of a majority in principal amount of the debt securities of the affected series may waive any past defaults other than:

 

	●	the payment of principal, any premium or interest; or
	●	in respect of a covenant that cannot be modified or amended without the consent of each holder.

 

Book-entry and other indirect holders should consult their banks or brokers for information on how to give notice or direction to or make a request of the trustee and how to declare or cancel an acceleration of maturity.

 

Each year, we will furnish to each trustee a written statement of certain of our officers certifying that to their knowledge we are in compliance with the indenture and the debt securities, or else specifying any default.

 

Merger or Consolidation

 

Under the terms of the indenture, we are generally permitted to consolidate or merge with another entity. We are also permitted to sell all or substantially all of our assets to another entity. However, we may not take any of these actions unless all the following conditions are met:

 

	●	where we merge out of existence or sell our assets, the resulting entity must agree to be legally responsible for our obligations under the debt securities;
	●	the merger or sale of assets must not cause a default on the debt securities and we must not already be in default (unless the merger or sale would cure the default). For purposes of this no-default test, a default would include an Event of Default that has occurred and has not been cured, as described under “Events of Default” above. A default for this purpose would also include any event that would be an Event of Default if the requirements for giving us a notice of default or our default having to exist for a specific period of time were disregarded.
	●	we must deliver certain certificates and documents to the trustee; and
	●	we must satisfy any other requirements specified in the prospectus supplement relating to a particular series of debt securities.

 

 

Modification or Waiver

 

There are three types of changes we can make to the indenture and the debt securities issued thereunder.

 

Changes Requiring Your Approval

 

First, there are changes that we cannot make to your debt securities without your specific approval. The following is a list of those types of changes:

 

	●	change the stated maturity of the principal of or interest on a debt security;
	●	reduce any amounts due on a debt security;
	●	reduce the amount of principal payable upon acceleration of the maturity of a security following a default;
	●	adversely affect any right of repayment at the holder’s option;
	●	change the place or currency of payment on a debt security (except as otherwise described in the prospectus or prospectus supplement);
	●	impair your right to sue for payment;
	●	adversely affect any right to convert or exchange a debt security in accordance with its terms;
	●	reduce the percentage of holders of debt securities whose consent is needed to modify or amend the indenture;
	●	reduce the percentage of holders of debt securities whose consent is needed to waive compliance with certain provisions of the indenture or to waive certain defaults;
	●	modify any other aspect of the provisions of the indenture dealing with supplemental indentures, modification and waiver of past defaults, changes to the quorum or voting requirements or the waiver of certain covenants; and
	●	change any obligation we have to pay additional amounts.

 

Changes Not Requiring Approval

 

The second type of change does not require any vote by the holders of the debt securities. This type is limited to clarifications, establishment of the form or terms of new securities of any series as permitted by the indenture and certain other changes that would not adversely affect holders of the outstanding debt securities in any material respect. We also do not need any approval to make any change that affects only debt securities to be issued under the indenture after the change takes effect.

 

Changes Requiring Majority Approval

 

Any other change to the indenture and the debt securities would require the following approval:

 

	●	if the change affects only one series of debt securities, it must be approved by the holders of a majority in principal amount of that series; and
	●	if the change affects more than one series of debt securities issued under the same indenture, it must be approved by the holders of a majority in principal amount of all of the series affected by the change, with all affected series voting together as one class for this purpose.

 

In each case, the required approval must be given by written consent.

 

The holders of a majority in principal amount of all of the series of debt securities issued under an indenture, voting together as one class for this purpose, may waive our compliance with some of our covenants in that indenture. However, we cannot obtain a waiver of a payment default or of any of the matters covered by the bullet points included above under “Description of our Debt Securities — Modification or Waiver — Changes Requiring Your Approval.”

 

 

Further Details Concerning Voting

 

When taking a vote, we will use the following rules to decide how much principal to attribute to a debt security:

 

	●	for original issue discount securities, we will use the principal amount that would be due and payable on the voting date if the maturity of these debt securities were accelerated to that date because of a default;
	●	for debt securities whose principal amount is not known (for example, because it is based on an index), the principal face amount at original issuance or a special rule for that debt security described in the prospectus supplement; and
	●	for debt securities denominated in one or more foreign currencies, we will use the U.S. dollar equivalent.

 

Debt securities will not be considered outstanding, and therefore not eligible to vote, if we have deposited or set aside in trust money for their payment or redemption or if we, any other obligor or any affiliate of us or any obligor own such debt securities. Debt securities will also not be eligible to vote if they have been fully defeased as described later under “Description of our Debt Securities — Defeasance — Full Defeasance.”

 

We will generally be entitled to set any day as a record date for the purpose of determining the holders of outstanding indenture securities that are entitled to vote or take other action under the indenture. However, the record date may not be more than 30 days before the date of the first solicitation of holders to vote on or take such action. If we set a record date for a vote or other action to be taken by holders of one or more series, that vote or action may be taken only by persons who are holders of outstanding indenture securities of those series on the record date and must be taken within eleven months following the record date.

 

Book-entry and other indirect holders should consult their banks or brokers for information on how approval may be granted or denied if we seek to change the indenture or the debt securities or request a waiver.

 

Defeasance

 

The following provisions will be applicable to each series of debt securities unless we state in the applicable prospectus supplement that the provisions of covenant defeasance and full defeasance will not be applicable to that series.

 

Covenant Defeasance

 

Under current U.S. federal tax law and the indenture, we can make the deposit described below and be released from some of the restrictive covenants in the indenture under which the particular series was issued. This is called “covenant defeasance.” In that event, you would lose the protection of those restrictive covenants but would gain the protection of having money and government securities set aside in trust to repay your debt securities. If applicable, you also would be released from the subordination provisions described under “Description of our Debt Securities — Indenture Provisions — Subordination” below. In order to achieve covenant defeasance, we must do the following:

 

	●	if the debt securities of the particular series are denominated in U.S. dollars, we must deposit in trust for the benefit of all holders of such debt securities a combination of money and U.S. government or U.S. government agency notes or bonds that will generate enough cash to make interest, principal and any other payments on the debt securities on their various due dates and any mandatory sinking fund payments or analogous payments;
	●	we must deliver to the trustee a legal opinion of our counsel confirming that, under current U.S. federal income tax law, we may make the above deposit without causing you to be taxed on the debt securities any differently than if we did not make the deposit and just repaid the debt securities ourselves at maturity;
	●	we must deliver to the trustee a legal opinion of our counsel stating that the above deposit does not require registration by us under the 1940 Act, as amended, and a legal opinion and officers’ certificate stating that all conditions precedent to covenant defeasance have been complied with;
	●	defeasance must not result in a breach of the indenture or any of our other material agreements; and
	●	satisfy the conditions for covenant defeasance contained in any supplemental indentures.

 

 

If we accomplish covenant defeasance, you can still look to us for repayment of the debt securities if there were a shortfall in the trust deposit or the trustee is prevented from making payment. In fact, if one of the remaining Events of Default occurred (such as our bankruptcy) and the debt securities became immediately due and payable, there might be a shortfall. Depending on the event causing the default, you may not be able to obtain payment of the shortfall.

 

Full Defeasance

 

If there is a change in U.S. federal tax law, as described below, we can legally release ourselves from all payment and other obligations on the debt securities of a particular series (called “full defeasance”) if we put in place the following other arrangements for you to be repaid:

 

	●	if the debt securities of the particular series are denominated in U.S. dollars, we must deposit in trust for the benefit of all holders of such debt securities a combination of money and U.S. government or U.S. government agency notes or bonds that will generate enough cash to make interest, principal and any other payments on the debt securities on their various due dates;
	●	we must deliver to the trustee a legal opinion confirming that there has been a change in current United States federal tax law or an IRS ruling that allows us to make the above deposit without causing you to be taxed on the debt securities any differently than if we did not make the deposit and just repaid the debt securities ourselves at maturity. Under current United States federal tax law, the deposit and our legal release from the debt securities would be treated as though we paid you your share of the cash and notes or bonds at the time the cash and notes or bonds were deposited in trust in exchange for your debt securities and you would recognize gain or loss on the debt securities at the time of the deposit.
	●	we must deliver to the trustee a legal opinion of our counsel stating that the above deposit does not require registration by us under the 1940 Act, as amended, and a legal opinion and officers’ certificate stating that all conditions precedent to covenant defeasance have been complied with;
	●	defeasance must not result in a breach of the indenture or any of our other material agreements; and
	●	satisfy the conditions for covenant defeasance contained in any supplemental indentures.

 

If we ever did accomplish full defeasance, as described above, you would have to rely solely on the trust deposit for repayment of the debt securities. You could not look to us for repayment in the unlikely event of any shortfall. Conversely, the trust deposit would most likely be protected from claims of our lenders and other creditors if we ever became bankrupt or insolvent. If applicable, you would also be released from the subordination provisions described later under “Description of our Debt Securities — Indenture Provisions — Subordination.”

 

Form, Exchange and Transfer of Certificated Registered Securities

 

If registered debt securities cease to be issued in book-entry form, they will be issued:

 

	●	only in fully registered certificated form;
	●	without interest coupons; and
	●	unless we indicate otherwise in the prospectus supplement, in denominations of $1,000 and amounts that are multiples of $1,000.

 

Holders may exchange their certificated securities for debt securities of smaller denominations or combined into fewer debt securities of larger denominations, as long as the total principal amount is not changed and as long as the denomination is greater than the minimum denomination for such securities.

 

Holders may exchange or transfer their certificated securities at the office of their trustee. We have appointed the trustee to act as our agent for registering debt securities in the names of holders transferring debt securities. We may appoint another entity to perform these functions or perform them ourselves.

 

 

Holders will not be required to pay a service charge to transfer or exchange their certificated securities, but they may be required to pay any tax or other governmental charge associated with the transfer or exchange. The transfer or exchange will be made only if our transfer agent is satisfied with the holder’s proof of legal ownership.

 

If we have designated additional transfer agents for your debt security, they will be named in the prospectus supplement. We may appoint additional transfer agents or cancel the appointment of any particular transfer agent. We may also approve a change in the office through which any transfer agent acts.

 

If any certificated securities of a particular series are redeemable and we redeem less than all the debt securities of that series, we may block the transfer or exchange of those debt securities during the period beginning 15 days before the day we mail the notice of redemption and ending on the day of that mailing, in order to freeze the list of holders to prepare the mailing. We may also refuse to register transfers or exchanges of any certificated securities selected for redemption, except that we will continue to permit transfers and exchanges of the unredeemed portion of any debt security that will be partially redeemed.

 

If a registered debt security is issued in book-entry form, only the depositary will be entitled to transfer and exchange the debt security as described in this subsection, since it will be the sole holder of the debt security.

 

Resignation of Trustee

 

Each trustee may resign or be removed with respect to one or more series of indenture securities provided that a successor trustee is appointed to act with respect to these series and has accepted such appointment. In the event that two or more persons are acting as trustee with respect to different series of indenture securities under the indenture, each of the trustees will be a trustee of a trust separate and apart from the trust administered by any other trustee.

 

Indenture Provisions — Subordination

 

Upon any distribution of our assets upon our dissolution, winding up, liquidation or reorganization, the payment of the principal of (and premium, if any) and interest, if any, on any indenture securities denominated as subordinated debt securities is to be subordinated to the extent provided in the indenture in right of payment to the prior payment in full of all Designated Senior Indebtedness (as defined below), but our obligation to you to make payment of the principal of (and premium, if any) and interest, if any, on such subordinated debt securities will not otherwise be affected. In addition, no payment on account of principal (or premium, if any), sinking fund or interest, if any, may be made on such subordinated debt securities at any time unless full payment of all amounts due in respect of the principal (and premium, if any), sinking fund and interest on Designated Senior Indebtedness has been made or duly provided for in money or money’s worth.

 

In the event that, notwithstanding the foregoing, any payment by us is received by the trustee in respect of subordinated debt securities or by the holders of any of such subordinated debt securities before all Designated Senior Indebtedness is paid in full, the payment or distribution must be paid over to the holders of the Designated Senior Indebtedness or on their behalf for application to the payment of all the Designated Senior Indebtedness remaining unpaid until all the Designated Senior Indebtedness has been paid in full, after giving effect to any concurrent payment or distribution to the holders of the Designated Senior Indebtedness. Subject to the payment in full of all Designated Senior Indebtedness upon this distribution by us, the holders of such subordinated debt securities will be subrogated to the rights of the holders of the Designated Senior Indebtedness to the extent of payments made to the holders of the Designated Senior Indebtedness out of the distributive share of such subordinated debt securities.

 

By reason of this subordination, in the event of a distribution of our assets upon our insolvency, certain of our senior creditors may recover more, ratably, than holders of any subordinated debt securities or the holders of any indenture securities that are not Designated Senior Indebtedness. The indenture provides that these subordination provisions will not apply to money and securities held in trust under the defeasance provisions of the indenture.