UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Form 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2022
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 1-35040
PHENIXFIN CORPORATION
(Exact Name of Registrant as Specified in its Charter)
| Delaware | 27-4576073 | |
| (State or Other Jurisdiction of | (I.R.S. Employer | |
| Incorporation or Organization) | Identification No.) | |
| 445 Park Avenue, 10th Floor, New York, NY | 10022 | |
| (Address of Principal Executive Offices) | (Zip Code) |
(212) 859-0390
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Common Stock, par value $0.001 per share | PFX | The NASDAQ Global Market | ||
| 6.125% Notes due 2023 | PFXNL | The NASDAQ Global Market | ||
| 5.25% Notes due 2028 | PFXNZ | The NASDAQ Global Market |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☐ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | Non-accelerated filer | ☒ | Smaller reporting company | ☐ | Emerging growth company | ☐ |
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 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes ☐ No ☒
The Registrant had 2,196,718 shares of common stock, $0.001 par value, outstanding as of August 9, 2022.
PHENIXFIN CORPORATION
TABLE OF CONTENTS
i
Consolidated Statements of Assets and Liabilities
| June 30, 2022 (Unaudited) | September 30, 2021 | |||||||
| Assets: | ||||||||
| Investments at fair value | ||||||||
| Non-controlled, non-affiliated investments (amortized cost of $135,629,418 and $92,214,167, respectively) | $ | 115,937,311 | $ | 84,152,678 | ||||
| Affiliated investments (amortized cost of $44,288,170 and $75,963,427, respectively) | 17,390,505 | 57,595,245 | ||||||
| Controlled investments (amortized cost of $77,098,614 and $39,490,097, respectively) | 49,455,289 | 9,891,860 | ||||||
| Total Investments at fair value | 182,783,105 | 151,639,783 | ||||||
| Cash and cash equivalents | 24,382,766 | 69,433,256 | ||||||
| Receivables: | ||||||||
| Fees receivable | - | 1,872,700 | ||||||
| Interest receivable | 1,262,193 | 371,576 | ||||||
| Paydown receivable | 168,866 | 292,015 | ||||||
| Due from Affiliate | 132,763 | - | ||||||
| Dividends receivable | 269,330 | 81,211 | ||||||
| Prepaid share repurchases | 96,096 | - | ||||||
| Other assets | 866,821 | 1,401,746 | ||||||
| Total Assets | $ | 209,961,940 | $ | 225,092,287 | ||||
| Liabilities: | ||||||||
| Notes payable (net of debt issuance costs of $2,162,356 and $412,795, respectively) | $ | 77,859,444 | $ | 77,434,005 | ||||
| Interest and fees payable | 503,125 | - | ||||||
| Due to affiliates | - | 280,323 | ||||||
| Due to broker | - | 1,586,000 | ||||||
| Administrator expenses payable (see Note 6) | 67,028 | 67,920 | ||||||
| Distributions payable | 265,798 | - | ||||||
| Accounts payable and accrued expenses | 1,299,858 | 1,416,524 | ||||||
| Deferred revenue | 279,032 | - | ||||||
| Other liabilities | 606,675 | 613,534 | ||||||
| Total Liabilities | 80,880,960 | 81,398,306 | ||||||
| Commitments and Contingencies (see Note 8) | ||||||||
| Net Assets: | ||||||||
| Common Shares, $0.001 par value; 5,000,000 shares authorized; 2,723,709 shares issued; 2,197,418 and 2,517,221 common shares outstanding, respectively | 2,198 | 2,517 | ||||||
| Capital in excess of par value | 675,707,499 | 688,866,642 | ||||||
| Total distributable earnings (loss) | (546,628,717 | ) | (545,175,178 | ) | ||||
| Total Net Assets | $ | 129,080,980 | $ | 143,693,981 | ||||
| Total Liabilities and Net Assets | $ | 209,961,940 | $ | 225,092,287 | ||||
| Net Asset Value Per Common Share | $ | 58.74 | $ | 57.08 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
1
Consolidated Statements of Operations
(Unaudited)
| For the Three Months Ended June 30 | For the Nine Months Ended June 30 | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Interest Income: | ||||||||||||||||
| Interest from investments | ||||||||||||||||
| Non-controlled, non-affiliated investments: | ||||||||||||||||
| Cash | $ | 1,468,171 | $ | 1,578,657 | $ | 3,748,190 | $ | 4,785,374 | ||||||||
| Payment in-kind | 102,063 | 186,733 | 340,636 | 356,762 | ||||||||||||
| Affiliated investments: | ||||||||||||||||
| Cash | (23,496 | ) | 249,157 | 486,569 | 797,776 | |||||||||||
| Payment in-kind | 93,275 | 286,444 | 283,036 | 286,444 | ||||||||||||
| Controlled investments: | ||||||||||||||||
| Cash | 4,375 | - | 1,365,035 | - | ||||||||||||
| Total interest income | 1,644,388 | 2,300,991 | 6,223,466 | 6,226,356 | ||||||||||||
| Dividend income | 1,846,507 | 6,307,408 | 3,463,386 | 20,979,143 | ||||||||||||
| Interest from cash and cash equivalents | 9,255 | 3,862 | 18,025 | 5,308 | ||||||||||||
| Fee income (see Note 9) | 65,014 | 71,443 | 420,279 | 650,323 | ||||||||||||
| Other income | 93,394 | - | 323,828 | 78,204 | ||||||||||||
| Total Investment Income | 3,658,558 | 8,683,704 | 10,448,984 | 27,939,334 | ||||||||||||
| Expenses: | ||||||||||||||||
| Base management fees (see Note 6) | - | - | - | 1,146,403 | ||||||||||||
| Interest and financing expenses | 1,201,623 | 1,260,825 | 3,910,361 | 4,538,520 | ||||||||||||
| General and administrative expenses | 362,989 | 294,022 | 849,684 | 856,396 | ||||||||||||
| Salaries and benefits | 1,037,602 | 679,229 | 1,973,770 | 1,011,546 | ||||||||||||
| Administrator expenses (see Note 6) | 58,881 | 106,578 | 210,162 | 546,372 | ||||||||||||
| Insurance expenses | 155,449 | 444,832 | 469,803 | 1,404,312 | ||||||||||||
| Directors fees | 164,500 | 179,000 | 540,000 | 875,217 | ||||||||||||
| Professional fees, net (see Note 8) | 469,550 | 289,200 | 936,895 | 113,797 | ||||||||||||
| Total expenses | 3,450,594 | 3,253,686 | 8,890,675 | 10,492,563 | ||||||||||||
| Net Investment Income | 207,964 | 5,430,018 | 1,558,309 | 17,446,771 | ||||||||||||
| Realized and unrealized gains (losses) on investments | ||||||||||||||||
| Net realized gains (losses): | ||||||||||||||||
| Non-controlled, non-affiliated investments | (188,638 | ) | 38,852 | 749,791 | 4,093,500 | |||||||||||
| Affiliated investments | - | 19,811 | 14,737,897 | (10,433,117 | ) | |||||||||||
| Controlled investments | 925 | 1,850 | 1,850 | (40,145,720 | ) | |||||||||||
| Total net realized gains (losses) | (187,713 | ) | 60,513 | 15,489,538 | (46,485,337 | ) | ||||||||||
| Net change in unrealized gains (losses): | ||||||||||||||||
| Non-controlled, non-affiliated investments | (9,623,302 | ) | (1,794,173 | ) | (11,630,618 | ) | (773,501 | ) | ||||||||
| Affiliated investments | 405,381 | 1,513,353 | (8,529,483 | ) | (2,072,831 | ) | ||||||||||
| Controlled investments | (31,533 | ) | 1,759,025 | 1,954,912 | 40,325,544 | |||||||||||
| Total net change in unrealized gains (losses) | (9,249,454 | ) | 1,478,205 | (18,205,189 | ) | 37,479,212 | ||||||||||
| Loss on extinguishment of debt (see Note 5) | - | - | (296,197 | ) | (122,355 | ) | ||||||||||
| Total realized and unrealized gains (losses) | (9,437,167 | ) | 1,538,718 | (3,011,848 | ) | (9,128,480 | ) | |||||||||
| Net Increase (Decrease) in Net Assets Resulting from Operations | $ | (9,229,203 | ) | $ | 6,968,736 | $ | (1,453,539 | ) | $ | 8,318,291 | ||||||
| Weighted Average Basic and Diluted Earnings Per Common Share | $ | (4.19 | ) | $ | 2.60 | $ | (0.61 | ) | $ | 3.07 | ||||||
| Weighted Average Basic and Diluted Net Investment Income (Loss) Per Common Share | $ | 0.09 | $ | 2.02 | $ | 0.66 | $ | 6.44 | ||||||||
| Weighted Average Common Shares Outstanding - Basic and Diluted (see Note 11) | 2,202,115 | 2,683,093 | 2,372,849 | 2,707,794 | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
2
Consolidated Statements of Changes in Net Assets
(Unaudited)
| Shares | Par Amount | Capital in Excess of Par Value | Total Distributable Earnings/(Loss) | Total Net Assets | ||||||||||||||||
| Balance at March 31, 2021 | 2,703,936 | $ | 2,704 | $ | 671,589,690 | $ | (520,415,269 | ) | $ | 151,177,125 | ||||||||||
| OPERATIONS | ||||||||||||||||||||
| Net investment income (loss) | - | - | - | 5,430,018 | 5,430,018 | |||||||||||||||
| Net realized gains (losses) on investments | - | - | - | 60,513 | 60,513 | |||||||||||||||
| Net change in unrealized appreciation (depreciation) on investments | - | - | - | 1,478,205 | 1,478,205 | |||||||||||||||
| - | - | - | 6,968,736 | 6,968,736 | ||||||||||||||||
| CAPITAL SHARE TRANSACTIONS | ||||||||||||||||||||
| Repurchase of common shares | (25,015 | ) | (25 | ) | (1,467,260 | ) | - | (1,467,285 | ) | |||||||||||
| (25,015 | ) | (25 | ) | (1,467,260 | ) | - | (1,467,285 | ) | ||||||||||||
| Total Increase (Decrease) in Net Assets | (25,015 | ) | (25 | ) | (1,467,260 | ) | 6,968,736 | 5,501,451 | ||||||||||||
| Balance at June 30, 2021 | 2,678,921 | $ | 2,679 | $ | 670,122,430 | $ | (513,446,533 | ) | $ | 156,678,576 | ||||||||||
| Balance at March 31, 2022 | 2,207,794 | $ | 2,208 | $ | 676,357,446 | $ | (537,399,514 | ) | $ | 138,960,140 | ||||||||||
| OPERATIONS | ||||||||||||||||||||
| Net investment income (loss) | - | - | - | 207,964 | 207,964 | |||||||||||||||
| Net realized gains (losses) on investments | - | - | - | (187,713 | ) | (187,713 | ) | |||||||||||||
| Net change in unrealized appreciation (depreciation) on investments | - | - | - | (9,249,454 | ) | (9,249,454 | ) | |||||||||||||
| - | - | - | (9,229,203 | ) | (9,229,203 | ) | ||||||||||||||
| CAPITAL SHARE TRANSACTIONS | ||||||||||||||||||||
| Distributions declared | - | - | (265,798 | ) | - | (265,798 | ) | |||||||||||||
| Repurchase of common shares | (10,376 | ) | (10 | ) | (384,149 | ) | - | (384,159 | ) | |||||||||||
| (10,376 | ) | (10 | ) | (649,947 | ) | - | (649,957 | ) | ||||||||||||
| Total Increase (Decrease) in Net Assets | (10,376 | ) | (10 | ) | (649,947 | ) | (9,229,203 | ) | (9,879,160 | ) | ||||||||||
| Balance at June 30, 2022 | 2,197,418 | $ | 2,198 | $ | 675,707,499 | $ | (546,628,717 | ) | $ | 129,080,980 | ||||||||||
| Balance at September 30, 2020 | 2,723,709 | $ | 2,724 | $ | 672,381,617 | $ | (521,764,824 | ) | $ | 150,619,517 | ||||||||||
| OPERATIONS | ||||||||||||||||||||
| Net investment income (loss) | - | - | - | 17,446,771 | 17,446,771 | |||||||||||||||
| Net realized gains (losses) on investments | - | - | - | (46,485,337 | ) | (46,485,337 | ) | |||||||||||||
| Net change in unrealized appreciation (depreciation) on investments | - | - | - | 37,479,212 | 37,479,212 | |||||||||||||||
| Net loss on extinguishment of debt | - | - | - | (122,355 | ) | (122,355 | ) | |||||||||||||
| - | - | - | 8,318,291 | 8,318,291 | ||||||||||||||||
| CAPITAL SHARE TRANSACTIONS | ||||||||||||||||||||
| Repurchase of common shares | (44,788 | ) | (45 | ) | (2,259,187 | ) | - | (2,259,232 | ) | |||||||||||
| (44,788 | ) | (45 | ) | (2,259,187 | ) | - | (2,259,232 | ) | ||||||||||||
| Total Increase (Decrease) in Net Assets | (44,788 | ) | (45 | ) | (2,259,187 | ) | 8,318,291 | 6,059,059 | ||||||||||||
| Balance at June 30, 2021 | 2,678,921 | $ | 2,679 | $ | 670,122,430 | $ | (513,446,533 | ) | $ | 156,678,576 | ||||||||||
| Balance at September 30, 2021 | 2,517,221 | $ | 2,517 | $ | 688,866,642 | $ | (545,175,178 | ) | $ | 143,693,981 | ||||||||||
| OPERATIONS | ||||||||||||||||||||
| Net investment income (loss) | - | - | - | 1,558,309 | 1,558,309 | |||||||||||||||
| Net realized gains (losses) on investments | - | - | - | 15,489,538 | 15,489,538 | |||||||||||||||
| Net change in unrealized appreciation (depreciation) on investments | - | - | - | (18,205,189 | ) | (18,205,189 | ) | |||||||||||||
| Net loss on extinguishment of debt | - | - | - | (296,197 | ) | (296,197 | ) | |||||||||||||
| - | - | - | (1,453,539 | ) | (1,453,539 | ) | ||||||||||||||
| CAPITAL SHARE TRANSACTIONS | ||||||||||||||||||||
| Distributions declared | - | - | (265,798 | ) | - | (265,798 | ) | |||||||||||||
| Repurchase of common shares | (319,803 | ) | (319 | ) | (12,893,345 | ) | - | (12,893,664 | ) | |||||||||||
| (319,803 | ) | (319 | ) | (13,159,143 | ) | - | (13,159,462 | ) | ||||||||||||
| Total Increase (Decrease) in Net Assets | (319,803 | ) | (319 | ) | (13,159,143 | ) | (1,453,539 | ) | (14,613,001 | ) | ||||||||||
| Balance at June 30, 2022 | 2,197,418 | $ | 2,198 | $ | 675,707,499 | $ | (546,628,717 | ) | $ | 129,080,980 | ||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
3
Consolidated Statements of Cash Flows
(Unaudited)
| For the Nine Months Ended June 30 | ||||||||
| 2022 | 2021 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net increase (decrease) in net assets resulting from operations | $ | (1,453,539 | ) | $ | 8,318,291 | |||
| Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities: | ||||||||
| Investment increases due to payment-in-kind interest | (623,672 | ) | (643,206 | ) | ||||
| Net amortization of premium (discount) on investments | (147,211 | ) | (13,366 | ) | ||||
| Amortization of debt issuance cost | 265,279 | 294,261 | ||||||
| Net realized (gain) loss from investments | (15,489,538 | ) | 46,485,337 | |||||
| Net unrealized (gains) losses on investments | 18,205,189 | (37,479,212 | ) | |||||
| Proceeds from sale and settlements of investments | 104,539,257 | 87,789,083 | ||||||
| Purchases, originations and participations | (137,627,348 | ) | (31,013,606 | ) | ||||
| Loss on extinguishment of debt | 296,197 | 122,355 | ||||||
| (Increase) decrease in operating assets: | ||||||||
| Interest receivable | (890,617 | ) | 334,692 | |||||
| Receivable for paydowns | 123,149 | - | ||||||
| Fees receivable | 1,872,700 | 12,500 | ||||||
| Dividends receivable | (188,119 | ) | (66,445 | ) | ||||
| Due from affiliate | (132,763 | ) | - | |||||
| Other assets | 534,925 | 1,090,122 | ||||||
| Increase (decrease) in operating liabilities: | ||||||||
| Accounts payable and accrued expenses | (116,666 | ) | (560,337 | ) | ||||
| Interest and fees payable | 503,125 | (801,805 | ) | |||||
| Management and incentive fees payable, net | - | (1,392,022 | ) | |||||
| Administrator expenses payable | (892 | ) | (96,280 | ) | ||||
| Deferred revenue | 279,032 | 3,474 | ||||||
| Due to affiliate | (280,323 | ) | (53,083 | ) | ||||
| Due to broker | (1,586,000 | ) | 284,067 | |||||
| Other liabilities | (6,859 | ) | - | |||||
| Net cash provided by (used in) operating activities | (31,924,694 | ) | 72,614,820 | |||||
| Cash Flows from Financing Activities: | ||||||||
| Debt issuance | 57,500,000 | - | ||||||
| Paydowns on debt | (55,325,000 | ) | (74,012,825 | ) | ||||
| Debt issuance costs paid | (2,311,036 | ) | - | |||||
| Repurchase of common shares | (12,989,760 | ) | (2,259,232 | ) | ||||
| Net cash provided by (used in) financing activities | (13,125,796 | ) | (76,272,057 | ) | ||||
| Net increase (decrease) in cash and cash equivalents | (45,050,490 | ) | (3,657,237 | ) | ||||
| Cash and cash equivalents, beginning of period | 69,433,256 | 56,522,148 | ||||||
| Cash and cash equivalents, end of period | $ | 24,382,766 | $ | 52,864,911 | ||||
| Supplemental information: | ||||||||
| Interest paid during the period | $ | 3,141,957 | $ | 5,340,325 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
4
Consolidated Schedule of Investments
As of June 30, 2022
(Unaudited)
| Company(1) | Industry | Type
of Investment | Maturity | Par Amount(2) | Cost(3) | Fair Value(4) | %
of Net Assets(5) | |||||||||||||||
| Non-Controlled/Non-Affiliated Investments: | ||||||||||||||||||||||
| Altisource S.A.R.L.(11) | Services: Business | Senior Secured First Lien Term Loan B (LIBOR + 4.00%, 1.00% LIBOR Floor)(14) | 4/3/2024 | $ | 4,197,421 | $ | 3,858,913 | $ | 3,546,821 | 2.75 | % | |||||||||||
| 4,197,421 | 3,858,913 | 3,546,821 | 2.75 | % | ||||||||||||||||||
| Be Green Packaging, LLC | Containers, Packaging & Glass | Equity - 417 Common Units | 1 | 416,250 | - | 0.00 | % | |||||||||||||||
| 1 | 416,250 | - | 0.00 | % | ||||||||||||||||||
| Boostability Seotowncenter, Inc. | Services: Business | Equity - 3,434,169.6 Common Units | 833,152 | 66,475 | - | 0.00 | % | |||||||||||||||
| 833,152 | 66,475 | - | 0.00 | % | ||||||||||||||||||
| Chimera Investment Corp.(11) | Banking, Finance, Insurance & Real Estate | Equity - 117,310 Class C Preferred Units(13)(15) | 117,310 | 2,884,724 | 2,320,392 | 1.80 | % | |||||||||||||||
| 117,310 | 2,884,724 | 2,320,392 | 1.80 | % | ||||||||||||||||||
| Cleaver-Brooks, Inc. | Manufacturing | 7.875% Senior Secured Notes(14) | 3/1/2023 | 10,027,000 | 9,977,842 | 9,350,178 | 7.24 | % | ||||||||||||||
| 10,027,000 | 9,977,842 | 9,350,178 | 7.24 | % | ||||||||||||||||||
| Copper Property CTL Pass Through Trust | Banking, Finance, Insurance & Real Estate | Equity Certificates(14) | 337,795 | 5,182,109 | 4,222,438 | 3.27 | % | |||||||||||||||
| 337,795 | 5,182,109 | 4,222,438 | 3.27 | % | ||||||||||||||||||
| CPI International, Inc. | Aerospace & Defense | Senior Secured Second Lien Term Loan (LIBOR + 7.25% Cash, 1.00% LIBOR Floor) | 7/28/2025 | 2,607,062 | 2,602,214 | 2,600,544 | 2.01 | % | ||||||||||||||
| 2,607,062 | 2,602,214 | 2,600,544 | 2.01 | % | ||||||||||||||||||
| DataOnline Corp. | High Tech Industries | Senior Secured First Lien Term Loan (LIBOR + 6.25% Cash, 1.00% LIBOR Floor) | 11/13/2025 | 4,875,000 | 4,875,000 | 4,875,000 | 3.78 | % | ||||||||||||||
| Revolving Credit Facility (LIBOR + 6.25% Cash, 1.00% LIBOR Floor) | 11/13/2025 | 714,286 | 714,286 | 714,286 | 0.55 | % | ||||||||||||||||
| 5,589,286 | 5,589,286 | 5,589,286 | 4.33 | % | ||||||||||||||||||
5
| Company(1) | Industry | Type
of Investment | Maturity | Par Amount(2) | Cost(3) | Fair Value(4) | %
of Net Assets(5) | |||||||||||||||
| DirecTV Financing, LLC | Media: Broadcasting & Subscription | Senior Secured First Lien Term Loan (LIBOR + 5.00%, 0.75% LIBOR Floor)(14) | 8/2/2027 | 4,662,500 | 4,662,500 | 4,301,156 | 3.33 | % | ||||||||||||||
| 4,662,500 | 4,662,500 | 4,301,156 | 3.33 | % | ||||||||||||||||||
| Dream Finders Homes, LLC | Construction & Building | Preferred Equity (8.00% PIK) | 5,205,236 | 5,205,236 | 4,879,909 | 3.78 | % | |||||||||||||||
| 5,205,236 | 5,205,236 | 4,879,909 | 3.78 | % | ||||||||||||||||||
| First Brands Group, LLC | Automotive | Senior Secured First Lien Term Loan (LIBOR + 5.00%, 1.00% LIBOR Floor) | 3/30/2027 | 3,969,849 | 3,969,849 | 3,940,075 | 3.05 | % | ||||||||||||||
| 3,969,849 | 3,969,849 | 3,940,075 | 3.05 | % | ||||||||||||||||||
| Footprint Acquisition, LLC | Services: Business | Equity - 150 Common Units | 150 | - | - | 0.00 | % | |||||||||||||||
| 150 | - | - | 0.00 | % | ||||||||||||||||||
| Franklin BSP Realty Trust, Inc.(11) | Banking, Finance, Insurance & Real Estate | Equity - 529,914 Common Units(13) | 529,914 | 8,754,386 | 7,143,241 | 5.53 | % | |||||||||||||||
| 529,914 | 8,754,386 | 7,143,241 | 5.53 | % | ||||||||||||||||||
| Global Accessories Group, LLC | Consumer goods: Non-durable | Equity - 3.8% Membership Interest | 380 | 151,337 | - | 0.00 | % | |||||||||||||||
| 380 | 151,337 | - | 0.00 | % | ||||||||||||||||||
| Great AJAX Corp.(11) | Banking, Finance, Insurance & Real Estate | Equity - 254,922 Common Units(13) | 254,922 | 3,333,786 | 2,444,702 | 1.89 | % | |||||||||||||||
| 254,922 | 3,333,786 | 2,444,702 | 1.89 | % | ||||||||||||||||||
| Innovate Corp. | Construction & Building | 8.50% Senior Secured Notes(14) | 2/1/2026 | 2,250,000 | 2,252,156 | 1,946,250 | 1.51 | % | ||||||||||||||
| 2,250,000 | 2,252,156 | 1,946,250 | 1.51 | % | ||||||||||||||||||
| Invesco Mortgage Capital, Inc.(11) | Banking, Finance, Insurance & Real Estate | Equity - 205,000 Class C Preferred Units(13)(16) | 205,000 | 5,035,506 | 4,214,800 | 3.27 | % | |||||||||||||||
| 205,000 | 5,035,506 | 4,214,800 | 3.27 | % | ||||||||||||||||||
| JFL-NGS-WCS Partners, LLC | Construction & Building | Senior Secured First Lien Term Loan B (LIBOR + 5.50%, 1.00% LIBOR Floor) | 11/12/2026 | 890,912 | 894,868 | 870,866 | 0.67 | % | ||||||||||||||
| Equity - 10,000,000 Units | 10,000,000 | 10,000,000 | 10,363,000 | 8.03 | % | |||||||||||||||||
| 10,890,912 | 10,894,868 | 11,233,866 | 8.70 | % | ||||||||||||||||||
| Lighting Science Group Corporation | Containers, Packaging & Glass | Warrants - 0.62% of Outstanding Equity | 5,000,000 | 955,680 | - | 0.00 | % | |||||||||||||||
| 5,000,000 | 955,680 | - | 0.00 | % | ||||||||||||||||||
6
| Company(1) | Industry | Type
of Investment | Maturity | Par Amount(2) | Cost(3) | Fair Value(4) | %
of Net Assets(5) | |||||||||||||||
| Lucky Bucks, LLC | Consumer Discretionary | Senior Secured First Lien Term Loan (LIBOR + 5.50%, 0.75% LIBOR Floor) | 10/12/2027 | 7,310,811 | 7,180,403 | 7,164,595 | 5.55 | % | ||||||||||||||
| 7,310,811 | 7,180,403 | 7,164,595 | 5.55 | % | ||||||||||||||||||
| McKissock Investment Holdings, LLC (dba Colibri) | Services: Business | Senior Secured First Lien Term Loan (SOFR + 5.00%, 0.75% Credit Spread Adjustment Floor) | 3/10/2029 | 4,987,500 | 4,938,858 | 4,725,656 | 3.66 | % | ||||||||||||||
| 4,987,500 | 4,938,858 | 4,725,656 | 3.66 | % | ||||||||||||||||||
| MFA Financial, Inc.(11) | Banking, Finance, Insurance & Real Estate | Equity - 97,426 Class C Preferred Units(13)(19) | 97,426 | 2,318,487 | 1,792,638 | 1.39 | % | |||||||||||||||
| 97,426 | 2,318,487 | 1,792,638 | 1.39 | % | ||||||||||||||||||
| New Residential Investment Corp.(11) | Banking, Finance, Insurance & Real Estate | Equity - 206,684 Class B Preferred Units(13)(17) | 206,684 | 5,129,170 | 4,398,236 | 3.41 | % | |||||||||||||||
| 206,684 | 5,129,170 | 4,398,236 | 3.41 | % | ||||||||||||||||||
| New York Mortgage Trust, Inc.(11) | Banking, Finance, Insurance & Real Estate | Equity - 165,000 Class E Preferred Units(13)(18) | 165,000 | 4,102,076 | 3,344,550 | 2.59 | % | |||||||||||||||
| 165,000 | 4,102,076 | 3,344,550 | 2.59 | % | ||||||||||||||||||
| PennyMac Financial Services, Inc.(11) | Banking, Finance, Insurance & Real Estate | Equity - 81,500 Common Units(13) | 81,500 | 5,364,478 | 3,562,365 | 2.76 | % | |||||||||||||||
| 81,500 | 5,364,478 | 3,562,365 | 2.76 | % | ||||||||||||||||||
| Point.360 | Services: Business | Senior Secured First Lien Term Loan (LIBOR + 6.00% PIK)(10) | 7/8/2020 | 2,777,366 | 2,103,712 | - | 0.00 | % | ||||||||||||||
| 2,777,366 | 2,103,712 | - | 0.00 | % | ||||||||||||||||||
| Power Stop LLC | Automotive | Senior Secured First Lien Term Loan (LIBOR + 4.75, 0.5% LIBOR Floor) | 1/25/2029 | 4,987,500 | 4,941,072 | 4,389,000 | 3.40 | % | ||||||||||||||
| 4,987,500 | 4,941,072 | 4,389,000 | 3.40 | % | ||||||||||||||||||
| Secure Acquisition Inc. (dba Paragon Films)(8) | Packaging | Senior Secured First Lien Term Loan (LIBOR + 5.00%, 0.50% LIBOR Floor) | 12/16/2028 | 3,474,052 | 3,459,819 | 3,404,571 | 2.64 | % | ||||||||||||||
| Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 5.00%, 0.50% LIBOR Floor)(12) | 12/16/2028 | - | (898 | ) | - | 0.00 | % | |||||||||||||||
| 3,474,052 | 3,458,921 | 3,404,571 | 2.64 | % | ||||||||||||||||||
| Sendero Drilling Company, LLC | Energy: Oil & Gas | Unsecured Debt (9.00% Cash)(10) | 8/1/2023 | 191,250 | 182,081 | - | 0.00 | % | ||||||||||||||
| 191,250 | 182,081 | - | 0.00 | % | ||||||||||||||||||
7
| Company(1) | Industry | Type
of Investment | Maturity | Par Amount(2) | Cost(3) | Fair Value(4) | %
of Net Assets(5) | |||||||||||||||
| SS Acquisition, LLC (dba Soccer Shots Franchising)(8) | Services: Consumer | Senior Secured First Lien Term Loan (LIBOR + 6.50%, 1.00% LIBOR Floor) | 12/30/2026 | 6,666,667 | 6,570,783 | 6,625,333 | 5.13 | % | ||||||||||||||
| 6,666,667 | 6,570,783 | 6,625,333 | 5.13 | % | ||||||||||||||||||
| SMART Financial Operations, LLC | Retail | Equity - 700,000 Class A Preferred Units | 700,000 | 700,000 | 71,470 | 0.06 | % | |||||||||||||||
| 700,000 | 700,000 | 71,470 | 0.06 | % | ||||||||||||||||||
| Stancor (dba Industrial Flow Solutions Holdings, LLC) | Services: Business | Equity - 338,748.45 Class A Units | 338,748 | 308,667 | 294,209 | 0.23 | % | |||||||||||||||
| 338,748 | 308,667 | 294,209 | 0.23 | % | ||||||||||||||||||
| Staples, Inc. | Services: Business | First Lien Term Loan (LIBOR + 4.50%, 0.0% LIBOR Floor)(14) | 9/12/2024 | 3,740,360 | 3,660,844 | 3,445,994 | 2.67 | % | ||||||||||||||
| 3,740,360 | 3,660,844 | 3,445,994 | 2.67 | % | ||||||||||||||||||
| Thryv Holdings, Inc.(11) | Services: Business | Senior Secured First Lien Term Loan B (LIBOR + 8.50% Cash, 1.00% LIBOR Floor)(14) | 3/1/2026 | 4,995,000 | 4,879,688 | 4,870,125 | 3.77 | % | ||||||||||||||
| 4,995,000 | 4,879,688 | 4,870,125 | 3.77 | % | ||||||||||||||||||
| Velocity Pooling Vehicle, LLC | Automotive | Equity - 5,441 Class A Units | 5,441 | 302,465 | 52,342 | 0.04 | % | |||||||||||||||
| Warrants - 0.65% of Outstanding Equity | 3/30/2028 | 6,506 | 361,667 | 62,569 | 0.05 | % | ||||||||||||||||
| 11,947 | 664,132 | 114,911 | 0.09 | % | ||||||||||||||||||
| Walker Edison Furniture Company LLC | Consumer goods: Durable | Equity - 13,044 Common Units | 13,044 | 2,114,646 | - | 0.00 | % | |||||||||||||||
| 13,044 | 2,114,646 | - | 0.00 | % | ||||||||||||||||||
| Watermill-QMC Midco, Inc. | Automotive | Equity - 1.3% Partnership Interest(9) | 518,283 | 518,283 | - | 0.00 | % | |||||||||||||||
| 518,283 | 518,283 | - | 0.00 | % | ||||||||||||||||||
| Wingman Holdings, Inc. (f/k/a Crow Precision Components, LLC) | Aerospace & Defense | Equity - 350 Common Units | 350 | 700,000 | - | 0.00 | % | |||||||||||||||
| 350 | 700,000 | - | 0.00 | % | ||||||||||||||||||
| Subtotal Non-Controlled/Non-Affiliated Investments | $ | 97,941,378 | $ | 135,629,418 | $ | 115,937,311 | 89.82 | % | ||||||||||||||
8
| Company(1) | Industry | Type
of Investment | Maturity | Par Amount(2) | Cost(3) | Fair Value(4) | %
of Net Assets(5) | |||||||||||||||||
| 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) | 5/1/2023 | $ | 9,946,741 | $ | 9,473,068 | $ | - | 0.00 | % | |||||||||||||
| Senior Secured First Lien Term Loan C (LIBOR + 5.00%, 1.00% LIBOR Floor) | 5/1/2023 | 1,231,932 | 1,191,256 | 702,202 | 0.54 | % | ||||||||||||||||||
| Revolving Credit Facility (LIBOR + 5.00%, 1.00% LIBOR Floor)(12) | 5/1/2023 | 4,093,123 | 4,093,123 | 4,090,123 | 3.17 | % | ||||||||||||||||||
| Equity - 21,562 Class A Units | 21,562 | - | - | 0.00 | % | |||||||||||||||||||
| 15,293,358 | 14,757,447 | 4,792,325 | 3.71 | % | ||||||||||||||||||||
| Black Angus Steakhouses, LLC(8) | Hotel, Gaming & Leisure | Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 9.00% Cash, 1.00% LIBOR Floor) | 1/31/2024 | 758,929 | 758,929 | 758,929 | 0.59 | % | ||||||||||||||||
| Senior Secured First Lien Term Loan (LIBOR + 9.00% PIK, 1.00% LIBOR Floor)(10) | 1/31/2024 | 8,412,596 | 7,767,533 | 1,766,645 | 1.37 | % | ||||||||||||||||||
| Senior Secured First Lien Super Priority Delayed Draw Term Loan (LIBOR + 9.00% Cash, 1.00% LIBOR Floor)(12) | 1/31/2024 | 1,500,000 | 1,500,000 | 1,500,000 | 1.16 | % | ||||||||||||||||||
| Equity - 17.92% Membership Interest | - | - | - | 0.00 | % | |||||||||||||||||||
| 10,671,525 | 10,026,462 | 4,025,574 | 3.12 | % | ||||||||||||||||||||
| Kemmerer Operations, LLC(8) | Metals & Mining | Senior Secured First Lien Term Loan (15.00% PIK) | 6/21/2023 | 2,422,158 | 2,422,158 | 2,422,158 | 1.88 | % | ||||||||||||||||
| Equity - 6.7797 Common Units | 7 | 962,717 | 795,055 | 0.62 | % | |||||||||||||||||||
| 2,422,165 | 3,384,875 | 3,217,213 | 2.50 | % | ||||||||||||||||||||
| Path Medical, LLC | Healthcare & Pharmaceuticals | Senior Secured First Lien Term Loan A (LIBOR + 9.50% Cash, 1.00% LIBOR Floor)(10) | 10/11/2021 | 5,805,894 | 5,805,894 | 2,258,493 | 1.75 | % | ||||||||||||||||
| Senior Secured First Lien Term Loan B (LIBOR + 13.00% PIK, 1.00% LIBOR Floor)(10) | 10/11/2021 | 7,646,823 | 6,483,741 | - | 0.00 | % | ||||||||||||||||||
| Warrants - 7.68% of Outstanding Equity | 123,867 | 499,751 | - | 0.00 | % | |||||||||||||||||||
| 13,576,584 | 12,789,386 | 2,258,493 | 1.75 | % | ||||||||||||||||||||
| US Multifamily, LLC | Banking, Finance, Insurance & Real Estate | Equity - 33,300 Preferred Units | 33,300 | 3,330,000 | 3,096,900 | 2.40 | % | |||||||||||||||||
| 33,300 | 3,330,000 | 3,096,900 | 2.40 | % | ||||||||||||||||||||
| Subtotal Affiliated Investments | $ | 41,996,932 | $ | 44,288,170 | $ | 17,390,505 | 13.47 | % | ||||||||||||||||
9
| Company(1) | Industry | Type
of Investment | Maturity | Par Amount(2) | Cost(3) | Fair Value(4) | %
of Net Assets(5) | |||||||||||||||
| Controlled Investments:(7) | ||||||||||||||||||||||
| FlexFIN, LLC | Services: Business | Equity Interest | $ | 41,106,667 | $ | 41,106,667 | $ | 41,106,667 | 31.85 | % | ||||||||||||
| 41,106,667 | 41,106,667 | 41,106,667 | ||||||||||||||||||||
| NVTN LLC(8) | Hotel, Gaming & Leisure | Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 4.00% Cash, 1.00% LIBOR Floor)(10) | 12/31/2024 | 6,565,875 | 6,565,875 | 6,460,821 | 5.02 | % | ||||||||||||||
| Senior Secured First Lien Term Loan B (LIBOR + 9.25% PIK, 1.00% LIBOR Floor)(10) | 12/31/2024 | 14,963,195 | 12,305,096 | 1,887,801 | 1.46 | % | ||||||||||||||||
| Senior Secured First Lien Term Loan C (LIBOR + 12.00% PIK, 1.00% LIBOR Floor)(10) | 12/31/2024 | 10,014,223 | 7,570,054 | - | 0.00 | % | ||||||||||||||||
| Equity - 787.4 Class A Units | 9,550,922 | 9,550,922 | - | 0.00 | % | |||||||||||||||||
| 41,094,215 | 35,991,947 | 8,348,622 | 38.33 | % | ||||||||||||||||||
| Subtotal Control Investments | $ | 82,200,882 | $ | 77,098,614 | $ | 49,455,289 | 38.33 | % | ||||||||||||||
| Total Investments, June 30, 2022 | $ | 222,139,192 | $ | 257,016,202 | $ | 182,783,105 | 141.62 | % | ||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| (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 $(74,168,083). |
The tax cost basis of investments is $256,951,188 as of June 30, 2022.
| (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 $129,080,980 as of June 30, 2022. |
| (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, 2022 (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, 2022. |
| (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, 2022, 18.34% of the Company's portfolio investments were non-qualifying assets. |
| (12) | This investment earns 0.50% commitment fee on all unused commitment as of June 30, 2022, and is recorded as a component of interest income on the Consolidated Statements of Operations. |
| (13) | This investment represents a Level 1 security in the ASC 820 table as of June 30, 2022 (see Note 4). |
| (14) | This investment represents a Level 2 security in the ASC 820 table as of June 30, 2022 (see Note 4). |
| (15) | 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. |
| (16) | 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. |
| (17) | 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. |
| (18) | 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. |
| (19) | The interest rate on this preferred equity is fixed-to-floating and will shift to 3 month LIBOR plus a 5.345% spread on 3/31/2025. |
10
PHENIXFIN CORPORATION
Consolidated Schedule of Investments
September 30, 2021
| Company(1) | Industry | Type of Investment | Maturity | Par Amount(2) | Cost(3) | Fair Value(4) | %
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 | $ | 4,715,808 | $ | 4,715,809 | $ | 4,715,809 | 3.29 | % | |||||||||||
| 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 | 0.33 | % | ||||||||||||||||
| 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 | 1.58 | % | ||||||||||||||||
| Senior Secured Incremental First Lien Term Loan (LIBOR + 6.50% Cash, 1.00% LIBOR Floor)(14) | 11/16/2022 | 4,174,037 | 4,107,317 | 4,174,037 | 2.90 | % | ||||||||||||||||
| Senior Secured Incremental First Lien Term Loan (LIBOR + 6.50% Cash, 1.00% LIBOR Floor)(14) | 11/16/2022 | 2,999,802 | 2,946,540 | 2,999,802 | 2.09 | % | ||||||||||||||||
| Senior Secured Incremental First Lien Term Loan (LIBOR + 6.50% Cash, 1.00% LIBOR Floor)(14) | 11/16/2022 | 1,000,000 | 982,916 | 1,000,000 | 0.70 | % | ||||||||||||||||
| 15,639,027 | 15,501,962 | 15,639,028 | 10.89 | % | ||||||||||||||||||
| Autosplice, Inc. | Automotive | Senior Secured First Lien Term Loan (LIBOR + 8.00% Cash & 2.00% PIK, 1.00% LIBOR Floor)(14) | 4/30/2022 | 11,826,036 | 11,826,036 | 11,826,036 | 8.23 | % | ||||||||||||||
| 11,826,036 | 11,826,036 | 11,826,036 | 8.23 | % | ||||||||||||||||||
| Be Green Packaging, LLC | Containers, Packaging & Glass | Equity - 417 Common Units | 1 | 416,250 | - | 0.00 | % | |||||||||||||||
| 1 | 416,250 | - | 0.00 | % | ||||||||||||||||||
Boostability Seotowncenter, Inc. | Services: Business | Equity - 3,434,169.6 Common Units | 3,434,170 | 566,475 | - | 0.00 | % | |||||||||||||||
3,434,170 | 566,475 | - | 0.00 | % | ||||||||||||||||||
| Chimera Investment Corp.(11) | Banking, Finance, Insurance & Real Estate | Equity - 117,310 Class C Preferred Units(17)(20) | 117,310 | 2,884,724 | 3,019,559 | 2.10 | % | |||||||||||||||
| 117,310 | 2,884,724 | 3,019,559 | 2.10 | % | ||||||||||||||||||
| Cleaver-Brooks, Inc. | Manufacturing | 7.875% Senior Secured Notes(18) | 3/1/2023 | 9,364,000 | 9,306,052 | 9,270,360 | 6.45 | % | ||||||||||||||
| 9,364,000 | 9,306,052 | 9,270,360 | 6.45 | % | ||||||||||||||||||
| CM Finance SPV, LLC | Energy: Oil & Gas | Unsecured Debt(10) | 101,463 | 101,463 | - | 0.00 | % | |||||||||||||||
| 101,463 | 101,463 | - | 0.00 | % | ||||||||||||||||||
| 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 | 2,599,906 | 2,489,744 | 1.73 | % | ||||||||||||||
| 2,607,062 | 2,599,906 | 2,489,744 | 1.73 | % | ||||||||||||||||||
| DataOnline Corp. | High Tech Industries | Senior Secured First Lien Term Loan (LIBOR + 6.25% Cash, 1.00% LIBOR Floor)(14) | 11/13/2025 | 4,912,500 | 4,912,500 | 4,863,375 | 3.39 | % | ||||||||||||||
| Revolving Credit Facility (LIBOR + 6.25% Cash, 1.00% LIBOR Floor)(14)(16) | 11/13/2025 | 714,286 | 714,286 | 707,143 | 0.49 | % | ||||||||||||||||
| 5,626,786 | 5,626,786 | 5,570,518 | 3.88 | % | ||||||||||||||||||
11
| Company(1) | Industry | Type of Investment | Maturity | Par Amount(2) | Cost(3) | Fair Value(4) | %
of Net Assets(5) | |||||||||||||||
| Dividend and Income Fund(11) | Banking, Finance, Insurance & Real Estate | Equity - 87,483 Common Units(17) | 87,483 | 1,281,845 | 1,275,502 | 0.89 | % | |||||||||||||||
| 87,483 | 1,281,845 | 1,275,502 | 0.89 | % | ||||||||||||||||||
| Dream Finders Homes, LLC(11) | Construction & Building | Preferred Equity (8.00% PIK) | 4,905,011 | 4,905,011 | 4,757,860 | 3.31 | % | |||||||||||||||
| 4,905,011 | 4,905,011 | 4,757,860 | 3.31 | % | ||||||||||||||||||
| Footprint Acquisition, LLC | Services: Business | Preferred Equity (8.75% PIK)(10) | 4,049,398 | 4,049,398 | 2,956,061 | 2.06 | % | |||||||||||||||
| Equity - 150 Common Units | 150 | - | - | 0.00 | % | |||||||||||||||||
| 4,049,548 | 4,049,398 | 2,956,061 | 2.06 | % | ||||||||||||||||||
| Global Accessories Group, LLC | Consumer goods: Non-durable | Equity - 3.8% Membership Interest | 380 | 151,337 | - | 0.00 | % | |||||||||||||||
| 380 | 151,337 | - | 0.00 | % | ||||||||||||||||||
| Great AJAX Corp.(11) | Banking, Finance, Insurance & Real Estate | Equity - 253,651 Common Units(17) | 253,651 | 3,316,414 | 3,421,752 | 2.38 | % | |||||||||||||||
| 253,651 | 3,316,414 | 3,421,752 | 2.38 | % | ||||||||||||||||||
| Invesco Mortgage Capital, Inc.(11) | Banking, Finance, Insurance & Real Estate | Equity - 205,000 Class C Preferred Units(17)(21) | 205,000 | 5,035,506 | 5,217,250 | 3.63 | % | |||||||||||||||
| 205,000 | 5,035,506 | 5,217,250 | 3.63 | % | ||||||||||||||||||
| Lighting Science Group Corporation | Containers, Packaging & Glass | Warrants - 0.62% of Outstanding Equity(18) | 5,000,000 | 955,680 | - | 0.00 | % | |||||||||||||||
| 5,000,000 | 955,680 | - | 0.00 | % | ||||||||||||||||||
| MFA Financial, Inc. | Banking, Finance, Insurance & Real Estate | Equity - 31,692 Class C Preferred Units(17)(24) | 31,692 | 762,171 | 778,989 | 0.54 | % | |||||||||||||||
| 31,692 | 762,171 | 778,989 | 0.54 | % | ||||||||||||||||||
| New Residential Investment Corp.(11) | Banking, Finance, Insurance & Real Estate | Equity - 206,684 Class B Preferred Units(17)(22) | 206,684 | 5,129,170 | 5,206,370 | 3.62 | % | |||||||||||||||
| 206,684 | 5,129,170 | 5,206,370 | 3.62 | % | ||||||||||||||||||
| New York Mortgage Trust, Inc.(11) | Banking, Finance, Insurance & Real Estate | Equity - 165,000 Class E Preferred Units(17)(23) | 165,000 | 4,102,076 | 4,182,750 | 2.91 | % | |||||||||||||||
| 165,000 | 4,102,076 | 4,182,750 | 2.91 | % | ||||||||||||||||||
12
| Company(1) | Industry | Type of Investment | Maturity | Par Amount(2) | Cost(3) | Fair Value(4) | %
of Net Assets(5) | |||||||||||||||
| 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 | % | ||||||||||||||||||
| RateGain Technologies, Inc. | Hotel, Gaming & Leisure | Unsecured Debt (4.50% Cash)(12) | 10/2/2023 | 532,671 | 532,671 | - | 0.00 | % | ||||||||||||||
| Unsecured Debt (4.50% Cash)(12) | 4/1/2024 | 704,762 | 704,762 | - | 0.00 | % | ||||||||||||||||
| 1,237,433 | 1,237,433 | - | 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 | 175,000 | 0.12 | % | ||||||||||||||
| 175,000 | 175,000 | 175,000 | 0.12 | % | ||||||||||||||||||
| Sendero Drilling Company, LLC | Energy: Oil & Gas | Unsecured Debt (9.00% Cash)(10) | 8/1/2022 | 233,750 | 222,544 | - | 0.00 | % | ||||||||||||||
| 233,750 | 222,544 | - | 0.00 | % | ||||||||||||||||||
| SMART Financial Operations, LLC | Retail | Equity - 700,000 Class A Preferred Units | 700,000 | 700,000 | - | 0.00 | % | |||||||||||||||
| 700,000 | 700,000 | - | 0.00 | % | ||||||||||||||||||
| Stancor, Inc. (dba Industrial Flow Solutions Holdings, LLC) | Services: Business | Equity - 263,814.43 Class A Units | 263,814 | 263,814 | - | 0.00 | % | |||||||||||||||
| 263,814 | 263,814 | - | 0.00 | % | ||||||||||||||||||
| Thryv Holdings, Inc.(11) | Services: Business | Senior Secured First Lien Term Loan B (LIBOR + 8.50% Cash, 1.00% LIBOR Floor)(13) | 3/1/2026 | 5,770,000 | 5,610,988 | 5,863,763 | 4.08 | % | ||||||||||||||
| 5,770,000 | 5,610,988 | 5,863,763 | 4.08 | % | ||||||||||||||||||
| Velocity Pooling Vehicle, LLC | Automotive | Equity - 5,441 Class A Units | 5,441 | 302,464 | 64,167 | 0.05 | % | |||||||||||||||
| Warrants - 0.65% of Outstanding Equity | 3/30/2028 | 6,506 | 361,667 | 76,727 | 0.05 | % | ||||||||||||||||
| 11,947 | 664,131 | 140,894 | 0.10 | % | ||||||||||||||||||
| Walker Edison Furniture Company LLC | Consumer goods: Durable | Equity - 10,244 Common Units | 10,244 | 1,500,000 | 2,361,242 | 1.64 | % | |||||||||||||||
| 10,244 | 1,500,000 | 2,361,242 | 1.64 | % | ||||||||||||||||||
| Watermill-QMC Midco, Inc. | Automotive | Equity - 1.3% Partnership Interest(9) | 518,283 | 518,283 | - | 0.00 | % | |||||||||||||||
| 518,283 | 518,283 | - | 0.00 | % | ||||||||||||||||||
| Wingman Holdings, Inc. (f/k/a Crow Precision Components, LLC) | Aerospace & Defense | Equity - 350 Common Units | 350 | 700,000 | - | 0.00 | % | |||||||||||||||
| 350 | 700,000 | - | 0.00 | % | ||||||||||||||||||
| Subtotal Non-Controlled/Non-Affiliated Investments | $ | 75,318,491 | $ | 92,214,167 | $ | 84,152,678 | 58.56 | % | ||||||||||||||
13
| Company(1) | Industry | Type of Investment | Maturity | Par Amount(2) | Cost(3) | Fair Value(4) | %
of Net Assets(5) | |||||||||||||||
| 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(25) | $ | 9,946,741 | $ | 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) | 25,937,520 | 19,468,870 | - | 0.00 | % | ||||||||||||||||
| Senior Secured First Lien Term Loan C (LIBOR + 5.00%, 1.00% LIBOR Floor)(14) | 9/30/2021(25) | 1,231,932 | 1,191,257 | 24,637 | 0.02 | % | ||||||||||||||||
| Revolving Credit Facility (LIBOR +5.00% PIK, 1.00% LIBOR Floor)(14)(16) | 9/30/2021(25) | 3,554,069 | 3,554,069 | 3,554,069 | 2.47 | % | ||||||||||||||||
| Equity - 17,493.63 Class A Units | - | - | - | 0.00 | % | |||||||||||||||||
| 40,670,262 | 33,687,262 | 3,578,706 | 2.49 | % | ||||||||||||||||||
| 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 | 0.53 | % | ||||||||||||||
| 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 | 2,279,814 | 1.59 | % | ||||||||||||||||
| 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 | 1.04 | % | ||||||||||||||||
| 10,671,525 | 10,026,462 | 4,538,743 | 3.16 | % | ||||||||||||||||||
| Caddo Investors Holdings 1 LLC(11) | Forest Products & Paper | Equity - 6.15% Membership Interest(19) | 2,528,826 | 2,528,826 | 3,454,786 | 2.40 | % | |||||||||||||||
| 2,528,826 | 2,528,826 | 3,454,786 | 2.40 | % | ||||||||||||||||||
14
| Company(1) | Industry | Type of Investment | Maturity | Par Amount(2) | Cost(3) | Fair
Value(4) | %
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 | 12,109,957 | 7,328,568 | - | 0.00 | % | ||||||||||||||
| Equity - 12,350,000 Class A Units | 12,350,000 | - | - | 0.00 | % | |||||||||||||||||
| 24,459,957 | 7,328,568 | - | 0.00 | % | ||||||||||||||||||
| JFL-NGS Partners, LLC | Construction & Building | Equity - 57,300 Class B Units | 57,300 | 57,300 | 26,862,813 | 18.69 | % | |||||||||||||||
| 57,300 | 57,300 | 26,862,813 | 18.69 | % | ||||||||||||||||||
| JFL-WCS Partners, LLC | Environmental Industries | Equity - 129,588 Class B Units | 129,588 | 129,588 | 8,099,949 | 5.64 | % | |||||||||||||||
| 129,588 | 129,588 | 8,099,949 | 5.64 | % | ||||||||||||||||||
| Kemmerer Operations, LLC(8) | Metals & Mining | Senior Secured First Lien Term Loan (15.00% PIK) | 6/21/2023 | 2,381,985 | 2,381,985 | 2,360,547 | 1.64 | % | ||||||||||||||
| Senior Secured First Lien Delayed Draw Term Loan (15.00% PIK)(16) | 6/21/2023 | 163,915 | 163,915 | 162,441 | 0.11 | % | ||||||||||||||||
| Equity - 6.7797 Common Units | 7 | 962,717 | 553,746 | 0.39 | % | |||||||||||||||||
| 2,545,907 | 3,508,617 | 3,076,734 | 2.14 | % | ||||||||||||||||||
| 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 | 5,805,894 | 5,805,894 | 2,249,835 | 1.57 | % | ||||||||||||||
| Senior Secured First Lien Term Loan B (LIBOR + 13.00% PIK, 1.00% LIBOR Floor)(10)(13) | 10/11/2021 | 7,646,823 | 6,483,741 | - | 0.00 | % | ||||||||||||||||
| Warrants - 7.68% of Outstanding Equity | 123,867 | 499,751 | - | 0.00 | % | |||||||||||||||||
| 13,576,584 | 12,789,386 | 2,249,835 | 1.57 | % | ||||||||||||||||||
| URT Acquisition Holdings Corporation | Services: Business | Warrants | 28,912 | - | 920,000 | 0.64 | % | |||||||||||||||
| 28,912 | - | 920,000 | 0.64 | % | ||||||||||||||||||
| 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 | 1.79 | % | ||||||||||||||
| Equity - 33,300 Preferred Units | 33,300 | 3,330,000 | 2,236,261 | 1.56 | % | |||||||||||||||||
| 2,610,718 | 5,907,418 | 4,813,679 | 3.35 | % | ||||||||||||||||||
| Subtotal Affiliated Investments | $ | 97,279,579 | $ | 75,963,427 | $ | 57,595,245 | 40.08 | % | ||||||||||||||
15
| Company(1) | Industry | Type of Investment | Maturity | Par Amount(2) | Cost(3) | Fair Value(4) | %
of Net Assets(5) | |||||||||||||||
| Controlled Investments:(7) | ||||||||||||||||||||||
| FlexFIN, LLC | Services: Business | Equity Interest | $ | 2,500,000 | $ | 2,500,000 | $ | 2,500,000 | 1.74 | % | ||||||||||||
| 2,500,000 | 2,500,000 | 2,500,000 | 1.74 | % | ||||||||||||||||||
| 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) | 12/31/2024 | 6,565,875 | 6,565,875 | 6,414,860 | 4.47 | % | ||||||||||||||
| Senior Secured First Lien Super Priority DDTL (LIBOR + 4.00% Cash, 1.00% LIBOR Floor)(13)(16) | 12/31/2024 | 1,000,000 | 998,150 | 977,000 | 0.68 | % | ||||||||||||||||
| Senior Secured First Lien Term Loan B (LIBOR + 9.25% PIK, 1.00% LIBOR Floor)(10)(13) | 12/31/2024 | 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) | 12/31/2024 | 10,014,223 | 7,570,054 | - | 0.00 | % | ||||||||||||||||
| Equity - 787.4 Class A Units | 9,550,922 | 9,550,922 | - | 0.00 | % | |||||||||||||||||
| 42,094,215 | 36,990,097 | 7,391,860 | 5.15 | % | ||||||||||||||||||
| Subtotal Control Investments | $ | 44,594,215 | $ | 39,490,097 | $ | 9,891,860 | 6.89 | % | ||||||||||||||
| Total Investments, September 30, 2021 | $ | 217,192,285 | $ | 207,667,691 | $ | 151,639,783 | 105.53 | % | ||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| (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 $55,318,330. |
| The tax cost basis of investments is $206,958,113 as of September 30, 2021. |
16
| (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 $143,693,981 as of September 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 September 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 September 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 September 30, 2021, 20.18% 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 September 30, 2021 was 0.08%. |
| (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 September 30, 2021 was 0.13%. |
| (15) | The interest rate on these loans is subject to 3 month LIBOR plus a base rate. The 3 month LIBOR as of September 30, 2021 was 0.13%. |
| (16) | This investment earns 0.50% commitment fee on all unused commitment as of September 30, 2021, and is recorded as a component of interest income on the Consolidated Statements of Operations. |
| (17) | This investment represents a Level 1 security in the ASC 820 table as of September 30, 2021 (see Note 4). |
| (18) | This investment represents a Level 2 security in the ASC 820 table as of September 30, 2021 (see Note 4). |
| (19) | As a practical expedient, the Company uses net asset value (“NAV”) to determine the fair value of this investment. |
| (20) | The interest rate on this preferred equity is fixed-to-floating and will shift to 3 month LIBOR plus a 4.743% spread on 9/30/2025. |
| (21) | The interest rate on this preferred equity is fixed-to-floating and will shift to 3 month LIBOR plus a 5.29% spread on 9/27/2027. |
| (22) | The interest rate on this preferred equity is fixed-to-floating and will shift to 3 month LIBOR plus a 5.64% spread on 8/15/2024. |
| (23) | The interest rate on this preferred equity is fixed-to-floating and will shift to 3 month LIBOR plus a 6.429% spread on 1/15/2025. |
| (24) | The interest rate on this preferred equity is fixed-to-floating and will shift to 3 month LIBOR plus a 5.345% spread on 3/31/2025. |
| (25) | The maturity date was extended to May 1, 2023 subsequent to September 30, 2021. |
17
Notes to Consolidated Financial Statements
June 30, 2022
(Unaudited)
Note 1. Organization
PhenixFIN Corporation (“PhenixFIN.” the “Company,” “we” and “us”) is an internally-managed 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 has elected, and intends to qualify annually, to be treated, for U.S. federal income tax purposes, as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). On November 18, 2020, the board of directors of the Company approved the adoption of an internalized management structure, effective January 1, 2021. Until close of business on December 31, 2020 we were externally managed and advised by MCC Advisors LLC (“MCC Advisors”), pursuant to an investment management agreement. MCC Advisors is a wholly owned subsidiary of Medley LLC, which is controlled by Medley Management Inc., a publicly traded asset management firm (“MDLY”), which in turn is controlled by Medley Group LLC, an entity wholly owned by the senior professionals of Medley LLC. We use the term “Medley” to refer collectively to the activities and operations of Medley Capital LLC, Medley LLC, MDLY, Medley Group LLC, MCC Advisors, associated investment funds and their respective affiliates. Since January 1, 2021 the Company has been managed pursuant to an internalized management structure.
The Company has formed and expects to continue to form certain taxable subsidiaries (the “Taxable Subsidiaries”), which are taxed as corporations for federal income tax purposes. These Taxable Subsidiaries allow us to, among other things, hold equity securities of portfolio companies organized as pass-through entities while continuing to satisfy the requirements of a RIC under the Code.
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 REITs.) We may also pursue other strategic opportunities and invest in other assets or operate other businesses to achieve our investment objective, such as operating and managing an asset-based lending business. 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.
Reverse Stock Split; Authorized Share Reduction
At the Company’s 2020 Annual Meeting of Stockholders held on June 30, 2020 (the “Annual Meeting”), stockholders approved a proposal to grant discretionary authority to the Company’s board of directors to amend the Company’s Certificate of Incorporation (the “Certificate of Incorporation”) to effect a reverse stock split of its common stock, of 1-20 (the “Reverse Stock Split”) and with the Reverse Stock Split to be effective at such time and date, if at all, as determined by the board of directors, but not later than 60 days after stockholder approval thereof and, if and when the reverse stock split is effected, reduce the number of authorized shares of common stock by the approved reverse stock split ratio (the “Authorized Share Reduction”).
Following the 2020 Annual Meeting, on July 7, 2020, the board of directors determined that it was in the best interests of the Company and its stockholders to implement the Reverse Stock Split and the Authorized Share Reduction. Accordingly, on July 13, 2020, the Company filed a Certificate of Amendment (the “Certificate of Amendment”) to the Certificate of Incorporation with the Secretary of State of the State of Delaware to effect the Reverse Stock Split and the Authorized Share Reduction.
Pursuant to the Certificate of Amendment, effective as of 5:00 p.m., Eastern Time, on July 24, 2020 (the “Effective Time”), each twenty (20) shares of common stock issued and outstanding, immediately prior to the Effective Time, automatically and without any action on the part of the respective holders thereof, were combined and converted into one (1) share of common stock. In connection with the Reverse Stock Split, the Certificate of Amendment provided for a reduction in the number of authorized shares of common stock from 100,000,000 to 5,000,000 shares of common stock. No fractional shares were issued as a result of the Reverse Stock Split. Instead, any stockholder who would have been entitled to receive a fractional share as a result of the Reverse Stock Split received cash payments in lieu of such fractional shares (without interest and subject to backup withholding and applicable withholding taxes).
On December 21, 2020, the Company announced that it completed the application process for and was authorized to transfer the listing of its shares of common stock to the NASDAQ Global Market. The listing and trading of the common stock on the NYSE ceased at the close of trading on December 31, 2020. Since January 4, 2021, the common stock trades on the NASDAQ Global Market under the trading symbol “PFX.”
18
PHENIXFIN CORPORATION
Notes to Consolidated Financial Statements (continued)
June 30, 2022
(Unaudited)
Note 1. Organization (continued)
Sale of MCC JV
On October 8, 2020, the Company, Great American Life Insurance Company (“GALIC”), MCC Senior Loan Strategy JV I LLC (the “MCC JV”), and an affiliate of Golub Capital LLC (“Golub”) entered into a Membership Interest Purchase Agreement pursuant to which a fund affiliated with and managed by Golub concurrently purchased all of the Company’s interest in the MCC JV and all of GALIC’s interest in the MCC JV for a pre-adjusted gross purchase price of $156.4 million and an adjusted gross purchase price (which constitutes the aggregate consideration for the membership interests) of $145.3 million (giving effect to adjustments primarily for principal and interest payments from portfolio companies of MCC JV from July 1, 2020 through October 7, 2020), resulting in net proceeds (before transaction expenses) of $41.0 million and $6.6 million for the Company and GALIC, respectively.
COVID-19 Developments
The COVID-19 pandemic and variants thereof continue to have adverse consequences on the U.S. and global economies, as well as on the Company (including certain portfolio companies) in particular. The long-term impact of the pandemic on economies, markets, industries and individual portfolio companies, remains uncertain. The Company’s performance (including that of certain of its portfolio companies) has been negatively impacted during the pandemic. The longer-term impact of COVID-19 on the operations and the performance of the Company (including certain portfolio companies) is difficult to predict, but may continue to be adverse. The longer-term potential impact on such operations and performance could depend to a large extent on future developments and actions taken by authorities and other entities to mitigate COVID-19 (and any variants thereof) and its economic impact. The impacts, as well as the uncertainty over impacts to come, of COVID-19 (including any variants thereof) have adversely affected the performance of the Company (including certain portfolio companies) and may continue to do so in the future. Further, the potential exists for additional variants of COVID-19 to impede the global economic recovery and exacerbate geographic differences in the spread of, and response to, COVID-19.
Note 2. Significant Accounting Policies
Basis of Presentation
The Company is an investment company following the accounting and reporting guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 946 (“ASC 946”), Financial Services – Investment Companies. The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in conformity with U.S. generally accepted accounting principles (“GAAP”) and include the consolidated accounts of the Company and its wholly owned subsidiaries PhenixFIN Small Business Fund, LP (“PhenixFIN Small Business Fund”) and PhenixFIN SLF Funding I LLC (“PhenixFIN SLF”), and its wholly owned Taxable Subsidiaries. All references made to the “Company,” “we,” and “us” herein include PhenixFIN Corporation and its consolidated subsidiaries, except as stated otherwise. Additionally, the accompanying consolidated financial statements of the Company and related financial information have been prepared pursuant to the requirements for reporting on Form 10-K and Article 10 of Regulation S-X of the Securities Act of 1933. In the opinion of management, the consolidated financial statements reflect all adjustments and reclassifications, which are of a normal recurring nature, that are necessary for the fair presentation of financial results as of and for the periods presented. Therefore, this Form 10-Q should be read in conjunction with the Company’s annual report on Form 10-K for the year ended September 30, 2021. The current period’s results of operations will not necessarily be indicative of results that ultimately may be achieved for the fiscal year ending September 30, 2022.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers cash equivalents to be highly liquid investments with original maturities of three months or less. Cash and cash equivalents include deposits in a money market account. The Company deposits its cash in financial institutions and, at times, such balances may be in excess of the Federal Deposit Insurance Corporation insurance limits. As of June 30, 2022 and September 30, 2021, we had $24.4 million and $69.4 million in cash and cash equivalents, respectively.
Debt Issuance Costs
Debt issuance costs, incurred in connection with any credit facilities and unsecured notes (see Note 5) are deferred and amortized over the life of the respective credit facility or instrument.
Indemnification
In the normal course of business, the Company enters into contractual agreements that provide general indemnifications against losses, costs, claims and liabilities arising from the performance of individual obligations under such agreements. The Company has had no material claims or payments pursuant to such agreements. The Company’s individual maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Company that have not yet occurred. However, based on management’s experience, the Company expects the risk of loss to be remote.
19
PHENIXFIN CORPORATION
Notes to Consolidated Financial Statements (continued)
June 30, 2022
(Unaudited)
Note 2. Significant Accounting Policies (continued)
Revenue Recognition
Interest income, adjusted for amortization of premiums and accretion of discounts, is recorded on an accrual basis. Dividend income, which represents dividends from equity investments and distributions from Taxable Subsidiaries, is recorded on the ex-dividend date and when the distribution is received, respectively.
The Company holds debt investments in its portfolio that contain a payment-in-kind (“PIK”) interest provision. PIK interest, which represents contractually deferred interest added to the investment balance that is generally due at maturity, is recorded on the accrual basis to the extent such amounts are expected to be collected. PIK interest is not accrued if the Company does not expect the issuer to be able to pay all principal and interest when due. For the three and nine months ended June 30, 2022, the Company earned approximately $0.2 million and $0.6 million in PIK interest, respectively. For the three and nine months ended June 30, 2021, the Company earned approximately $0.5 million and $0.6 million in PIK interest, respectively.
Origination/closing, amendment and transaction break-up fees associated with investments in portfolio companies are recognized as income when we become entitled to such fees. Prepayment penalties received by the Company for debt instruments paid back to the Company prior to the maturity date are recorded as income upon repayment of debt. Administrative agent fees received by the Company are capitalized as deferred revenue and recorded as fee income when the services are rendered. For the three and nine months ended June 30, 2022, fee income was approximately $0.1 million and $0.4 million, respectively (see Note 9). For the three and nine months ended June 30, 2021, fee income was approximately $0.1 million and $0.7 million, respectively (see Note 9).
Investment transactions are accounted for on a trade date basis. Realized gains or losses on investments are measured by the difference between the net proceeds from the disposition and the amortized cost basis of investment, without regard to unrealized gains or losses previously recognized. During the three and nine months ended June 30, 2022, $0.0 million and $19.6 million, respectively, of the Company’s realized gains (losses) were related to certain non-cash restructuring transactions, which are recorded on the Consolidated Statements of Operations as a component of net realized gains (losses) from investments. There were no realized gains or losses related to non-cash restructuring transactions during the three and nine months ended June 30, 2021. The Company reports changes in fair value of investments as a component of the net unrealized appreciation/(depreciation) on investments in the Consolidated Statements of Operations.
Management reviews all loans that become 90 days or more past due on principal or interest or when there is reasonable doubt that principal or interest will be collected for possible placement on management’s designation of non-accrual status. Interest receivable is analyzed regularly and may be reserved against when deemed not collectible. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment regarding collectability. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in management’s judgment, are likely to remain current, although we may make exceptions to this general rule if the loan has sufficient collateral value and is in the process of collection. At June 30, 2022, certain investments in six portfolio companies held by the Company were on non-accrual status with a combined fair value of approximately $12.4 million, or 6.8% of the fair value of our portfolio. At September 30, 2021, certain investments in nine portfolio companies held by the Company were on non-accrual status with a combined fair value of approximately $13.9 million, or 9.2% of the fair value of our portfolio.
Investment Classification
The Company classifies its investments in accordance with the requirements of the 1940 Act. Under the 1940 Act, we would be deemed to “control” a portfolio company if we owned more than 25% of its outstanding voting securities and/or had the power to exercise control over the management or policies of such portfolio company. We refer to such investments in portfolio companies that we “control” as “Control Investments.” Under the 1940 Act, we would be deemed to be an “Affiliated Person” of a portfolio company if we own between 5% and 25% of the portfolio company’s outstanding voting securities or we are under common control with such portfolio company. We refer to such investments in Affiliated Persons as “Affiliated Investments.”
Valuation of Investments
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 in Note 4. 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.
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PHENIXFIN CORPORATION
Notes to Consolidated Financial Statements (continued)
June 30, 2022
(Unaudited)
Note 2. Significant Accounting Policies (continued)
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.
The methodologies and information that the Company utilizes when applying the Market Approach for performing investments include, among other things:
| ● | valuations of comparable public companies (“Guideline Comparable Approach”); |
| ● | recent sales of private and public comparable companies (“Guideline Comparable Approach”); |
| ● | recent acquisition prices of the company, debt securities or equity securities (“Recent Arms-Length Transaction”); |
| ● | external valuations of the portfolio company, offers from third parties to buy the company (“Estimated Sales Proceeds Approach”); |
| ● | subsequent sales made by the company of its investments (“Expected Sales Proceeds Approach”); and |
| ● | estimating the value to potential buyers. |
The methodologies and information that the Company utilizes when applying the Income Approach for performing investments include:
| ● | discounting the forecasted cash flows of the portfolio company or securities (Discounted Cash Flow (“DCF”) Approach); and |
| ● | Black-Scholes model or simulation models or a combination thereof (Income Approach - Option Model) with respect to the valuation of warrants. |
For non-performing investments, we may estimate the liquidation or collateral value of the portfolio company’s assets and liabilities using an expected recovery model (Market Approach - Expected Recovery Analysis or Estimated Liquidation Proceeds).
We undertake a multi-step valuation process each quarter when valuing investments for which market quotations are not readily available, as described below: