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TABLE OF CONTENTS
Item 8. Consolidated Financial Statements and Supplementary Data
PART IV
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark
One)
þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2018
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-33723
Main Street Capital Corporation
(Exact name of registrant as specified in its charter)
Maryland
(State or other jurisdiction
of incorporation or organization)
1300 Post Oak Boulevard,
8th Floor
Houston, TX
(Address of principal executive offices)
41-2230745
(I.R.S. Employer
Identification No.)
77056
(Zip Code)
(713) 350-6000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, par value $0.01 per share
Name of Each Exchange on Which Registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to
submit such files). Yes o No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or 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 þ
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
Emerging growth company o
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
The aggregate market value of the registrant's common stock held by non-affiliates of the registrant as of June 30, 2018, was
approximately $2,178.0 million based upon the last sale price for the registrant's common stock on that date.
The number of outstanding common shares of the registrant as of February 28, 2019 was 61,847,438.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrants' definitive Proxy Statement for its 2019 Annual Meeting of Stockholders, to be filed with the Securities and
Exchange Commission, are incorporated by reference in this Annual Report on Form 10-K in response to Part III.
Table of Contents
TABLE OF CONTENTS
PART I
Business
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Properties
Legal Proceedings
Mine Safety Disclosures
Item 5.
PART II
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 6.
Item 7.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Consolidated Financial Statements and Supplementary Data
Item 8.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
Item 15. Exhibits and Consolidated Financial Statement Schedules
Signatures
PART IV
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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements regarding the plans and objectives of management for future
operations. Any such forward-looking statements may involve known and unknown risks, uncertainties and other factors which may cause
our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or
implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe our future plans,
strategies and expectations, are generally identifiable by use of the words "may," "will," "should," "expect," "anticipate," "estimate,"
"believe," "intend" or "project" or the negative of these words or other variations on these words or comparable terminology. These
forward-looking statements are based on assumptions that may be incorrect, and we cannot assure you that the projections included in
these forward-looking statements will come to pass. Our actual results could differ materially from those expressed or implied by the
forward-looking statements as a result of various factors, including the factors discussed in Item 1A entitled "Risk Factors" in Part I of this
Annual Report on Form 10-K and elsewhere in this Annual Report on Form 10-K. Other factors that could cause actual results to differ
materially include changes in the economy and future changes in laws or regulations and conditions in our operating areas.
We have based the forward-looking statements included in this Annual Report on Form 10-K on information available to us on the
date of this Annual Report on Form 10-K, and we assume no obligation to update any such forward-looking statements, unless we are
required to do so by applicable law. However, you are advised to refer to any additional disclosures that we may make directly to you or
through reports that we in the future may file with the Securities and Exchange Commission ("SEC"), including subsequent annual reports
on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.
Item 1. Business
ORGANIZATION
PART I
Main Street Capital Corporation ("MSCC") is a principal investment firm primarily focused on providing customized debt and equity
financing to lower middle market ("LMM") companies and debt capital to middle market ("Middle Market") companies. The portfolio
investments of MSCC and its consolidated subsidiaries are typically made to support management buyouts, recapitalizations, growth
financings, refinancings and acquisitions of companies that operate in a variety of industry sectors. MSCC seeks to partner with
entrepreneurs, business owners and management teams and generally provides "one stop" financing alternatives within its LMM portfolio.
MSCC and its consolidated subsidiaries invest primarily in secured debt investments, equity investments, warrants and other securities of
LMM companies based in the United States and in secured debt investments of Middle Market companies generally headquartered in the
United States.
MSCC was formed in March 2007 to operate as an internally managed business development company ("BDC") under the Investment
Company Act of 1940, as amended (the "1940 Act"). MSCC wholly owns several investment funds, including Main Street Mezzanine
Fund, LP ("MSMF"), Main Street Capital II, LP ("MSC II") and Main Street Capital III, LP ("MSC III" and, collectively with MSMF and
MSC II, the "Funds"), and each of their general partners. The Funds are each licensed as a Small Business Investment Company ("SBIC")
by the United States Small Business Administration ("SBA"). Because MSCC is internally managed, all of the executive officers and other
employees are employed by MSCC. Therefore, MSCC does not pay any external investment advisory fees, but instead directly incurs the
operating costs associated with employing investment and portfolio management professionals.
MSC Adviser I, LLC (the "External Investment Manager") was formed in November 2013 as a wholly owned subsidiary of MSCC to
provide investment management and other services to parties other than MSCC and its subsidiaries or their portfolio companies ("External
Parties") and receives fee income for such services. MSCC has been granted no-action relief by the SEC to allow the External Investment
Manager to
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register as a registered investment adviser under the Investment Advisers Act of 1940, as amended (the "Advisers Act"). Since the External
Investment Manager conducts all of its investment management activities for External Parties, it is accounted for as a portfolio investment
of MSCC and is not included as a consolidated subsidiary of MSCC in MSCC's consolidated financial statements.
MSCC has elected 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"). As a result, MSCC generally will not pay corporate-level U.S. federal
income taxes on any net ordinary taxable income or capital gains that it distributes to its stockholders.
MSCC has certain direct and indirect wholly owned subsidiaries that have elected to be taxable entities (the "Taxable Subsidiaries").
The primary purpose of the Taxable Subsidiaries is to permit MSCC to hold equity investments in portfolio companies which are "pass-
through" entities for tax purposes.
Unless otherwise noted or the context otherwise indicates, the terms "we," "us," "our," the "Company" and "Main Street" refer to
MSCC and its consolidated subsidiaries, which include the Funds and the Taxable Subsidiaries.
The following diagram depicts our organizational structure:
*
**
Other Holding Companies includes the Taxable Subsidiaries and other entities formed for operational purposes. Each of these
companies is directly or indirectly wholly owned by MSCC.
The External Investment Manager is accounted for as a portfolio investment at fair value, as opposed to a consolidated subsidiary,
and is indirectly wholly owned by MSCC.
CORPORATE INFORMATION
Our principal executive offices are located at 1300 Post Oak Boulevard, 8 th Floor, Houston, Texas 77056. We maintain a Web site on
the Internet at www.mainstcapital.com. We make available free of charge on our Web site our annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such
material is electronically filed with or furnished to the SEC. Information contained on our Web site is not incorporated by reference into
this Annual Report on Form 10-K, and you should not consider that information to be part of this Annual Report on Form 10-K. Our annual
reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports and other public
filings are also available free of charge on the EDGAR Database on the SEC's Web site at www.sec.gov.
OVERVIEW OF OUR BUSINESS
Our principal investment objective is to maximize our portfolio's total return by generating current income from our debt investments
and capital appreciation from our equity and equity-related investments,
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including warrants, convertible securities and other rights to acquire equity securities in a portfolio company. Our LMM companies
generally have annual revenues between $10 million and $150 million, and our LMM portfolio investments generally range in size from
$5 million to $50 million. Our Middle Market investments are made in businesses that are generally larger in size than our LMM portfolio
companies, with annual revenues typically between $150 million and $1.5 billion, and our Middle Market investments generally range in
size from $3 million to $20 million. Our private loan ("Private Loan") portfolio investments are primarily debt securities in privately held
companies which have been originated through strategic relationships with other investment funds on a collaborative basis. Private Loan
investments are typically similar in size, structure, terms and conditions to investments we hold in our LMM portfolio and Middle Market
portfolio.
We seek to fill the financing gap for LMM businesses, which, historically, have had limited access to financing from commercial banks
and other traditional sources. The underserved nature of the LMM creates the opportunity for us to meet the financing needs of LMM
companies while also negotiating favorable transaction terms and equity participations. Our ability to invest across a company's capital
structure, from secured loans to equity securities, allows us to offer portfolio companies a comprehensive suite of financing options, or a
"one stop" financing solution. Providing customized, "one stop" financing solutions is important to LMM portfolio companies. We
generally seek to partner directly with entrepreneurs, management teams and business owners in making our investments. Our LMM
portfolio debt investments are generally secured by a first lien on the assets of the portfolio company and typically have a term of between
five and seven years from the original investment date.
Our Middle Market portfolio investments primarily consist of direct investments in or secondary purchases of interest-bearing debt
securities in privately held companies that are generally larger in size than the companies included in our LMM portfolio. Our Middle
Market portfolio debt investments are generally secured by either a first or second priority lien on the assets of the portfolio company and
typically have an expected duration of between three and seven years from the original investment date.
Our Private Loan portfolio investments are primarily debt securities in privately held companies which have been originated through
strategic relationships with other investment funds on a collaborative basis, and are often referred to in the debt markets as "club deals."
Private Loan investments are typically similar in size, structure, terms and conditions to investments we hold in our LMM portfolio and
Middle Market portfolio. Our Private Loan portfolio debt investments are generally secured by either a first or second priority lien on the
assets of the portfolio company and typically have a term of between three and seven years from the original investment date.
Our other portfolio ("Other Portfolio") investments primarily consist of investments which are not consistent with the typical profiles
for our LMM, Middle Market or Private Loan portfolio investments, including investments which may be managed by third parties. In our
Other Portfolio, we may incur indirect fees and expenses in connection with investments managed by third parties, such as investments in
other investment companies or private funds.
Our external asset management business is conducted through the External Investment Manager. The External Investment Manager
earns management fees based on the assets of the funds under management and may earn incentive fees, or a carried interest, based on the
performance of the funds managed. We have entered into an agreement with the External Investment Manager to share employees in
connection with its asset management business generally, and specifically for its relationship with HMS Income Fund, Inc. ("HMS
Income"). Through this agreement, we share employees with the External Investment Manager, including their related infrastructure,
business relationships, management expertise and capital raising capabilities.
Our portfolio investments are generally made through MSCC and the Funds. MSCC and the Funds share the same investment
strategies and criteria, although they are subject to different regulatory regimes (see "Regulation"). An investor's return in MSCC will
depend, in part, on the Funds' investment returns as they are wholly owned subsidiaries of MSCC.
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The level of new portfolio investment activity will fluctuate from period to period based upon our view of the current economic
fundamentals, our ability to identify new investment opportunities that meet our investment criteria, and our ability to consummate the
identified opportunities. The level of new investment activity, and associated interest and fee income, will directly impact future investment
income. In addition, the level of dividends paid by portfolio companies and the portion of our portfolio debt investments on non-accrual
status will directly impact future investment income. While we intend to grow our portfolio and our investment income over the long term,
our growth and our operating results may be more limited during depressed economic periods. However, we intend to appropriately manage
our cost structure and liquidity position based on applicable economic conditions and our investment outlook. The level of realized gains or
losses and unrealized appreciation or depreciation on our investments will also fluctuate depending upon portfolio activity, economic
conditions and the performance of our individual portfolio companies. The changes in realized gains and losses and unrealized appreciation
or depreciation could have a material impact on our operating results.
Because we are internally managed, we do not pay any external investment advisory fees, but instead directly incur the operating costs
associated with employing investment and portfolio management professionals. We believe that our internally managed structure provides
us with a beneficial operating expense structure when compared to other publicly traded and privately held investment firms which are
externally managed, and our internally managed structure allows us the opportunity to leverage our non-interest operating expenses as we
grow our Investment Portfolio.
During May 2012, we entered into an investment sub-advisory agreement with HMS Adviser, LP ("HMS Adviser"), which is the
investment advisor to HMS Income, a non-listed BDC, to provide certain investment advisory services to HMS Adviser. In December
2013, after obtaining required no-action relief from the SEC to allow us to own a registered investment adviser, we assigned the sub-
advisory agreement to the External Investment Manager since the fees received from such arrangement could otherwise have negative
consequences on our ability to meet the source-of-income requirement necessary for us to maintain our RIC tax treatment. Under the
investment sub-advisory agreement, the External Investment Manager is entitled to 50% of the base management fee and the incentive fees
earned by HMS Adviser under its advisory agreement with HMS Income.
During April 2014, we received an exemptive order from the SEC permitting co-investments by us and HMS Income in certain
negotiated transactions where co-investing would otherwise be prohibited under the 1940 Act. We have made, and in the future intend to
continue to make, such co-investments with HMS Income in accordance with the conditions of the order. The order requires, among other
things, that we and the External Investment Manager consider whether each such investment opportunity is appropriate for HMS Income
and, if it is appropriate, to propose an allocation of the investment opportunity between us and HMS Income. Because the External
Investment Manager may receive performance-based fee compensation from HMS Income, this may provide it an incentive to allocate
opportunities to HMS Income instead of us. However, both we and the External Investment Manager have policies and procedures in place
to manage this conflict.
RECENT DEVELOPMENTS
In January 2019, we led a new portfolio investment to facilitate the minority recapitalization of Centre Technologies, Inc. ("Centre"), a
premier provider of IT hardware, software and service solutions. We, along with our co-investors, partnered with Centre's founder and
Chief Executive Officer and management team to facilitate the transaction, with us funding $18.1 million in a combination of first-lien,
senior secured term debt and a direct equity investment. Headquartered in Houston, Texas, and founded in 2006, Centre has established
itself as a mission critical IT solutions provider offering a full suite of solutions including managed and hosted services, value-added
sourcing and integration, and project services.
In January 2019, we led a new portfolio investment to facilitate the management buyout of CompareNetworks Inc.
("CompareNetworks"), a leading provider of media, marketing and technology
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solutions that drive revenue for life science and healthcare product manufacturers. We, along with our co-investors, partnered with
CompareNetworks' founders and management team to facilitate the transaction, with us funding $10.7 million in a combination of first-lien,
senior secured term debt and a direct equity investment. Headquartered in South San Francisco, California, and founded in 2000,
CompareNetworks provides life scientists, researchers, lab-based professionals, pharmaceutical professionals and healthcare professionals
with digital tools and information resources to research, identify and determine which products and technologies to use.
In January 2019, we fully exited our equity investment in Boss Industries, LLC ("Boss"). Boss markets, designs and manufacturers
vehicle-mounted, and portable air compressor and generator systems utilized in municipal and utility services, energy product and industrial
services. We realized a gain of approximately $4.0 million on the exit of our equity investment in Boss.
During February 2019, we declared regular monthly dividends of $0.200 per share for each month of April, May and June 2019. These
regular monthly dividends equal a total of $0.600 per share for the second quarter of 2019 and represent a 5.3% increase from the dividends
declared for the second quarter of 2018. Including the dividends declared for the second quarter of 2019, we will have paid $25.420 per
share in cumulative dividends since our October 2007 initial public offering.
BUSINESS STRATEGIES
Our principal investment objective is to maximize our portfolio's total return by generating current income from our debt investments
and capital appreciation from our equity and equity-related investments, including warrants, convertible securities and other rights to
acquire equity securities in a portfolio company. We have adopted the following business strategies to achieve our investment objective:
•
•
•
•
Deliver Customized Financing Solutions in the Lower Middle Market. We offer LMM portfolio companies
customized debt and equity financing solutions that are tailored to the facts and circumstances of each situation. We
believe our ability to provide a broad range of customized financing solutions to LMM companies sets us apart from
other capital providers that focus on providing a limited number of financing solutions. Our ability to invest across a
company's capital structure, from senior secured loans to subordinated debt to equity securities, allows us to offer
LMM portfolio companies a comprehensive suite of financing options, or a "one stop" financing solution.
Focus on Established Companies. We generally invest in companies with established market positions, experienced
management teams and proven revenue streams. We believe that those companies generally possess better risk-
adjusted return profiles than newer companies that are building their management teams or are in the early stages of
building a revenue base. We also believe that established companies in our targeted size range also generally provide
opportunities for capital appreciation.
Leverage the Skills and Experience of Our Investment Team. Our investment team has significant experience in
lending to and investing in LMM and Middle Market companies. The members of our investment team have broad
investment backgrounds, with prior experience at private investment funds, investment banks and other financial
services companies and currently include seven certified public accountants and three Chartered Financial Analyst®
charter holders. The expertise of our investment team in analyzing, valuing, structuring, negotiating and closing
transactions should provide us with competitive advantages by allowing us to consider customized financing
solutions and non-traditional or complex structures for our portfolio companies. Also, the reputation of our
investment team has and should continue to enable us to generate additional revenue in the form of management and
incentive fees in connection with us providing advisory services to other investment funds.
Invest Across Multiple Companies, Industries, Regions and End Markets. We seek to maintain a portfolio of
investments that is appropriately balanced among various companies, industries, geographic regions and end markets.
This portfolio balance is intended to mitigate the potential effects of negative economic events for particular
companies, regions, industries and end markets.
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•
•
Capitalize on Strong Transaction Sourcing Network. Our investment team seeks to leverage its extensive network of
referral sources for portfolio company investments. We have developed a reputation in our marketplace as a
responsive, efficient and reliable source of financing, which has created a growing stream of proprietary deal flow for
us.
Benefit from Lower, Fixed, Long-Term Cost of Capital. The SBIC licenses held by the Funds have allowed them to
issue SBA-guaranteed debentures. SBA-guaranteed debentures carry long-term fixed interest rates that are generally
lower than interest rates on comparable bank loans and other debt. Because lower-cost SBA leverage is, and will
continue to be, a significant part of our capital base through the Funds, our relative cost of debt capital should be
lower than many of our competitors. In addition, the SBIC leverage that we receive through the Funds represents a
stable, long-term component of our capital structure with proper matching of duration and cost compared to our
LMM portfolio investments. We also maintain an investment grade rating from Standard & Poor's Ratings Services
which provides us the opportunity and flexibility to obtain additional, attractive long-term financing options to
supplement our capital structure, including the unsecured notes with fixed interest rates we issued in 2014 and 2017.
INVESTMENT CRITERIA
Our investment team has identified the following investment criteria that it believes are important in evaluating prospective portfolio
companies. Our investment team uses these criteria in evaluating investment opportunities. However, not all of these criteria have been, or
will be, met in connection with each of our investments:
•
•
•
•
Proven Management Team with Meaningful Equity Stake. We look for operationally-oriented management with
direct industry experience and a successful track record. In addition, we expect the management team of each LMM
portfolio company to have meaningful equity ownership in the portfolio company to better align our respective
economic interests. We believe management teams with these attributes are more likely to manage the companies in
a manner that both protects our debt investment and enhances the value of our equity investment.
Established Companies with Positive Cash Flow. We seek to invest in established companies with sound historical
financial performance. We typically focus on LMM companies that have historically generated EBITDA of
$3 million to $20 million and commensurate levels of free cash flow. We also pursue investments in debt securities
of Middle Market companies that are generally established companies with sound historical financial performance
that are generally larger in size than LMM companies. We generally do not invest in start-up companies or
companies with speculative business plans.
Defensible Competitive Advantages/Favorable Industry Position. We primarily focus on companies having
competitive advantages in their respective markets and/or operating in industries with barriers to entry, which may
help to protect their market position and profitability.
Exit Alternatives. We exit our debt investments primarily through the repayment of our investment from internally
generated cash flow of the portfolio company and/or a refinancing. In addition, we seek to invest in companies
whose business models and expected future cash flows may provide alternate methods of repaying our investment,
such as through a strategic acquisition by other industry participants or a recapitalization.
INVESTMENT PORTFOLIO
The Investment Portfolio, as used herein, refers to all of our investments in LMM portfolio companies, investments in Middle Market
portfolio companies, Private Loan portfolio investments, Other Portfolio investments, and the investment in the External Investment
Manager. Our LMM portfolio investments primarily consist of secured debt, equity warrants and direct equity investments in privately
held, LMM
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companies based in the United States. Our Middle Market portfolio investments primarily consist of direct investments in or secondary
purchases of interest-bearing debt securities in privately held companies based in the United States that are generally larger in size than the
companies included in our LMM portfolio. Our Private Loan portfolio investments primarily consist of investments in interest-bearing debt
securities in companies that are consistent with the size of companies in our LMM portfolio or our Middle Market portfolio, but are
investments that we originate on a collaborative basis with other investment funds, and are often referred to in the debt markets as "club
deals." Our Other Portfolio investments primarily consist of investments which are not consistent with the typical profiles for our LMM,
Middle Market and Private Loan portfolio investments, including investments which may be managed by third parties. In our Other
Portfolio, we may incur indirect fees and expenses in connection with investments managed by third parties, such as investments in other
investment companies or private funds.
Debt Investments
Historically, we have made LMM debt investments principally in the form of single tranche debt. Single tranche debt financing
involves issuing one debt security that blends the risk and return profiles of both first lien secured and subordinated debt. We believe that
single tranche debt is more appropriate for many LMM companies given their size in order to reduce structural complexity and potential
conflicts among creditors.
Our LMM debt investments generally have a term of five to seven years from the original investment date, with limited required
amortization prior to maturity, and provide for monthly or quarterly payment of interest at interest rates generally between 10% and 14%
per annum, payable currently in cash. Interest rate terms can include either fixed or floating rate terms. In addition, certain LMM debt
investments may have a form of interest that is not paid currently but is accrued and added to the loan balance and paid at maturity. We
refer to this form of interest as payment-in-kind, or PIK, interest. We typically structure our LMM debt investments with the maximum
seniority and collateral that we can reasonably obtain while seeking to achieve our total return target. In most cases, our LMM debt
investment will be collateralized by a first priority lien on substantially all the assets of the portfolio company. In addition to seeking a
senior lien position in the capital structure of our LMM portfolio companies, we seek to limit the downside potential of our LMM debt
investments by negotiating covenants that are designed to protect our LMM debt investments while affording our portfolio companies as
much flexibility in managing their businesses as is reasonable. Such restrictions may include affirmative and negative covenants, default
penalties, lien protection, change of control or change of management provisions, key-man life insurance, guarantees, equity pledges,
personal guaranties, where appropriate, and put rights. In addition, we typically seek board representation or observation rights in all of our
LMM portfolio companies. Interest rate terms can include either fixed or floating rate terms.
While we will continue to focus our LMM debt investments primarily on single tranche debt investments, we also anticipate
structuring some of our debt investments as mezzanine loans. We anticipate that these mezzanine loans will be primarily junior secured or
unsecured, subordinated loans that provide for relatively high interest rates payable currently in cash that will provide us with significant
interest income plus the additional opportunity for income and gains through PIK interest and equity warrants and other similar equity
instruments issued in conjunction with these mezzanine loans. These loans typically will have interest-only payments in the early years,
with amortization of principal deferred to the later years of the mezzanine loan term. Typically, our mezzanine loans will have maturities of
three to five years. We will generally target interest rates of 12% to 14%, payable currently in cash for our mezzanine loan investments with
higher targeted total returns from equity warrants or PIK interest.
We also pursue debt investments in Middle Market companies. Our Middle Market portfolio investments primarily consist of direct
investments or secondary purchases of interest-bearing debt securities in privately held companies based in the United States that are
generally larger in size than the companies included in our LMM portfolio. Our Middle Market portfolio debt investments are generally
secured by either a first or second priority lien on the assets of the portfolio company and typically have a term of between three and seven
years from the original investment date. The debt investments in our Middle Market portfolio have rights and protections that are similar to
those in our LMM debt investments, which may include affirmative
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and negative covenants, default penalties, lien protection, change of control provisions, guarantees and equity pledges. The Middle Market
debt investments generally have floating interest rates at the London Interbank Offered Rate ("LIBOR") plus a margin, and are typically
subject to LIBOR floors.
Our Private Loan portfolio investments primarily consist of investments in interest-bearing debt securities in companies that are
consistent with the size of companies in our LMM portfolio or our Middle Market portfolio, but are investments which have been
originated through strategic relationships with other investment funds on a collaborative basis. Our Private Loan portfolio debt investments
are generally secured by either a first or second priority lien and typically have a term of between three and seven years from the original
investment date.
Warrants
In connection with our debt investments, we occasionally receive equity warrants to establish or increase our equity interest in the
portfolio company. Warrants we receive in connection with a debt investment typically require only a nominal cost to exercise, and thus, as
a portfolio company appreciates in value, we may achieve additional investment return from this equity interest. We typically structure the
warrants to provide provisions protecting our rights as a minority-interest holder, as well as secured or unsecured put rights, or rights to sell
such securities back to the portfolio company, upon the occurrence of specified events. In certain cases, we also may obtain registration
rights in connection with these equity interests, which may include demand and "piggyback" registration rights.
Direct Equity Investments
We also will seek to make direct equity investments in situations where it is appropriate to align our interests with key management and
stockholders of our LMM portfolio companies, and to allow for participation in the appreciation in the equity values of our LMM portfolio
companies. We usually make our direct equity investments in connection with debt investments in our LMM portfolio companies. In
addition, we may have both equity warrants and direct equity positions in some of our LMM portfolio companies. We seek to maintain fully
diluted equity positions in our LMM portfolio companies of 5% to 50%, and may have controlling equity interests in some instances. We
have a value orientation toward our direct equity investments and have traditionally been able to purchase our equity investments at
reasonable valuations.
INVESTMENT PROCESS
Our management team's investment committee is responsible for all aspects of our LMM investment process. The current members of
our investment committee are Dwayne L. Hyzak, our Chief Executive Officer and Senior Managing Director, David Magdol, our President,
Chief Investment Officer and Senior Managing Director, Vincent D. Foster, our Executive Chairman, and Curtis L. Hartman, our Vice-
Chairman, Chief Credit Officer and Senior Managing Director.
Our management team's credit committee is responsible for all aspects of our Middle Market portfolio investment process. The current
members of our credit committee are Messrs. Hyzak, Foster, Hartman and Nicholas T. Meserve, Managing Director of our Middle Market
investment team.
Investment process responsibility for each Private Loan portfolio investment is delegated to either the investment committee or the
credit committee based upon the nature of the investment and the manner in which it was originated. Similarly, the investment processes
for each Private Loan portfolio investment, from origination to close and to eventual exit, will follow the processes for our LMM portfolio
investments or our Middle Market portfolio investments as outlined below, or a combination thereof.
Our investment strategy involves a "team" approach, whereby potential transactions are screened by several members of our
investment team before being presented to the investment committee or the credit
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committee, as applicable. Our investment committee and credit committee each meet on an as needed basis depending on transaction
volume. We generally categorize our investment process into seven distinct stages:
Deal Generation/Origination
Deal generation and origination is maximized through long-standing and extensive relationships with industry contacts, brokers,
commercial and investment bankers, entrepreneurs, service providers such as lawyers, financial advisors and accountants, and current and
former portfolio companies and investors. Our investment team has focused its deal generation and origination efforts on LMM and Middle
Market companies, and we have developed a reputation as a knowledgeable, reliable and active source of capital and assistance in these
markets.
Screening
During the screening process, if a transaction initially meets our investment criteria, we will perform preliminary due diligence, taking
into consideration some or all of the following information:
•
•
•
•
•
•
a comprehensive financial model based on quantitative analysis of historical financial performance, projections and pro
forma adjustments to determine the estimated internal rate of return;
a brief industry and market analysis;
direct industry expertise imported from other portfolio companies or investors;
preliminary qualitative analysis of the management team's competencies and backgrounds;
potential investment structures and pricing terms; and
regulatory compliance.
Upon successful screening of a proposed LMM transaction, the investment team makes a recommendation to our investment
committee. If our investment committee concurs with moving forward on the proposed LMM transaction, we typically issue a non-binding
term sheet to the company. For Middle Market portfolio investments, the initial term sheet is typically issued by the borrower, through the
syndicating bank, and is screened by the investment team which makes a recommendation to our credit committee.
Term Sheet
For proposed LMM transactions, the non-binding term sheet will include the key economic terms based upon our analysis performed
during the screening process as well as a proposed timeline and our qualitative expectation for the transaction. While the term sheet for
LMM investments is non-binding, we typically receive an expense deposit in order to move the transaction to the due diligence phase.
Upon execution of a term sheet, we begin our formal due diligence process.
For proposed Middle Market transactions, the initial term sheet will include key economic terms and other conditions proposed by the
borrower and its representatives and the proposed timeline for the investment, which are reviewed by our investment team to determine if
such terms and conditions are in agreement with our investment objectives.
Due Diligence
Due diligence on a proposed LMM investment is performed by a minimum of two of our investment professionals, whom we refer to
collectively as the investment team, and certain external resources, who together conduct due diligence to understand the relationships
among the prospective portfolio company's
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business plan, operations and financial performance. Our LMM due diligence review includes some or all of the following:
•
•
•
•
•
•
•
•
•
site visits with management and key personnel;
detailed review of historical and projected financial statements;
operational reviews and analysis;
interviews with customers and suppliers;
detailed evaluation of company management, including background checks;
review of material contracts;
in-depth industry, market and strategy analysis;
regulatory compliance analysis; and
review by legal, environmental or other consultants, if applicable.
Due diligence on a proposed Middle Market investment is generally performed on materials and information obtained from certain
external resources and assessed internally by a minimum of two of our investment professionals, who work to understand the relationships
among the prospective portfolio company's business plan, operations and financial performance using the accumulated due diligence
information. Our Middle Market due diligence review includes some or all of the following:
•
•
•
•
detailed review of historical and projected financial statements;
in-depth industry, market, operational and strategy analysis;
regulatory compliance analysis; and
detailed review of the company's management team and their capabilities.
During the due diligence process, significant attention is given to sensitivity analyses and how the company might be expected to
perform given downside, base-case and upside scenarios. In certain cases, we may decide not to make an investment based on the results of
the diligence process.
Document and Close
Upon completion of a satisfactory due diligence review of a proposed LMM portfolio investment, the investment team presents the
findings and a recommendation to our investment committee. The presentation contains information which can include, but is not limited
to, the following:
•
•
•
•
•
•
•
•
•
•
company history and overview;
transaction overview, history and rationale, including an analysis of transaction strengths and risks;
analysis of key customers and suppliers and key contracts;
a working capital analysis;
an analysis of the company's business strategy;
a management and key equity investor background check and assessment;
third-party accounting, legal, environmental or other due diligence findings;
investment structure and expected returns;
anticipated sources of repayment and potential exit strategies;
pro forma capitalization and ownership;
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•
•
•
•
an analysis of historical financial results and key financial ratios;
sensitivities to management's financial projections;
regulatory compliance analysis findings; and
detailed reconciliations of historical to pro forma results.
Upon completion of a satisfactory due diligence review of a proposed Middle Market portfolio investment, the investment team
presents the findings and a recommendation to our credit committee. The presentation contains information which can include, but is not
limited to, the following:
•
•
•
•
•
•
•
•
•
company history and overview;
transaction overview, history and rationale, including an analysis of transaction strengths and risks;
analysis of key customers and suppliers;
an analysis of the company's business strategy;
investment structure and expected returns;
anticipated sources of repayment and potential exit strategies;
pro forma capitalization and ownership;
regulatory compliance analysis findings; and
an analysis of historical financial results and key financial ratios.
If any adjustments to the transaction terms or structures are proposed by the investment committee or credit committee, as applicable,
such changes are made and applicable analyses are updated prior to approval of the transaction. Approval for the transaction must be made
by the affirmative vote from a majority of the members of the investment committee or credit committee, as applicable, with the committee
member managing the transaction, if any, abstaining from the vote. Upon receipt of transaction approval, the investment team will re-
confirm regulatory compliance, process and finalize all required legal documents, and fund the investment.
Post-Investment
We continuously monitor the status and progress of the portfolio companies. We generally offer managerial assistance to our portfolio
companies, giving them access to our investment experience, direct industry expertise and contacts. The same investment team that was
involved in the investment process will continue its involvement in the portfolio company post-investment. This provides for continuity of
knowledge and allows the investment team to maintain a strong business relationship with key management of our portfolio companies for
post-investment assistance and monitoring purposes.
As part of the monitoring process of LMM portfolio investments, the investment team will analyze monthly and quarterly financial
statements versus the previous periods and year, review financial projections, meet and discuss issues or opportunities with management,
attend board meetings and review all compliance certificates and covenants. While we maintain limited involvement in the ordinary course
operations of our LMM portfolio companies, we maintain a higher level of involvement in non-ordinary course financing or strategic
activities and any non-performing scenarios. We also monitor the performance of our Middle Market portfolio investments; however, due
to the larger size and higher sophistication level of these Middle Market companies in comparison to our LMM portfolio companies, it is
not necessary or practical to have as much direct management interface.
We utilize an internally developed investment rating system to rate the performance of each LMM portfolio company and to monitor
our expected level of returns on each of our LMM investments in relation to our expectations for the portfolio company. The investment
rating system takes into consideration various factors, including, but not limited to, each investment's expected level of returns, the
collectability of our debt investments and the ability to receive a return of the invested capital in our equity investments, comparisons to
competitors and other industry participants, the portfolio company's future outlook and other factors that are deemed to be significant to the
portfolio company.
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Exit Strategies/Refinancing
While we generally exit most investments through the refinancing or repayment of our debt and redemption or sale of our equity
positions, we typically assist our LMM portfolio companies in developing and planning exit opportunities, including any sale or merger of
our portfolio companies. We may also assist in the structure, timing, execution and transition of the exit strategy. The refinancing or
repayment of Middle Market debt investments typically does not require our assistance due to the additional resources available to these
larger, Middle Market companies.
DETERMINATION OF NET ASSET VALUE AND INVESTMENT PORTFOLIO VALUATION PROCESS
We determine the net asset value per share of our common stock on a quarterly basis. The net asset value per share is equal to our total
assets minus total liabilities divided by the total number of shares of common stock outstanding.
We are required to report our investments at fair value. As a result, the most significant determination inherent in the preparation of
our consolidated financial statements is the valuation of our Investment Portfolio and the related amounts of unrealized appreciation and
depreciation. We follow the provisions of the Financial Accounting Standards Board Accounting Standards Codification ("ASC") 820, Fair
Value Measurements and Disclosures ("ASC 820"). ASC 820 defines fair value, establishes a framework for measuring fair value,
establishes a fair value hierarchy based on the quality of inputs used to measure fair value and enhances disclosure requirements for fair
value measurements. ASC 820 requires us to assume that the portfolio investment is to be sold in the principal market to independent
market participants, which may be a hypothetical market. Market participants are defined as buyers and sellers in the principal market that
are independent, knowledgeable and willing and able to transact.
We determine in good faith the fair value of our Investment Portfolio pursuant to a valuation policy in accordance with ASC 820 and a
valuation process approved by our Board of Directors and in accordance with the 1940 Act. Our valuation policies and processes are
intended to provide a consistent basis for determining the fair value of our Investment Portfolio. See "Note B.1. — Valuation of the
Investment Portfolio" in the notes to consolidated financial statements for a detailed discussion of our investment portfolio valuation
process and procedures.
Due to the inherent uncertainty in the valuation process, our determination of fair value for our Investment Portfolio may differ
materially from the values that would have been determined had a ready market for the securities existed. In addition, changes in the
market environment, portfolio company performance and other events that may occur over the lives of the investments may cause the gains
or losses ultimately realized on these investments to be materially different than the valuations currently assigned. We determine the fair
value of each individual investment and record changes in fair value as unrealized appreciation or depreciation.
As described below, we undertake a multi-step valuation process each quarter in connection with determining the fair value of our
investments, with our Board of Directors having final responsibility for overseeing, reviewing and approving, in good faith, our
determination of the fair value for our Investment Portfolio and our valuation procedures, consistent with 1940 Act requirements. In
addition, the Audit Committee of our Board of Directors periodically evaluates the performance and methodologies of the financial
advisory services firm that we consult in connection with valuing our LMM and Private Loan portfolio company investments.
•
•
Our quarterly valuation process begins with each LMM and Private Loan portfolio company investment being
initially valued by the investment team responsible for monitoring the portfolio investment;
The fair value determination for our Middle Market and Other Portfolio debt and equity investments and our
investment in the External Investment Manager consists of unobservable and observable inputs
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which are initially reviewed by the investment professionals responsible for monitoring the portfolio investment;
Preliminary valuation conclusions are then reviewed by and discussed with senior management, and the investment
team considers and assesses, as appropriate, any changes that may be required to the preliminary valuations to
address any comments provided by senior management;
A nationally recognized independent financial advisory services firm analyzes and provides observations,
recommendations and an assurance certification regarding the Company's determinations of the fair value for its
LMM and Private Loan portfolio companies;
The Audit Committee of our Board of Directors reviews management's valuations, and the investment team and
senior management consider and assess, as appropriate, any changes that may be required to management's
valuations to address any comments provided by the Audit Committee; and
The Board of Directors assesses the valuations and ultimately approves the fair value of each investment in our
portfolio in good faith.
•
•
•
•
Determination of fair value involves subjective judgments and estimates. The notes to our consolidated financial statements refer to the
uncertainty with respect to the possible effect of such valuations, and any change in such valuations, on our financial results and financial
condition.
COMPETITION
We compete for investments with a number of investment funds (including private equity funds, mezzanine funds, BDCs, and SBICs),
as well as traditional financial services companies such as commercial banks and other sources of financing. Many of the entities that
compete with us are larger and have more resources available to them. We believe we are able to be competitive with these entities
primarily on the basis of our focus toward the underserved LMM, the experience and contacts of our management team, our responsive and
efficient investment analysis and decision-making processes, our comprehensive suite of customized financing solutions and the
investment terms we offer.
We believe that some of our competitors make senior secured loans, junior secured loans and subordinated debt investments with
interest rates and returns that are comparable to or lower than the rates and returns that we target. Therefore, we do not seek to compete
primarily on the interest rates and returns that we offer to potential portfolio companies. For additional information concerning the
competitive risks we face, see "Risk Factors — Risks Relating to Our Business and Structure — We may face increasing competition for
investment opportunities."
EMPLOYEES
As of December 31, 2018, we had 66 employees. These employees include investment and portfolio management professionals,
operations professionals and administrative staff. As necessary, we will hire additional investment professionals and administrative
personnel. All of our employees are located in our Houston, Texas office.
REGULATION
Regulation as a Business Development Company
We have elected to be regulated as a BDC under the 1940 Act. The 1940 Act contains prohibitions and restrictions relating to
transactions between BDCs and their affiliates, principal underwriters and affiliates of those affiliates or underwriters. The 1940 Act
requires that a majority of the members of the board of directors of a BDC be persons other than "interested persons," as that term is
defined in the 1940 Act. In addition, the 1940 Act provides that we may not change the nature of our business so as to cease to be, or to
withdraw our election as, a BDC unless approved by a majority of our outstanding voting securities.
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The 1940 Act defines "a majority of the outstanding voting securities" as the lesser of (i) 67% or more of the voting securities present
at a meeting if the holders of more than 50% of our outstanding voting securities are present or represented by proxy or (ii) more than 50%
of our outstanding voting securities.
Qualifying Assets
Under the 1940 Act, a BDC may not acquire any asset other than assets of the type listed in Section 55(a) of the 1940 Act, which are
referred to as qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the company's total
assets. The principal categories of qualifying assets relevant to our business are any of the following:
(1)
(2)
(3)
(4)
(5)
(6)
Securities purchased in transactions not involving any public offering from the issuer of such securities, which issuer
(subject to certain limited exceptions) is an eligible portfolio company (as defined below), or from any person who is, or has
been during the preceding 13 months, an affiliated person of an eligible portfolio company, or from any other person, subject
to such rules as may be prescribed by the SEC.
Securities of any eligible portfolio company that we control.
Securities purchased in a private transaction from a U.S. issuer that is not an investment company or from an affiliated
person of the issuer, or in transactions incident thereto, if the issuer is in bankruptcy and subject to reorganization or if the
issuer, immediately prior to the purchase of its securities was unable to meet its obligations as they came due without
material assistance other than conventional lending or financing arrangements.
Securities of an eligible portfolio company purchased from any person in a private transaction if there is no ready market for
such securities and we already own 60% of the outstanding equity of the eligible portfolio company.
Securities received in exchange for or distributed on or with respect to securities described in (1) through (4) above, or
pursuant to the exercise of warrants or rights relating to such securities.
Cash, cash equivalents, U.S. government securities or high-quality debt securities maturing in one year or less from the time
of investment.
In addition, a BDC must have been organized and have its principal place of business in the United States and must be operated for the
purpose of making investments in the types of securities described in (1), (2) or (3) above.
An eligible portfolio company is defined in the 1940 Act as any issuer which:
(a)
(b)
(c)
is organized under the laws of, and has its principal place of business in, the United States;
is not an investment company (other than a small business investment company wholly owned by the BDC) or a company
that would be an investment company but for certain exclusions under the 1940 Act; and
satisfies any of the following:
(i)
(ii)
(iii)
does not have any class of securities that is traded on a national securities exchange or has a class of securities listed
on a national securities exchange but has an aggregate market value of outstanding voting and non-voting common
equity of less than $250 million;
is controlled by a BDC or a group of companies including a BDC and the BDC has an affiliated person who is a
director of the eligible portfolio company; or
is a small and solvent company having total assets of not more than $4 million and capital and surplus of not less
than $2 million.
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Managerial Assistance to Portfolio Companies
As noted above, a BDC must be operated for the purpose of making investments in the type of securities described in (1), (2) or
(3) above under the heading entitled "— Qualifying Assets." In addition, BDCs must generally offer to make available to such issuer of the
securities (other than small and solvent companies described above) significant managerial assistance; except that, where we purchase such
securities in conjunction with one or more other persons acting together, one of the other persons in the group may make available such
managerial assistance. Making available managerial assistance means, among other things, any arrangement whereby the BDC, through its
directors, officers or employees, offers to provide, and, if accepted, does so provide, significant guidance and counsel concerning the
management, operations or business objectives and policies of a portfolio company.
Temporary Investments
Pending investment in "qualifying assets," as described above, our investments may consist of cash, cash equivalents, U.S. government
securities and high-quality debt securities maturing in one year or less from time of investment therein, so that 70% of our assets are
qualifying assets.
Senior Securities
Under the provisions of the 1940 Act, we are permitted, as a BDC, to issue senior securities only in amounts such that our asset
coverage, as defined in the 1940 Act, equals at least 200% of all debt and/or senior stock immediately after each such issuance. However,
recent legislation has modified the 1940 Act by allowing a BDC to increase the maximum amount of leverage it may incur from an asset
coverage ratio of 200% to an asset coverage ratio of 150%, if certain requirements are met. We are permitted to increase our leverage
capacity if stockholders representing at least a majority of the votes cast, when quorum is met, approve a proposal to do so. If we receive
such stockholder approval, we would be permitted to increase our leverage capacity on the first day after such approval. Alternatively, we
may increase the maximum amount of leverage we may incur to an asset coverage ratio of 150% if the "required majority" of our
independent directors as defined in Section 57(o) of the 1940 Act approve such increase with such approval becoming effective after one
year. In either case, we would be required to make certain disclosures on our website and in SEC filings regarding, among other things, the
receipt of approval to increase our leverage, our leverage capacity and usage, and risks related to leverage. In addition, while any senior
securities remain outstanding (other than senior securities representing indebtedness issued in consideration of a privately arranged loan
which is not intended to be publicly distributed), we must make provisions to prohibit any distribution to our stockholders or the repurchase
of such securities or shares unless we meet the applicable asset coverage ratios at the time of the distribution or repurchase. We may also
borrow amounts up to 5% of the value of our total assets for temporary or emergency purposes without regard to asset coverage. For a
discussion of the risks associated with leverage, see "Risk Factors — Risks Relating to Our Business and Structure," including, without
limitation, "— Because we borrow money, the potential for gain or loss on amounts invested in us is magnified and may increase the risk
of investing in us."
We have previously received an exemptive order from the SEC to exclude debt securities issued by MSMF and any other wholly
owned subsidiaries of ours which operate as SBICs from the asset coverage requirements of the 1940 Act as applicable to Main Street. The
exemptive order provides for the exclusion of all debt securities issued by the Funds, including the $345.8 million of outstanding debt as of
December 31, 2018, issued pursuant to the SBIC program. This exemptive order provides us with expanded capacity and flexibility in
obtaining future sources of capital for our investment and operational objectives.
Common Stock
We are not generally able to issue and sell our common stock at a price below net asset value per share. We may, however, sell our
common stock, warrants, options or rights to acquire our common stock, at a price below the current net asset value of the common stock if
our Board of Directors determines that such sale is
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in our best interests and that of our stockholders, and our stockholders approve such sale. In any such case, the price at which our securities
are to be issued and sold may not be less than a price which, in the determination of our Board of Directors, closely approximates the
market value of such securities (less any distributing commission or discount). We did not seek stockholder authorization to sell shares of
our common stock below the then current net asset value per share of our common stock at our 2018 annual meeting of stockholders
because our common stock price had been trading significantly above the net asset value per share of our common stock since 2011. Our
stockholders have previously approved a proposal that authorizes us to issue securities to subscribe to, convert to, or purchase shares of our
common stock in one or more offerings. We may also make rights offerings to our stockholders at prices per share less than the net asset
value per share, subject to applicable requirements of the 1940 Act. See "Risk Factors — Risks Relating to Our Business and Structure —
Stockholders may incur dilution if we sell shares of our common stock in one or more offerings at prices below the then current net asset
value per share of our common stock or issue securities to subscribe to, convert to or purchase shares of our common stock."
Code of Ethics
We have adopted a code of ethics pursuant to Rule 17j-1 under the 1940 Act that establishes procedures for personal investments and
restricts certain personal securities transactions. Personnel subject to the code may invest in securities for their personal investment
accounts, including securities that may be purchased or held by us, so long as such investments are made in accordance with the code's
requirements. In addition, the code of ethics is available on the EDGAR Database on the SEC's Web site at http://www.sec.gov.
Proxy Voting Policies and Procedures
We vote proxies relating to our portfolio securities in a manner in which we believe is consistent with the best interest of our
stockholders. We review on a case-by-case basis each proposal submitted to a stockholder vote to determine its impact on the portfolio
securities held by us. Although we generally vote against proposals that we expect would have a negative impact on our portfolio
securities, we may vote for such a proposal if there exists compelling long-term reasons to do so.
Our proxy voting decisions are made by the investment team which is responsible for monitoring each of our investments. To ensure
that our vote is not the product of a conflict of interest, we require that anyone involved in the decision-making process discloses to our
chief compliance officer any potential conflict regarding a proxy vote of which he or she is aware.
Stockholders may obtain information, without charge, regarding how we voted proxies with respect to our portfolio securities by
making a written request for proxy voting information to: Chief Compliance Officer, 1300 Post Oak Boulevard, 8th Floor, Houston, Texas
77056.
Other 1940 Act Regulations
We are also prohibited under the 1940 Act from knowingly participating in certain transactions with our affiliates without the prior
approval of our Board of Directors who are not interested persons and, in some cases, prior approval by the SEC.
We are required to provide and maintain a bond issued by a reputable fidelity insurance company to protect us against larceny and
embezzlement. Furthermore, as a BDC, we are prohibited from protecting any director or officer against any liability to us or our
stockholders arising from willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of
such person's office.
We are required to adopt and implement written policies and procedures reasonably designed to prevent violation of the federal
securities laws, review these policies and procedures no less frequently than annually for their adequacy and the effectiveness of their
implementation, and to designate a chief compliance officer to be responsible for administering the policies and procedures.
We may be periodically examined by the SEC for compliance with the 1940 Act.
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Small Business Investment Company Regulations
Each of the Funds is licensed by the SBA to operate as a SBIC under Section 301(c) of the Small Business Investment Act of 1958.
MSMF obtained its SBIC license in 2002, MSC II obtained its license in 2006 and MSC III obtained its license in 2016.
SBICs are designed to stimulate the flow of private capital to eligible small businesses. Under SBIC regulations, SBICs may make
loans to eligible small businesses, invest in the equity securities of such businesses and provide them with consulting and advisory services.
Each of the Funds has typically invested in secured debt, acquired warrants and/or made equity investments in qualifying small businesses.
The Funds are subject to regulation and oversight by the SBA, including requirements with respect to reporting financial information,
such as the extent of capital impairment if applicable, on a regular basis and annual examinations conducted by the SBA. The SBA, as a
creditor, will have a superior claim to the Funds' assets over our securities holders in the event the Funds are liquidated or the SBA
exercises its remedies under the SBA-guaranteed debentures issued by the Funds upon an event of default.
We have received exemptive relief from the SEC to permit us to exclude the SBA-guaranteed debentures of the Funds from our 200%
asset coverage test under the 1940 Act. As such, our ratio of total consolidated assets to outstanding indebtedness may be less than 200%.
This provides us with increased investment flexibility but also increases our risks related to leverage. See "Risk Factors — Risks Relating
to Our Business and Structure — Because we borrow money, the potential for gain or loss on amounts invested in us is magnified and may
increase the risk of investing in us."
Under present SBIC regulations, eligible small businesses generally include businesses that (together with their affiliates) have a
tangible net worth not exceeding $19.5 million or have average annual net income after U.S. federal income taxes not exceeding
$6.5 million (average net income to be computed without benefit of any carryover loss) for the two most recent fiscal years. In addition, an
SBIC must devote 25% of its investment activity to "smaller" enterprises as defined by the SBA. A smaller enterprise generally includes
businesses that have a tangible net worth not exceeding $6 million and have average annual net income after U.S. federal income taxes not
exceeding $2 million (average net income to be computed without benefit of any net carryover loss) for the two most recent fiscal years.
SBIC regulations also provide alternative size standard criteria to determine eligibility for designation as an eligible small business or
smaller enterprise, which criteria depend on the primary industry in which the business is engaged and are based on such factors as the
number of employees and gross revenue. However, once an SBIC has invested in a company, it generally may continue to make follow-on
investments in the company, regardless of the size of the portfolio company at the time of the follow-on investment, up to the time of the
portfolio company's initial public offering.
The SBA prohibits an SBIC from providing funds to small businesses for certain purposes, such as relending and investment outside
the United States, to businesses engaged in certain prohibited industries, and to certain "passive" (non-operating) companies. In addition,
without prior SBA approval, an SBIC may not invest an amount equal to more than approximately 30% of the SBIC's regulatory capital, as
defined by the SBA, in any one portfolio company and its affiliates.
The SBA places certain limitations on the financing terms of investments by SBICs in portfolio companies (such as limiting the
permissible interest rate on debt securities held by an SBIC in a portfolio company). Included in such limitations are SBA regulations which
allow an SBIC to exercise control over a small business for a period of seven years from the date on which the SBIC initially acquires its
control position. This control period may be extended for an additional period of time with the SBA's prior written approval.
The SBA restricts the ability of an SBIC to lend money to any of its officers, directors and employees or to invest in affiliates thereof.
The SBA also prohibits, without prior SBA approval, a "change of control" of an SBIC or transfers that would result in any person (or a
group of persons acting in concert) owning 10% or more of a class of equity of a licensed SBIC. A "change of control" is any event which
would result in the
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transfer of the power, direct or indirect, to direct the management and policies of an SBIC, whether through ownership, contractual
arrangements or otherwise.
The SBIC licenses allow the Funds to incur leverage by issuing SBA-guaranteed debentures, subject to the issuance of a capital
commitment and certain approvals by the SBA and customary procedures. SBA-guaranteed debentures carry long-term fixed rates that are
generally lower than rates on comparable bank and other debt. Under applicable regulations, an SBIC may generally have outstanding
debentures guaranteed by the SBA in amounts up to twice the amount of the privately raised funds of the SBIC. Debentures guaranteed by
the SBA have a maturity of ten years, require semiannual payments of interest, do not require any principal payments prior to maturity, and
are not subject to prepayment penalties. As of December 31, 2018, we, through the Funds, had $345.8 million of outstanding SBA-
guaranteed debentures, which had an annual weighted-average interest rate of approximately 3.7%.
SBICs must invest idle funds that are not being used to make loans in investments permitted under SBIC regulations in the following
limited types of securities: (i) direct obligations of, or obligations guaranteed as to principal and interest by, the United States government,
which mature within 15 months from the date of the investment; (ii) repurchase agreements with federally insured institutions with a
maturity of seven days or less (and the securities underlying the repurchase obligations must be direct obligations of or guaranteed by the
federal government); (iii) certificates of deposit with a maturity of one year or less, issued by a federally insured institution; (iv) a deposit
account in a federally insured institution that is subject to a withdrawal restriction of one year or less; (v) a checking account in a federally
insured institution; or (vi) a reasonable petty cash fund.
SBICs are periodically examined and audited by the SBA's staff to determine their compliance with SBIC regulations and are
periodically required to file certain financial information and other documents with the SBA.
Neither the SBA nor the U.S. government or any of its agencies or officers has approved any ownership interest to be issued by us or
any obligation that we or any of our subsidiaries may incur.
Securities Exchange Act of 1934 and Sarbanes-Oxley Act Compliance
We are subject to the reporting and disclosure requirements of the Securities Exchange Act of 1934 (the "Exchange Act"), including
the filing of quarterly, annual and current reports, proxy statements and other required items. In addition, we are subject to the Sarbanes-
Oxley Act of 2002, which imposes a wide variety of regulatory requirements on publicly-held companies and their insiders. For example:
•
•
•
•
pursuant to Rule 13a-14 of the Exchange Act, our Chief Executive Officer and Chief Financial Officer are required
to certify the accuracy of the consolidated financial statements contained in our periodic reports;
pursuant to Item 307 of Regulation S-K, our periodic reports are required to disclose our conclusions about the
effectiveness of our disclosure controls and procedures;
pursuant to Rule 13a-15 of the Exchange Act, our management is required to prepare a report regarding its
assessment of our internal control over financial reporting, and our independent registered public accounting firm
separately audits our internal control over financial reporting; and
pursuant to Item 308 of Regulation S-K and Rule 13a-15 of the Exchange Act, our periodic reports must disclose
whether there were significant changes in our internal control over financial reporting or in other factors that could
significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
The New York Stock Exchange Corporate Governance Regulations
The New York Stock Exchange ("NYSE") has adopted corporate governance regulations that listed companies must comply with. We
believe we are in compliance with such corporate governance listing
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standards. We intend to monitor our compliance with all future listing standards and to take all necessary actions to ensure that we stay in
compliance.
Investment Adviser Regulations
The External Investment Manager, which is wholly owned by us, is subject to regulation under the Advisers Act. The Advisers Act
establishes, among other things, recordkeeping and reporting requirements, disclosure requirements, limitations on transactions between
the adviser's account and an advisory client's account, limitations on transactions between the accounts of advisory clients, and general anti-
fraud prohibitions. The External Investment Manager may be examined by the SEC from time to time for compliance with the Advisers
Act.
Taxation as a Regulated Investment Company
MSCC has elected to be treated for U.S. federal income tax purposes as a RIC under Subchapter M of the Code. MSCC's taxable
income includes the taxable income generated by MSCC and certain of its subsidiaries, including the Funds, which are treated as
disregarded entities for tax purposes. As a RIC, we generally will not pay corporate-level U.S. federal income taxes on any income that we
distribute to our stockholders as dividends. To qualify as a RIC, we must, among other things, meet certain source-of-income and asset
diversification requirements (as described below). In addition, in order to obtain RIC tax treatment, we must distribute to our stockholders,
for each taxable year, at least 90% of our "investment company taxable income," which is generally our net ordinary taxable income plus
the excess of realized net short-term capital gains over realized net long-term capital losses, and 90% of our tax-exempt income (the
"Annual Distribution Requirement"). As part of maintaining RIC status, undistributed taxable income (subject to a 4% non-deductible U.S.
federal excise tax) pertaining to a given fiscal year may be distributed up to 12 months subsequent to the end of that fiscal year, provided
such dividends are declared on or prior to the later of (i) filing of the U.S. federal income tax return for the applicable fiscal year or (ii) the
fifteenth day of the ninth month following the close of the year in which such taxable income was generated.
For any taxable year in which we qualify as a RIC and satisfy the Annual Distribution Requirement, we will not be subject to U.S.
federal income tax on the portion of our income or capital gains we distribute (or are deemed to distribute) to stockholders. We will be
subject to U.S. federal income tax at the regular corporate rates on any income or capital gains not distributed (or deemed distributed) to our
stockholders.
We are subject to a 4% non-deductible U.S. federal excise tax on certain undistributed income unless we distribute in a timely manner
an amount at least equal to the sum of (1) 98% of our net ordinary taxable income for each calendar year, (2) 98.2% of our capital gain net
income for the one-year period ending December 31 in that calendar year and (3) any taxable income recognized, but not distributed, in
preceding years on which we paid no U.S. federal income tax (the "Excise Tax Avoidance Requirement"). Dividends declared and paid by
us in a year will generally differ from taxable income for that year as such dividends may include the distribution of current year taxable
income, exclude amounts carried over into the following year, and include the distribution of prior year taxable income carried over into
and distributed in the current year. For amounts we carry over into the following year, we will be required to pay the 4% U.S. federal
excise tax on the excess of 98% of our annual investment company taxable income and 98.2% of our capital gain net income over our
distributions for the year.
In order to qualify as a RIC for U.S. federal income tax purposes, we must, among other things:
•
•
continue to qualify as a BDC under the 1940 Act at all times during each taxable year;
derive in each taxable year at least 90% of our gross income from dividends, interest, payments with respect to
certain securities, loans, gains from the sale of stock or other securities, net income from certain "qualified publicly
traded partnerships," or other income derived with respect to our business of investing in such stock or securities (the
"90% Income Test"); and
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•
diversify our holdings so that at the end of each quarter of the taxable year:
•
•
at least 50% of the value of our assets consists of cash, cash equivalents, U.S. government securities,
securities of other RICs, and other securities if such other securities of any one issuer do not represent more
than 5% of the value of our assets or more than 10% of the outstanding voting securities of the issuer; and
no more than 25% of the value of our assets is invested in the securities, other than U.S. government
securities or securities of other RICs, (i) of one issuer, (ii) of two or more issuers that are controlled, as
determined under applicable Code rules, by us and that are engaged in the same or similar or related trades
or businesses or (iii) of certain "qualified publicly traded partnerships" (collectively, the "Diversification
Tests").
In order to comply with the 90% Income Test, we formed the Taxable Subsidiaries as wholly owned taxable subsidiaries for the
primary purpose of permitting us to own equity interests in portfolio companies which are "pass-through" entities for tax purposes. Absent
the taxable status of the Taxable Subsidiaries, a portion of the gross income from such portfolio companies would flow directly to us for
purposes of the 90% Income Test. To the extent such income did not consist of income derived from securities, such as dividends and
interest, it could jeopardize our ability to qualify as a RIC and, therefore, cause us to incur significant U.S. federal income taxes. The
Taxable Subsidiaries are consolidated with Main Street for generally accepted accounting principles in the United States of America
("U.S. GAAP") purposes and are included in our consolidated financial statements, and the portfolio investments held by the Taxable
Subsidiaries are included in our consolidated financial statements. The Taxable Subsidiaries are not consolidated with Main Street for
income tax purposes and may generate income tax expense, or benefit, as a result of their ownership of the portfolio investments. The
income tax expense, or benefit, if any, and any related tax assets and liabilities, are reflected in our consolidated financial statements.
The External Investment Manager is accounted for as a portfolio investment for U.S. GAAP purposes and is an indirect wholly owned
subsidiary of MSCC, owned through a Taxable Subsidiary. The External Investment Manager is owned by a Taxable Subsidiary in order to
comply with the 90% Income Test, since the External Investment Manager's income would likely not consist of income derived from
securities, such as dividends and interest, and as result, it could jeopardize our ability to qualify as a RIC and, therefore, cause us to incur
significant U.S. federal income taxes. As a result of its ownership by a Taxable Subsidiary, the External Investment Manager is a
disregarded entity for tax purposes. The External Investment Manager has also entered into a tax sharing agreement with its Taxable
Subsidiary owner. Since the External Investment Manager is accounted for as a portfolio investment of MSCC and is not included as a
consolidated subsidiary of MSCC in MSCC's consolidated financial statements, and as a result of the tax sharing agreement with its
Taxable Subsidiary owner, for its stand-alone financial reporting purposes the External Investment Manager is treated as if it is taxed at
normal corporate tax rates based on its taxable income and, as a result of its activities, may generate income tax expense or benefit. The
income tax expense, or benefit, if any, and the related tax assets and liabilities, of the External Investment Manager are reflected in the
External Investment Manager's separate financial statements.
We may be required to recognize taxable income in circumstances in which we do not receive cash. For example, if we hold debt
obligations that are treated under applicable tax rules as having original issue discount (such as debt instruments issued with warrants and
debt securities invested in at a discount to par), we must include in income each year a portion of the original issue discount that accrues
over the life of the obligation, regardless of whether cash representing such income is received by us in the same taxable year. We may
also have to include in income other amounts that we have not yet received in cash such as PIK interest, cumulative dividends or amounts
that are received in non-cash compensation such as warrants or stock. Because any original issue discount or other amounts accrued will be
included in our investment company taxable income for the year of accrual, we may be required to make a distribution to our stockholders
in order to satisfy the Annual Distribution Requirement, even though we will not have received any corresponding cash amount.
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Although we do not presently expect to do so, we are authorized to borrow funds and to sell assets in order to satisfy distribution
requirements. However, under the 1940 Act, we are not permitted to make distributions to our stockholders in certain circumstances while
our debt obligations and other senior securities are outstanding unless certain "asset coverage" tests are met. See "Regulation — Regulation
as a Business Development Company — Senior Securities." Moreover, our ability to dispose of assets to meet our distribution requirements
may be limited by (1) the illiquid nature of our portfolio and/or (2) other requirements relating to our status as a RIC, including the
Diversification Tests. If we dispose of assets in order to meet the Annual Distribution Requirement or the Excise Tax Avoidance
Requirement, we may make such dispositions at times that, from an investment standpoint, are not advantageous.
We may distribute taxable dividends that are payable in part in our stock. Under certain applicable provisions of the Code and the U.S.
Department of the Treasury ("Treasury") regulations, distributions payable by us in cash or in shares of stock (at the stockholders election)
would satisfy the Annual Distribution Requirement. The Internal Revenue Service has issued guidance indicating that this rule will apply
even where the total amount of cash that may be distributed is limited to no more than 20% of the total distribution. According to this
guidance, if too many stockholders elect to receive their distributions in cash, each such stockholder would receive a pro rata share of the
total cash to be distributed and would receive the remainder of their distribution in shares of stock. Taxable stockholders receiving such
dividends will be required to include the full amount of the dividend (whether received in cash, our stock, or a combination thereof) as
(i) ordinary income (including any qualified dividend income that, in the case of a noncorporate stockholder, may be eligible for the same
reduced maximum tax rate applicable to long-term capital gains to the extent such distribution is properly reported by us as qualified
dividend income and such stockholder satisfies certain minimum holding period requirements with respect to our stock) or (ii) long-term
capital gain (to the extent such distribution is properly reported as a capital gain dividend), to the extent of our current and accumulated
earnings and profits for U.S. federal income tax purposes. As a result, a U.S. stockholder may be required to pay tax with respect to such
dividends in excess of any cash received. If a U.S. stockholder sells the stock it receives in order to pay this tax, the sales proceeds may be
less than the amount included in income with respect to the dividend, depending on the market price of our stock at the time of the sale.
Furthermore, with respect to non-U.S. stockholders, we may be required to withhold U.S. tax with respect to such dividends, including in
respect of all or a portion of such dividend that is payable in stock. In addition, if a significant number of our stockholders determine to sell
shares of our stock in order to pay taxes owed on dividends, it may put downward pressure on the trading price of our stock.
Failure to Qualify as a RIC
If we fail to satisfy the 90% Income Test or the Diversification Tests for any taxable year, we may nevertheless continue to qualify as a
RIC for such year if certain relief provisions are applicable (which may, among other things, require us to pay certain corporate-level U.S.
federal taxes or to dispose of certain assets).
If we were unable to qualify for treatment as a RIC and the foregoing relief provisions are not applicable, we would be subject to tax on
all of our taxable income at regular corporate rates. We would not be able to deduct distributions to stockholders, nor would they be
required to be made. If we were subject to tax on all of our taxable income at regular corporate rates, then distributions we make after being
subject to such tax would be taxable to our stockholders and, provided certain holding period and other requirements were met, could
qualify for treatment as "qualified dividend income" eligible for the maximum 20% rate (plus a 3.8% Medicare surtax, if applicable)
applicable to qualified dividends to the extent of our current and accumulated earnings and profits. Subject to certain limitations under the
Code, corporate taxpayers would be eligible for a dividends-received deduction on distributions they receive. Distributions in excess of our
current and accumulated earnings and profits would be treated first as a return of capital to the extent of the stockholder's tax basis, and any
remaining distributions would be treated as a capital gain. To requalify as a RIC in a subsequent taxable year, we would be required to
satisfy the RIC qualification requirements for that year and dispose of any earnings and profits from any year in which we failed to qualify
as a RIC. Subject to a
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limited exception applicable to RICs that qualified as such under Subchapter M of the Code for at least one year prior to disqualification
and that requalify as a RIC no later than the second year following the nonqualifying year, we could be subject to tax on any unrealized net
built-in gains in the assets held by us during the period in which we failed to qualify as a RIC that are recognized within the subsequent five
years, unless we made a special election to pay corporate-level U.S. federal income tax on such built-in gain at the time of our
requalification as a RIC.
Item 1A. Risk Factors
Investing in our securities involves a number of significant risks. In addition to the other information contained in this Annual Report
on Form 10-K, you should consider carefully the following information before making an investment in our securities. The risks set out
below are not the only risks we face. Additional risks and uncertainties not presently known to us or not presently deemed material by us
might also impair our operations and performance. If any of the following events occur, our business, financial condition and results of
operations could be materially and adversely affected. In such case, our net asset value, the trading price of our common stock and the
value of our other securities could decline, and you may lose all or part of your investment.
RISKS RELATING TO ECONOMIC CONDITIONS
Deterioration in the economy and financial markets increases the likelihood of adverse effects on our financial position and
results of operations. Such economic adversity could impair our portfolio companies' financial positions and operating results
and affect the industries in which we invest, which could, in turn, harm our operating results.
The broader fundamentals of the United States economy remain mixed. In the event that the United States economy contracts, it is
likely that the financial results of small to mid-sized companies, like those in which we invest, could experience deterioration or limited
growth from current levels, which could ultimately lead to difficulty in meeting their debt service requirements and an increase in defaults.
In addition, a decline in oil and natural gas prices would adversely affect the credit quality of our debt investments and the underlying
operating performance of our equity investments in energy-related businesses. Consequently, we can provide no assurance that the
performance of certain portfolio companies will not be negatively impacted by economic cycles, industry cycles or other conditions, which
could also have a negative impact on our future results.
Although we have been able to secure access to additional liquidity, including through our multi-year revolving credit facility (the
"Credit Facility"), public debt issuances, leverage available through the SBIC program and equity offerings, the potential for volatility in
the debt and equity capital markets provides no assurance that debt or equity capital will be available to us in the future on favorable terms,
or at all. Further, if the price of our common stock falls below our net asset value per share, we will be limited in our ability to sell new
shares if we do not have stockholder authorization to sell shares at a price below net asset value per share. We did not seek stockholder
authorization to sell shares of our common stock below the then current net asset value per share of our common stock at our 2018 annual
meeting of stockholders because our common stock price had been trading significantly above the net asset value per share of our common
stock since 2011.
Global capital markets could enter a period of severe disruption and instability. These conditions have historically affected and
could again materially and adversely affect debt and equity capital markets in the United States, which could have a materially
negative impact on our business, financial condition and results of operations.
The U.S. and global capital markets have, from time to time, experienced periods of disruption characterized by the freezing of
available credit, a lack of liquidity in the debt capital markets, significant losses in the principal value of investments, the re-pricing of
credit risk in the broadly syndicated credit
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market, the failure of major financial institutions and general volatility in the financial markets. During these periods of disruption, general
economic conditions deteriorated with material and adverse consequences for the broader financial and credit markets, and the availability
of debt and equity capital for the market as a whole, and financial services firms in particular, was reduced significantly. These conditions
may reoccur for a prolonged period of time or materially worsen in the future. In addition, continuing uncertainty arising from the United
Kingdom's decision to leave the European Union (the so called "Brexit") could lead to further market disruptions and currency volatility,
potentially weakening consumer, corporate and financial confidence and resulting in lower economic growth for companies that rely
significantly on Europe for their business activities and revenues. We may in the future have difficulty accessing debt and equity capital
markets, and a severe disruption in the global financial markets, deterioration in credit and financing conditions or uncertainty regarding
U.S. government spending and deficit levels, Brexit or other global economic conditions could have a material adverse effect on our
business, financial condition and results of operations.
RISKS RELATING TO OUR BUSINESS AND STRUCTURE
Our Investment Portfolio is and will continue to be recorded at fair value, with our Board of Directors having final responsibility
for overseeing, reviewing and approving, in good faith, our determination of fair value and, as a result, there is and will
continue to be uncertainty as to the value of our portfolio investments.
Under the 1940 Act, we are required to carry our portfolio investments at market value or, if there is no readily available market value,
at fair value as determined by us with our Board of Directors having final responsibility for overseeing, reviewing and approving, in good
faith, our determination of fair value and our valuation procedures. Typically, there is not a public market for the securities of the privately
held LMM or Private Loan companies in which we have invested and will generally continue to invest. As a result, we value these
securities quarterly at fair value based on inputs from management, a nationally recognized independent financial advisory services firm
(on a rotational basis) and our audit committee with the oversight, review and approval of our Board of Directors. In addition, the market
for investments in Middle Market companies is generally not a liquid market, and therefore, we primarily use a combination of observable
inputs in non-active markets for which sufficient observable inputs were not available to determine the fair value of these investments and
unobservable inputs, which are reviewed by our audit committee with the oversight, review and approval of our Board of Directors. See
"Note B.1. — Valuation of the Investment Portfolio" in the notes to consolidated financial statements for a more detailed description of our
investment portfolio valuation process and procedures.
The determination of fair value and consequently, the amount of unrealized gains and losses in our portfolio, are to a certain degree,
subjective and dependent on a valuation process approved by our Board of Directors. Certain factors that may be considered in determining
the fair value of our investments include external events, such as private mergers, sales and acquisitions involving comparable companies.
Because such valuations, and particularly valuations of securities in privately held companies, are inherently uncertain, may fluctuate over
short periods of time and may be based on estimates, our determinations of fair value may differ materially from the values that would have
been used if a ready market for these securities existed. Due to this uncertainty, our fair value determinations may cause our net asset value
on a given date to materially understate or overstate the value that we may ultimately realize on one or more of our investments. As a result,
investors purchasing our securities based on an overstated net asset value would pay a higher price than the value of our investments might
warrant. Conversely, investors selling our securities during a period in which the net asset value understates the value of our investments
may receive a lower price for their securities than the value of our investments might warrant.
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Our financial condition and results of operations depends on our ability to effectively manage and deploy capital.
Our ability to achieve our investment objective of maximizing our portfolio's total return by generating current income from our debt
investments and capital appreciation from our equity and equity-related investments, including warrants, convertible securities and other
rights to acquire equity securities in a portfolio company, depends on our ability to effectively manage and deploy capital, which depends, in
turn, on our investment team's ability to identify, evaluate and monitor, and our ability to finance and invest in, companies that meet our
investment criteria.
Accomplishing our investment objective on a cost-effective basis is largely a function of our investment team's handling of the
investment process, its ability to provide competent, attentive and efficient services and our access to investments offering acceptable
terms. In addition to monitoring the performance of our existing investments, members of our investment team are also called upon, from
time to time, to provide managerial assistance to some of our portfolio companies. These demands on their time may distract them or slow
the rate of investment.
Even if we are able to grow and build upon our investment operations, any failure to manage our growth effectively could have a
material adverse effect on our business, financial condition, results of operations and prospects. The results of our operations will depend
on many factors, including the availability of opportunities for investment, readily accessible short and long-term funding alternatives in the
financial markets and economic conditions. Furthermore, if we cannot successfully operate our business or implement our investment
policies and strategies as described herein, it could negatively impact our ability to pay dividends.
We may face increasing competition for investment opportunities.
We compete for investments with other investment funds (including private equity funds, debt funds, mezzanine funds, collateralized
loan obligation funds, or CLOs, BDCs, and SBICs), as well as traditional financial services companies such as commercial banks and other
sources of funding. Many of our competitors are substantially larger and have considerably greater financial, technical and marketing
resources than we do. For example, some competitors may have a lower cost of capital and access to funding sources that are not available
to us. In addition, some of our competitors may have higher risk tolerances or different risk assessments than we have. These
characteristics could allow our competitors to consider a wider variety of investments, establish more relationships and offer better pricing
and more flexible structuring than we are able to do. We may lose investment opportunities if we do not match our competitors' pricing,
terms and structure. If we are forced to match our competitors' pricing, terms and structure, we may not be able to achieve acceptable
returns on our investments or may bear substantial risk of capital loss. A significant part of our competitive advantage stems from the fact
that the market for investments in LMM companies is underserved by traditional commercial banks and other financing sources. A
significant increase in the number and/or the size of our competitors in this target market could force us to accept less attractive investment
terms. Furthermore, many of our competitors are not subject to the regulatory restrictions that the 1940 Act imposes on us as a BDC.
We are dependent upon our key investment personnel for our future success.
We depend on the members of our investment team, particularly Dwayne L. Hyzak, David L. Magdol, Vincent D. Foster, Curtis L.
Hartman, K. Colton Braud, III, Nicholas T. Meserve, Samuel A. Cashiola and Watt R. Matthews, for the identification, review, final
selection, structuring, closing and monitoring of our investments. These employees have significant investment expertise and relationships
that we rely on to implement our business plan. Although we have entered into a non-compete agreement with Mr. Foster and non-compete
arrangements with all of our executive officers and other key employees in connection with their restricted stock grants, we have no
guarantee that he or any other employees will remain employed with us. If
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we lose the services of these individuals, we may not be able to operate our business as we expect, and our ability to compete could be
harmed, which could cause our operating results to suffer.
Our success depends on attracting and retaining qualified personnel in a competitive environment.
Our growth will require that we retain new investment and administrative personnel in a competitive market. Our ability to attract and
retain personnel with the requisite credentials, experience and skills depends on several factors including, but not limited to, our ability to
offer competitive wages, benefits and professional growth opportunities. Many of the entities, including investment funds (such as private
equity funds, debt funds and mezzanine funds) and traditional financial services companies, with which we compete for experienced
personnel have greater resources than we have.
The competitive environment for qualified personnel may require us to take certain measures to ensure that we are able to attract and
retain experienced personnel. Such measures may include increasing the attractiveness of our overall compensation packages, altering the
structure of our compensation packages through the use of additional forms of compensation, or other steps. The inability to attract and
retain experienced personnel would have a material adverse effect on our business.
Our business model depends to a significant extent upon strong referral relationships, and our inability to maintain or develop
these relationships, as well as the failure of these relationships to generate investment opportunities, could adversely affect our
business.
We expect that members of our management team will maintain their relationships with intermediaries, financial institutions,
investment bankers, commercial bankers, financial advisors, attorneys, accountants, consultants and other individuals within our network,
and we will rely to a significant extent upon these relationships to provide us with potential investment opportunities. If our management
team fails to maintain its existing relationships or develop new relationships with sources of investment opportunities, we will not be able to
grow our Investment Portfolio. In addition, individuals with whom members of our management team have relationships are not obligated
to provide us with investment opportunities, and, therefore, there is no assurance that such relationships will generate investment
opportunities for us.
Our executive officers and employees, through the External Investment Manager, may manage other investment funds,
including HMS Income, that operate in the same or a related line of business as we do, which may result in significant conflicts
of interest.
Our executive officers and employees, through the External Investment Manager, may manage other investment funds that operate in
the same or a related line of business as we do. Accordingly, they may have obligations to such other entities, the fulfillment of which
obligations may not be in the best interests of us or our stockholders. During May 2012, we entered into an investment sub-advisory
agreement with HMS Adviser, which is the investment advisor to HMS Income, a non-listed BDC, to provide certain investment advisory
services to HMS Adviser. In December 2013, after obtaining required no-action relief from the SEC to allow us to own a registered
investment adviser, we assigned the sub-advisory agreement to the External Investment Manager since the fees received from such
arrangement could otherwise have negative consequences on our ability to meet the source-of-income requirement necessary for us to
maintain our RIC tax treatment. Under the investment sub-advisory agreement, the External Investment Manager is entitled to 50% of the
base management fee and the incentive fees earned by HMS Adviser under its advisory agreement with HMS Income. The sub-advisory
relationship requires us to commit resources to achieving HMS Income's investment objective, while such resources were previously solely
devoted to achieving our investment objective. Our investment objective and investment strategies are very similar to those of HMS
Income and it is likely that an investment appropriate for us or HMS Income would be appropriate for the other entity. As a result, we and
HMS Income requested an exemptive order from the SEC permitting co-investments by us and HMS Income in certain negotiated
transactions where our co-investing would otherwise be prohibited under the 1940 Act. The SEC granted the exemptive order in April 2014,
and we have made, and in the future intend to continue to make, such co-investments with HMS Income in
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accordance with the conditions of the order. The order requires, among other things, that we and the External Investment Manager consider
whether each such investment opportunity is appropriate for HMS Income and, if it is appropriate, to propose an allocation of the
investment opportunity between us and HMS Income. As a consequence, it may be more difficult for us to maintain or increase the size of
our Investment Portfolio in the future. Although we will endeavor to allocate investment opportunities in a fair and equitable manner,
including in accordance with the conditions set forth in the exemptive order issued by the SEC when relying on such order, we may face
conflicts in allocating investment opportunities between us and HMS Income. Because the External Investment Manager may receive
performance-based fee compensation from HMS Income, this may provide an incentive to allocate opportunities to HMS Income instead of
us. We have implemented an allocation policy to ensure the equitable distribution of investment opportunities and, as a result, may be
unable to participate in certain investments based upon such allocation policy.
We, through the External Investment Manager, derive revenues from managing third party funds pursuant to management
agreements that may be terminated pursuant to the terms of such agreements or requirements under the 1940 Act.
The External Investment Manager earns management fees based on the assets of the funds under management and may earn incentive
fees, or a carried interest, based on the performance of the funds managed, including HMS Income. The terms of fund investment
management agreements generally give the manager of the fund and the fund itself the right to terminate the management agreement in
certain circumstances. With respect to funds that are not exempt from regulation under the 1940 Act, the fund's investment management
agreement must be approved annually by (a) such fund's board of directors or by the vote of a majority of such fund's stockholders and
(b) the majority of the independent members of such fund's board of directors and, in certain cases, by its stockholders, as required by law.
The funds' investment management agreements can also be terminated by the majority of such fund's stockholders. Termination of any
such management agreements would reduce the fees we earn from the relevant funds through the External Investment Manager, which
could have a material adverse effect on our results of operations. Currently, HMS Income, an investment company that has elected to be
regulated as a business development company under the 1940 Act, is subject to these provisions of the 1940 Act.
Regulations governing our operation as a BDC will affect our ability to, and the way in which we, raise additional capital.
Our business will require capital to operate and grow. We may acquire such additional capital from the following sources:
Senior Securities. We may issue debt securities or preferred stock and/or borrow money from banks or other financial
institutions, which we refer to collectively as senior securities. As a result of issuing senior securities, we will be exposed to
additional risks, including the following:
•
•
•
Under the provisions of the 1940 Act, we are permitted, as a BDC, to issue senior securities only in amounts
such that our asset coverage, as defined in the 1940 Act, equals at least 200% (or 150% if certain
requirements are met) immediately after each issuance of senior securities. We have received exemptive
relief from the SEC to permit us to exclude the SBA-guaranteed debentures of the Funds from our asset
coverage test under the 1940 Act. If the value of our assets declines, we may be unable to satisfy this test. If
that happens, we will be prohibited from issuing debt securities or preferred stock and/or borrowing money
from banks or other financial institutions and may not be permitted to declare a dividend or make any
distribution to stockholders or repurchase shares until such time as we satisfy this test.
Any amounts that we use to service our debt or make payments on preferred stock will not be available for
dividends to our common stockholders.
It is likely that any senior securities or other indebtedness we issue will be governed by an indenture or other
instrument containing covenants restricting our operating flexibility.
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Additionally, some of these securities or other indebtedness may be rated by rating agencies, and in obtaining
a rating for such securities and other indebtedness, we may be required to abide by operating and investment
guidelines that further restrict operating and financial flexibility.
•
•
•
We and, indirectly, our stockholders will bear the cost of issuing and servicing such securities and other
indebtedness.
Preferred stock or any convertible or exchangeable securities that we issue in the future may have rights,
preferences and privileges more favorable than those of our common stock, including separate voting rights
and could delay or prevent a transaction or a change in control to the detriment of the holders of our common
stock.
Any unsecured debt issued by us would rank (i) pari passu with our current and future unsecured
indebtedness and effectively subordinated to all of our existing and future secured indebtedness, to the extent
of the value of the assets securing such indebtedness, and (ii) structurally subordinated to all existing and
future indebtedness and other obligations of any of our subsidiaries, including the SBA-guaranteed
debentures issued by the Funds.
Additional Common Stock. The 1940 Act prohibits us from selling shares of our common stock at a price below the current
net asset value per share of such stock, with certain exceptions. One such exception is prior stockholder approval of issuances below
current net asset value per share provided that our Board of Directors makes certain determinations. We did not seek stockholder
authorization to sell shares of our common stock below the then current net asset value per share of our common stock at our 2018
annual meeting of stockholders because our common stock price had been trading significantly above the net asset value per share
of our common stock since 2011. We may, however, sell our common stock, warrants, options or rights to acquire our common
stock, at a price below the current net asset value of the common stock if our Board of Directors determines that such sale is in the
best interests of our stockholders, and our stockholders approve such sale. See "— Stockholders may incur dilution if we sell shares
of our common stock in one or more offerings at prices below the then current net asset value per share of our common stock or
issue securities to subscribe to, convert to or purchase shares of our common stock" for a discussion of the risks related to us issuing
shares of our common stock below net asset value. Our stockholders have authorized us to issue warrants, options or rights to
subscribe for, convert to, or purchase shares of our common stock at a price per share below the net asset value per share, subject to
the applicable requirements of the 1940 Act. There is no expiration date on our ability to issue such warrants, options, rights or
convertible securities based on this stockholder approval. If we raise additional funds by issuing more common stock or senior
securities convertible into, or exchangeable for, our common stock, the percentage ownership of our stockholders at that time would
decrease, and they may experience dilution. Moreover, we can offer no assurance that we will be able to issue and sell additional
equity securities in the future, on favorable terms or at all.
The Funds are licensed by the SBA, and therefore subject to SBA regulations.
The Funds, our wholly owned subsidiaries, are licensed to act as SBICs and are regulated by the SBA. The SBA also places certain
limitations on the financing terms of investments by SBICs in portfolio companies and prohibits SBICs from providing funds for certain
purposes or to businesses in a few prohibited industries. Compliance with SBA requirements may cause the Funds to forego attractive
investment opportunities that are not permitted under SBA regulations.
Further, the SBA regulations require, among other things, that a licensed SBIC be periodically examined by the SBA and audited by an
independent auditor, in each case to determine the SBIC's compliance with the relevant SBA regulations. The SBA prohibits, without prior
SBA approval, a "change of control" of an SBIC or transfers that would result in any person (or a group of persons acting in concert)
owning 10% or more of a class of capital stock of a licensed SBIC. If the Funds fail to comply with applicable SBIC regulations, the SBA
could, depending on the severity of the violation, limit or prohibit their use of SBIC debentures, declare outstanding SBIC debentures
immediately due and payable, and/or limit them from making new investments.
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In addition, the SBA can revoke or suspend a license for willful or repeated violation of, or willful or repeated failure to observe, any
provision of the Small Business Investment Act of 1958 or any rule or regulation promulgated thereunder. Such actions by the SBA would,
in turn, negatively affect us.
Because we borrow money, the potential for gain or loss on amounts invested in us is magnified and may increase the risk of
investing in us.
Borrowings, also known as leverage, magnify the potential for loss on investments in our indebtedness and gain or loss on investments
in our equity capital. As we use leverage to partially finance our investments, you will experience increased risks of investing in our
securities. We, through the Funds, issue debt securities guaranteed by the SBA and sold in the capital markets. As a result of its guarantee
of the debt securities, the SBA has fixed dollar claims on the assets of the Funds that are superior to the claims of our securities holders. We
may also borrow from banks and other lenders, including under our Credit Facility, and may issue debt securities or enter into other types
of borrowing arrangements in the future. See "Management's Discussion and Analysis of Financial Condition and Results of Operations —
Liquidity and Capital Resources — Capital Resources" for a discussion regarding our outstanding indebtedness. If the value of our assets
decreases, leveraging would cause net asset value to decline more sharply than it otherwise would have had we not leveraged our business.
Similarly, any decrease in our income would cause net investment income to decline more sharply than it would have had we not leveraged
our business. Such a decline could negatively affect our ability to pay common stock dividends, scheduled debt payments or other
payments related to our securities. Use of leverage is generally considered a speculative investment technique.
As of December 31, 2018, we, through the Funds, had $345.8 million of outstanding indebtedness guaranteed by the SBA, which had a
weighted-average annualized interest cost of approximately 3.7%. The debentures guaranteed by the SBA have a maturity of ten years, with
a current weighted-average remaining maturity of 5.6 years as of December 31, 2018, and require semiannual payments of interest. We will
need to generate sufficient cash flow to make required interest payments on the debentures. If we are unable to meet the financial
obligations under the debentures, the SBA, as a creditor, will have a superior claim to the assets of the Funds over our securities holders in
the event we liquidate or the SBA exercises its remedies under such debentures as the result of a default by us.
In addition, as of December 31, 2018, we had $301.0 million outstanding under our Credit Facility. Borrowings under the Credit
Facility bear interest, subject to our election, on a per annum basis at a rate equal to the applicable LIBOR rate (2.5% as of December 31,
2018) plus (i) 1.875% (or the applicable base rate (Prime Rate of 5.5% as of December 31, 2018) plus 0.875%), as long as we meet certain
agreed upon excess collateral and maximum leverage requirements or (ii) 2.0% (or the applicable base rate plus 1.0%) otherwise. We pay
unused commitment fees of 0.25% per annum on the unused lender commitments under the Credit Facility. If we are unable to meet the
financial obligations under the Credit Facility, the Credit Facility lending group will have a superior claim to the assets of MSCC and its
subsidiaries (excluding the assets of the Funds) over our stockholders in the event we liquidate or the lending group exercises its remedies
under the Credit Facility as the result of a default by us.
In April 2013, we issued $92.0 million, including the underwriters' full exercise of their over-allotment option, in aggregate principal
amount of the 6.125% Notes (the "6.125% Notes"). The 6.125% Notes bore interest at a rate of 6.125% per year payable quarterly on
January 1, April 1, July 1 and October 1 of each year. The total net proceeds to us from the 6.125% Notes, after underwriting discounts and
estimated offering expenses payable, were approximately $89.0 million. On April 2, 2018, we redeemed the entire principal amount of the
issued and outstanding 6.125% Notes effective April 1, 2018 (the "Redemption Date"). The 6.125% Notes were redeemed at par value, plus
the accrued and unpaid interest thereon from January 1, 2018, through, but excluding, the Redemption Date. As part of the redemption, we
recognized a realized loss on extinguishment of debt of $1.5 million in the second quarter of 2018 related to the write-off of the related
unamortized deferred financing costs.
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In November 2014, we issued $175.0 million in aggregate principal amount of 4.50% unsecured notes due 2019 (the "4.50% Notes due
2019") at an issue price of 99.53%. As of December 31, 2018, the outstanding balance of the 4.50% Notes due 2019 was $175.0 million.
The 4.50% Notes due 2019 are unsecured obligations and rank pari passu with our current and future unsecured indebtedness; senior to any
of our future indebtedness that expressly provides it is subordinated to the 4.50% Notes due 2019; effectively subordinated to all of our
existing and future secured indebtedness, to the extent of the value of the assets securing such indebtedness, including borrowings under
our Credit Facility; and structurally subordinated to all existing and future indebtedness and other obligations of any of our subsidiaries,
including without limitation, the indebtedness of the Funds. The 4.50% Notes due 2019 mature on December 1, 2019, and may be
redeemed in whole or in part at any time at our option subject to certain make-whole provisions.
In November 2017, we issued $185.0 million in aggregate principal amount of 4.50% unsecured notes due 2022 (the "4.50% Notes due
2022," together with the 4.50% Notes due 2019, the "Notes") at an issue price of 99.16%. As of December 31, 2018, the outstanding
balance of the 4.50% Notes due 2022 was $185.0 million. The 4.50% Notes due 2022 are unsecured obligations and rank pari passu with
our current and future unsecured indebtedness; senior to any of our future indebtedness that expressly provides it is subordinated to the
4.50% Notes due 2022; effectively subordinated to all of our existing and future secured indebtedness, to the extent of the value of the
assets securing such indebtedness, including borrowings under our Credit Facility; and structurally subordinated to all existing and future
indebtedness and other obligations of any of our subsidiaries, including without limitation, the indebtedness of the Funds. The 4.50% Notes
due 2022 mature on December 1, 2022, and may be redeemed in whole or in part at any time at our option subject to certain make-whole
provisions.
Illustration. The following table illustrates the effect of leverage on returns from an investment in our common stock
assuming various annual returns, net of expenses. The calculations in the table below are hypothetical and actual returns may be
higher or lower than those appearing below.
Assumed Return on Our Portfolio(1)
(net of expenses)
Corresponding net return to common
stockholder(2)
(10.0)%
(5.0)%
0.0%
5.0%
10.0%
(20.2)%
(11.5)%
(2.9)%
5.8%
14.4%
(1)
(2)
Assumes $2,553.4 million in total assets, $1,006.8 million in debt outstanding, $1,476.0 million in net assets, and a
weighted-average interest rate of 4.2%. Actual interest payments may be different.
In order for us to cover our annual interest payments on indebtedness, we must achieve annual returns on our
December 31, 2018 total assets of at least 1.7%.
Our ability to achieve our investment objective may depend in part on our ability to access additional leverage on favorable terms by
issuing debentures guaranteed by the SBA through the Funds, by borrowing from banks or insurance companies or by issuing other debt
securities and there can be no assurance that such additional leverage can in fact be achieved.
All of our assets are subject to security interests under our secured Credit Facility or subject to a superior claim over our
stockholders by the SBA and if we default on our obligations under the Credit Facility or with respect to our SBA-guaranteed
debentures, we may suffer adverse consequences, including foreclosure on our assets.
Substantially all of our assets are currently pledged as collateral under our Credit Facility or are subject to a superior claim over our
stockholders by the SBA. If we default on our obligations under the Credit Facility or our SBA-guaranteed debentures, the lenders and/or
the SBA may have the right to foreclose upon and sell, or otherwise transfer, the collateral subject to their security interests or their
superior claim. In such event, we may be forced to sell our investments to raise funds to repay our outstanding borrowings in order to
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avoid foreclosure and these forced sales may be at times and at prices we would not consider advantageous. Moreover, such deleveraging
of our company could significantly impair our ability to effectively operate our business in the manner in which we have historically
operated. As a result, we could be forced to curtail or cease new investment activities and lower or eliminate the dividends that we have
historically paid to our stockholders. In addition, if the lenders exercise their right to sell the assets pledged under our Credit Facility, such
sales may be completed at distressed sale prices, thereby diminishing or potentially eliminating the amount of cash available to us after
repayment of the amounts outstanding under the Credit Facility.
Recent legislation may allow us to incur additional leverage.
The 1940 Act generally prohibits us from incurring indebtedness unless immediately after such borrowing we have an asset coverage
for total borrowings of at least 200% (i.e., the amount of debt may not exceed 50% of the value of our assets). However, legislation passed
in March 2018 has modified the 1940 Act by allowing a BDC to increase the maximum amount of leverage it may incur by lowering the
required asset coverage ratio of 200% to an asset coverage ratio of 150% (i.e., the amount of debt may not exceed 662/3% of the value of
our assets), if certain requirements are met. Under the legislation, we are allowed to increase our leverage capacity if stockholders
representing at least a majority of the votes cast, when a quorum is met, approve a proposal to do so. If we receive stockholder approval, we
would be allowed to increase our leverage capacity on the first day after such approval. Alternatively, the legislation allows a "required
majority" (as defined in Section 57(o) of the 1940 Act) of the members of our board of directors to approve an increase in our leverage
capacity, and such approval would become effective after one year from the date of approval. In either case, we would be required to make
certain disclosures on our website and in SEC filings regarding, among other things, the receipt of approval to increase our leverage, our
leverage capacity and usage, and risks related to leverage. As a result of this legislation, we may be able to increase our leverage up to an
amount that reduces our asset coverage ratio from 200% to 150% (i.e., the amount of debt may not exceed 662/3% of the value of our
assets). See "Risk Factors — Risks Relating to Our Business and Structure — Because we borrow money, the potential for gain or loss on
amounts invested in us is magnified and may increase the risk of investing in us" for a discussion of the risks associated with leverage.
Further downgrades of the U.S. credit rating, automatic spending cuts or another government shutdown could negatively impact
our liquidity, financial condition and earnings.
Recent U.S. debt ceiling and budget deficit concerns have increased the possibility of additional credit-rating downgrades and
economic slowdowns, or a recession in the U.S. Although U.S. lawmakers passed legislation to raise the federal debt ceiling on multiple
occasions, ratings agencies have lowered or threatened to lower the long-term sovereign credit rating on the United States. The impact of
this or any further downgrades to the U.S. government's sovereign credit rating or its perceived creditworthiness could adversely affect the
U.S. and global financial markets and economic conditions. Absent further quantitative easing by the Federal Reserve, these developments
could cause interest rates and borrowing costs to rise, which may negatively impact our ability to access the debt markets on favorable
terms. In addition, disagreement over the federal budget has caused the U.S. federal government to shut down for periods of time.
Continued adverse political and economic conditions could have a material adverse effect on our business, financial condition and results of
operations.
The interest rates of our floating-rate loans to our portfolio companies that extend beyond 2021 might be subject to change
based on recent regulatory changes
LIBOR is the basic rate of interest used in lending transactions between banks on the London interbank market and is widely used as a
reference for setting the interest rate on loans globally. We typically use LIBOR as a reference rate in floating-rate loans we extend to
portfolio companies such that the interest due to us pursuant to a term loan extended to a portfolio company is calculated using LIBOR. The
terms of our debt investments generally include minimum interest rate floors which are calculated based on LIBOR.
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On July 27, 2017, the United Kingdom's Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out
LIBOR by the end of 2021. It is unclear if at that time whether LIBOR will cease to exist or if new methods of calculating LIBOR will be
established such that it continues to exist after 2021. As such, the potential effect of any such event on our net investment income cannot
yet be determined. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee
comprised of large U.S. financial institutions, is considering replacing U.S. dollar LIBOR with a new index calculated by short term
repurchase agreements, backed by Treasury securities. If LIBOR ceases to exist, we may need to renegotiate the credit agreements
extending beyond 2021 with our portfolio companies that utilize LIBOR as a factor in determining the interest rate to replace LIBOR with
the new standard that is established. In addition, any further changes or reforms to the determination or supervision of LIBOR may result in
a sudden or prolonged increase or decrease in reported LIBOR, which could have an adverse impact on the market value for or value of any
LIBOR-linked securities, loans and other financial obligations or extensions of credit held by or due to us and could have a material adverse
effect on our business, financial condition and results of operations.
We may experience fluctuations in our operating results.
We could experience fluctuations in our operating results due to a number of factors, including our ability or inability to make
investments in companies that meet our investment criteria, the interest rate payable on the debt securities we acquire, the level of portfolio
dividend and fee income, the level of our expenses, variations in and the timing of the recognition of realized and unrealized gains or losses,
the degree to which we encounter competition in our markets and general economic conditions. As a result of these factors, operating
results for any period should not be relied upon as being indicative of performance in future periods.
Our Board of Directors may change our operating policies and strategies without prior notice or stockholder approval, the
effects of which may be adverse.
Our Board of Directors has the authority to modify or waive our current operating policies, investment criteria and strategies without
prior notice and without stockholder approval. We cannot predict the effect any changes to our current operating policies, investment
criteria and strategies would have on our business, net asset value, operating results and value of our stock. However, the effects might be
adverse, which could negatively impact our ability to pay interest and principal payments to holders of our debt instruments and dividends
to our stockholders and cause our investors to lose all or part of their investment in us.
We will be subject to corporate-level U.S. federal income tax if we are unable to qualify as a RIC under Subchapter M of the
Code.
To maintain RIC tax treatment under the Code, we must meet the following annual distribution, income source and asset diversification
requirements:
•
The Annual Distribution Requirement for a RIC will be satisfied if we distribute to our stockholders on an annual
basis at least 90% of our net ordinary taxable income and realized net short-term capital gains in excess of realized
net long-term capital losses, if any. Depending on the level of taxable income earned in a tax year, we may choose to
carry forward taxable income in excess of current year distributions into the next tax year and pay a 4% U.S. federal
excise tax on such income. Any such carryover taxable income must be distributed through a dividend declared prior
to filing the final tax return related to the year which generated such taxable income. For more information regarding
tax treatment, see "Business — Regulation — Taxation as a Regulated Investment Company." Because we use debt
financing, we are subject to certain asset coverage ratio requirements under the 1940 Act and are (and may in the
future become) subject to certain financial covenants under loan and credit agreements that could, under certain
circumstances, restrict us from making distributions necessary to satisfy the distribution requirement. In addition,
because we receive non-cash sources of income such as PIK interest which involves us recognizing taxable income
without receiving the cash representing
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such income, we may have difficulty meeting the distribution requirement. If we are unable to obtain cash from other
sources, we could fail to qualify for RIC tax treatment and thus become subject to corporate-level U.S. federal
income tax.
•
•
The source-of-income requirement will be satisfied if we obtain at least 90% of our gross income for each year from
distributions, interest, gains from the sale of stock or securities or similar sources.
The asset diversification requirement will be satisfied if we meet certain asset diversification requirements at the end
of each quarter of our taxable year. To satisfy this requirement, at least 50% of the value of our assets must consist of
cash, cash equivalents, U.S. government securities, securities of other RICs, and other acceptable securities; and no
more than 25% of the value of our assets can be invested in the securities, other than U.S. government securities or
securities of other RICs, (i) of one issuer, (ii) of two or more issuers that are controlled, as determined under
applicable Code rules, by us and that are engaged in the same or similar or related trades or businesses or (iii) of
certain "qualified publicly traded partnerships."
Failure to meet these requirements may result in our having to dispose of certain investments quickly in order to prevent the loss of
RIC status. Because most of our investments are in privately held companies, and therefore illiquid, any such dispositions could be made at
disadvantageous prices and could result in substantial losses. Moreover, if we fail to maintain RIC tax treatment for any reason and are
subject to corporate income tax, the resulting corporate taxes could substantially reduce our net assets, the amount of income available for
distribution and the amount of our distributions.
We may not be able to pay distributions to our stockholders, our distributions may not grow over time, and a portion of
distributions paid to our stockholders may be a return of capital, which is a distribution of the stockholders' invested capital.
We intend to pay distributions 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 cash distributions, previously projected distributions for future
periods, or year-to-year increases in cash distributions. Our ability to pay distributions might be adversely affected by, among other things,
the impact of one or more of the risk factors described herein. In addition, the inability to satisfy the asset coverage test applicable to us as a
BDC could limit our ability to pay distributions. All distributions will be paid at the discretion of our Board of Directors and will depend
on our earnings, our financial condition, maintenance of our RIC status, compliance with applicable BDC regulations, compliance with our
debt covenants, each of the Funds' compliance with applicable SBIC 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 distributions to our stockholders in the future.
When we make distributions, we will be required to determine the extent to which such distributions are paid out of current or
accumulated taxable earnings, recognized capital gains or capital. To the extent there is a return of capital, investors will be required to
reduce their basis in our stock for U.S. federal income tax purposes, which may result in higher tax liability when the shares are sold, even
if they have not increased in value or have lost value. In addition, any return of capital will be net of any sales load and offering expenses
associated with sales of shares of our common stock. In the future, our distributions may include a return of capital.
We may have difficulty paying the distributions required to maintain RIC tax treatment under the Code if we recognize income
before or without receiving cash representing such income.
We will include in income certain amounts that we have not yet received in cash, such as: (i) amortization of original issue discount,
which may arise if we receive warrants in connection with the origination of a loan such that ascribing a value to the warrants creates
original issue discount in the debt instrument, if we invest in a debt investment at a discount to the par value of the debt security or possibly
in other circumstances; (ii) contractual payment-in-kind, or PIK, interest, which represents contractual interest
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added to the loan balance and due at the end of the loan term; (iii) contractual preferred dividends, which represents contractual dividends
added to the preferred stock and due at the end of the preferred stock term, subject to adequate profitability at the portfolio company; or
(iv) amortization of market discount, which is associated with loans purchased in the secondary market at a discount to par value. Such
amortization of original issue discounts, increases in loan balances as a result of contractual PIK arrangements, cumulative preferred
dividends, or amortization of market discount will be included in income before we receive the corresponding cash payments. We also may
be required to include in income certain other amounts before we receive such amounts in cash. Investments structured with these features
may represent a higher level of credit risk compared to investments generating income which must be paid in cash on a current basis. For
the year ended December 31, 2018, (i) approximately 1.0% of our total investment income was attributable to PIK income not paid
currently in cash, (ii) approximately 0.5% of our total investment income was attributable to amortization of original issue discount,
(iii) approximately 1.0% of our total investment income was attributable to cumulative dividend income not paid currently in cash, and
(iv) approximately 2.5% of our total investment income was attributable to amortization of market discount on loans purchased in the
secondary market at a discount.
Since, in certain cases, we may recognize taxable income before or without receiving cash representing such income, we may have
difficulty meeting the Annual Distribution Requirement necessary to maintain RIC tax treatment under the Code. Accordingly, we may
have to sell some of our investments at times and/or at prices we would not consider advantageous, raise additional debt or equity capital or
forgo new investment opportunities for this purpose. If we are not able to obtain cash from other sources, we may fail to qualify for RIC tax
treatment and thus become subject to corporate-level U.S. federal income tax. For additional discussion regarding the tax implications of a
RIC, please see "Business — Regulation — Taxation as a Regulated Investment Company."
We may in the future choose to pay dividends in our own stock, in which case you may be required to pay tax in excess of the
cash you receive.
We may distribute taxable dividends that are payable in part in our stock. Under certain applicable provisions of the Code and the
Treasury regulations, distributions payable by us in cash or in shares of stock (at the stockholders election) would satisfy the Annual
Distribution Requirement. The Internal Revenue Service has issued guidance providing that a dividend payable in stock or in cash at the
election of the stockholders will be treated as a taxable dividend eligible for the dividends paid deduction provided that at least 20% of the
total dividend is payable in cash and certain other requirements are satisfied. Taxable stockholders receiving such dividends will be
required to include the full amount of the dividend as ordinary income (or as long-term capital gain to the extent such dividend is properly
reported as a capital gain dividend) to the extent of our current and accumulated earnings and profits for U.S. federal income tax purposes.
As a result, a U.S. stockholder may be required to pay tax with respect to such dividends in excess of any cash received. If a U.S.
stockholder sells the stock it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in
income with respect to the dividend, depending on the market price of our stock at the time of the sale. Furthermore, with respect to non-
U.S. stockholders, we may be required to withhold U.S. tax with respect to such dividends, including in respect of all or a portion of such
dividend that is payable in stock. In addition, if a significant number of our stockholders determine to sell shares of our stock in order to pay
taxes owed on dividends, it may put downward pressure on the trading price of our stock.
Each of the Funds, as an SBIC, may be unable to make distributions to us that will enable us to meet or maintain RIC status,
which could result in the imposition of an entity-level tax.
In order for us to continue to qualify for RIC tax treatment and to minimize corporate-level U.S. federal taxes, we will be required to
distribute substantially all of our net ordinary taxable income and net capital gain income, including taxable income from certain of our
subsidiaries, which includes the income from the Funds. We will be partially dependent on the Funds for cash distributions to enable us to
meet the RIC
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distribution requirements. The Funds may be limited by SBIC regulations from making certain distributions to us that may be necessary to
enable us to maintain our status as a RIC. We may have to request a waiver of the SBA's restrictions for the Funds to make certain
distributions to maintain our eligibility for RIC status. We cannot assure you that the SBA will grant such waiver and if the Funds are
unable to obtain a waiver, compliance with the SBIC regulations may result in loss of RIC tax treatment and a consequent imposition of an
entity-level tax on us.
Because we intend to distribute substantially all of our taxable income to our stockholders to maintain our status as a RIC, we
will continue to need additional capital to finance our growth, and regulations governing our operation as a BDC will affect our
ability to, and the way in which we, raise additional capital and make distributions.
In order to satisfy the requirements applicable to a RIC and to minimize corporate-level U.S. federal taxes, we intend to distribute to our
stockholders substantially all of our net ordinary taxable income and net capital gain income. We may carry forward excess undistributed
taxable income into the next year, net of the 4% U.S. federal excise tax. Any such carryover taxable income must be distributed through a
dividend declared prior to filing the final tax return related to the year which generated such taxable income. As a BDC, we generally are
required to meet an asset coverage ratio, as defined in the 1940 Act, of at least 200% (or 150% if certain requirements are met) immediately
after each issuance of senior securities. This requirement limits the amount that we may borrow and may prohibit us from making
distributions. Because we will continue to need capital to grow our Investment Portfolio, this limitation may prevent us from incurring debt
and require us to raise additional equity at a time when it may be disadvantageous to do so.
While we expect to be able to borrow and to issue additional debt and equity securities, we cannot assure you that debt and equity
financing will be available to us on favorable terms, or at all. In addition, as a BDC, we generally are not permitted to issue equity securities
priced below net asset value without stockholder approval. If additional funds are not available to us, we could be forced to curtail or cease
new investment activities, and our net asset value could decline.
Stockholders may incur dilution if we sell shares of our common stock in one or more offerings at prices below the then current
net asset value per share of our common stock or issue securities to subscribe to, convert to or purchase shares of our common
stock.
The 1940 Act prohibits us from selling shares of our common stock at a price below the current net asset value per share of such stock,
with certain exceptions. One such exception is prior stockholder approval of issuances below net asset value provided that our Board of
Directors makes certain determinations. We did not seek stockholder authorization to sell shares of our common stock below the then
current net asset value per share of our common stock at our 2018 annual meeting of stockholders because our common stock price per
share had been trading significantly above the net asset value per share of our common stock. We may, however, seek such authorization at
future annual or special meetings of stockholders. Our stockholders have previously approved a proposal to authorize us to issue securities
to subscribe to, convert to, or purchase shares of our common stock in one or more offerings. Any decision to sell shares of our common
stock below the then current net asset value per share of our common stock or securities to subscribe to, convert to, or purchase shares of
our common stock would be subject to the determination by our Board of Directors that such issuance is in our and our stockholders' best
interests.
If we were to sell shares of our common stock below net asset value per share, such sales would result in an immediate dilution to the
net asset value per share. This dilution would occur as a result of the sale of shares at a price below the then current net asset value per
share of our common stock and a proportionately greater decrease in a stockholder's interest in our earnings and assets and voting interest in
us than the increase in our assets resulting from such issuance. In addition, if we issue securities to subscribe to, convert to or purchase
shares of common stock, the exercise or conversion of such securities would increase the number of outstanding shares of our common
stock. Any such exercise would be dilutive on the voting power
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of existing stockholders, and could be dilutive with regard to dividends and our net asset value, and other economic aspects of the common
stock.
Because the number of shares of common stock that could be so issued and the timing of any issuance is not currently known, the
actual dilutive effect cannot be predicted; however, the example below illustrates the effect of dilution to existing stockholders resulting
from the sale of common stock at prices below the net asset value of such shares.
Illustration: Example of Dilutive Effect of the Issuance of Shares Below Net Asset Value. Assume that Company XYZ has
1,000,000 total shares outstanding, $15,000,000 in total assets and $5,000,000 in total liabilities. The net asset value per share of the
common stock of Company XYZ is $10.00. The following table illustrates the reduction to net asset value, or NAV, and the dilution
experienced by Stockholder A following the sale of 40,000 shares of the common stock of Company XYZ at $9.50 per share, a
price below its NAV per share.
Reduction to NAV
Total Shares Outstanding
NAV per share
Dilution to Existing Stockholder
Shares Held by Stockholder A
Percentage Held by Stockholder A
Total Interest of Stockholder A in NAV
Prior to Sale
Below NAV
Following Sale
Below NAV
Percentage
Change
1,000,000
$
10.00 $
1,040,000
9.98
10,000
1.00%
100,000 $
$
10,000(1)
0.96%
99,808
4.0%
(0.2)%
0.0%
(3.8)%
(0.2)%
(1)
Assumes that Stockholder A does not purchase additional shares in the sale of shares below NAV.
Changes in laws or regulations governing our operations may adversely affect our business or cause us to alter our business
strategy.
We, the Funds, and our portfolio companies are subject to applicable local, state and federal laws and regulations. New legislation may
be enacted or new interpretations, rulings or regulations could be adopted, including those governing the types of investments we are
permitted to make, any of which could harm us and our stockholders, potentially with retroactive effect. In addition, any change to the
SBA's current debenture SBIC program could have a significant impact on our ability to obtain lower-cost leverage through the Funds, and
therefore, our ability to compete with other finance companies.
Additionally, any changes to the laws and regulations governing our operations relating to permitted investments may cause us to alter
our investment strategy in order to avail ourselves of new or different opportunities. Such changes could result in material differences to the
strategies and plans set forth herein and may result in our investment focus shifting from the areas of expertise of our investment team to
other types of investments in which our investment team may have less expertise or little or no experience. Thus, any such changes, if they
occur, could have a material adverse effect on our results of operations and the value of your investment.
The Tax Cuts and Jobs Act could have a negative effect on us, our subsidiaries, our portfolio companies and the holders of our
securities.
On December 20, 2017, the U.S. House of Representatives and the U.S. Senate each voted to approve H.R. 1 (the "Tax Cuts and Jobs
Act") and, on December 22, 2017, President Trump signed the Tax Cuts and Jobs Act into law. The Tax Cuts and Jobs Act made significant
changes to the U.S. federal income tax rules applicable to both individuals and entities, including corporations. The Tax Cuts and Jobs Act
includes provisions that, among other things, reduce the U.S. corporate tax rate, introduce a capital investment deduction, limit the interest
deduction, limit the use of net operating losses to offset future taxable income
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and make extensive changes to the U.S. international tax system. Treasury and the Internal Revenue Service continue to release guidance in
the form of regulations providing rules for implementation and interpretation of the Tax Cuts and Jobs Act provisions. Uncertainty remains
regarding significant provisions of the Tax Cuts and Jobs Act while some of the Treasury regulations and guidance remain in proposed
form. Accordingly, we cannot predict any additional future impact the enactment of such legislation will have on us, our subsidiaries, our
portfolio companies and the holders of our securities.
Terrorist attacks, acts of war or natural disasters may affect any market for our securities, impact the businesses in which we
invest and harm our business, operating results and financial condition.
Terrorist acts, acts of war or natural disasters may disrupt our operations, as well as the operations of the businesses in which we
invest. Such acts have created, and continue to create, economic and political uncertainties and have contributed to global economic
instability. Future terrorist activities, military or security operations, or natural disasters could further weaken the domestic/global
economies and create additional uncertainties, which may negatively impact the businesses in which we invest directly or indirectly and, in
turn, could have a material adverse impact on our business, operating results and financial condition. Losses from terrorist attacks and
natural disasters are generally uninsurable.
We are highly dependent on information systems and systems failures could significantly disrupt our business, which may, in
turn, negatively affect the market price of our common stock and our ability to pay dividends.
Our business is highly dependent on our and third parties' communications and information systems. Any failure or interruption of
those systems, including as a result of the termination of an agreement with any third-party service providers, could cause delays or other
problems in our activities. Our financial, accounting, data processing, backup or other operating systems and facilities may fail to operate
properly or become disabled or damaged as a result of a number of factors including events that are wholly or partially beyond our control
and adversely affect our business. There could be:
•
•
•
•
sudden electrical or telecommunications outages;
natural disasters such as earthquakes, tornadoes and hurricanes;
events arising from local or larger scale political or social matters, including terrorist acts; and
cyber attacks.
The failure in cyber security systems, as well as the occurrence of events unanticipated in our disaster recovery systems and
management continuity planning could impair our ability to conduct business effectively.
The occurrence of a disaster such as a cyber-attack, a natural catastrophe, an industrial accident, a terrorist attack or war, events
unanticipated in our disaster recovery systems, or a support failure from external providers, could have an adverse effect on our ability to
conduct business and on our results of operations and financial condition, particularly if those events affect our computer-based data
processing, transmission, storage, and retrieval systems or destroy data. If a significant number of our managers were unavailable in the
event of a disaster, our ability to effectively conduct our business could be severely compromised.
We depend heavily upon computer systems to perform necessary business functions. Despite our implementation of a variety of
security measures, our computer systems could be subject to cyber-attacks and unauthorized access, such as physical and electronic break-
ins or unauthorized tampering. Like other companies, we may experience threats to our data and systems, including malware and computer
virus attacks, unauthorized access, system failures and disruptions. If one or more of these events occurs, it could potentially jeopardize the
confidential, proprietary and other information processed and stored in, and transmitted through, our computer systems and networks, or
otherwise cause interruptions or malfunctions in
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our operations, which could result in damage to our reputation, financial losses, litigation, increased costs, regulatory penalties and/or
customer dissatisfaction or loss.
RISKS RELATED TO OUR INVESTMENTS
Our investments in portfolio companies involve higher levels of risk, and we could lose all or part of our investment.
Investing in our portfolio companies exposes us indirectly to a number of significant risks. Among other things, these companies:
•
•
•
•
•
may have limited financial resources and may be unable to meet their obligations under their debt instruments that
we hold, which may be accompanied by a deterioration in the value of any collateral and a reduction in the likelihood
of us realizing any guarantees from subsidiaries or affiliates of our portfolio companies that we may have obtained in
connection with our investment, as well as a corresponding decrease in the value of the equity components of our
investments;
may have shorter operating histories, narrower product lines, smaller market shares and/or significant customer
concentrations than larger businesses, which tend to render them more vulnerable to competitors' actions and market
conditions, as well as general economic downturns;
are more likely to depend on the management talents and efforts of a small group of persons; therefore, the death,
disability, resignation, termination or significant under-performance of one or more of these persons could have a
material adverse impact on our portfolio company and, in turn, on us;
generally have less predictable operating results, may from time to time be parties to litigation, may be engaged in
rapidly changing businesses with products subject to a substantial risk of obsolescence, and may require substantial
additional capital to support their operations, finance expansion or maintain their competitive position; and
generally have less publicly available information about their businesses, operations and financial condition. We are
required to rely on the ability of our management team and investment professionals to obtain adequate information
to evaluate the potential returns from investing in these companies. If we are unable to uncover all material
information about these companies, we may not make a fully informed investment decision, and may lose all or part
of our investment.
In addition, in the course of providing significant managerial assistance to certain of our portfolio companies, certain of our officers
and directors may serve as directors on the boards of such companies. To the extent that litigation arises out of our investments in these
companies, our officers and directors may be named as defendants in such litigation, which could result in an expenditure of funds (through
our indemnification of such officers and directors) and the diversion of management time and resources.
A decline in oil and natural gas prices could have a material adverse effect on us.
A decline in oil and natural gas prices could adversely affect (i) the credit quality of our debt investments and (ii) the underlying
operating performance of our equity investments in energy-related businesses and in portfolio companies located in geographic areas which
are more sensitive to the health of the oil and gas industries. A decrease in credit quality and the operating performance would, in turn,
negatively affect the fair value of these investments, which would consequently negatively affect our net asset value. Should a decline in oil
and natural gas prices persist for an extended period of time, it is likely that the ability of these investments to satisfy financial or operating
covenants imposed by us or other lenders will be adversely affected, thereby negatively impacting their financial condition and their ability
to satisfy their debt service and other obligations to us. Likewise, should a decline in oil and natural gas prices persist, it is likely that our
energy-related portfolio companies' and other affected companies' cash flow and profit generating
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capacities would also be adversely affected thereby negatively impacting their ability to pay us dividends or distributions on our equity
investments.
We may be exposed to higher risks with respect to our investments that include original issue discount or PIK interest.
Our investments may include original issue discount and contractual PIK interest, which represents contractual interest added to a loan
balance and due at the end of such loan's term. To the extent original issue discount or PIK interest constitute a portion of our income, we
are exposed to typical risks associated with such income being required to be included in taxable and accounting income prior to receipt of
cash, including the following:
•
•
•
•
original issue discount and PIK instruments may have higher yields, which reflect the payment deferral and credit
risk associated with these instruments;
for accounting purposes, cash distributions to investors representing original issue discount income are not derived
from paid in capital, although they may be effectively paid from any offering proceeds during any given period; thus,
although the source for the cash used to pay a distribution of original issue discount income may come from the cash
invested by investors, the 1940 Act does not require that investors be given notice of this fact;
original issue discount and PIK instruments may have unreliable valuations because their continuing accruals require
continuing judgments about the collectability of the deferred payments and the value of the collateral; and
original issue discount and PIK instruments may represent a higher credit risk than coupon loans; even if the
conditions for income accrual under generally accepted accounting principles in the United States of America are
satisfied, a borrower could still default when actual payment is due upon the maturity of such loan.
The lack of liquidity in our investments may adversely affect our business.
We invest in companies whose securities are not publicly traded, and whose securities will be subject to legal and other restrictions on
resale or will otherwise be less liquid than publicly traded securities. The illiquidity of these investments may make it difficult for us to sell
these investments when desired. In addition, if we are required to liquidate all or a portion of our portfolio quickly, we may realize
significantly less than the value at which we had previously recorded these investments. As a result, we do not expect to achieve liquidity in
our investments in the near-term. Our investments are usually subject to contractual or legal restrictions on resale or are otherwise illiquid
because there is usually no established trading market for such investments. The illiquidity of most of our investments may make it difficult
for us to dispose of them at a favorable price, and, as a result, we may suffer losses.
We may not have the funds or ability to make additional investments in our portfolio companies.
We may not have the funds or ability to make additional investments in our portfolio companies. After our initial investment in a
portfolio company, we may be called upon from time to time to provide additional funds to such company or have the opportunity to
increase our investment through the extension of additional loans, the exercise of a warrant to purchase equity securities, or the funding of
additional equity investments. There is no assurance that we will make, or will have sufficient funds to make, follow-on investments. Any
decisions not to make a follow-on investment or any inability on our part to make such an investment may have a negative impact on a
portfolio company in need of such an investment, may result in a missed opportunity for us to increase our participation in a successful
operation, may reduce our ability to protect an existing investment or may reduce the expected yield on the investment.
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Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies.
We invest primarily in the secured term debt of LMM, Private Loan and Middle Market companies and equity issued by LMM
companies. Our portfolio companies may have, or may be permitted to incur, other debt that ranks equally with, or senior to, the debt in
which we invest. By their terms, such debt instruments may entitle the holders to receive payment of interest or principal on or before the
dates on which we are entitled to receive payments with respect to the debt instruments in which we invest. Also, in the event of
insolvency, liquidation, dissolution, reorganization or bankruptcy of a portfolio company, holders of debt instruments ranking senior to our
investment in that portfolio company would typically be entitled to receive payment in full before we receive any distribution. After
repaying such senior creditors, such portfolio company may not have any remaining assets to use for repaying its obligation to us. In the
case of debt ranking equally with debt instruments in which we invest, we would have to share on an equal basis any distributions with
other creditors holding such debt in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy of the relevant
portfolio company.
There may be circumstances where our debt investments could be subordinated to claims of other creditors or we could be
subject to lender liability claims.
Even though we may have structured certain of our investments as secured loans, if one of our portfolio companies were to go
bankrupt, depending on the facts and circumstances, and based upon principles of equitable subordination as defined by existing case law, a
bankruptcy court could subordinate all or a portion of our claim to that of other creditors and transfer any lien securing such subordinated
claim to the bankruptcy estate. The principles of equitable subordination defined by case law have generally indicated that a claim may be
subordinated only if its holder is guilty of misconduct or where the senior loan is re-characterized as an equity investment and the senior
lender has actually provided significant managerial assistance to the bankrupt debtor. We may also be subject to lender liability claims for
actions taken by us with respect to a borrower's business or instances where we exercise control over the borrower. It is possible that we
could become subject to a lender liability claim, including as a result of actions taken in rendering significant managerial assistance or
actions to compel and collect payments from the borrower outside the ordinary course of business.
Second priority liens on collateral securing loans that we make to our portfolio companies may be subject to control by senior
creditors with first priority liens. If there is a default, the value of the collateral may not be sufficient to repay in full both the
first priority creditors and us.
Certain loans that we make are secured by a second priority security interest in the same collateral pledged by a portfolio company to
secure senior debt owed by the portfolio company to commercial banks or other traditional lenders. Often the senior lender has procured
covenants from the portfolio company prohibiting the incurrence of additional secured debt without the senior lender's consent. Prior to and
as a condition of permitting the portfolio company to borrow money from us secured by the same collateral pledged to the senior lender,
the senior lender will require assurances that it will control the disposition of any collateral in the event of bankruptcy or other default. In
many such cases, the senior lender will require us to enter into an "intercreditor agreement" prior to permitting the portfolio company to
borrow from us. Typically the intercreditor agreements we are requested to execute expressly subordinate our debt instruments to those
held by the senior lender and further provide that the senior lender shall control: (1) the commencement of foreclosure or other proceedings
to liquidate and collect on the collateral; (2) the nature, timing and conduct of foreclosure or other collection proceedings; (3) the
amendment of any collateral document; (4) the release of the security interests in respect of any collateral; and (5) the waiver of defaults
under any security agreement. Because of the control we may cede to senior lenders under intercreditor agreements we may enter, we may
be unable to realize the proceeds of any collateral securing some of our loans.
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Finally, the value of the collateral securing our debt investment will ultimately depend on market and economic conditions, the
availability of buyers and other factors. Therefore, there can be no assurance that the proceeds, if any, from the sale or sales of all of the
collateral would be sufficient to satisfy the loan obligations secured by our first or second priority liens. There is also a risk that such
collateral securing our investments will decrease in value over time, will be difficult to sell in a timely manner, will be difficult to appraise
and will fluctuate in value based upon the success of the portfolio company and market conditions. If such proceeds are not sufficient to
repay amounts outstanding under the loan obligations secured by our second priority liens, then we, to the extent not repaid from the
proceeds of the sale of the collateral, will only have an unsecured claim against the company's remaining assets, if any.
We are a non-diversified investment company within the meaning of the 1940 Act, and therefore we are not limited with respect
to the proportion of our assets that may be invested in securities of a single issuer.
We are classified as a non-diversified investment company within the meaning of the 1940 Act, which means that we are not limited
by the 1940 Act with respect to the proportion of our assets that we may invest in securities of a single issuer. To the extent that we assume
large positions in the securities of a small number of issuers, our net asset value may fluctuate to a greater extent than that of a diversified
investment company as a result of changes in the financial condition or the market's assessment of the issuer. We may also be more
susceptible to any single economic or regulatory occurrence than a diversified investment company. Beyond our RIC asset diversification
requirements, we do not have fixed guidelines for diversification, and our investments could be concentrated in relatively few portfolio
companies. See "Risk Factors — Risks Relating to Our Business and Structure — We will be subject to corporate-level U.S. federal income
tax if we are unable to qualify as a RIC under Subchapter M of the Code."
We generally will not control our portfolio companies.
We do not, and do not expect to, control the decision making in many of our portfolio companies, even though we may have board
representation or board observation rights, and our debt agreements may contain certain restrictive covenants. As a result, we are subject to
the risk that a portfolio company in which we invest will make business decisions with which we disagree and the management of such
company will take risks or otherwise act in ways that do not serve our interests as debt investors or minority equity holders. Due to the lack
of liquidity for our investments in non-traded companies, we may not be able to dispose of our interests in our portfolio companies as
readily as we would like or at an appropriate valuation. As a result, a portfolio company may make decisions that would decrease the value
of our portfolio holdings.
Defaults by our portfolio companies will harm our operating results.
A portfolio company's failure to satisfy financial or operating covenants imposed by us or other lenders could lead to non-payment of
interest and other defaults and, potentially, termination of its loans and foreclosure on its secured assets, which could trigger cross-defaults
under other agreements and jeopardize a portfolio company's ability to meet its obligations under the debt or equity securities that we hold.
We may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms, which may include the waiver of
certain financial covenants, with a defaulting portfolio company.
Any unrealized depreciation we experience in our portfolio may be an indication of future realized losses, which could reduce
our income and gains available for distribution.
As a BDC, we are required to carry our investments at market value or, if no market value is ascertainable, at the fair value as
determined in good faith by our Board of Directors. Decreases in the market values or fair values of our investments will be recorded as
unrealized depreciation. Any unrealized depreciation in our portfolio could be an indication of a portfolio company's inability to meet its
repayment obligations to us with respect to affected loans or a potential impairment of the value of affected equity investments. This could
result in realized losses in the future and ultimately in reductions of our income and gains available for distribution in future periods.
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Prepayments of our debt investments by our portfolio companies could adversely impact our results of operations and reduce our
return on equity.
We are subject to the risk that the investments we make in our portfolio companies may be repaid prior to maturity. When this occurs,
we will generally reinvest these proceeds in temporary investments, pending their future investment in new portfolio companies. These
temporary investments will typically have substantially lower yields than the debt being prepaid and we could experience significant
delays in reinvesting these amounts. Any future investment in a new portfolio company may also be at lower yields than the debt that was
repaid. As a result, our results of operations could be materially adversely affected if one or more of our portfolio companies elect to prepay
amounts owed to us. Additionally, prepayments could negatively impact our return on equity, which could result in a decline in the market
price of our securities.
Changes in interest rates may affect our cost of capital, net investment income and value of our investments.
Some of our debt investments will bear interest at variable rates and may be negatively affected by changes in market interest rates. An
increase in market interest rates would increase the interest costs and reduce the cash flows of our portfolio companies that have variable
rate debt instruments, a situation which could reduce the value of the investment. The value of our investments could also be reduced from
an increase in market interest rates as rates available to investors could make an investment in our securities less attractive than alternative
investments. In addition, an increase in interest rates would make it more expensive for us to use debt to finance our investments. As a
result, a significant increase in market interest rates could increase our cost of capital, which would reduce our net investment income.
Conversely, decreases in market interest rates could negatively impact the interest income from our variable rate debt investments. A
decrease in market interest rates may also have an adverse impact on our returns by requiring us to accept lower yields on our debt
investments and by increasing the risk that our portfolio companies will prepay our debt investments, resulting in the need to redeploy
capital at potentially lower rates. See further discussion and analysis at "Item 7A. Quantitative and Qualitative Disclosures about Market
Risk".
We may not realize gains from our equity investments.
Certain investments that we have made in the past and may make in the future include warrants or other equity securities. Investments
in equity securities involve a number of significant risks, including the risk of further dilution as a result of additional issuances, inability to
access additional capital and failure to pay current distributions. Investments in preferred securities involve special risks, such as the risk of
deferred distributions, credit risk, illiquidity and limited voting rights. In addition, we may from time to time make non-control, equity
investments in portfolio companies. Our goal is ultimately to realize gains upon our disposition of such equity interests. However, the
equity interests we receive may not appreciate in value and, in fact, may decline in value. Accordingly, we may not be able to realize gains
from our equity interests, and any gains that we do realize on the disposition of any equity interests may not be sufficient to offset any other
losses we experience. We also may be unable to realize any value if a portfolio company does not have a liquidity event, such as a sale of
the business, recapitalization or public offering, which would allow us to sell the underlying equity interests. We often seek puts or similar
rights to give us the right to sell our equity securities back to the portfolio company issuer; however, we may be unable to exercise these put
rights for the consideration provided in our investment documents if the issuer is in financial distress.
Our investments in foreign securities may involve significant risks in addition to the risks inherent in U.S. investments.
Our investment strategy contemplates potential investments in debt securities of foreign companies. Investing in foreign companies
may expose us to additional risks not typically associated with investing in securities of U.S. companies. These risks include changes in
exchange control regulations, political and social instability, expropriation, imposition of foreign taxes, less liquid markets and less
available information than is generally the case in the U.S., higher transaction costs, less government supervision of exchanges, brokers and
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issuers, less developed bankruptcy laws, difficulty in enforcing contractual obligations, lack of uniform accounting and auditing standards
and greater price volatility.
Although most of our investments will be U.S. dollar denominated, any investments denominated in a foreign currency will be subject
to the risk that the value of a particular currency will change in relation to one or more other currencies. Among the factors that may affect
currency values are trade balances, the level of short-term interest rates, differences in relative values of similar assets in different
currencies, long-term opportunities for investment and capital appreciation, and political developments.
RISKS RELATING TO OUR SECURITIES
Shares of closed-end investment companies, including BDCs, may trade at a discount to their net asset value.
Shares of closed-end investment companies, including BDCs, may trade at a discount to net asset value. This characteristic of closed-
end investment companies and BDCs is separate and distinct from the risk that our net asset value per share may decline. We cannot predict
whether our common stock will trade at, above or below net asset value. In addition, if our common stock trades below our net asset value
per share, we will generally not be able to issue additional common stock at the market price unless our stockholders approve such a sale
and our Board of Directors makes certain determinations. See "Risk Factors — Risks Relating to Our Business and Structure —
Stockholders may incur dilution if we sell shares of our common stock in one or more offerings at prices below the then current net asset
value per share of our common stock or issue securities to subscribe to, convert to or purchase shares of our common stock" for a discussion
related to us issuing shares of our common stock below net asset value.
We may be unable to invest a significant portion of the net proceeds from an offering or from exiting an investment or other
capital on acceptable terms, which could harm our financial condition and operating results.
Delays in investing the net proceeds raised in an offering or other capital raised or proceeds resulting from exiting an investment may
cause our performance to be worse than that of other fully invested BDCs or other lenders or investors pursuing comparable investment
strategies. We cannot assure you that we will be able to identify any investments that meet our investment objective or that any investment
that we make will produce a positive return. We may be unable to invest the net proceeds of any offering or other capital raised or
proceeds resulting from exiting an investment on acceptable terms within the time period that we anticipate or at all, which could harm our
financial condition and operating results.
We anticipate that, depending on market conditions and the amount of the capital, it may take us a substantial period of time to invest
substantially all the capital in securities meeting our investment objective. During this period, we may invest the capital primarily in
marketable securities and idle funds investments, which generally consist of debt investments, independently rated debt investments,
certificates of deposit with financial institutions, diversified bond funds and publicly traded debt and equity investments and may produce
returns that are significantly lower than the returns which we expect to achieve when our portfolio is fully invested in securities meeting our
investment objective. Most of the debt investments that meet our investment criteria are, or would be if rated, below investment grade
quality. Indebtedness of below investment grade quality, which is often referred to as "junk," is regarded as having predominantly
speculative characteristics with respect to the issuer's capacity to pay interest and repay principal. As a result, any distributions that we pay
during such period may be substantially lower than the distributions that we may be able to pay when our portfolio is fully invested in
securities meeting our investment objective. In addition, until such time as the net proceeds of any offering or from exiting an investment or
other capital are invested in new securities meeting our investment objective, the market price for our securities may decline. Thus, the
initial return on your investment may be lower than when, if ever, our portfolio is fully invested in securities meeting our investment
objective.
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Investing in our securities may involve a high degree of risk.
The investments we make in accordance with our investment objective may result in a higher amount of risk than alternative
investment options and a higher risk of volatility or loss of principal. Our investments in portfolio companies involve higher levels of risk,
and therefore, an investment in our securities may not be suitable for someone with lower risk tolerance.
The market price of our securities may be volatile and fluctuate significantly.
Fluctuations in the trading prices of our securities may adversely affect the liquidity of the trading market for our securities and, if we
seek to raise capital through future securities offerings, our ability to raise such capital. The market price and liquidity of the market for our
securities may be significantly affected by numerous factors, some of which are beyond our control and may not be directly related to our
operating performance. These factors include:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
significant volatility in the market price and trading volume of securities of BDCs or other companies in our sector,
which are not necessarily related to the operating performance of these companies;
changes in regulatory policies, accounting pronouncements or tax guidelines, particularly with respect to RICs, BDCs
or SBICs;
the exclusion of BDC common stock from certain market indices, such as what happened with respect to the Russell
indices and the Standard and Poor's indices, could reduce the ability of certain investment funds to own our common
stock and limit the number of owners of our common stock and otherwise negatively impact the market price of our
common stock;
inability to obtain any exemptive relief that may be required by us in the future from the SEC;
loss of our BDC or RIC status or any of the Funds' status as an SBIC;
changes in our earnings or variations in our operating results;
changes in the value of our portfolio of investments;
any shortfall in our investment income or net investment income or any increase in losses from levels expected by
investors or securities analysts;
loss of a major funding source;
fluctuations in interest rates;
the operating performance of companies comparable to us;
departure of our key personnel;
proposed, or completed, offerings of our securities, including classes other than our common stock;
global or national credit market changes; and
general economic trends and other external factors.
Provisions of the Maryland General Corporation Law and our articles of incorporation and bylaws could deter takeover attempts
and have an adverse impact on the price of our common stock.
The Maryland General Corporation Law and our articles of incorporation and bylaws contain provisions that may have the effect of
discouraging, delaying or making difficult a change in control of our company or the removal of our incumbent directors. The existence of
these provisions, among others, may have a negative impact on the price of our common stock and may discourage third-party bids for
ownership of our company. These provisions may prevent any premiums being offered to you for our common stock.
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The Notes are unsecured and therefore effectively subordinated to any current or future secured indebtedness, including
indebtedness under the Credit Facility.
The Notes are not secured by any of our assets or any of the assets of our subsidiaries and rank equally in right of payment with all of
our existing and future unsubordinated, unsecured indebtedness. As a result, the Notes are effectively subordinated to any secured
indebtedness we or our subsidiaries have currently incurred and may incur in the future (or any indebtedness that is initially unsecured to
which we subsequently grant security) to the extent of the value of the assets securing such indebtedness. In any liquidation, dissolution,
bankruptcy or other similar proceeding, the holders of any of our existing or future secured indebtedness and the secured indebtedness of
our subsidiaries may assert rights against the assets pledged to secure that indebtedness in order to receive full payment of their
indebtedness before the assets may be used to pay other creditors, including the holders of the Notes. As of December 31, 2018, we had
$301.0 million outstanding under the Credit Facility out of $705.0 million in commitments. The indebtedness under the Credit Facility is
senior to the Notes to the extent of the value of the assets securing such indebtedness.
The Notes are structurally subordinated to the indebtedness and other liabilities of our subsidiaries.
The Notes are obligations exclusively of Main Street Capital Corporation and not of any of our subsidiaries. None of our subsidiaries is
a guarantor of the Notes, and the Notes are not required to be guaranteed by any subsidiaries we may acquire or create in the future. In
addition, several of our subsidiaries, specifically the Funds, maintain significant indebtedness and as a result the Notes are structurally
subordinated to the indebtedness of these subsidiaries. For example, as of December 31, 2018, the Funds had collectively issued
$345.8 million of the current regulatory maximum of $350.0 million of SBA-guaranteed debentures, which are included in our
consolidated financial statements. The assets of such subsidiaries are not directly available to satisfy the claims of our creditors, including
holders of the Notes. See "Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and
Capital Resources" for more detail on the SBA-guaranteed debentures.
Except to the extent we are a creditor with recognized claims against our subsidiaries, all claims of other creditors of our subsidiaries
have priority over our equity interests in such subsidiaries (and therefore the claims of our creditors, including holders of the Notes) with
respect to the assets of such subsidiaries. Even if we are recognized as a creditor of one or more of our subsidiaries, our claims would still
be effectively subordinated to any security interests in the assets of any such subsidiary and to any indebtedness or other liabilities of any
such subsidiary senior to our claims. Consequently, the Notes are structurally subordinated to all indebtedness, including the SBA-
guaranteed debentures, and other liabilities of any of our subsidiaries and any subsidiaries that we may in the future acquire or establish. In
addition, our subsidiaries may incur substantial additional indebtedness in the future, all of which would be structurally senior to the Notes.
The Notes may or may not have an established trading market. If a trading market in the Notes is developed, it may not be
maintained.
The Notes may or may not have an established trading market. If a trading market in the Notes is developed, it may not be maintained.
If the Notes are traded, they may trade at a discount to their initial offering price depending on prevailing interest rates, the market for
similar securities, our credit ratings, our financial condition or other relevant factors. Accordingly, we cannot assure you that a liquid
trading market has been or will develop for the Notes, that you will be able to sell your Notes at a particular time or that the price you
receive when you sell will be favorable. To the extent an active trading market does not develop or is not maintained, the liquidity and
trading price for the Notes may be harmed. Accordingly, you may be required to bear the financial risk of an investment in the Notes for an
indefinite period of time.
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A downgrade, suspension or withdrawal of the credit rating assigned by a rating agency to us or the Notes, if any, or change in
the debt markets could cause the liquidity or market value of the Notes to decline significantly.
Our credit ratings are an assessment by rating agencies of our ability to pay our debts when due. Consequently, real or anticipated
changes in our credit ratings will generally affect the market value of the Notes. These credit ratings may not reflect the potential impact of
risks relating to the structure or marketing of the Notes. Credit ratings are not a recommendation to buy, sell or hold any security, and may
be revised or withdrawn at any time by the issuing organization in its sole discretion. We undertake no obligation to maintain our credit
ratings or to advise holders of Notes of any changes in our credit ratings. The Notes are currently rated by Standard & Poor's Ratings
Services. There can be no assurance that our credit ratings will remain for any given period of time or that such credit ratings will not be
lowered or withdrawn entirely by the rating agency if in their judgment future circumstances relating to the basis of the credit ratings, such
as adverse changes in our company, so warrant. The conditions of the financial markets and prevailing interest rates have fluctuated in the
past and are likely to fluctuate in the future, which could have an adverse effect on the market prices of the Notes.
The indentures under which the Notes were issued contain limited protection for holders of the Notes.
The indentures under which the Notes were issued offer limited protection to holders of the Notes. The terms of the indentures and the
Notes do not restrict our or any of our subsidiaries' ability to engage in, or otherwise be a party to, a variety of corporate transactions,
circumstances or events that could have an adverse impact on investments in the Notes. In particular, the terms of the indentures and the
Notes do not place any restrictions on our or our subsidiaries' ability to:
•
•
•
•
•
•
•
issue securities or otherwise incur additional indebtedness or other obligations, including (1) any indebtedness or
other obligations that would be equal in right of payment to the Notes, (2) any indebtedness or other obligations that
would be secured and therefore rank effectively senior in right of payment to the Notes to the extent of the values of
the assets securing such debt, (3) indebtedness of ours that is guaranteed by one or more of our subsidiaries and
which therefore is structurally senior to the Notes and (4) securities, indebtedness or obligations issued or incurred by
our subsidiaries that would be senior to our equity interests in our subsidiaries and therefore rank structurally senior
to the Notes with respect to the assets of our subsidiaries, in each case other than an incurrence of indebtedness or
other obligation that would cause a violation of Section 18(a)(1)(A) as modified by Section 61(a)(1) of the 1940 Act
or any successor provisions, but giving effect, in each case, to any exemptive relief granted to us by the SEC
(currently, this provision generally prohibits us from making additional borrowings, including through the issuance
of additional debt or the sale of additional debt securities, unless our asset coverage, as defined in the 1940 Act,
equals at least 200% (or 150% if certain requirements are met) after such borrowings);
pay dividends on, or purchase or redeem or make any payments in respect of, capital stock or other securities ranking
junior in right of payment to the Notes, including subordinated indebtedness;
sell assets (other than certain limited restrictions on our ability to consolidate, merge or sell all or substantially all of
our assets);
enter into transactions with affiliates;
create liens (including liens on the shares of our subsidiaries) or enter into sale and leaseback transactions;
make investments; or
create restrictions on the payment of dividends or other amounts to us from our subsidiaries.
Furthermore, the terms of the indentures and the Notes do not protect holders of the Notes in the event that we experience changes
(including significant adverse changes) in our financial condition, results of operations or credit ratings, if any, as they do not require that
we or our subsidiaries adhere to any financial tests or ratios or specified levels of net worth, revenues, income, cash flow or liquidity.
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Our ability to recapitalize, incur additional debt and take a number of other actions that are not limited by the terms of the Notes may
have important consequences for you as a holder of the Notes, including making it more difficult for us to satisfy our obligations with
respect to the Notes or negatively affecting the trading value of the Notes.
Other debt we issue or incur in the future could contain more protections for its holders than the indentures and the Notes, including
additional covenants and events of default. For example, the indentures under which the Notes are issued do not contain cross-default
provisions that are contained in the Credit Facility. The issuance or incurrence of any such debt with incremental protections could affect
the market for and trading levels and prices of the Notes.
The optional redemption provision may materially adversely affect your return on the Notes.
The Notes are redeemable in whole or in part upon certain conditions at any time or from time to time at our option. We may choose to
redeem the Notes at times when prevailing interest rates are lower than the interest rate paid on the Notes. In this circumstance, you may
not be able to reinvest the redemption proceeds in a comparable security at an effective interest rate as high as the Notes being redeemed.
We may not be able to repurchase the Notes upon a Change of Control Repurchase Event.
We may not be able to repurchase the Notes upon certain change in control events described in the indentures under which the Notes
were issued (each, a "Change of Control Repurchase Event") because we may not have sufficient funds. Upon a Change of Control
Repurchase Event, holders of the Notes may require us to repurchase for cash some or all of the Notes at a repurchase price equal to 100%
of the aggregate principal amount of the Notes being repurchased, plus accrued and unpaid interest to, but not including, the repurchase
date. The terms of our Credit Facility provide that certain change of control events will constitute an event of default thereunder entitling
the lenders to accelerate any indebtedness outstanding under our Credit Facility at that time and to terminate the Credit Facility. In addition,
the occurrence of a Change of Control Repurchase Event enabling the holders of the Notes to require the mandatory purchase of the Notes
would constitute an event of default under our Credit Facility entitling the lenders to accelerate any indebtedness outstanding under our
Credit Facility at that time and to terminate the Credit Facility. Our and our subsidiaries' future financing facilities may contain similar
restrictions and provisions. Our failure to purchase such tendered Notes upon the occurrence of such Change of Control Repurchase Event
would cause an event of default under the indentures governing the Notes and a cross-default under the agreements governing certain of
our other indebtedness, which may result in the acceleration of such indebtedness requiring us to repay that indebtedness immediately. If a
Change of Control Repurchase Event were to occur, we may not have sufficient funds to repay any such accelerated indebtedness.
If we default on our obligations to pay our other indebtedness, we may not be able to make payments on the Notes.
As of December 31, 2018, we had approximately $1,006.8 million of principal indebtedness, including $301.0 million outstanding
under the Credit Facility, $345.8 million outstanding from SBA-guaranteed debentures, $175.0 million of the 4.50% Notes due 2019 and
$185.0 million of the 4.50% Notes due 2022 outstanding. Any default under the agreements governing our indebtedness, including a
default under the Credit Facility, under the Notes or under other indebtedness to which we may be a party that is not waived by the required
lenders or debt holders, and the remedies sought by the holders of such indebtedness could make us unable to pay principal, premium, if
any, and interest on the Notes and substantially decrease the market value of the Notes. If we are unable to generate sufficient cash flow and
are otherwise unable to obtain funds necessary to meet required payments of principal, premium, if any, and interest on our indebtedness, or
if we otherwise fail to comply with the various covenants, including financial and operating covenants, in the instruments governing our
indebtedness, we could be in default under the terms of the agreements governing such indebtedness. In the event of such default, the
holders of such indebtedness could elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and
unpaid interest, the lenders
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under the Credit Facility or other debt we may incur in the future could elect to terminate their commitments, cease making further loans
and institute foreclosure proceedings against our assets, and we could be forced into bankruptcy or liquidation. Our ability to generate
sufficient cash flow in the future is, to some extent, subject to general economic, financial, competitive, legislative and regulatory factors as
well as other factors that are beyond our control. We cannot assure you that our business will generate cash flow from operations, or that
future borrowings will be available to us under the Credit Facility or otherwise, in an amount sufficient to enable us to meet our payment
obligations under the Notes and our other debt and to fund other liquidity needs.
If our operating performance declines and we are not able to generate sufficient cash flow to service our debt obligations, we may in
the future need to refinance or restructure our debt, including the Notes, sell assets, reduce or delay capital investments, seek to raise
additional capital or seek to obtain waivers from the required lenders under the Credit Facility or the required holders of the Notes or other
debt that we may incur in the future to avoid being in default. If we are unable to implement one or more of these alternatives, we may not
be able to meet our payment obligations under the Notes and our other debt. If we breach our covenants under the Credit Facility, the Notes
or other debt and seek a waiver, we may not be able to obtain a waiver from the required lenders or debt holders. If this occurs, we would
be in default under the Credit Facility, the Notes or other debt, the lenders or debt holders could exercise their rights as described above,
and we could be forced into bankruptcy or liquidation. If we are unable to repay debt, lenders having secured obligations could proceed
against the collateral securing the debt. Because the Credit Facility has, and any future credit facilities will likely have, customary cross-
default provisions, if the indebtedness under the Notes, the Credit Facility or under any future credit facility is accelerated, we may be
unable to repay or finance the amounts due.
We may in the future determine to issue preferred stock, which could adversely affect the market value of our common stock.
The issuance of shares of preferred stock with dividend or conversion rights, liquidation preferences or other economic terms favorable
to the holders of preferred stock could adversely affect the market price for our common stock by making an investment in the common
stock less attractive. In addition, the dividends on any preferred stock we issue must be cumulative. Payment of dividends and repayment of
the liquidation preference of preferred stock must take preference over any dividends or other payments to our common stockholders, and
holders of preferred stock are not subject to any of our expenses or losses and are not entitled to participate in any income or appreciation in
excess of their stated preference (other than convertible preferred stock that converts into common stock). In addition, under the 1940 Act,
preferred stock constitutes a "senior security" for purposes of the asset coverage test.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We do not own any real estate or other physical properties materially important to our operations. Currently, we lease office space in
Houston, Texas for our corporate headquarters.
Item 3. Legal Proceedings
We may, from time to time, be involved in litigation arising out of our operations in the normal course of business or otherwise.
Furthermore, third parties may seek to impose liability on us in connection with the activities of our portfolio companies. While the
outcome of any current legal proceedings cannot at this time be predicted with certainty, we do not expect any current matters will
materially affect our financial condition or results of operations; however, there can be no assurance whether any pending legal proceedings
will have a material adverse effect on our financial condition or results of operations in any future reporting period.
Item 4. Mine Safety Disclosures
Not applicable.
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PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
COMMON STOCK, HOLDERS AND DISTRIBUTIONS
Our common stock is traded on the New York Stock Exchange ("NYSE") under the symbol "MAIN." Prior to October 14, 2010, our
common stock was traded on the NASDAQ Global Select Market under the same symbol "MAIN." Our common stock began trading on
the NASDAQ Global Select Market on October 5, 2007. Prior to that date, there was no established public trading market for our common
stock.
On February 27, 2019, there were approximately 346 holders of record of the common stock which did not include stockholders for
whom shares are held in "nominee" or "street name."
Shares of BDCs 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 from net asset value per share or at premiums that are unsustainable over the long term
are separate and distinct from the risk that our net asset value per share will decrease. It is not possible to predict whether our common stock
will trade at, above, or below net asset value per share. Since our IPO in October 2007, our shares of common stock have traded at prices
both less than and exceeding our net asset value per share.
We currently pay regular monthly dividends and semiannual supplemental dividends to our stockholders. Our monthly dividends, if
any, will be determined by our Board of Directors on a quarterly basis. Our semiannual supplemental dividends, if any, will also be
determined by our Board of Directors on a periodic basis. During 2018, we paid supplemental dividends of $0.275 per share in each of June
and December 2018, regular monthly dividends of $0.190 per share for each month of January through September 2018, regular monthly
dividends of $0.195 per share for each month of October through December 2018, with such dividends totaling $2.845 per share. The 2018
regular monthly dividends of $2.295 per share, represent a 2.7% increase from the regular monthly dividends paid per share for the year
ended 2017. For tax purposes, the 2018 dividends, which included the effects of dividends on an accrual basis, total $2.85 per share and
were comprised of (i) ordinary income totaling approximately $2.270 per share, (ii) long term capital gain totaling approximately $0.375
per share, and (iii) qualified dividend income totaling approximately $0.205 per share. As we have previously discussed, it is our current
intention to fully absorb our semi-annual supplemental dividends into our regular monthly dividends, and in the process maintain and grow
our total combined dividends, by gradually reducing our semi-annual supplemental dividends while increasing our regular monthly
dividends over multiple years beginning in 2019.
In accordance with the IRC sections 871(k) and 881(e), the following percentages represent the portion of our dividends that constitute
interest related dividends and short-term capital gains dividends for non-U.S. residents and foreign corporations. Including the long-term
capital gains discussed above, the following percentages represent the total dividends which are exempt from U.S. withholding tax.
Payment Dates
2/15/2018
From 3/15/2018 to 6/26/2018
7/16/2018
8/15/2018
9/14/2018
From 10/15/2018 to 1/15/2019
Interest-Related Dividends
and Short-Term
Capital Gain Dividend
Distributions Exempt
from U.S.
Withholding Tax(1)
78.48%
61.51%
0.00%
0.00%
16.04%
55.00%
78.73%
61.51%
100.00%
97.20%
16.04%
55.00%
(1)
The percentage for each period represents the portion of the taxable ordinary income dividends eligible for
exemption from United States withholding tax for non-U.S. residents and foreign corporations.
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To the extent non-U.S. resident taxes were withheld on ordinary dividends distributed, this information may be considered in
connection with any claims for refund of such taxes to be filed by the non-U.S. resident stockholder with the Internal Revenue Service.
To obtain and maintain RIC tax treatment, we must, among other things, distribute at least 90% of our net ordinary taxable income and
realized net short-term capital gains in excess of realized net long-term capital losses, if any. We will be subject to a 4% non-deductible
U.S. federal excise tax on certain undistributed taxable income unless we distribute in a timely manner an amount at least equal to the sum
of (1) 98% of our net ordinary taxable income for each calendar year, (2) 98.2% of our capital gain net income for the one-year period
ending December 31 in that calendar year and (3) any taxable income recognized, but not distributed, in preceding years on which we paid
no U.S. federal income tax. Dividends declared and paid by us in a year will generally differ from taxable income for that year, as such
dividends may include the distribution of current year taxable income, less amounts carried over into the following year, and the
distribution of prior year taxable income carried over into and distributed in the current year. For amounts we carry over into the following
year, we will be required to pay the 4% U.S. federal excise tax on the excess of 98% of our annual investment company taxable income and
98.2% of our capital gain net income over our distributions for the year. We may retain for investment some or all of our net capital gains
(i.e., realized net long-term capital gains in excess of realized net short-term capital losses) and treat such amounts as deemed distributions
to our stockholders. If we do this, our stockholders will be treated as if they had received actual distributions of the capital gains we
retained and then reinvested the net after-tax proceeds in our common stock. In general, our stockholders also would be eligible to claim a
tax credit (or, in certain circumstances, a tax refund) equal to their allocable shares of the tax we paid on the capital gains deemed
distributed to them. We can offer no assurance that we will achieve results that will permit the payment of any cash distributions and, if we
issue senior securities, we may be prohibited from making distributions if doing so causes us to fail to maintain the asset coverage ratios
stipulated by the 1940 Act or if distributions are limited by the terms of any of our borrowings.
We may distribute taxable dividends that are payable in part in our stock. Under certain applicable provisions of the Code and the
Treasury regulations, distributions payable by us in cash or in shares of stock (at the stockholders election) would satisfy the Annual
Distribution Requirement. The Internal Revenue Service has issued guidance providing that a dividend payable in stock or in cash at the
election of the stockholders will be treated as a taxable dividend eligible for the dividends paid deduction provided that at least 20% of the
total dividend is payable in cash and certain other requirements are satisfied. Taxable stockholders receiving such dividends will be
required to include the full amount of the dividend as ordinary income (or as long-term capital gain to the extent such dividend is properly
reported as a capital gain dividend), to the extent of our current and accumulated earnings and profits for U.S. federal income tax purposes.
As a result, a U.S. stockholder may be required to pay tax with respect to such dividends in excess of any cash received. If a U.S.
stockholder sells the stock it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in
income with respect to the dividend, depending on the market price of our stock at the time of the sale. Furthermore, with respect to non-
U.S. stockholders, we may be required to withhold U.S. tax with respect to such dividends, including in respect of all or a portion of such
dividend that is payable in stock. In addition, if a significant number of our stockholders determine to sell shares of our stock in order to pay
taxes owed on dividends, it may put downward pressure on the trading price of our stock.
We have adopted a dividend reinvestment plan ("DRIP") that provides for the reinvestment of dividends on behalf of our stockholders,
unless a stockholder has elected to receive dividends in cash. As a result, if we declare a cash dividend, our stockholders who have not
"opted out" of the DRIP by the dividend record date will have their cash dividend automatically reinvested into additional shares of MSCC
common stock. The share requirements of the DRIP may be satisfied through the issuance of new shares of common stock or through open
market purchases of common stock by the DRIP plan administrator. Newly issued shares will be valued based upon the final closing price
of MSCC's common stock on a valuation date determined for each dividend by our Board of Directors. Shares purchased in the open
market to satisfy the DRIP
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requirements will be valued based upon the average price of the applicable shares purchased by the DRIP plan administrator, before any
associated brokerage or other costs. Our DRIP is administered by its transfer agent on behalf of our record holders and participating
brokerage firms. Brokerage firms and other financial intermediaries may decide not to participate in our DRIP but may provide a similar
dividend reinvestment plan for their clients.
SALES OF UNREGISTERED SECURITIES
During the year ended December 31, 2018, we issued a total of 394,403 shares of our common stock under the DRIP. These issuances
were not subject to the registration requirements of the Securities Act of 1933, as amended. The aggregate value of the shares of our
common stock issued under the DRIP during 2018 was approximately $14.9 million.
PURCHASES OF EQUITY SECURITIES
None.
STOCK PERFORMANCE GRAPH
The following graph compares the stockholder return on our common stock from October 5, 2007 to December 31, 2018 with the
S&P 500 Index, the Russell 2000 Index, the KBW Regional Bank Index and the Main Street Peer Group (as defined below). This
comparison assumes $100.00 was invested on October 5, 2007 (the date our common stock began to trade in connection with our initial
public offering) in our common stock and in the comparison groups and assumes the reinvestment of all cash dividends prior to any tax
effect. The comparisons in the graph below are based on historical data and are not intended to forecast the possible future performance of
our common stock.
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COMPARISON OF STOCKHOLDER RETURN(1)
Among Main Street Capital Corporation, the S&P 500 Index, the Russell 2000 Index, the KBW
Regional Bank Index, and the Main Street Peer Group(2)
(For the Period October 5, 2007 to December 31, 2018)
TOTAL RETURN PERFORMANCE SINCE IPO
(1)
(2)
Total return includes reinvestment of dividends through December 31, 2018.
The Main Street Peer Group is composed of Apollo Investment Corporation, Ares Capital Corporation, BlackRock Capital
Investment Corporation, Blackrock TCP Capital Corp., Capitala Finance Corp., Fidus Investment Corporation, FS KKR Capital
Corp., Gladstone Investment Corporation, Goldman Sachs BDC, Inc., Golub Capital BDC, Inc., Hercules Capital, Inc., Medley
Capital Corporation, Monroe Capital Corporation, New Mountain Finance Corporation, Newtek Business Services Corp., Oaktree
Specialty Lending Corporation, Oaktree Strategic Income Corporation, PennantPark Floating Rate Capital Ltd., PennantPark
Investment Corporation, Prospect Capital Corporation, Solar Capital Ltd., Solar Senior Capital Ltd., THL Credit, Inc., TPG
Specialty Lending, Inc. and TriplePoint Venture Growth BDC Corp.
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Item 6. Selected Financial Data
The selected financial and other data as of and for the years ended December 31, 2018, 2017, 2016, 2015 and 2014 have been derived
from consolidated financial statements that have been audited by Grant Thornton LLP, an independent registered public accounting firm.
You should read this selected financial and other data in conjunction with our "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial statements and related notes included in this Annual Report on
Form 10-K.
2018
Statement of operations data:
Investment income:
Total interest, fee and dividend
Twelve Months Ended December 31,
2016
(dollars in thousands, except per share amounts)
2017
2015
2014
income
$
233,355 $
205,741 $
Interest from idle funds and other
Total investment income
—
233,355
—
205,741
178,165 $
174
178,339
163,603 $
986
164,589
139,939
824
140,763
Expenses:
Interest
Compensation
General and administrative
Share-based compensation
Expenses allocated to the External
Investment Manager
Total expenses
Net investment income
Total net realized gain (loss)
from investments
Realized loss on extinguishment
of debt
Total net unrealized
appreciation (depreciation)
from investments
Total net unrealized
appreciation (depreciation)
from SBIC debentures
Income tax benefit (provision)
Net increase in net assets resulting
from operations attributable to
common stock
Net investment income per share —
(43,493)
(18,966)
(11,868)
(9,151)
(36,479)
(18,560)
(11,674)
(10,027)
(33,630)
(16,408)
(9,284)
(8,304)
(32,115)
(14,852)
(8,621)
(6,262)
6,768
(76,710)
156,645
6,370
(70,370)
135,371
5,089
(62,537)
115,802
4,335
(57,515)
107,074
(23,589)
(12,337)
(7,134)
(4,215)
2,048
(45,227)
95,536
1,341
16,182
29,389
(21,316)
23,206
(2,896)
(5,217)
—
—
—
17,981
42,545
(6,576)
10,871
(776)
1,294
(6,152)
6,212
(24,471)
(943)
1,227
(879)
8,687
(10,931)
(6,287)
$
168,213 $
170,622 $
138,899 $
104,437 $
100,748
basic and diluted
$
2.60 $
2.39 $
2.23 $
2.18 $
2.20
Net increase in net assets resulting
from operations attributable to
common stock per share — basic
and diluted
Weighted-average shares
$
2.80 $
3.01 $
2.67 $
2.13 $
2.31
outstanding — basic and diluted
60,176,843
56,691,913
52,025,002
49,071,492
43,522,397
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Balance sheet data:
Assets:
2018
2017
As of December 31,
2016
(dollars in thousands)
2015
2014
Total portfolio investments at fair value $2,453,909 $2,171,305 $1,996,906 $1,799,996 $1,563,330
Marketable securities and idle funds
investments
Cash and cash equivalents
Interest receivable and other assets
Deferred financing costs, net of
accumulated amortization
Deferred tax asset, net
Total assets
Liabilities and net assets:
Credit facility
SBIC debentures at fair value(1)
4.50% Notes due 2022
4.50% Notes due 2019
6.125% Notes
Accounts payable and other liabilities
Payable for securities purchased
Interest payable
Dividend payable
Deferred tax liability, net
Total liabilities
Total net asset value
Total liabilities and net
assets
Other data:
Weighted-average effective yield on
LMM debt investments(2),(3)
Number of LMM portfolio companies
Weighted-average effective yield on
—
54,181
40,875
—
51,528
38,725
—
24,480
37,123
3,693
20,331
37,638
9,067
60,432
46,406
4,461
—
14,550
—
$2,553,426 $2,265,395 $2,080,279 $1,878,928 $1,693,785
13,267
4,003
12,645
9,125
3,837
—
$ 301,000 $
338,186
182,622
174,338
—
17,962
28,254
6,041
11,948
17,026
1,077,377
1,476,049
64,000 $ 343,000 $ 291,000 $ 218,000
222,781
—
175,000
90,823
10,701
14,773
4,848
7,663
9,214
753,803
939,982
223,660
—
175,000
90,738
12,292
2,311
3,959
9,074
—
808,034
1,070,894
239,603
—
175,000
90,655
14,205
2,184
4,103
10,048
—
878,798
1,201,481
288,483
182,015
173,616
89,057
20,168
40,716
5,273
11,146
10,553
885,027
1,380,368
$2,553,426 $2,265,395 $2,080,279 $1,878,928 $1,693,785
12.3%
69
12.0%
70
12.5%
73
12.2%
71
13.2%
66
Middle Market debt investments(2),(3)
9.6%
9.0%
8.5%
8.0%
7.8%
Number of Middle Market portfolio
companies
Weighted-average effective yield on
56
62
78
86
86
Private Loan debt investments(2),(3)
10.4%
9.2%
9.6%
9.5%
10.1%
Number of Private Loan portfolio
companies
Expense ratios (as percentage of average
net assets):
Total expenses, including income tax
expense
Operating expenses
Operating expenses, excluding interest
expense
Total investment return(4)
Total return based on change in
NAV(5)
59
54
46
40
31
5.7%
5.3%
2.3%
–8.3%
7.4%
5.5%
2.6%
16.0%
5.5%
5.6%
2.6%
37.4%
4.6%
5.5%
2.4%
8.5%
5.8%
5.1%
2.4%
–3.1%
12.2%
14.2%
13.0%
11.1%
12.7%
(1)
SBIC debentures for December 31, 2018, 2017, 2016, 2015 and 2014 are $345,800, $295,800, $240,000, $225,000
and $225,000 at par, respectively.
(2) Weighted-average effective yield is calculated based on our debt investments at the end of each period and includes
amortization of deferred debt origination fees and accretion of original issue discount, but excludes liquidation fees
payable upon repayment and any debt investments on non-accrual status. The weighted-average annual effective yield
is higher than what an investor in shares of our common stock will realize on its investment because it does not reflect
any debt investments on non-accrual status, our expenses or any sales load paid by an investor. For information on our
investments on non-accrual status, see "Management's Discussion and Analysis of Financial Condition and Results of
Operations — Portfolio Asset Quality".
(3)
(4)
Including investments on non-accrual status, the weighted-average effective yield for LMM, Middle Market, and
Private Loan debt investments was 11.3%, 9.5%, and 9.8%, respectively, as of December 31, 2018.
Total investment return is based on the purchase of stock at the current market price on the first day and a sale at the
current market price on the last day of each period reported on the table and assumes reinvestment of dividends at
prices obtained by our dividend reinvestment plan during the period. The return does not reflect any sales load that
may be paid by an investor.
(5)
Total return is based on change in net asset value and was calculated using the sum of ending net asset value plus
dividends to stockholders and other non-operating changes during the period, as divided by the beginning net asset
value. Non-operating changes include any items that affect net asset value other than the net increase in net assets
resulting from operations, such as the effects of stock offerings, shares issued under the DRIP and equity incentive
plans and other miscellaneous items.
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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our consolidated financial statements and the notes thereto included
elsewhere in this Annual Report on Form 10-K.
Statements we make in the following discussion which express a belief, expectation or intention, as well as those that are not historical
fact, are forward-looking statements that are subject to risks, uncertainties and assumptions. Our actual results, performance or
achievements, or industry results, could differ materially from those we express in the following discussion as a result of a variety of
factors, including the risks and uncertainties we have referred to under the headings "Cautionary Statement Concerning Forward-Looking
Statements" and "Risk Factors" in Part I of this report.
ORGANIZATION
Main Street Capital Corporation ("MSCC") is a principal investment firm primarily focused on providing customized debt and equity
financing to lower middle market ("LMM") companies and debt capital to middle market ("Middle Market") companies. The portfolio
investments of MSCC and its consolidated subsidiaries are typically made to support management buyouts, recapitalizations, growth
financings, refinancings and acquisitions of companies that operate in a variety of industry sectors. MSCC seeks to partner with
entrepreneurs, business owners and management teams and generally provides "one stop" financing alternatives within its LMM portfolio.
MSCC and its consolidated subsidiaries invest primarily in secured debt investments, equity investments, warrants and other securities of
LMM companies based in the United States and in secured debt investments of Middle Market companies generally headquartered in the
United States.
MSCC was formed in March 2007 to operate as an internally managed business development company ("BDC") under the Investment
Company Act of 1940, as amended (the "1940 Act"). MSCC wholly owns several investment funds, including Main Street Mezzanine
Fund, LP ("MSMF"), Main Street Capital II, LP ("MSC II") and Main Street Capital III, LP ("MSC III" and, collectively with MSMF and
MSC II, the "Funds"), and each of their general partners. The Funds are each licensed as a Small Business Investment Company ("SBIC")
by the United States Small Business Administration ("SBA"). Because MSCC is internally managed, all of the executive officers and other
employees are employed by MSCC. Therefore, MSCC does not pay any external investment advisory fees, but instead directly incurs the
operating costs associated with employing investment and portfolio management professionals.
MSC Adviser I, LLC (the "External Investment Manager") was formed in November 2013 as a wholly owned subsidiary of MSCC to
provide investment management and other services to parties other than MSCC and its subsidiaries or their portfolio companies ("External
Parties") and receives fee income for such services. MSCC has been granted no-action relief by the Securities and Exchange Commission
("SEC") to allow the External Investment Manager to register as a registered investment adviser under the Investment Advisers Act of
1940, as amended. Since the External Investment Manager conducts all of its investment management activities for External Parties, it is
accounted for as a portfolio investment of MSCC and is not included as a consolidated subsidiary of MSCC in MSCC's consolidated
financial statements.
MSCC has elected 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"). As a result, MSCC generally will not pay corporate-level U.S. federal
income taxes on any net ordinary taxable income or capital gains that it distributes to its stockholders.
MSCC has certain direct and indirect wholly owned subsidiaries that have elected to be taxable entities (the "Taxable Subsidiaries").
The primary purpose of the Taxable Subsidiaries is to permit MSCC to hold equity investments in portfolio companies which are "pass-
through" entities for tax purposes.
Unless otherwise noted or the context otherwise indicates, the terms "we," "us," "our," the "Company" and "Main Street" refer to
MSCC and its consolidated subsidiaries, which include the Funds and the Taxable Subsidiaries.
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OVERVIEW
Our principal investment objective is to maximize our portfolio's total return by generating current income from our debt investments
and capital appreciation from our equity and equity-related investments, including warrants, convertible securities and other rights to
acquire equity securities in a portfolio company. Our LMM companies generally have annual revenues between $10 million and
$150 million, and our LMM portfolio investments generally range in size from $5 million to $50 million. Our Middle Market investments
are made in businesses that are generally larger in size than our LMM portfolio companies, with annual revenues typically between
$150 million and $1.5 billion, and our Middle Market investments generally range in size from $3 million to $20 million. Our private loan
("Private Loan") portfolio investments are primarily debt securities in privately held companies which have been originated through
strategic relationships with other investment funds on a collaborative basis. Private Loan investments are typically similar in size, structure,
terms and conditions to investments we hold in our LMM portfolio and Middle Market portfolio.
We seek to fill the financing gap for LMM businesses, which, historically, have had limited access to financing from commercial banks
and other traditional sources. The underserved nature of the LMM creates the opportunity for us to meet the financing needs of LMM
companies while also negotiating favorable transaction terms and equity participations. Our ability to invest across a company's capital
structure, from secured loans to equity securities, allows us to offer portfolio companies a comprehensive suite of financing options, or a
"one stop" financing solution. Providing customized, "one stop" financing solutions is important to LMM portfolio companies. We
generally seek to partner directly with entrepreneurs, management teams and business owners in making our investments. Our LMM
portfolio debt investments are generally secured by a first lien on the assets of the portfolio company and typically have a term of between
five and seven years from the original investment date.
Our Middle Market portfolio investments primarily consist of direct investments in or secondary purchases of interest-bearing debt
securities in privately held companies that are generally larger in size than the companies included in our LMM portfolio. Our Middle
Market portfolio debt investments are generally secured by either a first or second priority lien on the assets of the portfolio company and
typically have an expected duration of between three and seven years from the original investment date.
Our Private Loan portfolio investments are primarily debt securities in privately held companies which have been originated through
strategic relationships with other investment funds on a collaborative basis, and are often referred to in the debt markets as "club deals."
Private Loan investments are typically similar in size, structure, terms and conditions to investments we hold in our LMM portfolio and
Middle Market portfolio. Our Private Loan portfolio debt investments are generally secured by either a first or second priority lien on the
assets of the portfolio company and typically have a term of between three and seven years from the original investment date.
Our other portfolio ("Other Portfolio") investments primarily consist of investments which are not consistent with the typical profiles
for our LMM, Middle Market or Private Loan portfolio investments, including investments which may be managed by third parties. In our
Other Portfolio, we may incur indirect fees and expenses in connection with investments managed by third parties, such as investments in
other investment companies or private funds.
Our external asset management business is conducted through the External Investment Manager. The External Investment Manager
earns management fees based on the assets of the funds under management and may earn incentive fees, or a carried interest, based on the
performance of the funds managed. We have entered into an agreement with the External Investment Manager to share employees in
connection with its asset management business generally, and specifically for its relationship with HMS Income Fund, Inc. ("HMS
Income"). Through this agreement, we share employees with the External Investment Manager, including their related infrastructure,
business relationships, management expertise and capital raising capabilities.
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The following tables provide a summary of our investments in the LMM, Middle Market and Private Loan portfolios as of
December 31, 2018 and 2017 (this information excludes the Other Portfolio investments and the External Investment Manager which are
discussed further below):
LMM(a)
As of December 31, 2018
Middle Market
Private Loan
Number of portfolio companies
Fair value
Cost
% of portfolio at cost — debt
% of portfolio at cost — equity
% of debt investments at cost secured by first priority lien
Weighted-average annual effective yield(b)
Average EBITDA(c)
$ 1,195.0 $
990.9 $
$
68.7%
31.3%
98.5%
12.3%
$
4.7 $
69
(dollars in millions)
56
576.9 $
608.8 $
96.3%
3.7%
87.9%
9.6%
99.1 $
59
507.9
553.3
93.0%
7.0%
92.0%
10.4%
46.1
(a)
(b)
(c)
At December 31, 2018, we had equity ownership in approximately 99% of our LMM portfolio companies, and the
average fully diluted equity ownership in those portfolio companies was approximately 40%.
The weighted average annual effective yields were computed using the effective interest rates for all debt
investments at cost as of December 31, 2018, including amortization of deferred debt origination fees and accretion
of original issue discount but excluding fees payable upon repayment of the debt instruments and any debt
investments on non-accrual status. Weighted average annual effective yield is higher than what an investor in
shares of our common stock will realize on its investment because it does not reflect our expenses or any sales load
paid by an investor.
The average EBITDA is calculated using a simple average for the LMM portfolio and a weighted-average for the
Middle Market and Private Loan portfolios. These calculations exclude certain portfolio companies, including two
LMM portfolio companies, one Middle Market portfolio company and four Private Loan portfolio companies, as
EBITDA is not a meaningful valuation metric for our investments in these portfolio companies, and those portfolio
companies whose primary purpose is to own real estate.
LMM(a)
As of December 31, 2017
Middle Market
Private Loan
(dollars in millions)
Number of portfolio companies
Fair value
Cost
% of portfolio at cost — debt
% of portfolio at cost — equity
% of debt investments at cost secured by first priority lien
Weighted-average annual effective yield(b)
Average EBITDA(c)
70
$ 948.2 $
$ 776.5 $
67.1%
32.9%
98.1%
12.0%
$
4.4 $
62
609.3 $
629.7 $
97.3%
2.7%
90.5%
9.0%
78.3 $
54
467.5
489.2
93.6%
6.4%
94.5%
9.2%
39.6
(a)
(b)
At December 31, 2017, we had equity ownership in approximately 97% of our LMM portfolio companies, and the
average fully diluted equity ownership in those portfolio companies was approximately 39%.
The weighted-average annual effective yields were computed using the effective interest rates for all debt
investments at cost as of December 31, 2017, including amortization of deferred debt origination fees and accretion
of original issue discount but excluding fees payable upon repayment of the debt instruments and any debt
investments on non-accrual status. Weighted-average annual
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effective yield is higher than what an investor in shares of our common stock will realize on its investment because
it does not reflect our expenses or any sales load paid by an investor.
(c)
The average EBITDA is calculated using a simple average for the LMM portfolio and a weighted-average for the
Middle Market and Private Loan portfolios. These calculations exclude certain portfolio companies, including six
LMM portfolio companies, one Middle Market portfolio company and three Private Loan portfolio companies, as
EBITDA is not a meaningful valuation metric for our investments in these portfolio companies, and those portfolio
companies whose primary purpose is to own real estate.
As of December 31, 2018, we had Other Portfolio investments in eleven companies, collectively totaling approximately $108.3 million
in fair value and approximately $116.0 million in cost basis and which comprised approximately 4.4% of our Investment Portfolio (as
defined in "Critical Accounting Policies — Basis of Presentation" below) at fair value. As of December 31, 2017, we had Other Portfolio
investments in eleven companies, collectively totaling approximately $104.6 million in fair value and approximately $109.4 million in cost
basis and which comprised approximately 4.8% of our Investment Portfolio at fair value.
As previously discussed, the External Investment Manager is a wholly owned subsidiary that is treated as a portfolio investment. As of
December 31, 2018, there was no cost basis in this investment and the investment had a fair value of approximately $65.7 million, which
comprised approximately 2.7% of our Investment Portfolio at fair value. As of December 31, 2017, there was no cost basis in this
investment and the investment had a fair value of approximately $41.8 million, which comprised approximately 1.9% of our Investment
Portfolio at fair value.
Our portfolio investments are generally made through MSCC and the Funds. MSCC and the Funds share the same investment
strategies and criteria, although they are subject to different regulatory regimes. An investor's return in MSCC will depend, in part, on the
Funds' investment returns as they are wholly owned subsidiaries of MSCC.
The level of new portfolio investment activity will fluctuate from period to period based upon our view of the current economic
fundamentals, our ability to identify new investment opportunities that meet our investment criteria, and our ability to consummate the
identified opportunities. The level of new investment activity, and associated interest and fee income, will directly impact future investment
income. In addition, the level of dividends paid by portfolio companies and the portion of our portfolio debt investments on non-accrual
status will directly impact future investment income. While we intend to grow our portfolio and our investment income over the long term,
our growth and our operating results may be more limited during depressed economic periods. However, we intend to appropriately manage
our cost structure and liquidity position based on applicable economic conditions and our investment outlook. The level of realized gains or
losses and unrealized appreciation or depreciation on our investments will also fluctuate depending upon portfolio activity, economic
conditions and the performance of our individual portfolio companies. The changes in realized gains and losses and unrealized appreciation
or depreciation could have a material impact on our operating results.
Because we are internally managed, we do not pay any external investment advisory fees, but instead directly incur the operating costs
associated with employing investment and portfolio management professionals. We believe that our internally managed structure provides
us with a beneficial operating expense structure when compared to other publicly traded and privately held investment firms which are
externally managed, and our internally managed structure allows us the opportunity to leverage our non-interest operating expenses as we
grow our Investment Portfolio. For the years ended December 31, 2018 and 2017, the ratio of our total operating expenses, excluding
interest expense, as a percentage of our quarterly average total assets was 1.4% and 1.6%, respectively.
During May 2012, we entered into an investment sub-advisory agreement with HMS Adviser, LP ("HMS Adviser"), which is the
investment advisor to HMS Income, a non-listed BDC, to provide certain investment
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advisory services to HMS Adviser. In December 2013, after obtaining required no-action relief from the SEC to allow us to own a
registered investment adviser, we assigned the sub-advisory agreement to the External Investment Manager since the fees received from
such arrangement could otherwise have negative consequences on our ability to meet the source-of-income requirement necessary for us to
maintain our RIC tax treatment. Under the investment sub-advisory agreement, the External Investment Manager is entitled to 50% of the
base management fee and the incentive fees earned by HMS Adviser under its advisory agreement with HMS Income. The External
Investment Manager has conditionally agreed to waive the historical incentive fees otherwise earned. During the years ended December 31,
2018, 2017 and 2016, the External Investment Manager earned $11.6 million, $10.9 million and $9.5 million, respectively, of management
fees (net of fees waived, if any) under the sub-advisory agreement with HMS Adviser.
During April 2014, we received an exemptive order from the SEC permitting co-investments by us and HMS Income in certain
negotiated transactions where co-investing would otherwise be prohibited under the 1940 Act. We have made, and in the future intend to
continue to make, such co-investments with HMS Income in accordance with the conditions of the order. The order requires, among other
things, that we and the External Investment Manager consider whether each such investment opportunity is appropriate for HMS Income
and, if it is appropriate, to propose an allocation of the investment opportunity between us and HMS Income. Because the External
Investment Manager may receive performance-based fee compensation from HMS Income, this may provide it an incentive to allocate
opportunities to HMS Income instead of us. However, both we and the External Investment Manager have policies and procedures in place
to manage this conflict.
CRITICAL ACCOUNTING POLICIES
Basis of Presentation
Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of
America ("U.S. GAAP"). For each of the periods presented herein, our consolidated financial statements include the accounts of MSCC
and its consolidated subsidiaries. The Investment Portfolio, as used herein, refers to all of our investments in LMM portfolio companies,
investments in Middle Market portfolio companies, Private Loan portfolio investments, Other Portfolio investments, and the investment in
the External Investment Manager. Our results of operations and cash flows for the years ended December 31, 2018, 2017 and 2016 and
financial position as of December 31, 2018 and 2017, are presented on a consolidated basis. The effects of all intercompany transactions
between us and our consolidated subsidiaries have been eliminated in consolidation. Certain reclassifications have been made to prior
period balances to conform with the current presentation.
We are an investment company following the accounting and reporting guidance in Financial Accounting Standards Board ("FASB")
Accounting Standards Codification ("ASC") 946, Financial Services — Investment Companies ("ASC 946"). Under ASC 946, we are
precluded from consolidating other entities in which we have equity investments, including those in which we have a controlling interest,
unless the other entity is another investment company. An exception to this general principle in ASC 946 occurs if we hold a controlling
interest in an operating company that provides all or substantially all of its services directly to us or to any of our portfolio companies.
Accordingly, as noted above, our consolidated financial statements include the financial position and operating results for the Funds and
the Taxable Subsidiaries. We have determined that all of our portfolio investments do not qualify for this exception, including the
investment in the External Investment Manager. Therefore, our Investment Portfolio is carried on the consolidated balance sheet at fair
value with any adjustments to fair value recognized as "Net Unrealized Appreciation (Depreciation)" on the consolidated statements of
operations until the investment is realized, usually upon exit, resulting in any gain or loss being recognized as a "Net Realized Gain
(Loss)."
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Investment Portfolio Valuation
The most significant determination inherent in the preparation of our consolidated financial statements is the valuation of our
Investment Portfolio and the related amounts of unrealized appreciation and depreciation. As of both December 31, 2018 and 2017, our
Investment Portfolio valued at fair value represented approximately 96% of our total assets. We are required to report our investments at
fair value. We follow the provisions of FASB ASC 820, Fair Value Measurements and Disclosures ("ASC 820"). ASC 820 defines fair
value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure
fair value and enhances disclosure requirements for fair value measurements. ASC 820 requires us to assume that the portfolio investment
is to be sold in the principal market to independent market participants, which may be a hypothetical market. Market participants are
defined as buyers and sellers in the principal market that are independent, knowledgeable and willing and able to transact. See
"Note B.1. — Valuation of the Investment Portfolio" in the notes to consolidated financial statements for a detailed discussion of our
investment portfolio valuation process and procedures.
Due to the inherent uncertainty in the valuation process, our determination of fair value for our Investment Portfolio may differ
materially from the values that would have been determined had a ready market for the securities existed. In addition, changes in the
market environment, portfolio company performance and other events that may occur over the lives of the investments may cause the gains
or losses ultimately realized on these investments to be materially different than the valuations currently assigned. We determine the fair
value of each individual investment and record changes in fair value as unrealized appreciation or depreciation.
Our Board of Directors has the final responsibility for overseeing, reviewing and approving, in good faith, our determination of the fair
value for our Investment Portfolio and our valuation procedures, consistent with 1940 Act requirements. We believe our Investment
Portfolio as of December 31, 2018 and 2017 approximates fair value as of those dates based on the markets in which we operate and other
conditions in existence on those reporting dates.
Revenue Recognition
Interest and Dividend Income
We record interest and dividend income on the accrual basis to the extent amounts are expected to be collected. Dividend income is
recorded as dividends are declared by the portfolio company or at the point an obligation exists for the portfolio company to make a
distribution. In accordance with our valuation policies, we evaluate accrued interest and dividend income periodically for collectability.
When a loan or debt security becomes 90 days or more past due, and if we otherwise do not expect the debtor to be able to service all of its
debt or other obligations, we will generally place the loan or debt security on non-accrual status and cease recognizing interest income on
that loan or debt security until the borrower has demonstrated the ability and intent to pay contractual amounts due. If a loan or debt
security's status significantly improves regarding the debtor's ability to service the debt or other obligations, or if a loan or debt security is
sold or written off, we remove it from non-accrual status.
Fee Income
We may periodically provide services, including structuring and advisory services, to our portfolio companies or other third parties.
For services that are separately identifiable and evidence exists to substantiate fair value, fee income is recognized as earned, which is
generally when the investment or other applicable transaction closes. Fees received in connection with debt financing transactions for
services that do not meet these criteria are treated as debt origination fees and are deferred and accreted into income over the life of the
financing.
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Payment-in-Kind ("PIK") Interest and Cumulative Dividends
We hold certain debt and preferred equity instruments in our Investment Portfolio that contain PIK interest and cumulative dividend
provisions. The PIK interest, computed at the contractual rate specified in each debt agreement, is periodically added to the principal
balance of the debt and is recorded as interest income. Thus, the actual collection of this interest may be deferred until the time of debt
principal repayment. Cumulative dividends are recorded as dividend income, and any dividends in arrears are added to the balance of the
preferred equity investment. The actual collection of these dividends in arrears may be deferred until such time as the preferred equity is
redeemed or sold. To maintain RIC tax treatment (as discussed below), these non-cash sources of income may need to be paid out to
stockholders in the form of distributions, even though we may not have collected the PIK interest and cumulative dividends in cash. We
stop accruing PIK interest and cumulative dividends and write off any accrued and uncollected interest and dividends in arrears when we
determine that such PIK interest and dividends in arrears are no longer collectible. For the years ended December 31, 2018, 2017 and 2016,
(i) approximately 1.0%, 2.4%, and 3.6%, respectively, of our total investment income was attributable to PIK interest income not paid
currently in cash and (ii) approximately 1.0%, 1.6%, and 1.2%, respectively, of our total investment income was attributable to cumulative
dividend income not paid currently in cash.
Share-Based Compensation
We account for our share-based compensation plans using the fair value method, as prescribed by ASC 718, Compensation — Stock
Compensation. Accordingly, for restricted stock awards, we measure the grant date fair value based upon the market price of our common
stock on the date of the grant and amortize the fair value of the awards as share-based compensation expense over the requisite service
period, which is generally the vesting term.
We have also adopted Accounting Standards Update ("ASU") 2016-09, Compensation — Stock Compensation: Improvements to
Employee Share-Based Payment Accounting, which requires that all excess tax benefits and tax deficiencies (including tax benefits of
dividends on share-based payment awards) be recognized as income tax expense or benefit in the income statement and not delay
recognition of a tax benefit until the tax benefit is realized through a reduction to taxes payable. The tax effects of exercised or vested
awards should be treated as discrete items in the reporting period in which they occur. Additionally, we have elected to account for
forfeitures as they occur.
Income Taxes
MSCC has elected to be treated for U.S. federal income tax purposes as a RIC. MSCC's taxable income includes the taxable income
generated by MSCC and certain of its subsidiaries, including the Funds, which are treated as disregarded entities for tax purposes. As a
RIC, MSCC generally will not pay corporate-level U.S. federal income taxes on any net ordinary taxable income or capital gains that
MSCC distributes to its stockholders. MSCC must generally distribute at least 90% of its "investment company taxable income" (which is
generally its net ordinary taxable income and realized net short-term capital gains in excess of realized net long-term capital losses) and
90% of its tax-exempt income to maintain its RIC status (pass-through tax treatment for amounts distributed). As part of maintaining RIC
status, undistributed taxable income (subject to a 4% non-deductible U.S. federal excise tax) pertaining to a given fiscal year may be
distributed up to 12 months subsequent to the end of that fiscal year, provided such dividends are declared on or prior to the later of
(i) filing of the U.S. federal income tax return for the applicable fiscal year or (ii) the fifteenth day of the ninth month following the close
of the year in which such taxable income was generated.
The Taxable Subsidiaries primarily hold certain portfolio investments for us. The Taxable Subsidiaries permit us to hold equity
investments in portfolio companies which are "pass-through" entities for tax purposes and to continue to comply with the "source-of-
income" requirements contained in the RIC tax provisions of the Code. The Taxable Subsidiaries are consolidated with us for U.S. GAAP
financial reporting purposes, and the portfolio investments held by the Taxable Subsidiaries are included in our consolidated
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financial statements as portfolio investments and recorded at fair value. The Taxable Subsidiaries are not consolidated with MSCC for
income tax purposes and may generate income tax expense, or benefit, and tax assets and liabilities, as a result of their ownership of certain
portfolio investments. The taxable income, or loss, of the Taxable Subsidiaries may differ from their book income, or loss, due to
temporary book and tax timing differences and permanent differences. The Taxable Subsidiaries are each taxed at their normal corporate
tax rates based on their taxable income. The income tax expense, or benefit, if any, and the related tax assets and liabilities, of the Taxable
Subsidiaries are reflected in our consolidated financial statements.
The External Investment Manager is an indirect wholly owned subsidiary of MSCC owned through a Taxable Subsidiary and is a
disregarded entity for tax purposes. The External Investment Manager has entered into a tax sharing agreement with its Taxable Subsidiary
owner. Since the External Investment Manager is accounted for as a portfolio investment of MSCC and is not included as a consolidated
subsidiary of MSCC in MSCC's consolidated financial statements, and as a result of the tax sharing agreement with its Taxable Subsidiary
owner, for its stand-alone financial reporting purposes the External Investment Manager is treated as if it is taxed at normal corporate tax
rates based on its taxable income and, as a result of its activities, may generate income tax expense or benefit. The income tax expense, or
benefit, if any, and the related tax assets and liabilities, of the External Investment Manager are reflected in the External Investment
Manager's separate financial statements.
In December 2017, the "Tax Cuts and Jobs Act" legislation was enacted. The Tax Cuts and Jobs Act includes significant changes to the
U.S. corporate tax system, including a U.S. federal corporate income tax rate reduction from 35% to 21% and other changes. ASC 740,
Income Taxes, requires the effects of changes in tax rates and laws on deferred tax balances to be recognized in the period in which the
legislation was enacted. As such, we have accounted for the tax effects as a result of the enactment of the Tax Cuts and Jobs Act beginning
with the period ended December 31, 2017.
The Taxable Subsidiaries and the External Investment Manager use the liability method in accounting for income taxes. Deferred tax
assets and liabilities are recorded for temporary differences between the tax basis of assets and liabilities and their reported amounts in the
consolidated financial statements, using statutory tax rates in effect for the year in which the temporary differences are expected to reverse.
A valuation allowance is provided, if necessary, against deferred tax assets when it is more likely than not that some portion or all of the
deferred tax asset will not be realized.
Taxable income generally differs from net income for financial reporting purposes due to temporary and permanent differences in the
recognition of income and expenses. Taxable income generally excludes net unrealized appreciation or depreciation, as investment gains or
losses are not included in taxable income until they are realized.
INVESTMENT PORTFOLIO COMPOSITION
Our LMM portfolio investments primarily consist of secured debt, equity warrants and direct equity investments in privately held,
LMM companies based in the United States. Our LMM portfolio companies generally have annual revenues between $10 million and
$150 million, and our LMM investments generally range in size from $5 million to $50 million. The LMM debt investments are typically
secured by either a first or second priority lien on the assets of the portfolio company, can include either fixed or floating rate terms and
generally have a term of between five and seven years from the original investment date. In most LMM portfolio investments, we receive
nominally priced equity warrants and/or make direct equity investments in connection with a debt investment.
Our Middle Market portfolio investments primarily consist of direct investments in or secondary purchases of interest-bearing debt
securities in privately held companies based in the United States that are generally larger in size than the companies included in our LMM
portfolio. Our Middle Market portfolio companies generally have annual revenues between $150 million and $1.5 billion, and our Middle
Market investments generally range in size from $3 million to $20 million. Our Middle Market portfolio debt
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investments are generally secured by either a first or second priority lien on the assets of the portfolio company and typically have a term of
between three and seven years from the original investment date.
Our Private Loan portfolio investments are primarily debt securities in privately held companies which have been originated through
strategic relationships with other investment funds on a collaborative basis, and are often referred to in the debt markets as "club deals."
Private Loan investments are typically similar in size, structure, terms and conditions to investments we hold in our LMM portfolio and
Middle Market portfolio. Our Private Loan portfolio debt investments are generally secured by either a first or second priority lien on the
assets of the portfolio company and typically have a term of between three and seven years from the original investment date.
Our Other Portfolio investments primarily consist of investments which are not consistent with the typical profiles for LMM, Middle
Market and Private Loan portfolio investments, including investments which may be managed by third parties. In the Other Portfolio, we
may incur indirect fees and expenses in connection with investments managed by third parties, such as investments in other investment
companies or private funds.
Our external asset management business is conducted through the External Investment Manager. The External Investment Manager
earns management fees based on the assets of the funds under management and may earn incentive fees, or a carried interest, based on the
performance of the funds managed. We have entered into an agreement with the External Investment Manager to share employees in
connection with its asset management business generally, and specifically for its relationship with HMS Income. Through this agreement,
we share employees with the External Investment Manager, including their related infrastructure, business relationships, management
expertise and capital raising capabilities, and we allocate the related expenses to the External Investment Manager pursuant to the sharing
agreement. Our total expenses for the years ended December 31, 2018, 2017 and 2016 are net of expenses allocated to the External
Investment Manager of $6.8 million, $6.4 million and $5.1 million, respectively. The External Investment Manager earns management fees
based on the assets of the funds under management and may earn incentive fees, or a carried interest, based on the performance of the funds
managed. The total contribution of the External Investment Manager to our net investment income consists of the combination of the
expenses allocated to the External Investment Manager and the dividend income received from the External Investment Manager. For the
years ended December 31, 2018, 2017 and 2016, the total contribution to our net investment income was $10.6 million, $9.4 million and
$7.9 million, respectively.
The following tables summarize the composition of our total combined LMM portfolio investments, Middle Market portfolio
investments and Private Loan portfolio investments at cost and fair value by type of investment as a percentage of the total combined LMM
portfolio investments, Middle Market portfolio investments and Private Loan portfolio investments as of December 31, 2018 and 2017 (this
information excludes the Other Portfolio investments and the External Investment Manager).
Cost:
First lien debt
Equity
Second lien debt
Equity warrants
Other
December 31, 2018
December 31, 2017
77.1%
16.6%
5.3%
0.6%
0.4%
100.0%
79.0%
15.3%
4.5%
0.7%
0.5%
100.0%
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Fair Value:
First lien debt
Equity
Second lien debt
Equity warrants
Other
December 31, 2018
December 31, 2017
69.0%
25.5%
4.6%
0.5%
0.4%
100.0%
70.5%
24.4%
4.1%
0.6%
0.4%
100.0%
Our LMM portfolio investments, Middle Market portfolio investments and Private Loan portfolio investments carry a number of risks
including: (1) investing in companies which may have limited operating histories and financial resources; (2) holding investments that
generally are not publicly traded and which may be subject to legal and other restrictions on resale; and (3) other risks common to investing
in below investment grade debt and equity investments in our Investment Portfolio. Please see "Risk Factors — Risks Related to Our
Investments" for a more complete discussion of the risks involved with investing in our Investment Portfolio.
PORTFOLIO ASSET QUALITY
We utilize an internally developed investment rating system to rate the performance of each LMM portfolio company and to monitor
our expected level of returns on each of our LMM investments in relation to our expectations for the portfolio company. The investment
rating system takes into consideration various factors, including each investment's expected level of returns, the collectability of our debt
investments and the ability to receive a return of the invested capital in our equity investments, comparisons to competitors and other
industry participants, the portfolio company's future outlook and other factors that are deemed to be significant to the portfolio company.
As of December 31, 2018, our total Investment Portfolio had six investments on non-accrual status, which comprised approximately
1.3% of its fair value and 3.9% of its cost. As of December 31, 2017, our total Investment Portfolio had five investments on non-accrual
status, which comprised approximately 0.2% of its fair value and 2.3% of its cost.
The operating results of our portfolio companies are impacted by changes in the broader fundamentals of the United States economy.
In the event that the United States economy contracts, it is likely that the financial results of small to mid-sized companies, like those in
which we invest, could experience deterioration or limited growth from current levels, which could ultimately lead to difficulty in meeting
their debt service requirements, to an increase in defaults on our debt investments or in realized losses on our investments and to difficulty
in maintaining historical dividend payment rates and unrealized appreciation on our equity investments. Consequently, we can provide no
assurance that the performance of certain portfolio companies will not be negatively impacted by economic cycles or other conditions,
which could also have a negative impact on our future results.
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DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
Comparison of the years ended December 31, 2018 and 2017
Twelve Months
Ended
December 31,
Net Change
2018
2017
Amount
%
Total investment income
Total expenses
Net investment income
Net realized gain from investments
Net realized loss on extinguishment of debt
Net unrealized appreciation from:
Portfolio investments
SBIC debentures
Total net unrealized appreciation
Income tax provision
Net increase in net assets resulting from operations
Net investment income
Share-based compensation expense
Distributable net investment income(a)
Net investment income per share — Basic and diluted
Distributable net investment income per share — Basic and
(76,710)
(dollars in thousands)
$ 233,355 $ 205,741 $ 27,614 13%
(6,340)
9%
(70,370)
21,274 16%
(14,841)
2,321
156,645
1,341
(2,896)
135,371
16,182
(5,217)
17,981
1,294
19,275
(6,152)
42,545
6,212
48,757
(24,471)
$ 168,213 $ 170,622 $
(24,564)
(4,918)
(29,482)
18,319
(2,409) (1)%
Twelve Months
Ended
December 31,
Net Change
2018
2017
Amount
%
(dollars in thousands, except per share
amounts)
$ 156,645 $ 135,371 $ 21,274 16%
(876) (9)%
10,027
$ 165,796 $ 145,398 $ 20,398 14%
9%
$
2.60 $
2.39 $
9,151
0.21
diluted(a)
$
2.76 $
2.56 $
0.20
8%
(a)
Distributable net investment income is net investment income as determined in accordance with U.S. GAAP,
excluding the impact of share-based compensation expense which is non-cash in nature. We believe presenting
distributable net investment income and related per share amounts is useful and appropriate supplemental
disclosure of information for analyzing our financial performance since share-based compensation does not require
settlement in cash. However, distributable net investment income is a non-U.S. GAAP measure and should not be
considered as a replacement to net investment income and other earnings measures presented in accordance with
U.S. GAAP. Instead, distributable net investment income should be reviewed only in connection with such
U.S. GAAP measures in analyzing our financial performance. A reconciliation of net investment income in
accordance with U.S. GAAP to distributable net investment income is presented in the table above.
Investment Income
For the year ended December 31, 2018, total investment income was $233.4 million, a 13% increase over the $205.7 million of total
investment income for the corresponding period of 2017. This comparable period increase was principally attributable to (i) a $15.2 million
net increase in interest income primarily related to higher average levels of Investment Portfolio debt investments and an increase in their
average effective
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yields, partially offset by decreases in interest income associated with activity from portfolio companies that is considered to be less
consistent on a recurring basis or non-recurring and prepayment, repricing and other activities involving existing Investment Portfolio debt
investments, (ii) a $11.8 million increase in dividend income from Investment Portfolio equity investments and (iii) a $0.7 million increase
in fee income. The $27.6 million increase in total investment income in the year ended December 31, 2018 includes $6.3 million related to
elevated dividend income activity from certain Investment Portfolio equity investments that is considered to be less consistent on a
recurring basis or non-recurring, partially offset by (i) a decrease of $2.7 million related to interest income activity from portfolio
companies that is considered to be less consistent on a recurring basis or non-recurring and (ii) a decrease of $2.5 million related to lower
accelerated prepayment, repricing and other activity for certain Investment Portfolio debt investments, in each case when compared to the
same period in 2017.
Expenses
For the year ended December 31, 2018, total expenses increased to $76.7 million from $70.4 million for the corresponding period of
2017. This comparable period increase in operating expenses was principally attributable to (i) a $7.0 million increase in interest expense,
primarily due to an $8.0 million increase as a result of the issuance of our 4.50% Notes due 2022 in November 2017, with the remainder of
the difference from prior year due to the higher average balance of SBIC debentures outstanding and an increase in both the average
balance outstanding and the interest rate on our multi-year revolving credit facility (the "Credit Facility"), with these increases partially
offset by a decrease from the redemption of the 6.125% Notes effective April 1, 2018, and (ii) a $0.4 million increase in compensation
expense related to increases in the number of personnel, base compensation levels and incentive compensation accruals, with these
increases partially offset by (i) a $0.9 million decrease in share-based compensation expense, (ii) a decrease of $0.9 million related to an
additional decrease in incentive compensation accruals and (iii) a $0.4 million increase in the expenses allocated to the External Investment
Manager as a result of elevated non-recurring strategic activities at the External Investment Manager during the year ended December 31,
2018. The $0.4 million increase in compensation expense is after (i) a $1.5 million decrease that is considered to be a one-time non-
recurring benefit due to the conversion of a cash bonus to an expected non-cash restricted stock grant for an executive that will be
amortized as non-cash, share-based compensation expense over the future service period and (ii) a $0.4 million decrease as a result of the
decrease in the fair value of our deferred compensation plan assets. The ratio of our total operating expenses, excluding interest expense, as
a percentage of our quarterly average total assets for the year ended December 31, 2018 was 1.4% on an annualized basis compared to 1.6%
for the year ended December 31, 2017.
Net Investment Income
Net investment income for the year ended December 31, 2018 was $156.6 million, or a 16% increase, compared to net investment
income of $135.4 million for the corresponding period of 2017. The increase in net investment income was principally attributable to the
increase in total investment income, partially offset by higher operating expenses both as discussed above.
Distributable Net Investment Income
For the year ended December 31, 2018, distributable net investment income increased 14% to $165.8 million, or $2.76 per share,
compared with $145.4 million, or $2.56 per share, in the corresponding period of 2017. The increase in distributable net investment income
was primarily due to the higher level of total investment income, partially offset by higher operating expenses both as discussed above.
Distributable net investment income on a per share basis for the year ended December 31, 2018 reflects (i) a consistent level of income per
share from the comparable period in 2017 attributable to the net effect of the elevated dividend income activity, offset by the decreases in
interest income associated with the comparable levels of activity from portfolio companies that is considered to be less consistent on a
recurring basis or non-recurring and accelerated prepayment, repricing and other income activity considered non-recurring, as discussed
above,
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(ii) an increase of $0.03 per share due to the non-recurring benefit to compensation expense and the decrease in the fair value of the
deferred compensation plan assets, both as discussed above, and (iii) a greater number of average shares outstanding compared to the
corresponding period in 2017 primarily due to shares issued through the ATM Program (as defined in "— Liquidity and Capital
Resources — Capital Resources" below), shares issued pursuant to our equity incentive plans and shares issued pursuant to our dividend
reinvestment plan.
Net Increase in Net Assets Resulting from Operations
The net increase in net assets resulting from operations during the year ended December 31, 2018 was $168.2 million, or $2.80 per
share, compared with $170.6 million, or $3.01 per share, during the year ended December 31, 2017. This $2.4 million decrease from the
prior year was primarily the result of (i) a $29.5 million decrease in net unrealized appreciation from portfolio investments and SBIC
debentures, including the impact of accounting reversals relating to realized gains/income (losses), and (ii) a $14.8 million decrease in the
net realized gain from investments, with these decreases partially offset by (i) a $21.3 million increase in net investment income as
discussed above, (ii) a $18.3 million decrease in the income tax provision and (iii) a $2.3 million improvement in the net realized loss on
extinguishment of debt. The net realized gain from investments of $1.3 million for the year ended December 31, 2018 was primarily the
result of (i) the net realized gain of $13.7 million resulting from the net effect of gains on the exits of six LMM investments, partially offset
by losses on the exits of four LMM investments and other activity in the LMM portfolio, (ii) the realized gains of $6.1 million due to
activity in our Other Portfolio and (iii) the realized gains of $2.5 million in our Private Loan portfolio, with the effect of these net realized
gains partially offset by the net realized loss of $20.9 million in our Middle Market portfolio, which is primarily the result of (i) the
realized losses of $17.6 million on the restructures of two Middle Market investments and (ii) the realized losses of $4.4 million on the
exits of two Middle Market investments.
The following table provides a summary of the total net unrealized appreciation of $19.3 million for the year ended December 31,
2018:
LMM(a)
Twelve Months Ended December 31, 2018
Private
Loan
(dollars in millions)
Middle
Market
Other
Total
Accounting reversals of net unrealized
(appreciation) depreciation recognized in prior
periods due to net realized (gains / income) losses
recognized during the current period
Net unrealized appreciation (depreciation) relating
$ (22.2) $ 19.6 $
(4.4) $ (2.6) $ (9.6)
to portfolio investments
54.5
(31.3)
(19.3) 23.7(b) 27.6
Total net unrealized appreciation (depreciation)
relating to portfolio investments
$
32.3 $ (11.7) $ (23.7) $ 21.1 $ 18.0
Unrealized appreciation relating to SBIC
debentures(c)
Total net unrealized appreciation
1.3
$ 19.3
(a)
(b)
(c)
LMM includes unrealized appreciation on 39 LMM portfolio investments and unrealized depreciation on 19 LMM
portfolio investments.
Other includes $24.0 million of unrealized appreciation relating to the External Investment Manager and
$0.3 million of net unrealized depreciation relating to the Other Portfolio.
Primarily relates to unrealized appreciation on the SBIC debentures held by MSC II which are accounted for on a
fair value basis and includes $1.4 million of accounting reversals of previously recognized unrealized depreciation
recorded since the date of acquisition of MSC II on the debentures repaid due to fair value adjustments since such
date.
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The income tax provision for the year ended December 31, 2018 of $6.2 million principally consisted of a deferred tax provision of
$5.8 million, which is primarily the result of the net activity relating to our portfolio investments held in our Taxable Subsidiaries,
including changes in loss carryforwards, changes in net unrealized appreciation/depreciation and other temporary book-tax differences, and
other current tax expense of $0.4 million.
Comparison of the years ended December 31, 2017 and 2016
Twelve Months
Ended
December 31,
Net Change
2017
2016
Amount
%
(dollars in thousands)
Total investment income
Total expenses
Net investment income
Net realized gain from investments
Net realized loss from SBIC debentures
Net unrealized appreciation (depreciation) from:
Portfolio investments
SBIC debentures and marketable securities and idle
funds
Total net unrealized appreciation (depreciation)
Income tax benefit (provision)
$ 205,741 $ 178,339 $ 27,402
(70,370)
(62,537)
135,371
16,182
(5,217)
115,802
29,389
—
15%
(7,833) 13%
19,569
17%
(13,207)
(5,217)
42,545
(8,305)
50,850
6,212
48,757
(24,471)
786
(7,519)
1,227
5,426
56,276
(25,698)
Net increase in net assets resulting from operations
$ 170,622 $ 138,899 $ 31,723
23%
Twelve Months
Ended
December 31,
Net Change
2017
2016
Amount
%
(dollars in thousands, except per share
amounts)
Net investment income
Share-based compensation expense
Distributable net investment income(a)
Net investment income per share — Basic and diluted
Distributable net investment income per share — Basic
10,027
$ 135,371 $ 115,802 $ 19,569
1,723
$ 145,398 $ 124,106 $ 21,292
0.16
$
2.23 $
2.39 $
8,304
17%
21%
17%
7%
and diluted(a)
$
2.56 $
2.39 $
0.17
7%
(a)
Distributable net investment income is net investment income as determined in accordance with U.S. GAAP,
excluding the impact of share-based compensation expense which is non-cash in nature. We believe presenting
distributable net investment income and related per share amounts is useful and appropriate supplemental
disclosure of information for analyzing our financial performance since share-based compensation does not require
settlement in cash. However, distributable net investment income is a non-U.S. GAAP measure and should not be
considered as a replacement to net investment income and other earnings measures presented in accordance with
U.S. GAAP. Instead, distributable net investment income should be reviewed only in connection with such
U.S. GAAP measures in analyzing our financial performance. A reconciliation of net investment income in
accordance with U.S. GAAP to distributable net investment income is presented in the table above.
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Investment Income
For the year ended December 31, 2017, total investment income was $205.7 million, a 15% increase over the $178.3 million of total
investment income for the corresponding period of 2016. This comparable period increase was principally attributable to (i) a $23.2 million
increase in interest income primarily related to higher average levels of portfolio debt investments and increased activities involving
existing Investment Portfolio debt investments, (ii) a $2.5 million increase in dividend income from Investment Portfolio equity
investments and (iii) a $1.8 million increase in fee income. The $27.4 million increase in total investment income in the year ended
December 31, 2017 includes (i) an increase of $6.7 million related to higher accelerated prepayment, repricing and other activity for certain
portfolio debt investments when compared to the same period in 2016, (ii) an increase of $2.7 million related to interest income activity
from portfolio companies that is considered to be less consistent on a recurring basis or non-recurring during the period when compared to
the same period in 2016 and (iii) includes $1.7 million related to dividend income activity from portfolio companies that is considered to be
less consistent on a recurring basis or non-recurring which is consistent with the amount from such dividend income activity in the same
period in 2016.
Expenses
For the year ended December 31, 2017, total expenses increased to $70.4 million from $62.5 million for the corresponding period of
2016. This comparable period increase in operating expenses was principally attributable to (i) a $2.8 million increase in interest expense,
primarily due to (a) a $1.4 million increase on the Credit Facility due to the higher average interest rate during 2017, (b) a $0.9 million
increase due to the issuance of our 4.50% Notes due 2022 in November 2017 and (c) a $0.5 million increase due to the higher average
balance of SBIC debentures outstanding, (ii) a $2.4 million increase in general and administrative expenses, including approximately
$0.6 million related to non-recurring professional fees and other expenses incurred on certain potential new portfolio investment
opportunities which were terminated during the due diligence and legal documentation processes, (iii) a $2.2 million increase in
compensation expense related to increases in the number of personnel, base compensation levels and incentive compensation accruals and
(iv) a $1.7 million increase in share-based compensation expense, with these increases partially offset by a $1.3 million increase in the
expenses allocated to the External Investment Manager, in each case when compared to the same period in the prior year. For the years
ended December 31, 2017 and 2016, the ratio of our total operating expenses, excluding interest expense and the non-recurring professional
fees and other expenses discussed above as a percentage of our quarterly average total assets was 1.5%. Including the effect of the non-
recurring expenses, the ratio for the year ended December 31, 2017 was 1.6%.
Net Investment Income
Net investment income for the year ended December 31, 2017 was $135.4 million, or a 17% increase, compared to net investment
income of $115.8 million for the corresponding period of 2016. The increase in net investment income was principally attributable to the
increase in total investment income, partially offset by higher operating expenses both as discussed above.
Distributable Net Investment Income
For the year ended December 31, 2017, distributable net investment income increased 17% to $145.4 million, or $2.56 per share,
compared with $124.1 million, or $2.39 per share in 2016. The increase in distributable net investment income was primarily due to the
higher level of total investment income, partially offset by higher operating expenses both as discussed above. Distributable net investment
income on a per share basis for the year ended December 31, 2017 reflects an (i) increase of approximately $0.16 per share from the
comparable period in 2016 attributable to the net increase in the comparable levels of accelerated prepayment, repricing and other, unusual
activity for certain Investment Portfolio debt investments and (ii) a greater number of average shares outstanding compared to the
corresponding period in 2016 primarily due to shares issued through the ATM Program (as defined in "— Liquidity and Capital
Resources — Capital Resources" below), shares issued pursuant to our equity incentive plans and shares issued pursuant to our dividend
reinvestment plan.
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Net Increase in Net Assets Resulting from Operations
The net increase in net assets resulting from operations during the year ended December 31, 2017 was $170.6 million, or $3.01 per
share, compared with $138.9 million, or $2.67 per share, during the year ended December 31, 2016. This $31.7 million increase from the
prior year was primarily the result of (i) a $56.3 million improvement in net unrealized appreciation (depreciation) from portfolio
investments and SBIC debentures, including the impact of accounting reversals relating to realized gains/income (losses), from net
unrealized depreciation of $7.5 million for the year ended December 31, 2016 to net unrealized appreciation of $48.8 million for the year
ended December 31, 2017, which includes the impact of approximately $15.0 million of unrealized appreciation in the LMM equity
portfolio related to the enactment of the Tax Cuts and Jobs Act (see further discussion above in "— Critical Accounting Policies — Income
Taxes") and (ii) a $19.6 million increase in net investment income as discussed above, with these increases partially offset by (i) a
$25.7 million change in the income tax benefit (provision) from an income tax benefit of $1.2 million for the year ended December 31,
2016 to an income tax provision of $24.5 million for the year ended December 31, 2017, (ii) a $13.2 million decrease in the net realized
gain from investments to a total net realized gain from investments of $16.2 million for the year ended December 31, 2017 and (iii) a
$5.2 million realized loss on the repayment of SBIC debentures outstanding at MSC II which had previously been accounted for on the fair
value method of accounting. The net realized gain from investments of $16.2 million for the year ended December 31, 2017 was primarily
the result of (i) the net realized gain of $11.8 million resulting from gains on the exits of five LMM investments and losses on the exits of
four LMM investments, (ii) realized gains of $9.3 million due to activity in our Other Portfolio, (iii) net realized gains of $3.0 million in our
Private Loan portfolio resulting from gains on the exits of two Private Loan investments and a loss on the restructure of a Private Loan
investment, (iv) realized gains of $2.1 million related to other activity in the LMM portfolio and (v) the net realized loss of $9.8 million in
our Middle Market portfolio, which is primarily the result of (a) realized losses of $7.9 million on the exits of two Middle Market
investments and (b) the realized loss of $3.5 million on the restructure of a Middle Market investment, with these changes partially offset
by $1.5 million of net realized gains on other activity in our Middle Market portfolio. The realized loss of $5.2 million on the repayment of
SBIC debentures is related to the previously recognized bargain purchase gain resulting from recording the MSC II debentures at fair value
on the date of the acquisition of the majority of the equity interests of MSC II in 2010. The effect of the realized loss is offset by the
reversal of all previously recognized unrealized depreciation on these SBIC debentures due to fair value adjustments since the date of the
acquisition.
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The following table provides a summary of the total net unrealized appreciation of $48.8 million for the year ended December 31,
2017:
LMM(a)
Twelve Months Ended December 31, 2017
Private
Loan
(dollars in millions)
Middle
Market
Other(b)
Total
Accounting reversals of net unrealized
(appreciation) depreciation recognized in prior
periods due to net realized (gains)/(income)
losses recognized during the current period
Net unrealized appreciation (depreciation) relating
$ (11.1) $
5.6 $
(3.1) $
(8.1) $ (16.7)
to portfolio investments
50.6
(9.6)
(3.1)
21.4
59.3
Total net unrealized appreciation (depreciation)
relating to portfolio investments
$
39.5 $
(4.0) $
(6.2) $
13.3 $ 42.6
Unrealized appreciation relating to SBIC
debentures(c)
Total net unrealized appreciation
6.2
$ 48.8
(a)
(b)
(c)
LMM includes unrealized appreciation on 39 LMM portfolio investments and unrealized depreciation on 25 LMM
portfolio investments.
Other includes $11.2 million of unrealized appreciation relating to the External Investment Manager and
$10.2 million of net unrealized appreciation relating to the Other Portfolio.
Relates to unrealized appreciation on the SBIC debentures held by MSC II which are accounted for on a fair value
basis and includes $6.0 million of accounting reversals resulting from the reversal of previously recognized
unrealized depreciation recorded since the date of acquisition of MSC II on the debentures repaid due to fair value
adjustments since such date and $0.2 million of current period unrealized appreciation on the remaining SBIC
debentures.
The income tax provision for the year ended December 31, 2017 of $24.5 million principally consisted of a deferred tax provision of
$19.3 million, which is primarily the result of the net activity relating to our portfolio investments held in our Taxable Subsidiaries,
including changes in loss carryforwards, changes in net unrealized appreciation/depreciation and other temporary book-tax differences, and
other current tax expense of $5.2 million related to (i) a $1.9 million accrual for excise tax on our estimated undistributed taxable income
and (ii) current tax expense of $3.3 million related to accruals for U.S. federal and state income taxes.
Liquidity and Capital Resources
Cash Flows
For the year ended December 31, 2018, we experienced a net increase in cash and cash equivalents in the amount of approximately
$2.7 million, which is the net result of approximately $109.1 million of cash used in our operating activities and approximately
$111.7 million of cash provided by our financing activities.
During the year ended December 31, 2018, $109.1 million of cash was used in our operating activities, which resulted primarily from
(i) cash flows we generated from the operating profits earned through our operating activities totaling $149.8 million, which is our
$165.8 million of distributable net investment income, excluding the non-cash effects of the accretion of unearned income of $14.7 million,
payment-in-kind interest income of $2.3 million, cumulative dividends of $2.3 million and the amortization expense for deferred financing
costs of $3.3 million, and (ii) cash uses totaling $963.4 million, which principally consisted of $962.5 million for the funding of new
portfolio company investments and settlement of accruals
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for portfolio investments existing as of December 31, 2017 and $0.9 million related to decreases in payables and accruals and (iii) cash
proceeds totaling $704.6 million from $703.2 million in cash proceeds from the sales and repayments of debt investments and sales of and
return on capital of equity investments and $1.4 million related to decreases in other assets.
During the year ended December 31, 2018, $111.7 million in cash was provided by financing activities, which principally consisted of
(i) $237.0 million in net cash proceeds from the Credit Facility (ii) $78.4 million in net cash proceeds from the ATM Program (described
below), and (iii) $54.0 million in cash proceeds from issuance of SBIC debentures, partially offset by (i) $156.0 million in cash dividends
paid to stockholders, (ii) $90.7 million in redemption of 6.125% Notes, (iii) $4.0 million in repayment of SBIC debentures,
(iv) $4.1 million for purchases of vested restricted stock from employees to satisfy their tax withholding requirements upon the vesting of
such restricted stock and (v) $2.9 million for payment of deferred debt issuance costs, SBIC debenture fees and other costs.
For the year ended December 31, 2017, we experienced a net increase in cash and cash equivalents in the amount of approximately
$27.0 million, which is the result of approximately $72.9 million of cash provided by our operating activities and approximately
$45.9 million of cash used in financing activities.
During the year ended December 31, 2017, $72.9 million of cash was provided by our operating activities, which resulted primarily
from (i) cash flows we generated from the operating profits earned through our operating activities totaling $123.1 million, which is our
$145.4 million of distributable net investment income, excluding the non-cash effects of the accretion of unearned income of $17.0 million,
payment-in-kind interest income of $4.9 million, cumulative dividends of $3.2 million and the amortization expense for deferred financing
costs of $2.8 million, (ii) cash uses totaling $876.7 million for the funding of new portfolio company investments and settlement of accruals
for portfolio investments existing as of December 31, 2016, and (iii) cash proceeds totaling $826.5 million from (a) $819.4 million in cash
proceeds from the sales and repayments of debt investments and sales of and return on capital of equity investments, (b) $4.5 million
related to decreases in other assets and (c) $2.6 million related to increases in payables and accruals.
During the year ended December 31, 2017, $45.9 million in cash was used in financing activities, which principally consisted of
(i) $150.9 million in net cash proceeds from the ATM Program (described below), (ii) $185.0 million in cash proceeds from the issuance of
4.50% Notes due 2022 in November 2017 and (iii) $81.0 million in cash proceeds from issuance of SBIC debentures, partially offset by
(i) $279.0 million in net repayments on the Credit Facility and (ii) $148.4 million in cash dividends paid to stockholders, (iii) $25.2 million
in repayment of SBIC debentures, (iii) $4.4 million for purchases of vested restricted stock from employees to satisfy their tax withholding
requirements upon the vesting of such restricted stock and (iv) $5.9 million for payment of deferred debt issuance costs, SBIC debenture
fees and other costs.
Capital Resources
As of December 31, 2018, we had $54.2 million in cash and cash equivalents and $404.0 million of unused capacity under the Credit
Facility, which we maintain to support our investment and operating activities. As of December 31, 2018, our net asset value totaled
$1,476.0 million, or $24.09 per share.
The Credit Facility, which provides additional liquidity to support our investment and operational activities, was amended and restated
during 2018 to provide for an increase in total commitments from $585.0 million to $705.0 million and to increase the diversified group of
lenders to eighteen, eliminate interest rate adjustments previously subject to our maintenance of an investment grade rating and extend the
final maturity by two years to September 2023. The amended Credit Facility also contains an upsized accordion feature which allows us to
increase the total commitments under the facility to up to $800.0 million from new and existing lenders on the same terms and conditions as
the existing commitments.
Borrowings under the Credit Facility bear interest, subject to our election, on a per annum basis at a rate equal to the applicable LIBOR
rate (2.5% as of December 31, 2018) plus (i) 1.875% (or the applicable base
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rate (Prime Rate of 5.5% as of December 31, 2018) plus 0.875%) as long as we meet certain agreed upon excess collateral and maximum
leverage requirements or (ii) 2.0% (or the applicable base rate plus 1.0%) otherwise. We pay unused commitment fees of 0.25% per annum
on the unused lender commitments under the Credit Facility. The Credit Facility is secured by a first lien on the assets of MSCC and its
subsidiaries, excluding the equity ownership or assets of the Funds and the External Investment Manager. The Credit Facility contains
certain affirmative and negative covenants, including but not limited to: (i) maintaining a minimum availability of at least 10% of the
borrowing base, (ii) maintaining an interest coverage ratio of at least 2.0 to 1.0, (iii) maintaining an asset coverage ratio (tangible net worth
to Credit Facility borrowings) of at least 1.5 to 1.0 and (iv) maintaining a minimum tangible net worth. The Credit Facility is provided on a
revolving basis through its final maturity date in September 2023, and contains two, one-year extension options which could extend the
final maturity by up to two years, subject to certain conditions, including lender approval. As of December 31, 2018, we had $301.0 million
in borrowings outstanding under the Credit Facility, the interest rate on the Credit Facility was 4.2% and we were in compliance with all
financial covenants of the Credit Facility.
Through the Funds, we have the ability to issue SBIC debentures guaranteed by the SBA at favorable interest rates and favorable terms
and conditions. Under existing SBA regulations, SBA approved SBICs under common control have the ability to issue debentures
guaranteed by the SBA up to a regulatory maximum amount of $350.0 million. Through the Funds, we have an effective maximum amount
of $346.0 million following the prepayment of $4.0 million of existing SBIC debentures as discussed below. During the year ended
December 31, 2018, we issued $54.0 million of SBIC debentures and opportunistically prepaid $4.0 million of our existing SBIC
debentures as part of an effort to manage the maturity dates of our oldest SBIC debentures. Debentures guaranteed by the SBA have fixed
interest rates that equal prevailing 10-year Treasury Note rates plus a market spread and have a maturity of ten years with interest payable
semiannually. The principal amount of the debentures is not required to be paid before maturity, but may be pre-paid at any time with no
prepayment penalty. We expect to issue new SBIC debentures under the SBIC program in the future in an amount up to the regulatory
maximum amount for affiliated SBIC funds. As of December 31, 2018, through our three wholly owned SBICs, we had $345.8 million of
outstanding SBIC debentures guaranteed by the SBA, which bear a weighted-average annual fixed interest rate of approximately 3.7%,
paid semiannually, and mature ten years from issuance. The first maturity related to our SBIC debentures occurs in 2019, and the weighted-
average remaining duration is approximately 5.6 years as of December 31, 2018.
In April 2013, we issued $92.0 million, including the underwriters' full exercise of their over-allotment option, in aggregate principal
amount of the 6.125% Notes (the "6.125% Notes"). The 6.125% Notes bore interest at a rate of 6.125% per year payable quarterly on
January 1, April 1, July 1 and October 1 of each year. The total net proceeds to us from the 6.125% Notes, after underwriting discounts and
estimated offering expenses payable, were approximately $89.0 million. On April 2, 2018, we redeemed the entire principal amount of the
issued and outstanding 6.125% Notes effective April 1, 2018 (the "Redemption Date"). The 6.125% Notes were redeemed at par value, plus
the accrued and unpaid interest thereon from January 1, 2018, through, but excluding, the Redemption Date. As part of the redemption, we
recognized a realized loss on extinguishment of debt of $1.5 million in the second quarter of 2018 related to the write-off of the related
unamortized deferred financing costs.
In November 2014, we issued $175.0 million in aggregate principal amount of 4.50% unsecured notes due 2019 (the "4.50% Notes due
2019") at an issue price of 99.53%. The 4.50% Notes due 2019 are unsecured obligations and rank pari passu with our current and future
unsecured indebtedness; senior to any of our future indebtedness that expressly provides it is subordinated to the 4.50% Notes due 2019;
effectively subordinated to all of our existing and future secured indebtedness, to the extent of the value of the assets securing such
indebtedness, including borrowings under our Credit Facility; and structurally subordinated to all existing and future indebtedness and other
obligations of any of our subsidiaries, including without limitation, the indebtedness of the Funds. The 4.50% Notes due 2019 mature on
December 1, 2019, and may be redeemed in whole or in part at any time at our option subject to certain make-whole provisions. The
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4.50% Notes due 2019 bear interest at a rate of 4.50% per year payable semiannually on June 1 and December 1 of each year. We may
from time to time repurchase 4.50% Notes due 2019 in accordance with the 1940 Act and the rules promulgated thereunder. As of
December 31, 2018, the outstanding balance of the 4.50% Notes due 2019 was $175.0 million.
The indenture governing the 4.50% Notes due 2019 (the "4.50% Notes due 2019 Indenture") contains certain covenants, including
covenants requiring our compliance with (regardless of whether we are subject to) the asset coverage requirements set forth in Section 18(a)
(1)(A) as modified by Section 61(a)(1) of the 1940 Act, as well as covenants requiring us to provide financial information to the holders of
the 4.50% Notes due 2019 and the Trustee if we cease to be subject to the reporting requirements of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"). These covenants are subject to limitations and exceptions that are described in the 4.50% Notes due
2019 Indenture.
In November 2017, we issued $185.0 million in aggregate principal amount of 4.50% unsecured notes due 2022 (the "4.50% Notes due
2022") at an issue price of 99.16%. The 4.50% Notes due 2022 are unsecured obligations and rank pari passu with our current and future
unsecured indebtedness; senior to any of our future indebtedness that expressly provides it is subordinated to the 4.50% Notes due 2022;
effectively subordinated to all of our existing and future secured indebtedness, to the extent of the value of the assets securing such
indebtedness, including borrowings under our Credit Facility; and structurally subordinated to all existing and future indebtedness and other
obligations of any of our subsidiaries, including without limitation, the indebtedness of the Funds. The 4.50% Notes due 2022 mature on
December 1, 2022, and may be redeemed in whole or in part at any time at our option subject to certain make-whole provisions. The 4.50%
Notes due 2022 bear interest at a rate of 4.50% per year payable semiannually on June 1 and December 1 of each year. We may from time
to time repurchase 4.50% Notes due 2022 in accordance with the 1940 Act and the rules promulgated thereunder. As of December 31, 2018,
the outstanding balance of the 4.50% Notes due 2022 was $185.0 million.
The indenture governing the 4.50% Notes due 2022 (the "4.50% Notes due 2022 Indenture") contains certain covenants, including
covenants requiring our compliance with (regardless of whether we are subject to) the asset coverage requirements set forth in Section 18(a)
(1)(A) as modified by Section 61(a)(1) of the 1940 Act, as well as covenants requiring us to provide financial information to the holders of
the 4.50% Notes due 2022 and the Trustee if we cease to be subject to the reporting requirements of the Exchange Act. These covenants are
subject to limitations and exceptions that are described in the 4.50% Notes due 2022 Indenture.
We maintain a program with certain selling agents through which we can sell shares of our common stock by means of at-the-market
offerings from time to time (the "ATM Program").
During the year ended December 31, 2016, we sold 3,324,646 shares of our common stock at a weighted-average price of $34.17 per
share and raised $113.6 million of gross proceeds under the ATM Program. Net proceeds were $112.0 million after commissions to the
selling agents on shares sold and offering costs.
During the year ended December 31, 2017, we sold 3,944,972 shares of our common stock at a weighted-average price of $38.72 per
share and raised $152.8 million of gross proceeds under the ATM Program. Net proceeds were $150.9 million after commissions to the
selling agents on shares sold and offering costs.
During the year ended December 31, 2018, we sold 2,060,019 shares of our common stock at a weighted-average price of $38.48 per
share and raised $79.3 million of gross proceeds under the ATM Program. Net proceeds were $78.0 million after commissions to the
selling agents on shares sold and offering costs. As of December 31, 2018, 2,994,469 shares remained available for sale under the ATM
Program.
We anticipate that we will continue to fund our investment activities through existing cash and cash equivalents, cash flows generated
through our ongoing operating activities, utilization of available borrowings under our Credit Facility, and a combination of future
issuances of debt and equity capital. Our primary uses
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of funds will be investments in portfolio companies, operating expenses and cash distributions to holders of our common stock.
We periodically invest excess cash balances into marketable securities and idle funds investments. The primary investment objective of
marketable securities and idle funds investments is to generate incremental cash returns on excess cash balances prior to utilizing those
funds for investment in our LMM, Middle Market and Private Loan portfolio investments. Marketable securities and idle funds investments
generally consist of debt investments, independently rated debt investments, certificates of deposit with financial institutions, diversified
bond funds and publicly traded debt and equity investments.
If our common stock trades below our net asset value per share, we will generally not be able to issue additional common stock at the
market price unless our stockholders approve such a sale and our Board of Directors makes certain determinations. We did not seek
stockholder authorization to sell shares of our common stock below the then current net asset value per share of our common stock at our
2018 annual meeting of stockholders because our common stock price per share had been trading significantly above the net asset value per
share of our common stock since 2011. We would therefore need future approval from our stockholders to issue shares below the then
current net asset value per share.
In order to satisfy the Code requirements applicable to a RIC, we intend to distribute to our stockholders, after consideration and
application of our ability under the Code to carry forward certain excess undistributed taxable income from one tax year into the next tax
year, substantially all of our taxable income. In addition, as a BDC, we generally are required to meet a coverage ratio of total assets to total
senior securities, which include borrowings and any preferred stock we may issue in the future, of at least 200% (or 150% if certain
requirements are met). This requirement limits the amount that we may borrow. In January 2008, we received an exemptive order from the
SEC to exclude SBA-guaranteed debt securities issued by MSMF and any other wholly owned subsidiaries of ours which operate as SBICs
from the asset coverage requirements of the 1940 Act as applicable to us, which, in turn, enables us to fund more investments with debt
capital.
Although we have been able to secure access to additional liquidity, including through the Credit Facility, public debt issuances,
leverage available through the SBIC program and equity offerings, there is no assurance that debt or equity capital will be available to us in
the future on favorable terms, or at all.
Recently Issued or Adopted Accounting Standards
In May 2014, the FASB issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers (Topic 606).
ASU 2014-09 supersedes the revenue recognition requirements under ASC 605, Revenue Recognition, and most industry-specific guidance
throughout the Industry Topics of the ASC. The core principle of the guidance is that an entity should recognize revenue to depict the
transfer of promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in
exchange for those goods or services. Under the guidance, an entity is required to perform the following five steps: (1) identify the
contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the
transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance
obligation. The guidance will significantly enhance comparability of revenue recognition practices across entities, industries, jurisdictions
and capital markets. Additionally, the guidance requires improved disclosures as to the nature, amount, timing and uncertainty of revenue
that is recognized. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus
Agent Considerations (Reporting Revenue Gross versus Net), which clarified the implementation guidance on principal versus agent
considerations. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying
Performance Obligations and Licensing, which clarified the implementation guidance regarding performance obligations and licensing
arrangements. In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606) — Narrow-Scope
Improvements and Practical Expedients, which clarified guidance on assessing collectability, presenting sales tax, measuring noncash
consideration, and certain transition matters. In December 2016, the FASB issued
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ASU No. 2016-20, Revenue from Contracts with Customers (Topic 606) — Technical Corrections and Improvements, which provided
disclosure relief, and clarified the scope and application of the new revenue standard and related cost guidance. The guidance is effective
for the annual reporting period beginning after December 15, 2017, including interim periods within that reporting period. Substantially all
of our income is not within the scope of ASU 2014-09. For those income items that are within the scope (primarily fee income), we have
similar performance obligations as compared with deliverables and separate units of account previously identified. As a result, our timing of
income recognition remains the same and the adoption of the standard was not material.
In February 2016, the FASB issued ASU 2016-02, Leases, which requires lessees to recognize on the balance sheet a right-of-use
asset, representing its right to use the underlying asset for the lease term, and a lease liability for all leases with terms greater than
12 months. The guidance also requires qualitative and quantitative disclosures designed to assess the amount, timing, and uncertainty of
cash flows arising from leases. The standard requires the use of a modified retrospective transition approach, which includes a number of
optional practical expedients that entities may elect to apply. The guidance is effective for annual periods beginning after December 15,
2018, and interim periods therein. Early application is permitted. While we continue to assess the effect of adoption, we currently believe
the most significant change relates to the recognition of a new right-of-use asset and lease liability on our consolidated balance sheet for
our office space operating lease. We currently have one operating lease for office space and do not expect a significant change in our
leasing activity between now and adoption. See further discussion of our operating lease obligation in "Note K — Commitments and
Contingences" in the notes to the consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), which is intended to reduce the existing
diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The
guidance is effective for annual periods beginning after December 15, 2017, and interim periods therein. We have adopted ASU 2016-15.
The impact of the adoption of this accounting standard on our consolidated financial statements was not material.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), which is intended to improve fair value and
defined benefit disclosure requirements by removing disclosures that are not cost-beneficial, clarifying disclosures' specific requirements,
and adding relevant disclosure requirements. The amendments take effect for all organizations for fiscal years, and interim periods within
those fiscal years, beginning after December 15, 2019. Early adoption is permitted. We have elected to early adopt ASU 2018-13 in the
current annual period. No significant changes were made to our fair value disclosures in the notes to the consolidated financial statements
in order to comply with ASU 2018-13.
In August 2018, the SEC adopted rules (the "SEC Release") amending certain disclosure requirements intended to eliminate redundant,
duplicative, overlapping, outdated, or superseded, in light of other SEC disclosure requirements, US GAAP requirements, or changes in the
information environment. In part, the SEC Release requires an investment company to present distributable earnings in total on the
consolidated balance sheet and consolidated statement of changes in net assets, rather than showing the three components of distributable
earnings as previously shown. We adopted this part of the SEC Release in the current annual period and the changes in presentation have
been retrospectively applied to the consolidated balance sheet as of December 31, 2017 and to the consolidated statements of changes in
net assets for the years ended December 31, 2017 and 2016. The impact of the adoption of these rules on our consolidated financial
statements was not material. Additionally, the SEC Release requires disclosure of changes in net assets within a registrant's Form 10-Q
filing on a quarter-to-date and year-to-date basis for both the current year and prior year comparative periods. We expect to adopt the new
requirement to present changes in shareholders' equity in interim financial statements within Form 10-Q filings starting with the quarter
ending March 31, 2019. The compliance date for the SEC Release was for all filings, as applicable, on or after November 5, 2018. The
adoption of these additional rules will not have a material impact on the consolidated financial statements.
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From time to time, new accounting pronouncements are issued by the FASB or other standards setting bodies that are adopted by us as
of the specified effective date. We believe that the impact of recently issued standards and any that are not yet effective will not have a
material impact on our consolidated financial statements upon adoption.
Inflation
Inflation has not had a significant effect on our results of operations in any of the reporting periods presented herein. However, our
portfolio companies have experienced, and may in the future experience, the impacts of inflation on their operating results, including
periodic escalations in their costs for labor, raw materials and third-party services and required energy consumption.
Off-Balance Sheet Arrangements
We may be a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of
our portfolio companies. These instruments include commitments to extend credit and fund equity capital and involve, to varying degrees,
elements of liquidity and credit risk in excess of the amount recognized in the balance sheet. At December 31, 2018, we had a total of
$136.9 million in outstanding commitments comprised of (i) 33 investments with commitments to fund revolving loans that had not been
fully drawn or term loans with additional commitments not yet funded and (ii) 11 investments with equity capital commitments that had not
been fully called.
Contractual Obligations
As of December 31, 2018, the future fixed commitments for cash payments in connection with our SBIC debentures, the 4.50% Notes
due 2019, the 4.50% Notes due 2022 and rent obligations under our office lease for each of the next five years and thereafter are as follows:
SBIC debentures
Interest due on SBIC
$
2019
16,000 $ 55,000 $ 40,000 $
2020
2021
2022
2023
Thereafter
Total
5,000 $ 16,000 $ 213,800 $ 345,800
debentures
4.50% Notes due 2019
Interest due on 4.50%
Notes due 2019
4.50% Notes due 2022
Interest due on 4.50%
Notes due 2022
12,738
175,000
11,819
—
9,260
—
8,248
—
7,868
—
23,317
—
73,250
175,000
7,875
—
—
—
—
—
—
185,000
8,325
8,325
8,325
8,325
—
—
—
—
—
7,875
185,000
—
33,300
748
7,309
$ 220,686 $ 75,906 $ 58,361 $ 207,363 $ 24,672 $ 240,546 $ 827,534
3,429
762
790
776
804
Operating Lease Obligation means a rent payment obligation under a lease classified as an operating lease and
disclosed pursuant to FASB ASC 840, as may be modified or supplemented.
As of December 31, 2018, we had $301.0 million in borrowings outstanding under our Credit Facility, and the Credit Facility is
currently scheduled to mature in September 2023. The Credit Facility contains two, one-year extension options which could extend the
maturity to September 2025, subject to lender approval. See further discussion of the Credit Facility terms in "— Liquidity and Capital
Resources — Capital Resources."
Related Party Transactions
As discussed further above, the External Investment Manager is treated as a wholly owned portfolio company of MSCC and is
included as part of our Investment Portfolio. At December 31, 2018, we had a receivable of approximately $2.9 million due from the
External Investment Manager which included approximately $1.8 million primarily related to operating expenses incurred by us as required
to support the
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Operating Lease
Obligation(1)
Total
(1)
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External Investment Manager's business and amounts due from the External Investment Manager to Main Street under a tax sharing
agreement (see further discussion above in "— Critical Accounting Policies — Income Taxes") and approximately $1.2 million of
dividends declared but not paid by the External Investment Manager.
In November 2015, our Board of Directors approved and adopted the Main Street Capital Corporation Deferred Compensation Plan
(the "2015 Deferred Compensation Plan"). The 2015 Deferred Compensation Plan became effective on January 1, 2016 and replaced the
Deferred Compensation Plan for Non-Employee Directors previously adopted by the Board of Directors in June 2013 (the "2013 Deferred
Compensation Plan"). Under the 2015 Deferred Compensation Plan, non-employee directors and certain key employees may defer receipt
of some or all of their cash compensation and directors' fees, subject to certain limitations. Individuals participating in the 2015 Deferred
Compensation Plan receive distributions of their respective balances based on predetermined payout schedules or other events as defined
by the plan and are also able to direct investments made on their behalf among investment alternatives permitted from time to time under
the plan, including phantom Main Street stock units. As of December 31, 2018, $6.1 million of compensation and directors' fees had been
deferred under the 2015 Deferred Compensation Plan (including amounts previously deferred under the 2013 Deferred Compensation
Plan). Of this amount, $3.3 million was deferred into phantom Main Street stock units, representing 97,344 shares of our common stock.
Including phantom stock units issued through dividend reinvestment and net of any shares distributed, the phantom stock units outstanding
as of December 31, 2018 represented 119,639 shares of our common stock. Any amounts deferred under the plan represented by phantom
Main Street stock units will not be issued or included as outstanding on the consolidated statements of changes in net assets until such
shares are actually distributed to the participant in accordance with the plan, but are included in operating expenses and weighted-average
shares outstanding in our consolidated statements of operations as earned.
Recent Developments
In January 2019, we led a new portfolio investment to facilitate the minority recapitalization of Centre Technologies, Inc. ("Centre"), a
premier provider of IT hardware, software and service solutions. We, along with our co-investors, partnered with Centre's founder and
Chief Executive Officer and management team to facilitate the transaction, with us funding $18.1 million in a combination of first-lien,
senior secured term debt and a direct equity investment. Headquartered in Houston, Texas, and founded in 2006, Centre has established
itself as a mission critical IT solutions provider offering a full suite of solutions including managed and hosted services, value-added
sourcing and integration, and project services.
In January 2019, we led a new portfolio investment to facilitate the management buyout of CompareNetworks Inc.
("CompareNetworks"), a leading provider of media, marketing and technology solutions that drive revenue for life science and healthcare
product manufacturers. We, along with our co-investors, partnered with CompareNetworks' founders and management team to facilitate the
transaction, with us funding $10.7 million in a combination of first-lien, senior secured term debt and a direct equity investment.
Headquartered in South San Francisco, California, and founded in 2000, CompareNetworks provides life scientists, researchers, lab-based
professionals, pharmaceutical professionals and healthcare professionals with digital tools and information resources to research, identify
and determine which products and technologies to use.
In January 2019, we fully exited our equity investment in Boss Industries, LLC ("Boss"). Boss markets, designs and manufacturers
vehicle-mounted, and portable air compressor and generator systems utilized in municipal and utility services, energy product and industrial
services. We realized a gain of approximately $4.0 million on the exit of our equity investment in Boss.
During February 2019, we declared regular monthly dividends of $0.200 per share for each month of April, May and June 2019. These
regular monthly dividends equal a total of $0.600 per share for the second quarter of 2019 and represent a 5.3% increase from the dividends
declared for the second quarter of 2018.
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Including the dividends declared for the second quarter of 2019, we will have paid $25.420 per share in cumulative dividends since our
October 2007 initial public offering.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We are subject to financial market risks, including changes in interest rates. Changes in interest rates may affect both our cost of
funding and our interest income from portfolio investments. Our risk management systems and procedures are designed to identify and
analyze our risk, to set appropriate policies and limits and to continually monitor these risks. Our investment income will be affected by
changes in various interest rates, including LIBOR and prime rates, to the extent that any debt investments include floating interest rates.
The majority of our debt investments are made with either fixed interest rates or floating-rates that are subject to contractual minimum
interest rates for the term of the investment. As of December 31, 2018, approximately 72% of our debt investment portfolio (at cost) bore
interest at floating rates, 90% of which were subject to contractual minimum interest rates. Our interest expense will be affected by changes
in the published LIBOR rate in connection with our Credit Facility; however, the interest rates on our outstanding SBIC debentures, 4.50%
Notes due 2019 and 4.50% Notes due 2022, which comprise the majority of our outstanding debt, are fixed for the life of such debt. As of
December 31, 2018, we had not entered into any interest rate hedging arrangements. The following table shows the approximate annualized
increase or decrease in the components of net investment income due to hypothetical base rate changes in interest rates, assuming no
changes in our investments and borrowings as of December 31, 2018.
Basis Point Change
(50)
(25)
25
50
100
200
300
400
Increase
(Decrease)
in Interest
Income
(Increase)
Decrease
in Interest
Expense
Increase
(Decrease) in Net
Investment
Income
Increase
(Decrease) in Net
Investment
Income per Share
(dollars in thousands)
$
(6,479) $
(3,240)
3,240
6,479
12,958
25,917
38,875
51,833
1,505 $
752
(752)
(1,505)
(3,010)
(6,020)
(9,030)
(12,040)
(4,974) $
(2,488)
2,488
4,974
9,948
19,897
29,845
39,793
(0.08)
(0.04)
0.04
0.08
0.16
0.32
0.49
0.65
The hypothetical results would also be impacted by the changes in the amount of debt outstanding under our Credit Facility (with an
increase (decrease) in the debt outstanding under the Credit Facility resulting in an (increase) decrease in the hypothetical interest expense).
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Item 8. Consolidated Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2018 and 2017
Consolidated Statements of Operations for the Years Ended December 31, 2018, 2017 and 2016
Consolidated Statements of Changes in Net Assets for the Years Ended December 31, 2018, 2017 and
2016
Consolidated Statements of Cash Flows for the Years Ended December 31, 2018, 2017 and 2016
Consolidated Schedules of Investments as of December 31, 2018 and 2017
Notes to Consolidated Financial Statements
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82
83
84
85
86
144
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Board of Directors and Stockholders'
Main Street Capital Corporation
Opinion on the financial statements
Report of Independent Registered Public Accounting Firm
We have audited the accompanying consolidated balance sheets of Main Street Capital Corporation (a Maryland corporation) and
subsidiaries (the "Company"), including the consolidated schedule of investments, as of December 31, 2018 and 2017, the related
consolidated statements of operations, changes in net assets, and cash flows for each of the three years in the period ended December 31,
2018, and the related notes, schedules and financial highlights (collectively referred to as the "financial statements"). In our opinion, the
financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and
the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, and the financial
highlights for each of the five years in the period ended December 31, 2018, in conformity with accounting principles generally accepted in
the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
("PCAOB"), the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in the 2013
Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"),
and our report dated March 1, 2019 expressed an unqualified opinion.
Basis for opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the
Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud,
and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included
verification by confirmation of securities as of December 31, 2018 and 2017, by correspondence with the portfolio companies and
custodians, or by other appropriate auditing procedures where replies were not received. We believe that our audits provide a reasonable
basis for our opinion.
/s/ GRANT THORNTON LLP
We have served as the Company's auditor since 2007.
Houston, Texas
March 1, 2019
80
Table of Contents
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders'
Main Street Capital Corporation
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of Main Street Capital Corporation (a Maryland corporation) and
subsidiaries (the "Company") as of December 31, 2018, based on criteria established in the 2013 Internal Control — Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in
all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in the 2013
Internal Control — Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
("PCAOB"), the consolidated financial statements of the Company, as of and for the year ended December 31, 2018 and our report dated
March 1, 2019, expressed an unqualified opinion on those financial statements.
Basis for opinion
The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our
audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists,
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and limitations of internal control over financial reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ GRANT THORNTON LLP
Houston, Texas
March 1, 2019
81
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MAIN STREET CAPITAL CORPORATION
Consolidated Balance Sheets
(dollars in thousands, except shares and per share amounts)
December 31,
2018
December 31,
2017
ASSETS
Investments at fair value:
Control investments (cost: $750,618 and $530,034 as of December 31,
2018 and December 31, 2017, respectively)
$1,004,993
$ 750,706
Affiliate investments (cost: $381,307 and $367,317 as of December 31,
2018 and December 31, 2017, respectively)
Non-Control/Non-Affiliate investments (cost: $1,137,108 and $1,107,447
as of December 31, 2018 and December 31, 2017, respectively)
Total investments (cost: $2,269,033 and $2,004,798 as of December 31,
359,890
338,854
1,089,026
1,081,745
2018 and December 31, 2017, respectively)
2,453,909
2,171,305
Cash and cash equivalents
Interest receivable and other assets
Receivable for securities sold
Deferred financing costs (net of accumulated amortization of $6,562 and
$5,600 as of December 31, 2018 and December 31, 2017, respectively)
Total assets
LIABILITIES
54,181
39,674
1,201
51,528
36,343
2,382
4,461
$2,553,426
3,837
$2,265,395
Credit facility
SBIC debentures (par: $345,800 ($16,000 due within one year) and
$ 301,000
$
64,000
$295,800 as of December 31, 2018 and December 31, 2017, respectively)
338,186
288,483
4.50% Notes due 2022 (par: $185,000 as of both December 31, 2018 and
December 31, 2017)
4.50% Notes due 2019 (par: $175,000 as of both December 31, 2018 and
December 31, 2017)
6.125% Notes (par: $90,655 as of December 31, 2017)
Accounts payable and other liabilities
Payable for securities purchased
Interest payable
Dividend payable
Deferred tax liability, net
Total liabilities
Commitments and contingencies (Note K)
NET ASSETS
Common stock, $0.01 par value per share (150,000,000 shares authorized;
61,264,861 and 58,660,680 shares issued and outstanding as of
December 31, 2018 and December 31, 2017, respectively)
Additional paid-in capital
Total distributable earnings (loss)
Total net assets
Total liabilities and net assets
NET ASSET VALUE PER SHARE
182,622
182,015
174,338
—
17,962
28,254
6,041
11,948
17,026
1,077,377
173,616
89,057
20,168
40,716
5,273
11,146
10,553
885,027
$
613
1,409,945
65,491
1,476,049
$2,553,426
$
586
1,310,780
69,002
1,380,368
$2,265,395
$
24.09
$
23.53
The accompanying notes are an integral part of these consolidated financial statements
82
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Statements of Operations
(dollars in thousands, except shares and per share amounts)
Twelve Months Ended December 31,
2017
2016
2018
INVESTMENT INCOME:
Interest, fee and dividend income:
Control investments
Affiliate investments
Non-Control/Non-Affiliate investments
Interest, fee and dividend income
Interest, fee and dividend income from marketable securities
and idle funds investments
Total investment income
EXPENSES:
Interest
Compensation
General and administrative
Share-based compensation
Expenses allocated to the External Investment Manager
Total expenses
NET INVESTMENT INCOME
NET REALIZED GAIN (LOSS):
Control investments
Affiliate investments
Non-Control/Non-Affiliate investments
Marketable securities and idle funds investments
Realized loss on extinguishment of debt
Total net realized gain (loss)
NET UNREALIZED APPRECIATION
(DEPRECIATION):
Control investments
Affiliate investments
Non-Control/Non-Affiliate investments
Marketable securities and idle funds investments
SBIC debentures
Total net unrealized appreciation (depreciation)
INCOME TAXES:
Federal and state income, excise and other taxes
Deferred taxes
Income tax benefit (provision)
$
85,853 $
36,800
110,702
233,355
62,762 $
37,509
105,470
205,741
—
233,355
—
205,741
(43,493)
(18,966)
(11,868)
(9,151)
6,768
(76,710)
156,645
4,681
20
(3,360)
—
(2,896)
(1,555)
37,826
12,062
(31,907)
—
1,294
19,275
(319)
(5,833)
(6,152)
(36,479)
(18,560)
(11,674)
(10,027)
6,370
(70,370)
135,371
259
8,044
7,879
—
(5,217)
10,965
63,627
(11,330)
(9,752)
—
6,212
48,757
(5,206)
(19,265)
(24,471)
52,221
37,702
88,242
178,165
174
178,339
(33,630)
(16,408)
(9,284)
(8,304)
5,089
(62,537)
115,802
32,220
25,167
(26,317)
(1,681)
—
29,389
(12,674)
(35,540)
39,909
1,729
(943)
(7,519)
(2,089)
3,316
1,227
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS
$
168,213 $
170,622 $
138,899
NET INVESTMENT INCOME PER SHARE — BASIC
AND DILUTED
$
2.60 $
2.39 $
2.23
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS PER SHARE — BASIC AND DILUTED $
2.80 $
3.01 $
2.67
WEIGHTED AVERAGE SHARES OUTSTANDING —
BASIC AND DILUTED
60,176,843
56,691,913
52,025,002
The accompanying notes are an integral part of these consolidated financial statements
83
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MAIN STREET CAPITAL CORPORATION
Consolidated Statements of Changes in Net Assets
(dollars in thousands, except shares)
Common Stock
shares
262,586
3
(3)
—
—
—
(142,573)
(142,573)
Balances at December 31, 2015
Public offering of common stock, net of
offering costs
Share-based compensation
Purchase of vested stock for employee
payroll tax withholding
Dividend reinvestment
Amortization of directors' deferred
compensation
Issuance of restricted stock, net of forfeited
Dividends to stockholders ($2.725
dividends per share comprised of $2.175
regular monthly dividends and $0.550
supplemental dividends)
Cumulative-effect to retained earnings for
excess tax benefit
Net increase resulting from operations
Balances at December 31, 2016
Public offering of common stock, net of
offering costs
Share-based compensation
Purchase of vested stock for employee
payroll tax withholding
Investment through issuance of
unregistered shares
Dividend reinvestment
Amortization of directors' deferred
compensation
Number of
Shares
Par
Value
50,413,744 $ 504 $1,011,467 $
Additional
Paid-In
Capital
Total
Distributable
Earnings (Loss)
3,324,646
—
33
—
112,006
8,304
(80,750)
434,631
(1)
4
(2,592)
14,073
—
—
628
—
—
54,354,857 $ 543 $1,143,883 $
—
—
—
—
3,947,165
—
40
—
150,946
10,027
(113,371)
(1)
(4,350)
11,464
234,513
—
2
442
9,154
—
—
680
Issuance of restricted stock, net of forfeited
shares
226,052
2
(2)
Dividends to stockholders ($2.785
dividends per share comprised of $2.235
regular monthly dividends and $0.550
supplemental dividends)
Net increase resulting from operations
Balances at December 31, 2017
Public offering of common stock, net of
offering costs
Share-based compensation
Purchase of vested stock for employee
payroll tax withholding
Dividend reinvestment
Amortization of directors' deferred
compensation
Issuance of restricted stock, net of forfeited
—
—
58,660,680 $ 586 $1,310,780 $
—
—
—
—
2,069,103
—
21
—
78,373
9,151
(109,693)
394,403
(1)
4
(4,076)
14,870
—
—
850
shares
250,368
3
(3)
Dividends to stockholders ($2.845
dividends per share comprised of $2.295
regular monthly dividends and $0.550
supplemental dividends)
Net increase resulting from operations
Balances at December 31, 2018
—
—
—
—
61,264,861 $ 613 $1,409,945 $
—
—
Total Net
Asset Value
58,923 $1,070,894
—
—
—
—
—
—
112,039
8,304
(2,593)
14,077
628
—
1,806
1,806
138,899
138,899
57,055 $1,201,481
—
—
—
—
—
—
—
150,986
10,027
(4,351)
442
9,156
680
—
(158,675)
(158,675)
170,622
170,622
69,002 $1,380,368
—
—
—
—
—
—
78,394
9,151
(4,077)
14,874
850
—
(171,724)
168,213
(171,724)
168,213
65,491 $1,476,049
The accompanying notes are an integral part of these consolidated financial statements
84
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Statements of Cash Flows
(dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net increase in net assets resulting from operations
Adjustments to reconcile net increase in net assets resulting from
operations to net cash provided by (used in) operating activities:
Investments in portfolio companies
Proceeds from sales and repayments of debt investments in
Twelve Months Ended December 31,
2016
2017
2018
$ 168,213 $ 170,622 $ 138,899
(962,456) (876,744) (641,197)
portfolio companies
626,059
737,297
409,542
Proceeds from sales and return of capital of equity investments in
portfolio companies
Investments in marketable securities and idle funds
investments
Proceeds from sales and repayments of marketable securities and
idle funds investments
Net unrealized (appreciation) depreciation
Net realized (gain) loss
Accretion of unearned income
Payment-in-kind interest
Cumulative dividends
Share-based compensation expense
Amortization of deferred financing costs
Deferred tax provision
Changes in other assets and liabilities:
Interest receivable and other assets
Interest payable
Accounts payable and other liabilities
Deferred fees and other
77,103
82,128
76,731
—
—
(19,275)
1,555
(14,724)
(2,304)
(2,301)
9,151
3,299
5,833
(2,276)
768
(1,356)
3,645
—
—
(48,757)
(10,965)
(17,008)
(4,884)
(3,226)
10,027
2,784
19,265
2,080
1,170
6,643
2,470
72,902
(523)
4,316
7,519
(29,389)
(10,211)
(6,497)
(2,200)
8,304
2,582
(3,316)
(2,564)
144
2,541
2,589
(42,730)
Net cash provided by (used in) operating activities
(109,066)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from public offering of common stock, net of offering costs
Proceeds from public offering of 4.50% Notes due 2022
Dividends paid
Proceeds from issuance of SBIC debentures
Repayments of SBIC debentures
Redemption of 6.125% Notes
Proceeds from credit facility
Repayments on credit facility
Payment of deferred issuance costs and SBIC debenture fees
Purchases of vested stock for employee payroll tax withholding
Net cash provided by (used in) financing activities
Net increase in cash and cash equivalents
CASH AND CASH EQUIVALENTS AT BEGINNING OF
78,394
—
81,000
(25,200)
54,000
(4,000)
(90,655)
112,039
150,986
—
185,000
(156,048) (148,421) (127,522)
15,000
—
(83)
—
390,000
448,000
632,000
(395,000) (727,000) (338,000)
(1,962)
(2,593)
46,879
4,149
(5,868)
(4,351)
(45,854)
27,048
111,719
2,653
(2,895)
(4,077)
PERIOD
CASH AND CASH EQUIVALENTS AT END OF PERIOD
Supplemental cash flow disclosures:
Interest paid
Taxes paid
Non-cash financing activities:
Shares issued pursuant to the DRIP
51,528
54,181 $
24,480
51,528 $
20,331
24,480
39,300 $
5,112 $
32,411 $
2,398 $
30,756
1,495
$
$
$
$
14,874 $
9,156 $
14,077
The accompanying notes are an integral part of these consolidated financial statements
85
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments
December 31, 2018
(dollars in thousands)
(unaudited)
Portfolio Company(1)(20)
Control Investments(5)
Investment
Date(26)
Business
Description
Type of Investment(2)(3)(25) Principal(4) Cost(4)
Fair
Value(18)
Access Media
Holdings, LLC(10)
July 22, 2015 Private Cable
Operator
ASC Interests, LLC
August 1,
2013
Recreational
and
Educational
Shooting
Facility
ATS Workholding, LLC(10) March 10,
2014
Manufacturer
of Machine
Cutting Tools
and
Accessories
Bond-Coat, Inc.
December 28,
Casing and
2012
Tubing
Coating
Services
Brewer Crane
Holdings, LLC
January 9,
2018
Provider of
Crane Rental
and
Operating
Services
10% PIK Secured Debt
(Maturity — July 22, 2020)
(14)(19)
Preferred Member Units
(9,481,500 units)(27)
Member Units (45 units)
$
23,828 $ 23,828 $
8,558
9,375
1
33,204
(284)
—
8,274
11% Secured Debt
(Maturity — July 31, 2020)
1,650
Member Units (1,500 units)
1,622
1,500
3,122
1,622
1,370
2,992
5% Secured Debt (Maturity —
November 16, 2021)
Preferred Member Units
(3,725,862 units)
4,877
4,507
3,726
8,233
4,390
3,726
8,116
12% Secured Debt
(Maturity — December 28,
2020)
Common Stock (57,508
shares)
11,596
11,367
11,596
6,350
17,717
9,370
20,966
LIBOR Plus 10.00% (Floor
1.00%), Current Coupon
12.35%, Secured Debt
(Maturity — January 9,
2023)(9)
Preferred Member Units
(2,950 units)(8)
9,548
9,467
9,467
4,280
13,747
4,280
13,747
Café Brazil, LLC
April 20,
2004
Casual
Restaurant
Group
Member Units (1,233 units)(8)
1,742
4,780
California Splendor
Holdings LLC
March 30,
Processor of
2018
Frozen Fruits
LIBOR Plus 8.00% (Floor
1.00%), Current Coupon
10.50%, Secured Debt
(Maturity — March 30,
2023)(9)
LIBOR Plus 10.00% (Floor
11,091
10,928
10,928
LIBOR Plus 10.00% (Floor
1.00%), Current Coupon
12.50%, Secured Debt
(Maturity — March 30,
2023)(9)
Preferred Member Units
(6,157 units)(8)
86
28,000
27,755
27,755
10,775
49,458
9,745
48,428
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments
December 31, 2018
(dollars in thousands)
(unaudited)
Portfolio Company(1)(20)
Investment
Date(26)
Business
Description
CBT Nuggets, LLC
June 1, 2006 Produces and
Type of Investment(2)(3)(25) Principal(4) Cost(4)
Fair
Value(18)
Sells IT
Training
Certification
Videos
Member Units (416 units)(8)
1,300
61,610
Chamberlin Holding LLC February 26,
Roofing and
2018
Waterproofing
Specialty
Contractor
LIBOR Plus 10.00% (Floor
1.00%), Current Coupon
12.75%, Secured Debt
(Maturity — February 26,
2023)(9)
Member Units (4,347 units)(8)
Member Units (Chamberlin
Langfield Real Estate, LLC)
(732,160 units)
20,203
20,028
11,440
732
32,200
20,028
18,940
732
39,700
Charps, LLC
February 3,
2017
Pipeline
Maintenance
and
Construction
Clad-Rex Steel, LLC
December 20,
Specialty
2016
Manufacturer
of Vinyl-Clad
Metal
12% Secured Debt
(Maturity — February 3,
2022)
Preferred Member Units
(1,600 units)(8)
11,900
11,805
11,888
400
12,205
2,270
14,158
CMS Minerals Investments
January 30,
2015
Oil & Gas
Exploration &
Production
Copper Trail Fund
Investments(12)(13)
July 17, 2017
Investment
Partnership
LIBOR Plus 9.00% (Floor
1.00%), Current Coupon
11.35%, Secured Debt
(Maturity — December 20,
2021)(9)
Member Units (717 units)(8)
10% Secured Debt (Clad-Rex
Steel RE Investor, LLC)
(Maturity — December 20,
2036)
Member Units (Clad-Rex Steel
RE Investor, LLC) (800
units)
Member Units (CMS
Minerals II, LLC) (100
units)(8)
LP Interests (CTMH, LP)
(Fully diluted 38.8%)
LP Interests (Copper Trail
Energy Fund I, LP) (Fully
diluted 30.1%)(8)
87
12,080
12,001
7,280
12,080
10,610
1,161
1,150
1,161
210
20,641
350
24,201
2,707
2,580
872
872
3,495
4,367
4,170
5,042
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments
December 31, 2018
(dollars in thousands)
(unaudited)
Portfolio Company(1)(20)
Investment
Date(26)
Business Description Type of Investment(2)(3)(25) Principal(4) Cost(4)
Fair
Value(18)
Datacom, LLC
May 30, 2014 Technology and
Telecommunications
Provider
8% Secured Debt (Maturity —
May 30, 2019)(14)
10.50% PIK Secured Debt
(Maturity — May 30, 2019)
(14)(19)
Class A Preferred Member
Units
Class B Preferred Member
Units (6,453 units)
1,800
1,800
1,690
12,511
12,479
9,786
1,294
6,030
—
—
21,603
11,476
LIBOR Plus 10.00% (Floor
1.00%), Current Coupon
12.38%, Secured Debt
(Maturity — April 1, 2023)
(9)
Preferred Member Units
(3,451 shares)(8)
25,740
25,511
25,511
8,466
33,977
8,466
33,977
Digital Products
Holdings LLC
April 1, 2018 Designer and
Distributor of
Consumer
Electronics
Direct Marketing Solutions,
February 13,
Inc.
2018
Provider of Omni-
Channel Direct
Marketing Services
Gamber-Johnson
Holdings, LLC
June 24, 2016 Manufacturer of
Ruggedized
Computer Mounting
Systems
Garreco, LLC
July 15, 2013 Manufacturer and
Supplier of Dental
Products
LIBOR Plus 11.00% (Floor
1.00%), Current Coupon
13.38%, Secured Debt
(Maturity — February 13,
2023)(9)
Preferred Stock (8,400 shares)
LIBOR Plus 7.50% (Floor
2.00%), Current Coupon
9.85%, Secured Debt
(Maturity — June 24, 2021)
(9)
Member Units (8,619 units)(8)
LIBOR Plus 8.00% (Floor
1.00%, Ceiling 1.50%),
Current Coupon 9.50%,
Secured Debt (Maturity —
March 31, 2020)(9)
Member Units (1,200 units)
GRT Rubber
Technologies LLC
December 19,
2014
Manufacturer of
Engineered Rubber
Products
LIBOR Plus 7.00%, Current
Coupon 9.35%, Secured
Debt (Maturity —
December 31, 2023)(9)
Member Units (5,879 units)(8)
18,017
17,848
8,400
26,248
17,848
14,900
32,748
21,486
21,356
14,844
36,200
21,486
45,460
66,946
5,121
5,099
1,200
6,299
5,099
2,590
7,689
9,740
9,716
13,065
22,781
9,740
39,060
48,800
88
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments
December 31, 2018
(dollars in thousands)
(unaudited)
Portfolio Company(1)(20)
Guerdon Modular Holdings,
Inc.
Investment
Date(26)
August 13,
2014
Business
Description
Multi-Family
and
Commercial
Modular
Construction
Company
Type of Investment(2)(3)(25) Principal(4) Cost(4)
Fair
Value(18)
Gulf Manufacturing, LLC
August 31,
2007
Manufacturer of
Specialty
Fabricated
Industrial
Piping
Products
Gulf Publishing
Holdings, LLC
April 29,
2016
Energy Industry
Focused
Media and
Publishing
Harborside Holdings, LLC March 20,
2017
Real Estate
Holding
Company
Harris Preston Fund
Investments(12)(13)
October 1,
2017
Investment
Partnership
Harrison Hydra-Gen, Ltd.
June 4, 2010 Manufacturer of
Hydraulic
Generators
HW Temps LLC
July 2, 2015 Temporary
Staffing
Solutions
13% Secured Debt
(Maturity — March 1, 2019)
12,588
12,572
12,002
Preferred Stock (404,998
shares)
Common Stock (212,033
shares)
Warrants (6,208,877
equivalent shares;
Expiration — April 25,
2028; Strike price — $0.01
per unit)
1,140
2,983
—
—
—
16,695
—
12,002
Member Units (438 units)(8)
2,980
11,690
12.5% Secured Debt
(Maturity — April 29, 2021)
12,666
12,594
Member Units (3,681 units)
3,681
16,275
12,594
4,120
16,714
Member units (100 units)
6,306
9,500
LP Interests (2717 MH, L.P.)
(Fully diluted 49.3%)
1,040
1,133
Common Stock (107,456
shares)(8)
718
8,070
LIBOR Plus 13.00% (Floor
1.00%), Current Coupon
15.35%, Secured Debt
(Maturity July 2, 2020)(9)
Preferred Member Units
(3,200 units)(8)
9,976
9,938
9,938
3,942
13,880
3,942
13,880
IDX Broker, LLC
November 15,
Provider of
2013
Marketing and
CRM Tools
for the Real
Estate
Industry
11.5% Secured Debt
(Maturity — November 15,
Jensen Jewelers of
Idaho, LLC
November 14,
2006
Retail Jewelry
Store
2020)
Preferred Member Units
(5,607 units)(8)
14,350
14,262
5,952
20,214
14,350
13,520
27,870
Prime Plus 6.75% (Floor
2.00%), Current Coupon
12.00%, Secured Debt
(Maturity — November 14,
2019)(9)
Member Units (627 units)(8)
89
3,355
3,337
811
4,148
3,355
5,090
8,445
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments
December 31, 2018
(dollars in thousands)
(unaudited)
Portfolio Company(1)(20)
KBK Industries, LLC
Investment
Date(26)
January 23,
2006
Business
Description
Manufacturer of
Specialty
Oilfield and
Industrial
Products
Type of Investment(2)(3)(25) Principal(4) Cost(4)
Fair
Value(18)
Member Units (325 units)(8)
783
8,610
Kickhaefer Manufacturing
October 31,
Precision Metal
Company, LLC
2018
Parts
Manufacturing
11.5% Secured Debt
(Maturity — October 31,
2020)
11.5% Secured Debt
(Maturity — October 31,
2023)
Member Units (581 units)
9.0% Secured Debt
(Maturity — October 31,
2048)
Member Units (KMC RE
Investor, LLC) (800 units)
1,064
1,045
1,045
28,000
27,730
12,240
27,730
12,240
4,006
3,970
3,970
992
45,977
992
45,977
Lamb Ventures, LLC
May 30,
Aftermarket
2008
Automotive
Services Chain
11% Secured Debt
(Maturity — July 1, 2022)
8,339
Market Force
Information, LLC
July 28,
2017
Provider of
Customer
Experience
Management
Services
Preferred Stock (non-voting)
Member Units (742 units)
9.5% Secured Debt (Lamb's
Real Estate Investment
I, LLC) (Maturity —
March 31, 2027)
Member Units (Lamb's Real
Estate Investment I, LLC)
(1,000 units)(8)
LIBOR Plus 7.00% (Floor
1.00%), Current Coupon
9.74%, Secured Debt
(Maturity — July 28, 2022)
(9)
LIBOR Plus 11.00% (Floor
1.00%), Current Coupon
13.74%, Secured Debt
(Maturity — July 28, 2022)
(9)
Member Units (657,113 units)
8,306
400
5,273
8,339
400
7,440
432
428
432
625
15,032
630
17,241
200
200
200
22,800
22,624
14,700
37,524
22,624
13,100
35,924
MH Corbin Holding LLC August 31,
Manufacturer and
2015
Distributor of
Traffic Safety
Products
10% Current / 3% PIK
Secured Debt (Maturity —
August 31, 2020)(14)(19)
Preferred Member Units
(4,000 shares)
12,263
12,121
11,733
6,000
18,121
1,000
12,733
90
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments
December 31, 2018
(dollars in thousands)
(unaudited)
Portfolio Company(1)(20)
Investment
Date(26)
Business
Description
Type of Investment(2)(3)(25) Principal(4) Cost(4)
Fair
Value(18)
Mid-Columbia Lumber
December 18,
Products, LLC
2006
Manufacturer of
Finger-Jointed
Lumber
Products
10% Secured Debt
(Maturity — January 15,
2020)
12% Secured Debt
(Maturity — January 15,
2020)
Member Units (7,874 units)
9.5% Secured Debt (Mid-
Columbia Real Estate, LLC)
(Maturity — May 13, 2025)
Member Units (Mid-Columbia
Real Estate, LLC)
(500 units)(8)
1,750
1,746
1,746
3,900
3,880
3,001
3,880
3,860
746
746
746
790
10,163
1,470
11,702
Member Units (Fully diluted
100.0%)(8)
—
65,748
12% Secured Debt
(Maturity — August 15,
2019)
Common Stock (5,873 shares)
7,536
7,506
2,720
10,226
7,506
210
7,716
MSC Adviser I, LLC(16)
November 22,
Third Party
2013
Investment
Advisory
Services
Mystic Logistics
Holdings, LLC
August 18,
2014
Logistics and
Distribution
Services
Provider for
Large Volume
Mailers
NAPCO Precast, LLC
January 31,
2008
Precast Concrete
Manufacturing
NexRev LLC
February 28,
2018
Provider of
Energy
Efficiency
Products &
Services
NRI Clinical Research, LLC September 8,
Clinical
2011
Research
Service
Provider
LIBOR Plus 8.50%, Current
Coupon 11.24%, Secured
Debt (Maturity — May 31,
2019)
Member Units (2,955 units)(8)
11,475
11,464
2,975
14,439
11,475
13,990
25,465
11% Secured Debt
(Maturity — February 28,
2023)
Preferred Member Units
(86,400,000 units)(8)
17,440
17,288
17,288
6,880
24,168
7,890
25,178
14% Secured Debt
(Maturity — June 8, 2022)
Warrants (251,723 equivalent
units; Expiration — June 8,
2027; Strike price — $0.01
per unit)
Member Units (1,454,167
units)
6,685
6,545
6,685
252
765
660
2,478
NRP Jones, LLC
December 22,
2011
Manufacturer of
Hoses,
Fittings and
Assemblies
7,562
9,823
6,376
6,376
3,717
10,093
6,376
5,960
12,336
12% Secured Debt
(Maturity — March 20,
2023)
Member Units (65,962 units)
91
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments
December 31, 2018
(dollars in thousands)
(unaudited)
Portfolio Company(1)(20)
NuStep, LLC
Investment
Date(26)
January 31,
2017
Business
Description
Designer,
Manufacturer
and Distributor
of Fitness
Equipment
Type of Investment(2)(3)(25) Principal(4) Cost(4)
Fair
Value(18)
OMi Holdings, Inc.
April 1,
2008
Manufacturer of
Overhead
Cranes
Pegasus Research
Group, LLC
January 6,
2011
Provider of
Telemarketing
and Data
Services
PPL RVs, Inc.
June 10,
2010
Recreational
Vehicle Dealer
12% Secured Debt
(Maturity — January 31,
2022)
Preferred Member Units
(406 units)
20,600
20,458
20,458
10,200
30,658
10,200
30,658
Common Stock (1,500 shares)
(8)
1,080
16,020
Member Units (460 units)
1,290
7,680
LIBOR Plus 7.00% (Floor
0.50%), Current Coupon
9.40%, Secured Debt
(Maturity — November 15,
2021)(9)
Common Stock (1,962 shares)
(8)
15,100
15,006
15,100
2,150
17,156
10,380
25,480
Principle
Environmental, LLC
(d/b/a TruHorizon
Environmental Solutions)
February 1,
2011
Noise Abatement
Service Provider
Quality Lease Service, LLC
June 8,
2015
Provider of Rigsite
Accommodation
Unit Rentals and
Related Services
13% Secured Debt
(Maturity — April 30, 2020)
7,477
7,398
7,477
Preferred Member Units
(19,631 units)(8)
Warrants (1,018 equivalent
units; Expiration —
January 31, 2021; Strike
price — $0.01 per unit)
4,600
13,090
1,200
13,198
780
21,347
River Aggregates, LLC
March 30,
Processor of
2011
Construction
Aggregates
Zero Coupon Secured Debt
(Maturity — June 8, 2021)
Member Units (1,000 units)
7,341
7,341
4,043
11,384
6,450
3,809
10,259
Zero Coupon Secured Debt
(Maturity — June 30, 2018)
(17)
Member Units (1,150 units)
Member Units
(RA Properties, LLC)
(1,500 units)
750
750
1,150
369
2,269
722
4,610
2,930
8,262
92
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments
December 31, 2018
(dollars in thousands)
(unaudited)
Portfolio Company(1)(20)
Investment
Date(26)
Business
Description
Type of Investment(2)(3)(25) Principal(4) Cost(4)
Fair
Value(18)
Tedder Industries, LLC
August 31,
2018
Manufacturer of
Firearm
Holsters and
Accessories
The MPI Group, LLC
October 2,
Manufacturer of
2007
Custom Hollow
Metal Doors,
Frames and
Accessories
Vision Interests, Inc.
June 5,
2007
Manufacturer /
Installer of
Commercial
Signage
Ziegler's NYPD, LLC
October 1,
Casual Restaurant
2008
Group
12% Secured Debt
(Maturity — August 31,
2020)
12% Secured Debt
(Maturity — August 31,
2023)
Preferred Member Units
(440 units)
480
480
480
16,400
16,246
16,246
7,476
24,202
7,476
24,202
9% Secured Debt (Maturity —
October 2, 2019)
Series A Preferred Units
(2,500 units)
Warrants (1,424 equivalent
units; Expiration — July 1,
2024; Strike price — $0.01
per unit)
Member Units (MPI Real
Estate Holdings, LLC) (100
units)(8)
2,924
2,924
2,500
2,582
440
1,096
—
2,300
8,820
2,479
5,501
13% Secured Debt
(Maturity — December 23,
2018)(17)
Series A Preferred Stock
(3,000,000 shares)
Common Stock (1,126,242
shares)
6.5% Secured Debt
(Maturity — October 1,
2019)
12% Secured Debt
(Maturity — October 1,
2019)
14% Secured Debt
(Maturity — October 1,
2019)
Warrants (587 equivalent
units; Expiration —
October 1, 2019; Strike
price — $0.01 per unit)
Preferred Member Units
(10,072 units)
2,153
2,153
3,000
3,706
8,859
2,153
3,740
280
6,173
1,000
998
1,000
425
425
425
2,750
2,750
2,750
600
2,834
7,607
—
1,249
5,424
1,004,993
Subtotal Control Investments (68.1% of net assets at fair value)
$ 750,618 $
93
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments — (Continued)
December 31, 2018
(dollars in thousands)
(unaudited)
Portfolio Company(1)(20)
Affiliate Investments(6)
Investment
Date(26)
Business
Description
Type of Investment(2)(3)(25) Principal(4) Cost(4)
Fair
Value(18)
AFG Capital Group, LLC November 7,
Provider of
2014
Rent-to-Own
Financing
Solutions and
Services
Barfly Ventures, LLC(10)
August 31,
Casual
2015
Restaurant
Group
BBB Tank Services, LLC
April 8,
2016
Maintenance,
Repair and
Construction
Services to the
Above-
Ground
Storage Tank
Market
Boccella Precast
Products LLC
June 30,
2017
Manufacturer of
Precast
Hollow Core
Concrete
Warrants (42 equivalent units;
Expiration — November 7,
2024; Strike price — $0.01
per unit)
Preferred Member Units
(186 units)(8)
12% Secured Debt
(Maturity — August 31,
2020)
Options (3 equivalent units)
Warrant (1 equivalent unit;
Expiration — August 31,
2025; Strike price — $1.00
per unit)
$
259 $
950
1,200
1,459
3,980
4,930
10,185
10,039
607
10,018
940
473
11,119
410
11,368
LIBOR Plus 11.00% (Floor
1.00%), Current Coupon
13.35%, (Maturity —
April 8, 2021)(9)
Preferred Stock (non-voting)
Member Units (800,000 units)
4,000
3,833
113
800
4,746
3,833
113
230
4,176
LIBOR Plus 10.00% (Floor
1.00%), Current Coupon
12.40%, Secured Debt
(Maturity — June 30, 2022)
(9)
Member Units
(2,160,000 units)(8)
15,724
15,512
15,724
2,160
17,672
5,080
20,804
Boss Industries, LLC
July 1, 2014 Manufacturer
and
Distributor of
Air, Power
and Other
Industrial
Equipment
Financial
Services and
Cash Flow
Solutions
Provider
Preferred Member Units
(2,242 units)(8)
2,246
6,176
13% Secured Debt
Bridge Capital Solutions
Corporation
April 18,
2012
13% Secured Debt
(Maturity — July 25, 2021)
7,500
6,221
6,221
Warrants (82 equivalent
shares; Expiration —
July 25, 2026; Strike
price — $0.01 per share)
13% Secured Debt (Mercury
Service Group, LLC)
(Maturity — July 25, 2021)
Preferred Member Units
(Mercury Service
Group, LLC) (17,742 units)
(8)
94
2,132
4,020
1,000
994
1,000
1,000
10,347
1,000
12,241
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments — (Continued)
December 31, 2018
(dollars in thousands)
(unaudited)
Portfolio Company(1)(20)
Buca C, LLC
Investment
Date(26)
Business
Description
June 30,
2015
Casual Restaurant
Group
Type of Investment(2)(3)(25) Principal(4) Cost(4)
Fair
Value(18)
CAI Software LLC
October 10,
Provider of
2014
Specialized
Enterprise
Resource
Planning
Software
Chandler Signs
Holdings, LLC(10)
January 4,
2016
Sign
Manufacturer
Charlotte Russe, Inc(11)
May 28,
2013
Fast-Fashion
Retailer to
Young Women
LIBOR Plus 9.25% (Floor
1.00%), Current Coupon
11.63%, Secured Debt
(Maturity — June 30, 2020)
(9)
Preferred Member Units
(6 units; 6% cumulative)(8)
(19)
19,104
19,038
19,038
4,431
23,469
4,431
23,469
12% Secured Debt
(Maturity — December 7,
2023)
Member Units (66,968 units)
(8)
12% Current / 1% PIK
Secured Deb (Maturity —
July 4, 2021)(19)
Class A Units
(1,500,000 units)(8)
8.50% Secured Debt
(Maturity — February 2,
2023)
Common Stock (19,041
shares)
10,880
10,763
10,880
751
11,514
2,717
13,597
4,546
4,522
1,500
6,022
7,932
7,932
3,141
11,073
4,546
2,120
6,666
3,930
—
3,930
Condit Exhibits, LLC
July 1, 2008 Tradeshow
Exhibits /
Custom
Displays
Provider
Congruent Credit
Opportunities Funds(12)
(13)
January 24,
2012
Investment
Partnership
Dos Rios Partners(12)(13)
April 25,
2013
Investment
Partnership
East Teak Fine Hardwoods,
Distributor of
Member Units (3,936 units)(8)
100
1,950
LP Interests (Congruent Credit
Opportunities Fund II, LP)
(Fully diluted 19.8%)
LP Interests (Congruent Credit
Opportunities Fund III, LP)
(Fully diluted 17.4%)(8)
LP Interests (Dos Rios
Partners, LP) (Fully diluted
20.2%)
LP Interests (Dos Rios
Partners — A, LP) (Fully
diluted 6.4%)
5,210
855
16,959
22,169
17,468
18,323
5,846
7,153
1,856
7,702
2,271
9,424
East Teak Fine Hardwoods,
Inc.
April 13,
2006
Distributor of
Hardwood
Products
EIG Fund Investments(12)
November 6,
Investment
(13)
2015
Partnership
Common Stock (6,250 shares)
(8)
480
560
LP Interests (EIG Global
Private Debt Fund-A, L.P.)
(Fully diluted 11.1%)(8)
95
553
505
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments — (Continued)
December 31, 2018
(dollars in thousands)
(unaudited)
Portfolio Company(1)(20)
Freeport Financial
Funds(12)(13)
Investment
Date(26)
Business
Description
June 13, 2013
Investment
Partnership
Type of Investment(2)(3)(25) Principal(4) Cost(4)
Fair
Value(18)
LP Interests (Freeport
Financial SBIC Fund LP)
(Fully diluted 9.3%)(8)
LP Interests (Freeport First
Lien Loan Fund III LP)
(Fully diluted 6.0%)(8)
5,974
5,399
11,155
17,129
10,980
16,379
LP Interests (HPEP 3, L.P.)
(Fully diluted 8.2%)
1,733
1,733
10.5% Secured Debt
(Maturity — December 2,
2021)
Preferred Member Units
(226 units)(8)
Preferred Member Units (HRS
Services, ULC) (226 units)
14,300
14,201
14,300
2,850
150
17,201
7,260
380
21,940
8% Unsecured Convertible
Debt (Maturity — May 1,
2022)
Member Units (318,462 units)
(8)
3,000
3,000
3,720
2,236
5,236
8,330
12,050
Member Units (Fully diluted
20.0%; 24.4% profits
interest)(8)
16,200
15,627
Member Units
(2,179,001 units)
2,019
2,060
LIBOR Plus 8.50% (Floor
1.00%), Current Coupon
10.90%, Secured Debt
(Maturity — June 7, 2022)
(9)
Member Units (Milton Meisler
Holdings LLC)
(48,555 units)
20,480
20,312
20,312
4,855
25,167
5,780
26,092
Harris Preston Fund
Investments(12)(13)
August 9,
2017
Investment
Partnership
Hawk Ridge
Systems, LLC(13)
December 2,
2016
Value-Added
Reseller of
Engineering
Design and
Manufacturing
Solutions
Houston Plating and
Coatings, LLC
January 8,
2003
Provider of
Plating and
Industrial
Coating
Services
I-45 SLF LLC(12)(13)
October 20,
Investment
2015
Partnership
L.F. Manufacturing
Holdings, LLC(10)
December 23,
2013
Manufacturer of
Fiberglass
Products
Meisler Operating LLC
June 7, 2017 Provider of
Short-term
Trailer and
Container
Rental
OnAsset Intelligence, Inc.
April 18,
2011
Provider of
Transportation
Monitoring /
Tracking
Products and
Services
12% PIK Secured Debt
(Maturity — June 30, 2021)
(19)
10% PIK Unsecured Debt
(Maturity — June 30, 2021)
(19)
Preferred Stock (912 shares)
Warrants (5,333 equivalent
shares; Expiration —
April 18, 2021; Strike
price — $0.01 per share)
96
5,743
5,743
5,743
53
53
1,981
53
—
1,919
9,696
—
5,796
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments — (Continued)
December 31, 2018
(dollars in thousands)
(unaudited)
Portfolio Company(1)(20)
PCI Holding Company, Inc.
Investment
Date(26)
Business
Description
December 18,
2012
Manufacturer of
Industrial Gas
Generating
Systems
Type of Investment(2)(3)(25) Principal(4) Cost(4)
Fair
Value(18)
12% Current / 3% PIK
Secured Debt (Maturity —
March 31, 2019)(19)
Preferred Stock (1,740,000
shares) (non-voting)
Preferred Stock (1,500,000
shares)
11,919
11,908
11,908
1,740
3,927
17,575
3,480
340
15,728
12% Secured Debt
(Maturity — January 8,
2018)(14)(15)
Preferred Member Units
(250 units)
30,785
30,281
2,500
32,781
250
—
250
Class A Preferred Units
(Salado Acquisition, LLC)
(2,000,000 units)(8)
2,000
1,040
10.25% Current, Secured Debt
(Maturity — August 31,
2023)
Preferred Member Units
(157 units)
35,250
34,885
34,885
6,000
40,885
6,000
40,885
Rocaceia, LLC (Quality
Lease and Rental
Holdings, LLC)
January 8,
2013
Provider of
Rigsite
Accommodation
Unit Rentals and
Related Services
Salado Stone
Holdings, LLC(10)
June 27, 2016 Limestone and
Sandstone
Dimension Cut
Stone Mining
Quarries
SI East, LLC
August 31,
2018
Rigid Industrial
Packaging
Manufacturing
Slick Innovations, LLC
September 13,
2018
Text Message
Marketing
Platform
UniTek Global Services, Inc.
April 15, 2011 Provider of
(11)
Outsourced
Infrastructure
Services
14% Current, Secured Debt
(Maturity — September 13,
2023)
Member Units (70,000 units)
Warrants (18,084 equivalent
units; Expiration —
September 13, 2028; Strike
price — $0.01 per unit)
7,200
6,959
700
181
7,840
6,959
700
181
7,840
LIBOR Plus 5.50% (Floor
1.00%), Current Coupon
8.01%, Secured Debt
(Maturity — August 20,
2024)(9)
Preferred Stock (1,521,122
shares; 19% cumulative)(8)
(19)
Preferred Stock (2,281,682
shares; 19% cumulative)(8)
(19)
Preferred Stock (4,336,866
2,993
2,969
2,969
1,637
1,637
3,038
3,038
shares; 13.5% cumulative)
(8)(19)
Common Stock (945,507
shares)
97
7,413
7,413
—
15,057
1,420
16,477
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments — (Continued)
December 31, 2018
(dollars in thousands)
(unaudited)
Portfolio Company(1)(20)
Investment
Date(26)
Business
Description
Type of Investment(2)(3)(25) Principal(4) Cost(4)
Fair
Value(18)
Universal Wellhead Services
October 30,
Holdings, LLC(10)
2014
Provider of
Wellhead
Equipment,
Designs, and
Personnel to the
Oil & Gas
Industry
Volusion, LLC
January 26,
2015
Provider of
Online
Software-as-a-
Service
eCommerce
Solutions
Subtotal Affiliate Investments (24.4% of net assets at fair value)
Preferred Member Units
(UWS Investments, LLC)
(716,949 units; 14%
cumulative)(8)(19)
Member Units (UWS
Investments, LLC)
(4,000,000 units)
11.5% Secured Debt
(Maturity — January 26,
2020)
8% Unsecured Convertible
Debt (Maturity —
November 16, 2023)
Preferred Member Units
(4,876,670 units)
Warrants (1,831,355
equivalent units;
Expiration — January 26,
2025; Strike price — $0.01
per unit)
98
837
950
4,000
4,837
2,330
3,280
19,272
18,407
18,407
297
297
297
14,000
14,000
2,576
35,280
$ 381,307 $
1,890
34,594
359,890
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments — (Continued)
December 31, 2018
(dollars in thousands)
(unaudited)
Portfolio Company(1)(20)
Investment
Date(26)
Business
Description
Type of Investment(2)(3)
(25)
Principal(4) Cost(4)
Fair
Value(18)
Non-Control/Non-Affiliate Investments(7)
AAC Holdings, Inc.(11)
June 30, 2017 Substance Abuse
Treatment
Service
Provider
Adams Publishing
Group, LLC(10)
November 19,
Local
2015
Newspaper
Operator
ADS Tactical, Inc.(10)
March 7, 2017 Value-Added
Logistics and
Supply Chain
Provider to the
Defense
Industry
Aethon United BR LP(10)
September 8,
2017
Oil & Gas
Exploration &
Production
Allen Media, LLC.(11)
September 18,
2018
Operator of
Cable
Television
Networks
Allflex Holdings III Inc.(11)
July 18, 2013 Manufacturer of
Livestock
Identification
Products
American Nuts, LLC(10)
April 10, 2018 Roaster, Mixer
and Packager
of Bulk Nuts
and Seeds
LIBOR Plus 6.75% (Floor
1.00%), Current Coupon
9.28%, Secured Debt
(Maturity — June 30,
2023)(9)
Prime Plus 4.00% (Floor
1.00%), Current Coupon
9.50%, Secured Debt
(Maturity — July 3, 2023)
(9)
LIBOR Plus 7.00% (Floor
1.00%), Current Coupon
9.93%, Secured Debt
(Maturity — July 3, 2023)
(9)
LIBOR Plus 6.25% (Floor
0.75%), Current Coupon
8.77%, Secured Debt
(Maturity — July 26,
2023)(9)
LIBOR Plus 6.75% (Floor
1.00%), Current Coupon
9.14%, Secured Debt
(Maturity — September 8,
2023)(9)
LIBOR Plus 6.50% (Floor
1.00%), Current Coupon
9.21%, Secured Debt
(Maturity — August 30,
2023)(9)
LIBOR Plus 7.00% (Floor
1.00%), Current Coupon
9.48%, Secured Debt
(Maturity — July 19,
2021)(9)
LIBOR Plus 8.50% (Floor
$
14,500 $
14,245 $
14,246
4,250
4,160
4,160
8,108
7,956
12,116
7,956
12,116
16,416
16,263
15,306
4,063
4,011
3,817
17,143
16,670
16,800
13,120
13,077
13,013
1.00%) PIK, 9.50% PIK
Secured Debt, (Maturity —
LIBOR Plus 8.50% (Floor
April 10, 2023)(9)(19)
1.00%), Current Coupon
10.90%, Secured Debt
(Maturity — April 10,
2023)(9)
1,127
1,115
1,115
11,194
11,000
12,115
10,475
11,590
99
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments — (Continued)
December 31, 2018
(dollars in thousands)
(unaudited)
Portfolio Company(1)(20)
Investment
Date(26)
Business
Description
Type of Investment(2)(3)
(25)
Principal(4) Cost(4)
Fair
Value(18)
American Scaffold
Holdings, Inc.(10)
June 14,
2016
Marine Scaffolding
Service Provider
American Teleconferencing
May 19,
Provider of Audio
Services, Ltd.(11)
2016
Conferencing and
Video
Collaboration
Solutions
Apex Linen Service, Inc.
October 30,
Industrial
2015
Launderers
APTIM Corp.(11)
August 17,
Engineering,
2018
Construction &
Procurement
Arcus Hunting LLC(10)
January 6,
2015
Manufacturer of
Bowhunting and
Archery Products
and Accessories
Arise Holdings, Inc.(10)
March 12,
Tech-Enabled
2018
Business Process
Outsourcing
ASC Ortho Management
Company, LLC(10)
August 31,
Provider of
2018
Orthopedic
Services
ATI Investment Sub, Inc.
(11)
July 11,
2016
Manufacturer of
Solar Tracking
Systems
LIBOR Plus 6.50% (Floor
1.00%), Current Coupon
9.30%, Secured Debt
(Maturity — March 31,
2022)(9)
LIBOR Plus 6.50% (Floor
1.00%), Current Coupon
9.09%, Secured Debt
(Maturity — December 8,
2021)(9)
LIBOR Plus 9.00% (Floor
1.00%), Current Coupon
11.35%, Secured Debt
(Maturity — October 30,
2022)(9)
16% Secured Debt
(Maturity — October 30,
2022)
6,656
6,592
6,623
15,940
15,186
13,310
2,400
2,400
2,400
14,416
14,357
16,757
14,357
16,757
7.75% Secured Debt
(Maturity — June 15,
2025)
12,452
10,633
9,464
LIBOR Plus 7.00% (Floor
1.00%), Current Coupon
9.40%, Secured Debt
(Maturity —
November 13, 2019)(9)
15,394
15,351
15,394
Preferred Stock (1,000,000
shares)
1,000
1,704
LIBOR Plus 7.50% (Floor
1.00%), Current Coupon
9.90%, Secured Debt
(Maturity — August 31,
2023)(9)
13.25% PIK Secured Debt
(Maturity — December 1,
2023)(19)
LIBOR Plus 7.25% (Floor
1.00%), Current Coupon
9.76%, Secured Debt
4,660
4,559
4,559
1,624
1,587
6,146
1,587
6,146
(Maturity — June 22,
2021)(9)
100
4,385
4,346
3,943
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments — (Continued)
December 31, 2018
(dollars in thousands)
(unaudited)
Portfolio Company(1)(20)
Investment
Date(26)
Business
Description
Type of Investment(2)(3)
(25)
Principal(4) Cost(4)
Fair
Value(18)
ATX Networks Corp.(11)
June 30, 2015 Provider of Radio
(13)(21)
Frequency
Management
Equipment
Berry Aviation, Inc.(10)
July 6, 2018 Charter Airline
Services
BigName
May 11, 2017 Provider of
Commerce, LLC(10)
Envelopes and
Complimentary
Stationery
Products
Binswanger
March 10,
Enterprises, LLC(10)
2017
Glass Repair and
Installation
Service
Provider
Bluestem Brands, Inc.(11)
December 19,
Multi-Channel
2013
Retailer of
General
Merchandise
Brainworks
Software, LLC(10)
August 12,
2014
Advertising Sales
and Newspaper
Circulation
Software
Brightwood Capital Fund
Investments(12)(13)
July 21, 2014
Investment
Partnership
LIBOR Plus 6.00% (Floor
1.00%), Current Coupon
8.39% / 1.00% PIK,
Current Coupon Plus PIK
9.39%, Secured Debt
(Maturity — June 11,
2021)(9)(19)
10.50% Current / 1.5% PIK,
Secured Debt (Maturity —
January 6, 2024)(19)
Preferred Member Units
(Berry Acquisition, LLC)
(1,548,387 units; 8%
cumulative)(8)(19)
LIBOR Plus 7.25% (Floor
1.00%), Current Coupon
9.65%, Secured Debt
(Maturity — May 11,
2022)(9)
LIBOR Plus 8.00% (Floor
1.00%), Current Coupon
10.74%, Secured Debt
(Maturity — March 9,
2022)(9)
Member Units (1,050,000
units)
LIBOR Plus 7.50% (Floor
1.00%), Current Coupon
10.02%, Secured Debt
(Maturity — November 6,
2020)(9)
Prime Plus 9.25% (Floor
3.25%), Current Coupon
14.70%, Secured Debt
(Maturity — July 22,
2019)(9)
LP Interests (Brightwood
Capital Fund III, LP)
(Fully diluted 1.6%)(8)
LP Interests (Brightwood
14,121
13,844
13,415
4,485
4,443
4,443
1,609
6,052
1,609
6,052
2,462
2,440
2,369
14,368
14,169
13,743
1,050
15,219
1,330
15,073
11,375
11,262
7,356
6,733
6,723
6,590
12,000
10,264
Cadence
November 14,
Aerostructure
Aerospace LLC(10)
2017
Manufacturing
Capital Fund IV, LP)
(Fully diluted 0.6%)(8)
2,000
14,000
2,063
12,327
LIBOR Plus 6.50% (Floor
1.00%), Current Coupon
9.06%, Secured Debt
(Maturity —
November 14, 2023)(9)
101
19,470
19,301
18,244
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments — (Continued)
December 31, 2018
(dollars in thousands)
(unaudited)
Portfolio Company(1)(20)
California Pizza
Kitchen, Inc.(11)
Investment
Date(26)
August 29,
2016
Business
Description
Type of Investment(2)(3)
(25)
Principal(4) Cost(4)
Fair
Value(18)
Casual Restaurant
Group
LIBOR Plus 6.00% (Floor
1.00%), Current Coupon
8.53%, Secured Debt
(Maturity — August 23,
2022)(9)
LIBOR Plus 5.63% (Floor
1.00%), Current Coupon
8.15%, Secured Debt
(Maturity — October 6,
2021)(9)
Libor Plus 9.00% (Floor
1.00%), Current Coupon
11.54%, Secured Debt
(Maturity — June 7, 2023)
(9)
Common Stock (177,130
shares)
12,739
12,707
12,389
13,884
13,821
13,867
6,370
6,128
5,309
11,437
6,048
2,746
8,794
15% PIK Secured Debt
(Maturity — January 5,
2015)(14)(17)
2,908
2,908
44
LIBOR Plus 8.50% (Floor
1.00%), Current Coupon
10.90%, Secured Debt
(Maturity — December 5,
2022)(9)
2,925
2,876
2,750
Central Security
Group, Inc.(11)
December 4,
Security Alarm
2017
Monitoring
Service
Provider
Cenveo Corporation(11)
September 4,
2015
Provider of
Digital
Marketing
Agency
Services
Clarius BIGS, LLC(10)
September 23,
Prints &
2014
Advertising
Film Financing
Clickbooth.com, LLC(10)
December 5,
Provider of
2017
Digital
Advertising
Performance
Marketing
Solutions
Construction Supply
December 29,
Distribution
Investments, LLC(10)
2016
Platform of
Specialty
Construction
Materials to
Professional
Concrete and
Masonry
Contractors
LIBOR Plus 6.00% (Floor
1.00%), Current Coupon
8.62%, Secured Debt
(Maturity — June 30,
2023)(9)
Member Units (42,207 units)
15,423
15,355
4,221
19,576
15,384
4,290
19,674
CTVSH, PLLC(10)
August 3,
2017
Emergency Care
and Specialty
Service Animal
Hospital
LIBOR Plus 8.00% (Floor
1.00%), Current Coupon
10.74%, Secured Debt
(Maturity — August 3,
2022)(9)
102
11,250
11,163
10,939
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments — (Continued)
December 31, 2018
(dollars in thousands)
(unaudited)
Portfolio Company(1)(20)
Darr Equipment LP(10)
Investment
Date(26)
April 15,
2014
Business
Description
Type of Investment(2)(3)
(25)
Principal(4) Cost(4)
Fair
Value(18)
Heavy Equipment
Dealer
11.5% Current / 1% PIK
Secured Debt (Maturity -
June 22, 2023)(19)
Warrants (915,734 equivalent
units; Expiration —
December 23, 2023; Strike
price — $1.50 per unit)
5,839
5,839
5,723
474
6,313
60
5,783
Digital River, Inc.(11)
February 24,
Provider of
2015
Outsourced e-
Commerce
Solutions and
Services
DTE Enterprises, LLC(10)
April 13,
2018
Industrial
Powertrain
Repair and
Services
Dynamic
July 17, 2018 Developer of
Communities, LLC(10)
Business Events
and Online
Community
Groups
Elite SEM INC.(10)
August 31,
2018
Provider of
Digital
Marketing
Agency
Services
EnCap Energy Fund
Investments(12)(13)
December 28,
Investment
2010
Partnership
LIBOR Plus 6.00% (Floor
1.00%), Current Coupon
8.78%, Secured Debt
(Maturity — February 12,
2021)(9)
LIBOR Plus 7.50% (Floor
1.50%), Current Coupon
10.12%, Secured Debt
(Maturity — April 13,
2023)(9)
Class AA Preferred Member
Units (non-voting; 10%
cumulative)(8)(19)
Class A Preferred Member
Units (776,316 units)(8)
LIBOR Plus 8.00% (Floor
1.00%), Current Coupon
10.80%, Secured Debt
(Maturity — July 17,
2023)(9)
LIBOR Plus 8.50% (Floor
1.00%), Current Coupon
11.27%, Secured Debt
(Maturity — February 1,
2022)(9)(23)
LP Interests (EnCap Energy
Capital Fund VIII, L.P.)
(Fully diluted 0.1%)(8)
LP Interests (EnCap Energy
Capital Fund VIII Co-
Investors, L.P.) (Fully
diluted 0.4%)(8)
LP Interests (EnCap Energy
Capital Fund IX, L.P.)
(Fully diluted 0.1%)(8)
LP Interests (EnCap Energy
10,146
10,074
10,044
12,492
12,260
11,580
778
776
13,814
778
1,300
13,658
5,600
5,495
5,495
6,875
6,750
6,750
3,661
2,003
2,103
1,153
4,430
3,784
Capital Fund X, L.P.)
(Fully diluted 0.1%)(8)
LP Interests (EnCap Flatrock
Midstream Fund II, L.P.)
(Fully diluted 0.8%)(8)
LP Interests (EnCap Flatrock
Midstream Fund III, L.P.)
(Fully diluted 0.2%)(8)
103
7,629
7,692
5,881
4,538
5,423
29,127
5,051
24,221
Table of Contents
Portfolio Company(1)(20)
Encino Acquisition
Partners Holdings, Inc.
(11)
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments — (Continued)
December 31, 2018
(dollars in thousands)
(unaudited)
Investment
Date(26)
Business
Description
Type of Investment(2)(3)
(25)
Principal(4) Cost(4)
Fair
Value(18)
November 16,
2018
Oil & Gas
Exploration &
Production
EPIC Y-Grade
Services, LP(11)
June 22, 2018 NGL
Transportation &
Storage
Evergreen Skills Lux S.á
r.l. (d/b/a Skillsoft)(11)
(13)
May 5, 2014 Technology-based
Performance
Support
Solutions
Extreme Reach, Inc.(11)
March 31,
Integrated TV and
2015
Video
Advertising
Platform
Felix Investments
Holdings II(10)
August 9,
2017
Oil & Gas
Exploration &
Production
Flavors Holdings Inc.(11)
October 15,
2014
Global Provider of
Flavoring and
Sweetening
Products
GeoStabilization
December 31,
Geohazard
International (GSI)(11)
2018
Engineering
Services &
Maintenance
GI KBS Merger
Sub LLC(11)
November 10,
2014
Outsourced
Janitorial Service
Provider
LIBOR Plus 6.75% (Floor
1.00%), Current Coupon
9.27%, Secured Debt
(Maturity — October 29,
2025)(9)
LIBOR Plus 5.50%, Current
Coupon 8.02%, Secured
Debt (Maturity — June 13,
2024)
LIBOR Plus 8.25% (Floor
1.00%), Current Coupon
10.77%, Secured Debt
(Maturity — April 28,
2022)(9)
LIBOR Plus 6.25% (Floor
1.00%), Current Coupon
8.78%, Secured Debt
(Maturity — February 7,
2020)(9)
LIBOR Plus 6.50% (Floor
1.00%), Current Coupon
9.10%, Secured Debt
(Maturity — August 9,
2022)(9)
LIBOR Plus 5.75% (Floor
1.00%), Current Coupon
8.55%, Secured Debt
(Maturity — April 3, 2020)
(9)
LIBOR Plus 5.50%, Current
Coupon 8.09%, Secured
Debt (Maturity —
December 19, 2025)
LIBOR Plus 4.75% (Floor
1.00%), Current Coupon
7.43%, Secured Debt
(Maturity — October 29,
2021)(9)
LIBOR Plus 8.50% (Floor
9,000
8,911
8,595
17,500
17,175
16,625
6,999
6,901
3,931
16,460
16,451
16,371
3,333
3,279
3,141
12,295
12,044
11,434
16,500
16,335
16,418
9,195
9,139
9,207
1.00%), Current Coupon
11.02%, Secured Debt
(Maturity — April 29,
2022)(9)
104
3,915
3,797
12,936
3,949
13,156
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments — (Continued)
December 31, 2018
(dollars in thousands)
(unaudited)
Portfolio Company(1)(20)
Investment
Date(26)
Business Description
Type of Investment(2)(3)
(25)
Principal(4) Cost(4)
Fair
Value(18)
Good Source Solutions, Inc.
October 23,
(10)
2018
Specialized Food
Distributor
GoWireless Holdings, Inc.
(11)
December 31,
2017
Provider of Wireless
Telecommunications
Carrier Services
Grupo Hima San
Pablo, Inc.(11)
March 7,
Tertiary Care
2013
Hospitals
HDC/HW Intermediate
Holdings(10)
December 21,
2018
Managed Services and
Hosting Provider
Hoover Group, Inc.(10)(13) October 21,
Provider of Storage
2016
Tanks and Related
Products to the
Energy and
Petrochemical
Markets
Hunter Defense
March 29,
Provider of Military
Technologies, Inc.(10)
2018
and Commercial
Shelters and
Systems
Hydrofarm
Holdings LLC(10)
May 18, 2017 Wholesaler of
Horticultural
Products
LIBOR Plus 8.34% (Floor
1.00%), Current Coupon
11.14%, Secured Debt
(Maturity — June 29,
2023)(9)(23)
LIBOR Plus 6.50% (Floor
1.00%), Current Coupon
9.02%, Secured Debt
(Maturity — December 22,
2024)(9)
LIBOR Plus 7.00% (Floor
1.50%), Current Coupon
9.52%, Secured Debt
(Maturity — January 31,
2019)(9)
13.75% Secured Debt
(Maturity — October 15,
2018)(17)
LIBOR Plus 7.50% (Floor
1.00%), Current Coupon
10.29%, Secured Debt
(Maturity — December 21,
2023)(9)
LIBOR Plus 6.00%, Current
Coupon 8.71%, Secured
Debt (Maturity —
January 28, 2020)
LIBOR Plus 7.25% (Floor
1.00%), Current Coupon
9.90%, Secured Debt
(Maturity — January 28,
2021)(9)
LIBOR Plus 7.00% (Floor
1.00%), Current Coupon
9.80%, Secured Debt
(Maturity — March 29,
2023)(9)
LIBOR Plus 10.00%, Current
Coupon 3.69% / 8.61%
PIK, Current Coupon Plus
PIK 12.30% Secured Debt
(Maturity — May 12,
2022)(19)
5,000
4,952
4,952
17,325
17,170
16,856
4,688
4,688
3,629
2,055
2,040
6,728
226
3,855
3,201
3,132
3,132
5,250
4,803
4,771
9,395
9,053
13,856
8,831
13,602
16,080
15,757
15,077
7,235
7,139
5,660
iEnergizer Limited(11)(13)
May 8, 2013 Provider of Business
(21)
Outsourcing
Solutions
LIBOR Plus 6.00% (Floor
1.25%), Current Coupon
8.53%, Secured Debt
(Maturity — May 1, 2019)
(9)
105
14,100
14,052
14,117
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments — (Continued)
December 31, 2018
(dollars in thousands)
(unaudited)
Portfolio Company(1)(20)
Investment
Date(26)
Business
Description
Type of Investment(2)(3)
(25)
Principal(4) Cost(4)
Fair
Value(18)
Implus Footcare, LLC(10)
June 1, 2017 Provider of
Footwear and
Related
Accessories
Independent Pet Partners
Intermediate
Holdings, LLC(10)
November 20,
2018
Omnichannel
Retailer of
Specialty Pet
Products
Industrial Services
Acquisition, LLC(10)
June 17, 2016
Industrial Cleaning
Services
Inn of the Mountain Gods
Resort and Casino(11)
October 30,
2013
Hotel & Casino
Owner &
Operator
Intermedia Holdings, Inc.
(11)
August 3,
2018
Unified
Communications
as a Service
LIBOR Plus 6.75% (Floor
1.00%), Current Coupon
9.55%, Secured Debt
(Maturity — April 30,
2021)(9)
LIBOR Plus 9.00% (Floor
1.00%), Current Coupon
11.90%, Secured Debt
(Maturity —
November 19, 2023)(9)
Member Units (1,558,333
units)
6% Current / 7% PIK
Unsecured Debt
(Maturity — December 17,
2022)(19)
Preferred Member Units
(Industrial Services
Investments, LLC)
(144 units; 10%
cumulative)(8)(19)
Member Units (Industrial
Services
Investments, LLC) (900
units)
18,819
18,629
18,390
2,078
2,037
1,558
3,595
2,037
1,558
3,595
4,885
4,822
4,470
94
94
900
5,816
210
4,774
9.25% Secured Debt
(Maturity —
November 30, 2020)
7,832
7,479
7,480
LIBOR Plus 6.00% (Floor
1.00%), Current Coupon
8.52%, Secured Debt
(Maturity — July 19,
2025)(9)
11,571
11,461
11,557
irth Solutions, LLC
December 29,
2010
Provider of
Damage
Prevention
Information
Technology
Services
Isagenix
June 21, 2018 Direct Marketer of
International, LLC(11)
Health &
Wellness
Products
Member Units (27,893 units)
1,441
2,830
LIBOR Plus 5.75% (Floor
1.00%), Current Coupon
8.55%, Secured Debt
(Maturity — June 14,
2025)(9)
6,268
6,208
6,095
JAB Wireless, Inc.(10)
May 2, 2018 Fixed Wireless
Broadband
Provider
LIBOR Plus 8.00% (Floor
1.00%), Current Coupon
10.39%, Secured Debt
(Maturity — May 2, 2023)
(9)
106
14,888
14,754
13,987
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments — (Continued)
December 31, 2018
(dollars in thousands)
(unaudited)
Portfolio Company(1)(20)
Investment
Date(26)
Business
Description
Type of Investment(2)(3)
(25)
Principal(4) Cost(4)
Fair
Value(18)
Jacent Strategic
September 16,
General
Merchandising, LLC(10)
2015
Merchandise
Distribution
Jackmont Hospitality, Inc.
May 26, 2015 Franchisee of
(10)
Casual Dining
Restaurants
Jacuzzi Brands LLC(11)
June 30, 2017 Manufacturer of
Bath and Spa
Products
Joerns
April 3, 2013 Manufacturer and
Healthcare, LLC(11)
Distributor of
Health Care
Equipment &
Supplies
Kore Wireless Group Inc.
December 31,
(11)
2018
Mission Critical
Software
Platform
Larchmont
Resources, LLC(11)
August 13,
2013
Oil & Gas
Exploration &
Production
LIBOR Plus 7.50% (Floor
1.00%), Current Coupon
10.27%, Secured Debt
(Maturity —
September 16, 2020)(9)
LIBOR Plus 6.75% (Floor
1.00%), Current Coupon
9.26%, Secured Debt
(Maturity — May 26,
2021)(9)
LIBOR Plus 7.00% (Floor
1.00%), Current Coupon
9.52%, Secured Debt
(Maturity — June 28,
2023)(9)
LIBOR Plus 6.00% (Floor
1.00%), Current Coupon
8.71% Secured Debt
(Maturity — May 9, 2020)
(9)
LIBOR Plus 5.50%, Current
Coupon 8.29%, Secured
Debt (Maturity —
December 20, 2024)
LIBOR Plus 9.00% (Floor
1.00%) PIK, 11.77% PIK
Secured Debt, (Maturity —
August 7, 2020)(9)(19)
Member Units (Larchmont
Intermediate Holdco, LLC)
(2,828 units)
10,740
10,705
10,740
4,165
4,157
4,165
3,850
3,788
3,831
13,387
13,335
11,998
6,667
6,600
6,631
2,312
2,312
2,266
353
2,665
707
2,973
LKCM Headwater
Investments I, L.P.(12)
(13)
January 25,
2013
Investment
Partnership
Logix Acquisition
Company, LLC(10)
June 24, 2016 Competitive
Local
Exchange
Carrier
LP Interests (Fully diluted
2.3%)(8)
1,780
3,501
LIBOR Plus 5.75% (Floor
1.00%), Current Coupon
8.27%, Secured Debt
(Maturity — December 22,
2024)(9)
12,927
12,725
12,797
107
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments — (Continued)
December 31, 2018
(dollars in thousands)
(unaudited)
Portfolio Company(1)(20)
Looking Glass
Investments, LLC(12)(13)
Investment
Date(26)
July 1,
2015
Business Description
Specialty Consumer
Finance
Type of Investment(2)(3)
(25)
Principal(4) Cost(4)
Fair
Value(18)
Member Units (2.5 units)
Member Units (LGI
Predictive Analytics LLC)
(190,712 units)(8)
125
49
174
57
33
90
LSF9 Atlantis
May 17,
Provider of Wireless
Holdings, LLC(11)
2017
Telecommunications
Carrier Services
Lulu's Fashion
Lounge, LLC(10)
August 31,
Fast Fashion E-
2017
Commerce Retailer
MHVC Acquisition Corp.
(11)
May 8,
2017
Provider of
differentiated
information
solutions, systems
engineering, and
analytics
Mills Fleet Farm
Group, LLC(10)
October 24,
2018
Omnichannel Retailer
of Work, Farm and
Lifestyle
Merchandise
Mobileum(10)
October 23,
2018
Provider of big data
analytics to telecom
service providers
NBG Acquisition Inc(11)
April 28,
2017
Wholesaler of Home
Décor Products
New Era Technology, Inc.
(10)
June 30,
2018
Managed Services and
Hosting Provider
LIBOR Plus 6.00% (Floor
1.00%), Current Coupon
8.38%, Secured Debt
(Maturity — May 1, 2023)
(9)
LIBOR Plus 7.00% (Floor
1.00%), Current Coupon
9.52%, Secured Debt
(Maturity — August 28,
2022)(9)
LIBOR Plus 5.25% (Floor
1.00%), Current Coupon
8.06%, Secured Debt
(Maturity — April 29,
2024)(9)
LIBOR Plus 6.25% (Floor
1.00%), Current Coupon
8.77%, Secured Debt
(Maturity — October 24,
2024)(9)
LIBOR Plus 10.25% (Floor
0.75%), Current Coupon
13.06%, Secured Debt
(Maturity — May 1, 2022)
(9)
LIBOR Plus 5.50% (Floor
1.00%), Current Coupon
8.09%, Secured Debt
(Maturity — April 26,
2024)(9)
LIBOR Plus 6.50% (Floor
1.00%), Current Coupon
8.99%, Secured Debt
(Maturity — June 22,
2023)(9)
9,710
9,694
9,269
12,358
12,060
11,987
15,475
15,442
15,088
15,000
14,707
15,000
7,500
7,429
7,429
4,292
4,235
4,184
7,654
7,526
7,616
108
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments — (Continued)
December 31, 2018
(dollars in thousands)
(unaudited)
Portfolio Company(1)(20)
Investment
Date(26)
Business
Description
Type of Investment(2)(3)
(25)
Principal(4) Cost(4)
Fair
Value(18)
New Media
Holdings II LLC(11)(13)
June 10,
2014
Local Newspaper
Operator
NNE Partners, LLC(10)
March 2,
Oil & Gas
2017
Exploration &
Production
North American Lifting
February 26,
Holdings, Inc.(11)
2015
Crane Service
Provider
Novetta Solutions, LLC(11)
June 21,
2017
Provider of
Advanced
Analytics
Solutions for
Defense
Agencies
NTM Acquisition Corp.(11)
July 12,
2016
Provider of B2B
Travel
Information
Content
Ospemifene Royalty
July 8, 2013 Estrogen-
Sub LLC (QuatRx)(10)
Deficiency Drug
Manufacturer
and Distributor
Permian Holdco 2, Inc.(11) February 12,
Storage Tank
2013
Manufacturer
LIBOR Plus 6.25% (Floor
1.00%), Current Coupon
8.77%, Secured Debt
(Maturity — July 14,
2022)(9)
LIBOR Plus 8.00%, Current
Coupon 10.74%, Secured
Debt (Maturity —
March 2, 2022)
LIBOR Plus 4.50% (Floor
1.00%), Current Coupon
7.30%, Secured Debt
(Maturity —
November 27, 2020)(9)
LIBOR Plus 5.00% (Floor
1.00%), Current Coupon
7.53%, Secured Debt
(Maturity — October 17,
2022)(9)
LIBOR Plus 6.25% (Floor
1.00%), Current Coupon
8.96%, Secured Debt
(Maturity — June 7, 2022)
(9)
11.5% Secured Debt
(Maturity —
November 15, 2026)(14)
14% PIK Unsecured Debt
(Maturity — October 15,
2021)(19)
Preferred Stock (Permian
Holdco 1, Inc.) (154,558
units)
21,125
20,797
20,967
20,417
20,260
19,572
7,664
7,093
6,997
15,478
15,091
15,091
4,419
4,396
4,375
4,975
4,975
937
396
396
396
799
1,195
920
1,316
Pernix Therapeutics
Holdings, Inc.(10)
August 18,
2014
Pharmaceutical
Royalty
12% Secured Debt
(Maturity — August 1,
2020)
3,031
3,031
2,037
Pier 1 Imports, Inc.(11)
February 20,
2018
Decorative Home
Furnishings
Retailer
LIBOR Plus 3.50% (Floor
LIBOR Plus 3.50% (Floor
1.00%), Current Coupon
6.38%, Secured Debt
(Maturity — April 30,
2021)(9)
109
9,736
9,152
6,998
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments — (Continued)
December 31, 2018
(dollars in thousands)
(unaudited)
Portfolio Company(1)(20)
Investment
Date(26)
Business
Description
Type of Investment(2)(3)
(25)
Principal(4) Cost(4)
Fair
Value(18)
Point.360(10)
July 8, 2015 Fully Integrated
Provider of
Digital Media
Services
PricewaterhouseCoopers
Public Sector LLP(11)
May 24, 2018 Provider of
Consulting
Services to
Governments
Prowler Acquisition Corp.
February 11,
Specialty
(11)
2014
Distributor to the
Energy Sector
PT Network, LLC(10)
November 1,
Provider of
2013
Outpatient
Physical Therapy
and Sports
Medicine
Services
Research Now Group, Inc.
and Survey Sampling
International, LLC(11)
December 31,
Provider of
2017
Outsourced
Online
Surveying
Warrants (65,463 equivalent
shares; Expiration —
July 7, 2020; Strike
price — $0.75 per share)
Common Stock (163,658
shares)
LIBOR Plus 7.50%, Current
Coupon 9.74%, Secured
Debt (Maturity — May 1,
2026)
LIBOR Plus 4.50% (Floor
1.00%), Current Coupon
7.30%, Secured Debt
(Maturity — January 28,
2020)(9)
LIBOR Plus 5.50% (Floor
1.00%), Current Coupon
7.99%, Secured Debt
(Maturity —
November 30, 2021)(9)
LIBOR Plus 5.50% (Floor
1.00%), Current Coupon
8.02%, Secured Debt
(Maturity — December 20,
2024)(9)
69
273
342
—
5
5
8,000
7,962
8,040
20,028
19,122
19,727
8,732
8,732
8,619
15,360
14,757
15,110
Resolute
Industrial, LLC(10)
July 26, 2017 HVAC Equipment
Rental and
Remanufacturing
Member Units (601 units)
750
920
RM Bidder, LLC(10)
November 12,
2015
Scripted and
Unscripted TV
and Digital
Programming
Provider
Warrants (327,532 equivalent
units; Expiration —
October 20, 2025; Strike
price — $14.28 per unit)
Member Units (2,779 units)
425
46
471
—
11
11
SAFETY Investment
Holdings, LLC
April 29,
2016
Provider of
Intelligent
Driver Record
Monitoring
Software and
Services
Member Units (2,000,000
units)
110
2,000
1,820
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments — (Continued)
December 31, 2018
(dollars in thousands)
(unaudited)
Portfolio Company(1)(20)
Investment
Date(26)
Business
Description
Type of Investment(2)(3)
(25)
Principal(4) Cost(4)
Fair
Value(18)
Salient Partners L.P.(11)
June 25, 2015 Provider of Asset
Management
Services
SiTV, LLC(11)
September 26,
2017
Cable Networks
Operator
SMART Modular
Technologies, Inc.(10)(13)
August 18,
2017
Provider of
Specialty
Memory
Solutions
Sorenson
June 7, 2016 Manufacturer of
Communications, Inc.(11)
Communication
Products for
Hearing
Impaired
Staples Canada ULC(10)
September 14,
(13)(21)
2017
Office Supplies
Retailer
STL Parent Corp.(10)
December 14,
2018
Manufacturer and
Servicer of
Tank and
Hopper
Railcars
Strike, LLC(11)
December 12,
Pipeline
2016
Construction
and
Maintenance
Services
LIBOR Plus 5.75% (Floor
1.00%), Current Coupon
8.27%, Secured Debt
(Maturity — June 9, 2021)
(9)
7,313
7,280
7,280
10.375% Secured Debt
(Maturity — July 1, 2019)
10,429
7,196
3,911
LIBOR Plus 6.25% (Floor
1.00%), Current Coupon
8.86%, Secured Debt
(Maturity — August 9,
2022)(9)
LIBOR Plus 5.75% (Floor
2.25%), Current Coupon
8.56%, Secured Debt
(Maturity — April 30,
2020)(9)
LIBOR Plus 7.00% (Floor
1.00%), Current Coupon
9.26%, Secured Debt
(Maturity —
September 12, 2023)(9)
(22)
19,000
18,793
19,095
13,097
13,059
13,048
16,867
16,589
14,026
LIBOR Plus 7.00%, Current
Coupon 9.52%, Secured
Debt (Maturity —
December 5, 2022)
15,000
14,475
14,475
LIBOR Plus 8.00% (Floor
1.00%), Current Coupon
10.59%, Secured Debt
(Maturity —
November 30, 2022)(9)
9,000
8,797
9,011
TE Holdings, LLC(11)
December 5,
Oil & Gas
2013
Exploration &
Production
Member Units (97,048 units)
970
66
Tectonic Holdings, LLC
May 15, 2017 Financial Services
Organization
Member Units (200,000
TeleGuam
Holdings, LLC(11)
June 26, 2013 Cable and
Telecom
Services
Provider
units)(8)
2,000
2,420
LIBOR Plus 8.50% (Floor
1.00%), Current Coupon
11.02%, Secured Debt
(Maturity — April 12,
2024)(9)
111
7,750
7,620
7,798
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments — (Continued)
December 31, 2018
(dollars in thousands)
(unaudited)
Portfolio Company(1)(20)
Investment
Date(26)
TGP Holdings III LLC(11) September 30,
2017
Business Description
Outdoor Cooking &
Accessories
Type of Investment(2)(3)
(25)
Principal(4) Cost(4)
Fair
Value(18)
The Pasha Group(11)
February 2,
2018
Diversified Logistics
and Transportation
Provided
TMC Merger Sub Corp.
(11)
December 22,
2016
Refractory &
Maintenance
Services Provider
TOMS Shoes, LLC(11)
November 13,
2014
Global Designer,
Distributor, and
Retailer of Casual
Footwear
Turning Point Brands, Inc.
February 17,
Marketer/Distributor
(10)(13)
2017
of Tobacco Products
TVG-I-E CMN
November 3,
Organic Lead
ACQUISITION, LLC(10)
2016
Generation for
Online
Postsecondary
Schools
U.S. TelePacific Corp.(11)
September 14,
2016
Provider of
Communications
and Managed
Services
VIP Cinema Holdings, Inc.
March 9, 2017 Supplier of Luxury
(11)
Seating to the
Cinema Industry
LIBOR Plus 8.50% (Floor
1.00%), Current Coupon
11.30%, Secured Debt
(Maturity —
September 25, 2025)(9)
LIBOR Plus 7.50% (Floor
1.00%), Current Coupon
10.06%, Secured Debt
(Maturity — January 26,
2023)(9)
LIBOR Plus 6.75% (Floor
1.00%), Current Coupon
9.31%, Secured Debt
(Maturity — October 31,
2022)(9)(24)
LIBOR Plus 5.50% (Floor
1.00%), Current Coupon
8.30%, Secured Debt
(Maturity — October 30,
2020)(9)
LIBOR Plus 7.00%, Current
Coupon 9.46%, Secured
Debt (Maturity —
March 7, 2024)
LIBOR Plus 6.00% (Floor
1.00%), Current Coupon
8.52%, Secured Debt
(Maturity — November 3,
2021)(9)
LIBOR Plus 5.00% (Floor
1.00%), Current Coupon
7.80%, Secured Debt
(Maturity — May 2, 2023)
(9)
LIBOR Plus 6.00% (Floor
1.00%), Current Coupon
8.53%, Secured Debt
(Maturity — March 1,
2023)(9)
5,500
5,433
5,335
10,938
10,655
11,006
17,207
17,014
17,121
4,813
4,635
3,798
8,500
8,424
8,585
19,503
19,191
19,454
18,491
18,344
17,363
10,494
10,451
10,304
112
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments — (Continued)
December 31, 2018
(dollars in thousands)
(unaudited)
Portfolio Company(1)(20)
Investment
Date(26)
Business Description
Type of Investment(2)(3)
(25)
Principal(4) Cost(4)
Fair
Value(18)
Vistar Media, Inc.(10)
February 17,
2017
Operator of Digital
Out-of-Home
Advertising
Platform
Wireless Vision
Holdings, LLC(10)
September 29,
2017
Provider of Wireless
Telecommunications
Carrier Services
YS Garments, LLC(11)
August 22,
Designer and Provider
2018
of Branded
Activewear
Zilliant Incorporated
June 15, 2012 Price Optimization and
Margin Management
Solutions
LIBOR Plus 10.00% (Floor
1.00%), Current Coupon
12.74%, Secured Debt
(Maturity — February 16,
2022)(9)
Warrants (70,207 equivalent
shares; Expiration —
February 17, 2027; Strike
price — $0.01 per share)
LIBOR Plus 8.91% (Floor
1.00%), Current Coupon
11.41%, Secured Debt
(Maturity —
September 29, 2022)(9)
(28)
LIBOR Plus 6.00% (Floor
1.00%), Current Coupon
8.42% Secured Debt
(Maturity — August 9,
2024)(9)
Preferred Stock (186,777
shares)
Warrants (952,500 equivalent
shares; Expiration —
June 15, 2022; Strike
price — $0.001 per share)
Subtotal Non-Control/Non-Affiliate Investments (73.8% of net assets at fair value)
Total Portfolio Investments, December 31, 2018
3,263
3,048
2,987
331
3,379
790
3,777
14,279
14,055
13,414
14,906
14,764
14,756
154
260
1,071
1,225
$1,137,108 $
$2,269,033 $
1,189
1,449
1,089,026
2,453,909
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
All investments are Lower Middle Market portfolio investments, unless otherwise noted. See Note B for a description of Lower Middle Market
portfolio investments. All of the Company's investments, unless otherwise noted, are encumbered either as security for the Company's Credit
Agreement or in support of the SBA-guaranteed debentures issued by the Funds.
Debt investments are income producing, unless otherwise noted. Equity and warrants are non-income producing, unless otherwise noted.
See Note C for a summary of geographic location of portfolio companies.
Principal is net of repayments. Cost is net of repayments and accumulated unearned income.
Control investments are defined by the Investment Company Act of 1940, as amended ("1940 Act") as investments in which more than 25% of the
voting securities are owned or where the ability to nominate greater than 50% of the board representation is maintained.
Affiliate investments are defined by the 1940 Act as investments in which between 5% and 25% of the voting securities are owned and the
investments are not classified as Control investments.
Non-Control/Non-Affiliate investments are defined by the 1940 Act as investments that are neither Control investments nor Affiliate investments.
Income producing through dividends or distributions.
Index based floating interest rate is subject to contractual minimum interest rate. A majority of the variable rate loans in the Company's investment
portfolio bear interest at a rate that may be determined by reference to either LIBOR or an alternate Base Rate (commonly based on the Federal
Funds Rate or the Prime Rate), which typically resets semi-annually, quarterly, or monthly at the borrower's option. The borrower may also elect to
have multiple interest reset periods for each loan. For each such loan, the Company has provided the weighted average annual stated interest rate in
effect at December 31, 2018. As noted in this schedule, 64% of the loans (based on the par amount) contain LIBOR floors which range between
0.50% and 2.00%, with a weighted-average LIBOR floor of approximately 1.03%.
(10)
Private Loan portfolio investment. See Note B for a description of Private Loan portfolio investments.
113
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments — (Continued)
December 31, 2018
(dollars in thousands)
(unaudited)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
(19)
(20)
(21)
(22)
(23)
(24)
(25)
(26)
(27)
(28)
Middle Market portfolio investment. See Note B for a description of Middle Market portfolio investments.
Other Portfolio investment. See Note B for a description of Other Portfolio investments.
Investment is not a qualifying asset as defined under Section 55(a) of the 1940 Act. Qualifying assets must represent at least 70% of total assets at
the time of acquisition of any additional non-qualifying assets.
Non-accrual and non-income producing investment.
Portfolio company is in a bankruptcy process and, as such, the maturity date of our debt investments in this portfolio company will not be finally
determined until such process is complete. As noted in footnote (14), our debt investments in this portfolio company are on non-accrual status.
External Investment Manager. Investment is not encumbered as security for the Company's Credit Agreement or in support of the SBA-guaranteed
debentures issued by the Funds.
Maturity date is under on-going negotiations with the portfolio company and other lenders, if applicable.
Investment fair value was determined using significant unobservable inputs, unless otherwise noted. See Note C for further discussion.
PIK interest income and cumulative dividend income represent income not paid currently in cash.
All portfolio company headquarters are based in the United States, unless otherwise noted.
Portfolio company headquarters are located outside of the United States.
In connection with the Company's debt investment in Staples Canada ULC to help mitigate any potential adverse change in foreign exchange rates
during the term of the Company's investment, the Company has a forward foreign currency contract with Cadence Bank to lend $20.4 million
Canadian Dollars and receive $15.7 million U.S. Dollars with a settlement date of September 12, 2019. The unrealized appreciation on the forward
foreign currency contract is $0.6 million as of December 31, 2018.
The Company has entered into an intercreditor agreement that entitles the Company to the "last out" tranche of the first lien secured loans,
whereby the "first out" tranche will receive priority as to the "last out" tranche with respect to payments of principal, interest, and any other
amounts due thereunder. Therefore, the Company receives a higher interest rate than the contractual stated interest rate of LIBOR plus 6.00%
(Floor 1.00%) per the Credit Agreement and the Consolidated Schedule of Investments above reflects such higher rate.
The Company has entered into an intercreditor agreement that entitles the Company to the "first out" tranche of the first lien secured loans,
whereby the "first out" tranche will receive priority as to the "last out" tranche with respect to payments of principal, interest, and any other
amounts due thereunder. Therefore, the Company receives a lower interest rate than the contractual stated interest rate of LIBOR plus 6.64%
(Floor 1.00%) per the Credit Agreement and the Consolidated Schedule of Investments above reflects such lower rate.
All of the Company's portfolio investments are generally subject to restrictions on resale as "restricted securities."
Investment date represents the date of initial investment in the portfolio company.
Investment has an unfunded commitment as of December 31, 2018 (see Note K). The fair value of the investment includes the impact of the fair
value of any unfunded commitments
The Company has entered into an intercreditor agreement that entitles the Company to the "last out" tranche of the first lien secured loans,
whereby the "first out" tranche will receive priority as to the "last out" tranche with respect to payments of principal, interest, and any other
amounts due thereunder. Therefore, the Company receives a higher interest rate than the contractual stated interest rate of LIBOR plus 8.50%
(Floor 1.00%) per the Credit Agreement and the Consolidated Schedule of Investments above reflects such higher rate.
114
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments
December 31, 2017
(dollars in thousands)
Portfolio Company(1)(20)
Control Investments(5)
Investment
Date(28)
Business
Description
Type of Investment(2)(3)(27) Principal(4) Cost(4)
Fair
Value(18)
Access Media
Holdings, LLC(10)
July 22, 2015 Private Cable
Operator
5% Current / 5% PIK Secured
Debt (Maturity — July 22,
2020)(19)
Preferred Member Units
(8,248,500 units)
Member Units (45 units)
$
23,828 $ 23,828 $
17,150
8,142
1
—
—
31,971
17,150
11% Secured Debt
(Maturity — July 31, 2018)
1,800
Member Units (1,500 units)
1,795
1,500
3,295
1,795
1,530
3,325
5% Secured Debt (Maturity —
November 16, 2021)
Preferred Member Units
(3,725,862 units)
3,726
3,249
3,726
6,975
3,249
3,726
6,975
12% Secured Debt
(Maturity — December 28,
2017)(17)
Common Stock (57,508
shares)
11,596
11,596
11,596
6,350
17,946
9,370
20,966
Member Units (1,233 units)(8)
1,742
4,900
ASC Interests, LLC
August 1,
2013
Recreational
and
Educational
Shooting
Facility
ATS Workholding, LLC(10) March 10,
2014
Manufacturer
of Machine
Cutting Tools
and
Accessories
Bond-Coat, Inc.
December 28,
Casing and
2012
Tubing
Coating
Services
Café Brazil, LLC
April 20,
2004
Casual
Restaurant
Group
CBT Nuggets, LLC
June 1, 2006 Produces and
Sells IT
Training
Certification
Videos
Member Units (416 units)(8)
1,300
89,560
Charps, LLC
February 3,
2017
Pipeline
Maintenance
and
Construction
12% Secured Debt
(Maturity — February 3,
2022)
Preferred Member Units
(1,600 units)
18,400
18,225
18,225
400
18,625
650
18,875
Clad-Rex Steel, LLC
December 20,
Specialty
2016
Manufacturer
of Vinyl-Clad
Metal
LIBOR Plus 9.50% (Floor
1.00%), Current Coupon
10.86%, Secured Debt
(Maturity — December 20,
2021)(9)
Member Units (717 units)(8)
10% Secured Debt (Clad-Rex
Steel RE Investor, LLC)
(Maturity — December 20,
2036)
Member Units (Clad-Rex Steel
RE Investor, LLC) (800
units)
115
13,280
13,168
7,280
13,280
9,500
1,183
1,171
1,183
210
21,829
280
24,243
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments
December 31, 2017
(dollars in thousands)
Portfolio Company(1)(20)
CMS Minerals Investments
Investment
Date(28)
January 30,
2015
Business Description Type of Investment(2)(3)(27) Principal(4) Cost(4)
Fair
Value(18)
Oil & Gas
Exploration &
Production
Copper Trail Energy Fund I,
July 17, 2017
LP(12)(13)
Investment Partnership
Datacom, LLC
May 30, 2014 Technology and
Telecommunications
Provider
Member Units (CMS
Minerals II, LLC) (100
units)(8)
3,440
2,392
LP Interests (Fully diluted
30.1%)
2,500
2,500
8% Secured Debt (Maturity —
May 30, 2018)
5.25% Current / 5.25% PIK
Secured Debt (Maturity —
May 30, 2019)(19)
Class A Preferred Member
Units
Class B Preferred Member
Units (6,453 units)
1,575
1,575
1,575
12,349
12,311
11,110
1,181
6,030
730
—
21,097
13,415
Gamber-Johnson
Holdings, LLC
June 24, 2016 Manufacturer of
Ruggedized
Computer Mounting
Systems
Garreco, LLC
July 15, 2013 Manufacturer and
Supplier of Dental
Products
LIBOR Plus 11.00% (Floor
1.00%), Current Coupon
12.36%, Secured Debt
(Maturity — June 24, 2021)
(9)
Member Units (8,619 units)(8)
LIBOR Plus 10.00% (Floor
1.00%), Current Coupon
11.34%, Secured Debt
(Maturity — March 31,
2020)(9)
Member Units (1,200 units)
GRT Rubber
Technologies LLC
December 19,
2014
Manufacturer of
Engineered Rubber
Products
LIBOR Plus 9.00% (Floor
1.00%), Current Coupon
10.36%, Secured Debt
(Maturity — December 19,
2019)(9)
Member Units (5,879 units)(8)
23,400
23,213
14,844
38,057
23,400
23,370
46,770
5,483
5,443
1,200
6,643
5,443
1,940
7,383
11,603
11,550
13,065
24,615
11,603
21,970
33,573
Gulf Manufacturing, LLC August 31,
Manufacturer of
2007
Specialty Fabricated
Industrial Piping
Products
Gulf Publishing
Holdings, LLC
April 29,
2016
Energy Industry
Focused Media and
Publishing
Member Units (438 units)(8)
2,980
10,060
LIBOR Plus 9.50% (Floor
1.00%), Current Coupon
10.86%, Secured Debt
(Maturity — September 30,
2020)(9)
12.5% Secured Debt
80
80
80
(Maturity — April 29, 2021)
12,800
12,703
Member Units (3,681 units)
3,681
16,464
12,703
4,840
17,623
116
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments
December 31, 2017
(dollars in thousands)
Portfolio Company(1)(20)
Investment
Date(28)
Business
Description
Harborside Holdings, LLC March 20,
2017
Real Estate
Holding
Company
Harris Preston Fund
Investments(12)(13)
October 1,
2017
Investment
Partnership
Harrison Hydra-Gen, Ltd.
June 4, 2010 Manufacturer of
Hydraulic
Generators
HW Temps LLC
July 2, 2015 Temporary
Staffing
Solutions
Type of Investment(2)(3)(27) Principal(4) Cost(4)
Fair
Value(18)
Member units (100 units)
6,206
9,400
LP Interests (2717 MH, L.P.)
(Fully diluted 49.3%)
536
536
Common Stock (107,456
shares)
718
3,580
LIBOR Plus 11.00% (Floor
1.00%), Current Coupon
12.36%, Secured Debt
(Maturity July 2, 2020)(9)
Preferred Member Units
(3,200 units)
9,976
9,918
9,918
3,942
13,860
3,940
13,858
Hydratec, Inc.
November 1,
2007
Designer and
Installer of
Micro-
Irrigation
Systems
IDX Broker, LLC
November 15,
Provider of
2013
Marketing and
CRM Tools
for the Real
Estate
Industry
Jensen Jewelers of
Idaho, LLC
November 14,
2006
Retail Jewelry
Store
KBK Industries, LLC
January 23,
2006
Manufacturer of
Specialty
Oilfield and
Industrial
Products
Common Stock (7,095 shares)
(8)
7,095
15,000
11.5% Secured Debt
(Maturity — November 15,
2020)
Preferred Member Units
(5,607 units)(8)
Prime Plus 6.75% (Floor
2.00%), Current Coupon
11.00%, Secured Debt
(Maturity — November 14,
2019)(9)
Member Units (627 units)(8)
15,250
15,116
15,250
5,952
21,068
11,660
26,910
3,955
3,917
811
4,728
3,955
5,100
9,055
10% Secured Debt
(Maturity — September 28,
2020)
12.5% Secured Debt
(Maturity — September 28,
2020)
Member Units (325 units)(8)
375
372
375
5,900
5,867
783
7,022
5,900
4,420
10,695
117
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments
December 31, 2017
(dollars in thousands)
Portfolio Company(1)(20)
Investment
Date(28)
Business
Description
Lamb Ventures, LLC
May 30, 2008 Aftermarket
Type of Investment(2)(3)(27) Principal(4) Cost(4)
Fair
Value(18)
Automotive
Services
Chain
11% Secured Debt
(Maturity — July 1, 2022)
9,942
Preferred Equity (non-voting)
Member Units (742 units)(8)
9.5% Secured Debt (Lamb's
Real Estate Investment I,
LLC) (Maturity —
March 31, 2027)
Member Units (Lamb's Real
Estate Investment I, LLC)
(1,000 units)(8)
9,890
400
5,273
9,942
400
6,790
432
428
432
625
16,616
520
18,084
Marine Shelters
Holdings, LLC
December 28,
2012
Fabricator of
Marine and
Industrial
Shelters
Market Force
Information, LLC
July 28, 2017 Provider of
Customer
Experience
Management
Services
MH Corbin Holding LLC
August 31,
2015
Manufacturer
and
Distributor of
Traffic Safety
Products
Mid-Columbia Lumber
December 18,
Products, LLC
2006
Manufacturer of
Finger-Jointed
Lumber
Products
MSC Adviser I, LLC(16)
November 22, Third Party
12% PIK Secured Debt
(Maturity — December 28,
2017)(14)
Preferred Member Units
(3,810 units)
3,131
3,078
5,352
8,430
—
—
—
LIBOR Plus 11.00% (Floor
1.00%), Current Coupon
12.48%, Secured Debt
(Maturity — July 28, 2022)
(9)
Member Units (657,113 units)
23,360
23,143
14,700
37,843
23,143
14,700
37,843
13% Secured Debt
(Maturity — August 31,
2020)
Preferred Member Units
(4,000 shares)
12,600
12,526
12,526
6,000
18,526
6,000
18,526
10% Secured Debt
(Maturity — January 15,
2020)
12% Secured Debt
(Maturity — January 15,
2020)
Member Units (5,714 units)
9.5% Secured Debt (Mid-
Columbia Real Estate, LLC)
(Maturity — May 13, 2025)
Member Units (Mid-Columbia
Real Estate, LLC) (500
units)(8)
1,398
1,390
1,390
3,900
3,863
2,405
3,863
1,575
791
791
791
790
9,239
1,290
8,909
2013
Investment
Advisory
Services
Member Units (Fully diluted
100.0%)(8)
—
41,768
118
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments
December 31, 2017
(dollars in thousands)
Portfolio Company(1)(20)
Mystic Logistics
Holdings, LLC
Investment
Date(28)
August 18,
2014
Business
Description
Logistics and
Distribution
Services
Provider for
Large Volume
Mailers
Type of Investment(2)(3)(27) Principal(4) Cost(4)
Fair
Value(18)
12% Secured Debt
(Maturity — August 15,
2019)
Common Stock (5,873 shares)
7,768
7,696
2,720
10,416
7,696
6,820
14,516
NAPCO Precast, LLC
January 31,
2008
Precast Concrete
Manufacturing
LIBOR Plus 8.50%, Current
Coupon 9.98%, Secured
Debt (Maturity — May 31,
2019)
Member Units (2,955 units)(8)
11,475
11,439
2,975
14,414
11,475
11,670
23,145
NRI Clinical Research, LLC September 8,
Clinical
2011
Research
Service
Provider
LIBOR Plus 6.50% (Floor
1.50%), Current Coupon
8.00%, Secured Debt
(Maturity — January 15,
2018)(9)
14% Secured Debt
(Maturity — January 15,
2018)
Warrants (251,723 equivalent
units; Expiration —
September 8, 2021; Strike
price — $0.01 per unit)
Member Units (1,454,167
units)
400
400
400
3,865
3,865
3,865
252
765
5,282
500
2,500
7,265
6,376
3,250
9,626
NRP Jones, LLC
December 22,
2011
Manufacturer of
Hoses, Fittings
and
Assemblies
12% Secured Debt
(Maturity — March 20,
2023)
Member Units (65,208 units)
(8)
6,376
6,376
3,717
10,093
NuStep, LLC
January 31,
2017
Designer,
Manufacturer
and
Distributor of
Fitness
Equipment
OMi Holdings, Inc.
April 1, 2008 Manufacturer of
Overhead
Cranes
Pegasus Research
Group, LLC
January 6,
2011
Provider of
Telemarketing
12% Secured Debt
(Maturity — January 31,
2022)
Preferred Member Units (406
units)
20,600
20,420
20,420
10,200
30,620
10,200
30,620
Common Stock (1,500 shares)
(8)
1,080
14,110
and Data
Services
Member Units (460 units)(8)
1,290
10,310
PPL RVs, Inc.
June 10, 2010 Recreational
Vehicle Dealer
LIBOR Plus 7.00% (Floor
0.50%), Current Coupon
8.34%, Secured Debt
(Maturity — November 15,
2021)(9)
Common Stock (1,962 shares)
(8)
119
16,100
15,972
16,100
2,150
18,122
12,440
28,540
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments
December 31, 2017
(dollars in thousands)
Portfolio Company(1)(20)
Principle
Environmental, LLC
(d/b/a TruHorizon
Environmental Solutions)
Investment
Date(28)
Business
Description
February 1,
2011
Noise Abatement
Service Provider
Type of Investment(2)(3)(27) Principal(4) Cost(4)
Fair
Value(18)
13% Secured Debt
(Maturity — April 30, 2020)
7,477
7,347
7,477
Preferred Member Units
(19,631 units)
Warrants (1,018 equivalent
units; Expiration —
January 31, 2021; Strike
price — $0.01 per unit)
4,600
11,490
1,200
13,147
650
19,617
Quality Lease Service, LLC
June 8,
2015
Provider of Rigsite
Accommodation
Unit Rentals and
Related Services
Zero Coupon Secured Debt
(Maturity — June 8, 2020)
Member Units (1,000 units)
7,341
7,341
2,868
10,209
6,950
4,938
11,888
Zero Coupon Secured Debt
(Maturity — June 30, 2018)
750
Member Units (1,150 units)
Member Units (RA
Properties, LLC) (1,500
units)
707
1,150
369
2,226
707
4,610
2,559
7,876
LIBOR Plus 9.00% (Floor
1.00%), Current Coupon
10.36%, Secured Debt
(Maturity — October 31,
2019)(9)
Member Units (4,450 units)(8)
7,140
7,110
4,930
12,040
7,140
10,089
17,229
River Aggregates, LLC
March 30,
Processor of
2011
Construction
Aggregates
SoftTouch Medical
Holdings LLC
October 31,
Provider of In-
2014
Home Pediatric
Durable Medical
Equipment
The MPI Group, LLC
October 2,
Manufacturer of
2007
Custom Hollow
Metal Doors,
Frames and
Accessories
9% Secured Debt (Maturity —
October 2, 2018)
Series A Preferred Units
(2,500 units)
Warrants (1,424 equivalent
units; Expiration — July 1,
2024; Strike price — $0.01
per unit)
Member Units (MPI Real
Estate Holdings, LLC) (100
units)(8)
2,924
2,923
2,410
2,500
1,096
2,300
8,819
348
3,579
3,927
—
—
2,389
4,799
348
3,880
4,228
Uvalco Supply, LLC
January 2,
2008
Farm and Ranch
Supply Store
9% Secured Debt (Maturity —
January 1, 2019)
Member Units (1,867 units)(8)
348
120
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments
December 31, 2017
(dollars in thousands)
Portfolio Company(1)(20)
Vision Interests, Inc.
Investment
Date(28)
Business
Description
June 5,
2007
Manufacturer /
Installer of
Commercial
Signage
Type of Investment(2)(3)(27) Principal(4) Cost(4)
Fair
Value(18)
Ziegler's NYPD, LLC
October 1,
Casual Restaurant
2008
Group
13% Secured Debt
(Maturity — December 23,
2018)
Series A Preferred Stock
(3,000,000 shares)
Common Stock (1,126,242
shares)
6.5% Secured Debt
(Maturity — October 1,
2019)
12% Secured Debt
(Maturity — October 1,
2019)
14% Secured Debt
(Maturity — October 1,
2019)
Warrants (587 equivalent
units; Expiration —
September 29, 2018; Strike
price — $0.01 per unit)
Preferred Member Units
(10,072 units)
2,814
2,797
3,000
3,706
9,503
1,000
996
300
300
2,797
3,000
—
5,797
996
300
2,750
2,750
2,750
600
2,834
7,480
—
3,220
7,266
750,706
Subtotal Control Investments (54.4% net assets at fair value)
$ 530,034 $
121
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments — (Continued)
December 31, 2017
(dollars in thousands)
Portfolio Company(1)(20)
Affiliate Investments(6)
Investment
Date(28)
Business
Description
Type of Investment(2)(3)
(27)
Principal(4) Cost(4)
Fair
Value(18)
AFG Capital Group, LLC November 7,
Provider of Rent-
2014
to-Own
Financing
Solutions and
Services
Barfly Ventures, LLC(10)
August 31,
2015
Casual Restaurant
Group
BBB Tank Services, LLC April 8, 2016 Maintenance,
Repair and
Construction
Services to the
Above-Ground
Storage Tank
Market
Boccella Precast
Products LLC
June 30, 2017 Manufacturer of
Precast Hollow
Core Concrete
Boss Industries, LLC
July 1, 2014 Manufacturer and
Distributor of
Air, Power and
Other Industrial
Equipment
Warrants (42 equivalent
units; Expiration —
November 7, 2024; Strike
price — $0.01 per unit)
Preferred Member Units
(186 units)(8)
12% Secured Debt
(Maturity — August 31,
2020)
Options (2 equivalent units)
Warrant (1 equivalent unit;
Expiration — August 31,
2025; Strike price —
$1.00 per unit)
$
259 $
860
1,200
1,459
3,590
4,450
8,715
8,572
397
473
9,442
8,715
920
520
10,155
LIBOR Plus 8.00% (Floor
1.00%), Current Coupon
9.36%, Secured Debt
(Maturity — April 8,
2021)(9)
15% Secured Debt
(Maturity — April 8,
2021)
Member Units (800,000
units)
LIBOR Plus 10.00% (Floor
1.00%), Current Coupon
11.34%, Secured Debt
(Maturity — June 30,
2022)(9)
Member Units (2,160,000
units)
800
778
778
4,000
3,876
800
5,454
3,876
500
5,154
16,400
16,230
16,400
2,160
18,390
3,440
19,840
Preferred Member Units
(2,242 units)(8)
2,080
3,930
122
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MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments — (Continued)
December 31, 2017
(dollars in thousands)
Portfolio Company(1)(20)
Bridge Capital Solutions
Corporation
Investment
Date(28)
April 18,
2012
Business Description
Financial Services and
Cash Flow
Solutions Provider
Type of Investment(2)(3)
(27)
Principal(4) Cost(4)
Fair
Value(18)
13% Secured Debt
(Maturity — July 25,
2021)
Warrants (63 equivalent
shares; Expiration —
July 25, 2026; Strike
price — $0.01 per share)
13% Secured Debt
(Mercury Service
Group, LLC)
(Maturity — July 25,
2021)
Preferred Member Units
(Mercury Service
Group, LLC) (17,742
units)(8)
LIBOR Plus 7.25% (Floor
1.00%), Current Coupon
8.63%, Secured Debt
(Maturity — June 30,
2020)(9)
Preferred Member Units (6
units; 6% cumulative)(8)
(19)
12% Secured Debt
(Maturity — October 10,
2019)
Member Units (65,356
units)(8)
12% Secured Debt
(Maturity — July 4,
2021)
Class A Units (1,500,000
units)(8)
7,500
5,884
5,884
2,132
3,520
1,000
992
1,000
1,000
10,008
1,000
11,404
20,304
20,193
20,193
4,177
24,370
4,172
24,365
4,083
4,060
654
4,714
4,500
4,468
1,500
5,968
4,083
3,230
7,313
4,500
2,650
7,150
Member Units (3,936 units)
(8)
100
1,950
LP Interests (Congruent
Credit Opportunities
Fund II, LP) (Fully
diluted 19.8%)(8)
LP Interests (Congruent
Credit Opportunities
Fund III, LP) (Fully
diluted 17.4%)(8)
5,730
1,515
17,869
23,599
18,632
20,147
Buca C, LLC
June 30, 2015 Casual Restaurant
Group
CAI Software LLC
October 10,
Provider of
2014
Specialized
Enterprise Resource
Planning Software
Chandler Signs
Holdings, LLC(10)
January 4,
2016
Sign Manufacturer
Condit Exhibits, LLC
July 1, 2008 Tradeshow Exhibits /
Custom Displays
Provider
Congruent Credit
Opportunities Funds(12)
(13)
January 24,
2012
Investment
Partnership
123
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments — (Continued)
December 31, 2017
(dollars in thousands)
Portfolio Company(1)(20)
Investment
Date(28)
Business
Description
Type of Investment(2)(3)
(27)
Principal(4) Cost(4)
Fair
Value(18)
Dos Rios Partners(12)(13) April 25, 2013
Investment
Partnership
Dos Rios Stone
Products LLC(10)
June 27, 2016 Limestone and
Sandstone
Dimension Cut
Stone Mining
Quarries
East Teak Fine
Hardwoods, Inc.
April 13, 2006 Distributor of
Hardwood
Products
EIG Fund
Investments(12)(13)
November 6,
2015
Investment
Partnership
Freeport Financial
Funds(12)(13)
June 13, 2013
Investment
Partnership
Gault Financial, LLC
(RMB Capital, LLC)
November 21,
2011
Purchases and
Manages
Collection of
Healthcare and
other Business
Receivables
Guerdon Modular
Holdings, Inc.
August 13, 2014 Multi-Family and
Commercial
Modular
Construction
Company
Harris Preston Fund
Investments(12)(13)
October 1, 2017
Investment
Partnership
LP Interests (Dos Rios
Partners, LP) (Fully
diluted 20.2%)
LP Interests (Dos Rios
Partners — A, LP) (Fully
diluted 6.4%)
5,996
7,165
1,904
7,900
1,889
9,054
Class A Preferred Units
(2,000,000 units)(8)
2,000
1,790
Common Stock (6,250
shares)(8)
480
630
LP Interests (EIG Global
Private Debt Fund-
A, L.P.) (Fully diluted
11.1%)(8)
LP Interests (Freeport
Financial SBIC Fund LP)
(Fully diluted 9.3%)(8)
LP Interests (Freeport First
Lien Loan Fund III LP)
(Fully diluted 6.0%)(8)
1,103
1,055
5,974
5,614
8,558
14,532
8,506
14,120
10.5% Secured Debt
(Maturity — January 1,
2019)
Warrants (29,032
equivalent units;
Expiration — February 9,
2022; Strike price —
$0.01 per unit)
12,483
12,483
11,532
400
12,883
—
11,532
13% Secured Debt
(Maturity — August 13,
2019)
Preferred Stock (404,998
shares)
Common Stock (212,033
shares)
LP Interests (HPEP 3, L.P.)
10,708
10,632
10,632
1,140
2,983
—
—
14,755
10,632
(Fully diluted 9.9%)
943
943
124
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MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments — (Continued)
December 31, 2017
(dollars in thousands)
Portfolio Company(1)(20)
Hawk Ridge
Systems, LLC(13)
Investment
Date(28)
December 2,
2016
Business
Description
Type of Investment(2)(3)
(27)
Principal(4) Cost(4)
Fair
Value(18)
Value-Added
Reseller of
Engineering
Design and
Manufacturing
Solutions
11% Secured Debt
(Maturity — December 2,
2021)
Preferred Member Units
(226 units)(8)
Preferred Member Units
(HRS Services, ULC)
(226 units)(8)
8% Unsecured Convertible
Debt (Maturity — May 1,
2022)
Member Units (315,756
units)
14,300
14,175
14,300
2,850
3,800
150
17,175
200
18,300
3,000
3,000
2,179
5,179
3,200
6,140
9,340
Member Units (Fully
diluted 20.0%; 24.4%
profits interest)(8)
16,200
16,841
Member Units (2,179,001
units)
2,019
2,000
LIBOR Plus 8.50% (Floor
1.00%), Current Coupon
9.84%, Secured Debt
(Maturity — June 7,
2022)(9)
Member Units (Milton
Meisler Holdings LLC)
(31,976 units)
16,800
16,633
16,633
3,200
19,833
3,390
20,023
12% PIK Secured Debt
(Maturity — June 30,
2021)(19)
10% PIK Unsecured Debt
(Maturity — June 30,
2021)(19)
Preferred Stock (912
shares)
Warrants (5,333 equivalent
shares; Expiration —
April 18, 2021; Strike
price — $0.01 per share)
5,094
5,094
5,094
48
48
1,981
1,919
9,042
48
—
—
5,142
Houston Plating and
Coatings, LLC
January 8, 2003 Provider of Plating
and Industrial
Coating Services
I-45 SLF LLC(12)(13)
October 20,
2015
Investment
Partnership
L.F. Manufacturing
Holdings, LLC(10)
December 23,
2013
Manufacturer of
Fiberglass
Products
Meisler Operating LLC
June 7, 2017 Provider of Short-
term Trailer and
Container Rental
OnAsset Intelligence, Inc.
April 18, 2011 Provider of
Transportation
Monitoring /
Tracking
Products and
Services
OPI International Ltd.
November 30,
(13)
2010
Provider of Man
Camp and
Industrial Storage
Services
Common Stock
(20,766,317 shares)
1,371
—
125
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments — (Continued)
December 31, 2017
(dollars in thousands)
Portfolio Company(1)(20)
Investment
Date(28)
Business
Description
Type of Investment(2)(3)
(27)
Principal(4) Cost(4)
Fair
Value(18)
PCI Holding Company,
December 18,
Inc.
2012
Manufacturer of
Industrial Gas
Generating
Systems
Rocaceia, LLC (Quality
Lease and Rental
Holdings, LLC)
January 8, 2013 Provider of Rigsite
Accommodation
Unit Rentals and
Related Services
Tin Roof Acquisition
November 13,
Casual Restaurant
Company
2013
Group
UniTek Global
Services, Inc.(11)
April 15, 2011 Provider of
Outsourced
Infrastructure
Services
12% Secured Debt
(Maturity — March 31,
2019)
Preferred Stock (1,740,000
shares) (non-voting)
Preferred Stock (1,500,000
shares; 20% cumulative)
(8)(19)
12% Secured Debt
(Maturity — January 8,
2018)(14)(15)
Preferred Member Units
(250 units)
12% Secured Debt
(Maturity —
November 13, 2018)
Class C Preferred Stock
(Fully diluted 10.0%;
10% cumulative)(8)(19)
LIBOR Plus 8.50% (Floor
1.00%), Current Coupon
10.20%, Secured Debt
(Maturity — January 13,
2019)(9)
LIBOR Plus 7.50% (Floor
1.00%), Current Coupon
9.20% / 1.00% PIK,
Current Coupon Plus PIK
10.20%, Secured Debt
(Maturity — January 13,
2019)(9)(19)
15% PIK Unsecured Debt
(Maturity — July 13,
2019)(19)
Preferred Stock (2,596,567
shares; 19% cumulative)
(8)(19)
Preferred Stock (4,935,377
shares; 13.5%
cumulative)(8)(19)
Common Stock (1,075,992
shares)
126
12,650
12,593
12,593
1,740
2,610
3,927
18,260
890
16,093
30,785
30,281
2,500
32,781
250
—
250
12,783
12,722
12,722
3,027
15,749
3,027
15,749
8,535
8,529
8,535
137
137
865
865
137
865
2,858
2,850
7,361
7,320
—
19,750
2,490
22,197
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments — (Continued)
December 31, 2017
(dollars in thousands)
Portfolio Company(1)(20)
Universal Wellhead
Services
Holdings, LLC(10)
Investment
Date(28)
October 30,
2014
Business
Description
Type of Investment(2)(3)
(27)
Principal(4) Cost(4)
Fair
Value(18)
Provider of
Wellhead
Equipment,
Designs, and
Personnel to the
Oil & Gas
Industry
Valley Healthcare
Group, LLC
December 29,
Provider of
2015
Durable Medical
Equipment
Volusion, LLC
January 26,
2015
Provider of Online
Software-as-a-
Service
eCommerce
Solutions
Subtotal Affiliate Investments (24.5% net assets at fair value)
Preferred Member Units
(UWS Investments, LLC)
(716,949 units)
Member Units (UWS
Investments, LLC)
(4,000,000 units)
LIBOR Plus 12.50% (Floor
0.50%), Current Coupon
13.86%, Secured Debt
(Maturity —
December 29, 2020)(9)
Preferred Member Units
(Valley Healthcare
Holding, LLC) (1,600
units)
11.5% Secured Debt
(Maturity — January 26,
2020)
Preferred Member Units
(4,876,670 units)
Warrants (1,831,355
equivalent units;
Expiration — January 26,
2025; Strike price —
$0.01 per unit)
127
717
830
4,000
4,717
1,910
2,740
11,766
11,685
11,685
1,600
13,285
1,600
13,285
16,734
15,200
15,200
14,000
14,000
2,576
31,776
$ 367,317 $
2,080
31,280
338,854
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments — (Continued)
December 31, 2017
(dollars in thousands)
Portfolio Company(1)(20)
Investment
Date(28)
Business
Description
Type of Investment(2)(3)
(27)
Principal(4) Cost(4)
Fair
Value(18)
Non-Control/Non-Affiliate Investments(7)
AAC Holdings, Inc.(11)
June 30, 2017 Substance Abuse
Treatment
Service
Provider
Adams Publishing
Group, LLC(10)
November 19,
Local
2015
Newspaper
Operator
ADS Tactical, Inc.(10)
March 7,
2017
Value-Added
Logistics and
Supply Chain
Provider to the
Defense
Industry
Aethon United BR LP(10)
September 8,
Oil & Gas
2017
Exploration &
Production
Ahead, LLC(10)
November 13,
2015
IT Infrastructure
Value Added
Reseller
Allflex Holdings III Inc.(11)
July 18, 2013 Manufacturer of
Livestock
Identification
Products
American Scaffold
Holdings, Inc.(10)
June 14, 2016 Marine
Scaffolding
Service
Provider
LIBOR Plus 6.75% (Floor
1.00%), Current Coupon
8.13%, Secured Debt
(Maturity — June 30,
2023)(9)
LIBOR Plus 7.00% (Floor
1.00%), Current Coupon
8.69%, Secured Debt
(Maturity — November 3,
2020)(9)
$
11,751 $
11,475 $
11,810
10,341
10,116
10,147
LIBOR Plus 7.50% (Floor
0.75%), Current Coupon
9.19%, Secured Debt
(Maturity — December 31,
2022)(9)
LIBOR Plus 6.75% (Floor
1.00%), Current Coupon
8.15%, Secured Debt
(Maturity — September 8,
2023)(9)
LIBOR Plus 6.50%, Current
Coupon 8.20%, Secured
Debt (Maturity —
November 2, 2020)
LIBOR Plus 7.00% (Floor
1.00%), Current Coupon
8.36%, Secured Debt
(Maturity — July 19, 2021)
(9)
LIBOR Plus 6.50% (Floor
1.00%), Current Coupon
8.19%, Secured Debt
(Maturity — March 31,
2022)(9)
13,014
12,767
12,833
3,438
3,388
3,388
11,061
10,848
11,130
13,846
13,781
13,955
7,031
6,947
6,996
American Teleconferencing
May 19, 2016 Provider of
Services, Ltd.(11)
Audio
Conferencing
and Video
Collaboration
Solutions
LIBOR Plus 6.50% (Floor
LIBOR Plus 6.50% (Floor
1.00%), Current Coupon
7.90%, Secured Debt
(Maturity — December 8,
2021)(9)
LIBOR Plus 9.50% (Floor
1.00%), Current Coupon
10.85%, Secured Debt
(Maturity — June 6, 2022)
(9)
128
10,582
9,934
10,443
3,714
3,589
13,523
3,507
13,950
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments — (Continued)
December 31, 2017
(dollars in thousands)
Portfolio Company(1)(20)
Anchor Hocking, LLC(11)
Investment
Date(28)
Business
Description
Type of Investment(2)(3)
(27)
Principal(4) Cost(4)
Fair
Value(18)
April 2,
2012
Household Products
Manufacturer
Apex Linen Service, Inc.
October 30,
Industrial
2015
Launderers
Arcus Hunting LLC.(10)
January 6,
2015
Manufacturer of
Bowhunting and
Archery Products
and Accessories
ATI Investment Sub, Inc.
(11)
July 11,
2016
Manufacturer of
Solar Tracking
Systems
ATX Networks Corp.(11)
(13)(21)
June 30,
2015
Provider of Radio
Frequency
Management
Equipment
LIBOR Plus 9.00% (Floor
1.00%), Current Coupon
10.49%, Secured Debt
(Maturity — June 4, 2020)
(9)
Member Units (440,620
units)
LIBOR Plus 9.00% (Floor
1.00%), Current Coupon
10.36%, Secured Debt
(Maturity — October 30,
2022)(9)
16% Secured Debt (Maturity
— October 30, 2022)
LIBOR Plus 7.00% (Floor
1.00%), Current Coupon
8.34%, Secured Debt
(Maturity — November 13,
2019)(9)
LIBOR Plus 7.25% (Floor
1.00%), Current Coupon
8.82%, Secured Debt
(Maturity — June 22,
2021)(9)
LIBOR Plus 6.00% (Floor
1.00%), Current Coupon
7.33% / 1.00% PIK,
Current Coupon Plus PIK
8.33%, Secured Debt
(Maturity — June 11,
2021)(9)(19)
2,254
2,211
4,928
7,139
2,248
3,745
5,993
2,400
2,400
2,400
14,416
14,347
16,747
14,347
16,747
15,391
15,294
15,391
7,364
7,215
7,346
9,567
9,454
9,507
Berry Aviation, Inc.(10)
January 30,
2015
Airline Charter
Service Operator
13.75% Secured Debt
(Maturity — January 30,
2020)
Common Stock (553 shares)
5,627
5,598
400
5,998
5,627
1,010
6,637
BigName
May 11,
Provider of
Commerce, LLC(10)
2017
Envelopes and
Complimentary
Stationery
Products
Binswanger
March 10,
Enterprises, LLC(10)
2017
Glass Repair and
Installation
Service Provider
LIBOR Plus 7.25% (Floor
1.00%), Current Coupon
8.59%, Secured Debt
(Maturity — May 11,
2022)(9)
LIBOR Plus 8.00% (Floor
1.00%), Current Coupon
9.69%, Secured Debt
(Maturity — March 9,
2,488
2,461
2,461
2022)(9)
Member Units (1,050,000
units)
15,325
15,060
1,050
16,110
15,192
1,000
16,192
129
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments — (Continued)
December 31, 2017
(dollars in thousands)
Portfolio Company(1)(20)
Investment
Date(28)
Business
Description
Type of Investment(2)(3)
(27)
Principal(4) Cost(4)
Fair
Value(18)
Bluestem Brands, Inc.(11)
December 19,
Multi-Channel
2013
Retailer of
General
Merchandise
Brainworks
Software, LLC(10)
August 12,
2014
Advertising Sales
and Newspaper
Circulation
Software
Brightwood Capital Fund
Investments(12)(13)
July 21, 2014
Investment
Partnership
Brundage-Bone Concrete
Pumping, Inc.(11)
August 18,
2014
Construction
Services
Provider
Cadence
November 14,
Aerostructure
Aerospace LLC(10)
2017
Manufacturing
CapFusion, LLC(13)
March 25,
2016
Non-Bank Lender
to Small
Businesses
California Pizza
Kitchen, Inc.(11)
August 29,
2016
Casual Restaurant
Group
CDHA
December 5,
Management, LLC(10)
2016
Dental Services
Central Security
Group, Inc.(11)
December 4,
Security Alarm
2017
Monitoring
Service
Provider
LIBOR Plus 7.50% (Floor
1.00%), Current Coupon
9.07%, Secured Debt
(Maturity — November 6,
2020)(9)
Prime Plus 9.25% (Floor
3.25%), Current Coupon
13.75%, Secured Debt
(Maturity — July 22, 2019)
(9)
LP Interests (Brightwood
Capital Fund III, LP)
(Fully diluted 1.6%)(8)
LP Interests (Brightwood
Capital Fund IV, LP)
(Fully diluted 0.8%)(8)
12,127
11,955
8,540
6,733
6,705
6,573
12,000
10,328
1,000
13,000
1,063
11,391
10.375% Secured Debt
(Maturity — September 1,
2023)
3,000
2,987
3,180
LIBOR Plus 6.50% (Floor
1.00%), Current Coupon
7.91%, Secured Debt
(Maturity — November 14,
2023)(9)
15,000
14,853
14,853
13% Secured Debt (Maturity
— March 25, 2021)(14)
6,705
5,645
1,871
12,902
12,862
12,677
5,365
5,303
5,365
LIBOR Plus 6.00% (Floor
1.00%), Current Coupon
7.57%, Secured Debt
(Maturity — August 23,
2022)(9)
LIBOR Plus 7.25% (Floor
1.00%), Current Coupon
8.76%, Secured Debt
(Maturity — December 5,
2021)(9)
LIBOR Plus 5.63% (Floor
1.00%), Current Coupon
7.19%, Secured Debt
(Maturity — October 6,
Cenveo Corporation(11)
September 4,
Provider of
2015
Commercial
Printing,
Envelopes,
Labels, and
Printed Office
Products
2021)(9)
7,481
7,462
7,518
6% Secured Debt (Maturity
— August 1, 2019)
19,130
17,126
13,582
130
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments — (Continued)
December 31, 2017
(dollars in thousands)
Portfolio Company(1)(20)
Charlotte Russe, Inc(11)
Investment
Date(28)
Business
Description
Type of Investment(2)(3)
(27)
Principal(4) Cost(4)
Fair
Value(18)
May 28, 2013 Fast-Fashion
Retailer to
Young Women
LIBOR Plus 5.50% (Floor
1.25%), Current Coupon
6.89%, Secured Debt
(Maturity — May 22,
2019)(9)
19,041
16,473
7,807
15% PIK Secured Debt
(Maturity — January 5,
2015)(14)(17)
2,924
2,924
85
LIBOR Plus 8.50% (Floor
1.00%), Current Coupon
10.01%, Secured Debt
(Maturity — December 5,
2022)(9)
3,000
2,941
2,941
Clarius BIGS, LLC(10)
September 23,
Prints &
2014
Advertising
Film Financing
Clickbooth.com, LLC(10)
December 5,
Provider of
2017
Digital
Advertising
Performance
Marketing
Solutions
Construction Supply
December 29,
Distribution
Investments, LLC(10)
2016
Platform of
Specialty
Construction
Materials to
Professional
Concrete and
Masonry
Contractors
LIBOR Plus 6.00% (Floor
1.00%), Current Coupon
7.57%, Secured Debt
(Maturity — June 30,
2023)(9)
Member Units (28,000 units)
7,125
7,090
3,723
10,813
7,090
3,723
10,813
CTVSH, PLLC(10)
August 3,
2017
Emergency Care
and Specialty
Service Animal
Hospital
Darr Equipment LP(10)
April 15, 2014 Heavy Equipment
Dealer
Digital River, Inc.(11)
February 24,
2015
Provider of
Outsourced e-
Commerce
Solutions and
Services
LIBOR Plus 8.00% (Floor
1.00%), Current Coupon
9.48%, Secured Debt
(Maturity — August 3,
2022)(9)
11.5% Current / 1% PIK
Secured Debt (Maturity -
June 22, 2023)(19)
Warrants (915,734 equivalent
units; Expiration —
December 23, 2023; Strike
price — $1.50 per unit)
LIBOR Plus 6.50% (Floor
1.00%), Current Coupon
8.08%, Secured Debt
11,850
11,739
11,739
7,229
7,229
7,229
474
7,703
10
7,239
Drilling Info Holdings, Inc. November 20,
Information
2009
Services for the
Oil and Gas
Industry
(Maturity — February 12,
2021)(9)
9,313
9,266
9,337
Common Stock (3,788,865
shares)(8)
—
8,610
131
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments — (Continued)
December 31, 2017
(dollars in thousands)
Portfolio Company(1)(20)
Investment
Date(28)
Business
Description
Type of Investment(2)(3)
(27)
Principal(4) Cost(4)
Fair
Value(18)
EnCap Energy Fund
Investments(12)(13)
December 28,
Investment
2010
Partnership
LP Interests (EnCap Energy
Capital Fund VIII, L.P.)
(Fully diluted 0.1%)(8)
LP Interests (EnCap Energy
Capital Fund VIII Co-
Investors, L.P.) (Fully
diluted 0.4%)
LP Interests (EnCap Energy
Capital Fund IX, L.P.)
(Fully diluted 0.1%)(8)
LP Interests (EnCap Energy
Capital Fund X, L.P.)
(Fully diluted 0.1%)(8)
LP Interests (EnCap Flatrock
Midstream Fund II, L.P.)
(Fully diluted 0.8%)(8)
LP Interests (EnCap Flatrock
Midstream Fund III, L.P.)
(Fully diluted 0.2%)
LIBOR Plus 8.25% (Floor
1.00%), Current Coupon
9.82%, Secured Debt
(Maturity — April 28,
2022)(9)
LIBOR Plus 6.25% (Floor
1.00%), Current Coupon
7.95%, Secured Debt
(Maturity — February 7,
2020)(9)
LIBOR Plus 6.50% (Floor
1.00%), Current Coupon
7.90%, Secured Debt
(Maturity — August 9,
2022)(9)
3,906
2,202
2,227
1,549
4,305
3,720
6,277
6,225
6,138
6,116
3,458
26,311
3,828
23,640
6,999
6,878
6,244
10,411
10,397
10,398
3,333
3,267
3,267
LIBOR Plus 5.75% (Floor
1.00%), Current Coupon
7.44%, Secured Debt
(Maturity — April 3, 2020)
(9)
13,076
12,616
12,128
LIBOR Plus 5.00% (Floor
1.00%), Current Coupon
6.48%, Secured Debt
(Maturity — October 29,
2021)(9)
LIBOR Plus 8.50% (Floor
1.00%), Current Coupon
9.88%, Secured Debt
6,807
6,733
6,833
Evergreen Skills Lux S.á
May 5, 2014 Technology-based
r.l.
(d/b/a Skillsoft)(11)(13)
Performance
Support
Solutions
Extreme Reach, Inc.(11)
March 31,
Integrated TV and
2015
Video
Advertising
Platform
Felix Investments
Holdings II(10)
August 9,
2017
Oil & Gas
Exploration &
Production
Flavors Holdings Inc.(11)
October 15,
Global Provider
2014
of Flavoring
and Sweetening
Products
GI KBS Merger
Sub LLC(11)
November 10,
2014
Outsourced
Janitorial
Services to
Retail/Grocery
Customers
(Maturity — April 29,
2022)(9)
3,915
3,769
10,502
3,793
10,626
132
Table of Contents
Portfolio Company(1)(20)
GoWireless Holdings, Inc.
(11)
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments — (Continued)
December 31, 2017
(dollars in thousands)
Investment
Date(28)
Business Description
Type of Investment(2)(3)
(27)
Principal(4) Cost(4)
Fair
Value(18)
December 31,
2017
Provider of Wireless
Telecommunications
Carrier Services
LIBOR Plus 6.50% (Floor
1.00%), Current Coupon
8.16%, Secured Debt
(Maturity — December 22,
2024)(9)
18,000
17,820
17,865
Grace Hill, LLC(10)
August 29,
2014
Online Training Tools
for the Multi-Family
Housing Industry
Great Circle Family
Foods, LLC(10)
March 25,
Quick Service
2015
Restaurant Franchise
Grupo Hima San
Pablo, Inc.(11)
March 7,
Tertiary Care
2013
Hospitals
Prime Plus 5.25% (Floor
1.00%), Current Coupon
9.75%, Secured Debt
(Maturity — August 15,
2019)(9)
LIBOR Plus 6.25% (Floor
1.00%), Current Coupon
7.58%, Secured Debt
(Maturity — August 15,
2019)(9)
LIBOR Plus 6.00% (Floor
1.00%), Current Coupon
7.34%, Secured Debt
(Maturity — October 28,
2019)(9)
LIBOR Plus 7.00% (Floor
1.50%), Current Coupon
8.50%, Secured Debt
(Maturity — January 31,
2018)(9)
13.75% Secured Debt
1,215
1,208
1,215
11,407
11,356
12,564
11,407
12,622
7,219
7,187
7,219
GST Autoleather, Inc.(11)
July 21, 2014 Automotive Leather
Manufacturer
(Maturity — July 31, 2018)
2,055
2,040
6,788
4,750
4,748
3,541
226
3,767
Guitar Center, Inc.(11)
April 10,
2014
Musical Instruments
Retailer
Hojeij Branded
Foods, LLC(10)
July 28, 2015 Multi-Airport, Multi-
Concept Restaurant
Operator
PRIME Plus 6.50% (Floor
2.25%), Current Coupon
11.00%, Secured Debt
(Maturity — April 5, 2018)
(9)
PRIME Plus 6.50% (Floor
2.00%), Current Coupon
11.00%, Secured Debt
(Maturity — July 10, 2020)
(9)
7,578
7,500
7,500
15,619
15,120
22,620
11,813
19,313
6.5% Secured Debt (Maturity
— April 15, 2019)
16,625
16,009
15,378
LIBOR Plus 6.00% (Floor
1.00%), Current Coupon
7.57%, Secured Debt
(Maturity — July 20, 2022)
(9)
133
12,137
12,022
12,137
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments — (Continued)
December 31, 2017
(dollars in thousands)
Portfolio Company(1)(20)
Investment
Date(28)
Business
Description
Type of Investment(2)(3)
(27)
Principal(4) Cost(4)
Fair
Value(18)
Hoover Group, Inc.(10)(13) October 21,
Provider of
2016
Storage Tanks
and Related
Products to the
Energy and
Petrochemical
Markets
Hostway Corporation(11)
December 27,
2013
Managed Services
and Hosting
Provider
Hunter Defense
Technologies, Inc.(11)
August 14,
2014
Provider of
Military and
Commercial
Shelters and
Systems
Hydrofarm
Holdings LLC(10)
May 18, 2017 Wholesaler of
Horticultural
Products
iEnergizer Limited(11)(13)
(21)
May 8, 2013 Provider of
Business
Outsourcing
Solutions
Implus Footcare, LLC(10)
June 1, 2017 Provider of
Footwear and
Related
Accessories
Indivior Finance LLC(11)
March 20,
Specialty
(13)
2015
Pharmaceutical
Company
Treating Opioid
Dependence
8,460
7,986
7,783
20,150
19,796
19,621
12,406
11,575
31,371
11,692
31,313
20,224
19,851
19,997
6,708
6,588
6,699
11,005
10,764
10,977
19,372
19,115
19,243
LIBOR Plus 7.25% (Floor
1.00%), Current Coupon
8.70%, Secured Debt
(Maturity — January 28,
2021)(9)
LIBOR Plus 6.75% (Floor
1.25%), Current Coupon
8.44%, Secured Debt
(Maturity — December 13,
2019)(9)
LIBOR Plus 6.75% (Floor
1.25%), Current Coupon
8.44%, Secured Debt
(Maturity — December 13,
2018)(9)
LIBOR Plus 6.00% (Floor
1.00%), Current Coupon
7.70%, Secured Debt
(Maturity — August 5,
2019)(9)
LIBOR Plus 7.00%, Current
Coupon 8.49%, Secured
Debt (Maturity — May 12,
2022)
LIBOR Plus 6.00% (Floor
1.25%), Current Coupon
7.57%, Secured Debt
(Maturity — May 1, 2019)
(9)
LIBOR Plus 6.75% (Floor
1.00%), Current Coupon
8.44%, Secured Debt
(Maturity — April 30,
2021)(9)
LIBOR Plus 4.50% (Floor
1.00%), Current Coupon
5.50%, Secured Debt
Industrial Services
Acquisition, LLC(10)
June 17, 2016
Industrial
Cleaning
Services
(Maturity — December 18,
2022)(9)
1,176
1,171
1,182
11.25% Current / 0.75% PIK
Unsecured Debt (Maturity
— December 17, 2022)
(19)
Member Units (Industrial
Services
Investments, LLC)
(900,000 units)
134
4,553
4,478
4,553
900
5,378
810
5,363
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments — (Continued)
December 31, 2017
(dollars in thousands)
Portfolio Company(1)(20)
Investment
Date(28)
Business
Description
Type of Investment(2)(3)
(27)
Principal(4) Cost(4)
Fair
Value(18)
Inn of the Mountain Gods
Resort and Casino(11)
October 30,
2013
Hotel & Casino
Owner &
Operator
iPayment, Inc.(11)
June 25, 2015 Provider of
Merchant
Acquisition
iQor US Inc.(11)
April 17, 2014 Business Process
Outsourcing
Services
Provider
Provider of
Damage
Prevention
Information
Technology
Services
irth Solutions, LLC
December 29,
2010
9.25% Secured Debt
(Maturity — November 30,
2020)
6,249
5,994
5,687
LIBOR Plus 5.00% (Floor
1.00%), Current Coupon
6.62%, Secured Debt
(Maturity — April 11,
2023)(9)
LIBOR Plus 5.00% (Floor
1.00%), Current Coupon
6.69%, Secured Debt
(Maturity — April 1, 2021)
(9)
11,970
11,861
12,090
990
983
986
Jacent Strategic
September 16,
General
Merchandising, LLC(10)
2015
Merchandise
Distribution
Jackmont Hospitality, Inc.
May 26, 2015 Franchisee of
(10)
Casual Dining
Restaurants
Jacuzzi Brands LLC(11)
June 30, 2017 Manufacturer of
Bath and Spa
Products
Joerns
April 3, 2013 Manufacturer and
Healthcare, LLC(11)
Distributor of
Health Care
Equipment &
Supplies
Keypoint Government
Solutions, Inc.(10)
April 17, 2017 Provider of Pre-
Employment
Screening
Member Units (27,893 units)
1,441
1,920
LIBOR Plus 6.50% (Floor
1.00%), Current Coupon
8.01%, Secured Debt
(Maturity — September 16,
2020)(9)
LIBOR Plus 6.75% (Floor
1.00%), Current Coupon
8.32%, Secured Debt
(Maturity — May 26,
2021)(9)
LIBOR Plus 7.00% (Floor
1.00%), Current Coupon
8.69%, Secured Debt
(Maturity — June 28,
2023)(9)
LIBOR Plus 6.00% (Floor
1.00%), Current Coupon
7.48% Secured Debt
(Maturity — May 9, 2020)
(9)
11,110
11,054
11,110
4,390
4,379
4,390
3,950
3,876
3,980
13,387
13,299
12,472
Services
LIBOR Plus 6.00% (Floor
1.00%), Current Coupon
7.35%, Secured Debt
(Maturity — April 18,
2024)(9)
135
12,031
11,921
12,031
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments — (Continued)
December 31, 2017
(dollars in thousands)
Portfolio Company(1)(20)
Investment
Date(28)
Business Description
Type of Investment(2)(3)
(27)
Principal(4) Cost(4)
Fair
Value(18)
Larchmont
August 13,
Oil & Gas
Resources, LLC(11)
2013
Exploration &
Production
LIBOR Plus 9.00% (Floor
1.00%), Current Coupon
10.53%, PIK Secured Debt
(Maturity — August 7,
2020)(9)(19)
Member Units (Larchmont
Intermediate Holdco, LLC)
(2,828 units)
2,418
2,418
2,394
353
2,771
976
3,370
LP Interests (Fully diluted
2.3%)
2,500
4,234
LKCM Headwater
Investments I, L.P.(12)
(13)
January 25,
2013
Investment Partnership
Logix Acquisition
Company, LLC(10)
June 24, 2016 Competitive Local
Exchange Carrier
Looking Glass
July 1, 2015 Specialty Consumer
Investments, LLC(12)(13)
Finance
LIBOR Plus 5.75% (Floor
1.00%), Current Coupon
7.28%, Secured Debt
(Maturity — August 9,
2024)(9)
Member Units (2.5 units)
Member Units (LGI
Predictive Analytics LLC)
(190,712 units)(8)
LSF9 Atlantis
Holdings, LLC(11)
May 17, 2017 Provider of Wireless
Telecommunications
Carrier Services
Lulu's Fashion
Lounge, LLC(10)
August 31,
Fast Fashion E-
2017
Commerce Retailer
Messenger, LLC(10)
December 5,
2014
Supplier of Specialty
Stationery and
Related Products to
the Funeral Industry
Minute Key, Inc.
September 19,
2014
Operator of
Automated Key
Duplication Kiosks
NBG Acquisition Inc(11)
April 28, 2017 Wholesaler of Home
Décor Products
LIBOR Plus 6.00% (Floor
1.00%), Current Coupon
7.57%, Secured Debt
(Maturity — May 1, 2023)
(9)
LIBOR Plus 7.00% (Floor
1.00%), Current Coupon
8.57%, Secured Debt
(Maturity — August 28,
2022)(9)
LIBOR Plus 7.25% (Floor
1.00%), Current Coupon
8.74%, Secured Debt
(Maturity — September 9,
2020)(9)
Warrants (1,437,409
equivalent shares;
Expiration — May 20,
2025; Strike price — $0.01
per share)
LIBOR Plus 5.50% (Floor
10,135
9,921
9,921
125
108
233
57
92
149
2,963
2,931
2,978
13,381
12,993
13,531
17,331
17,249
17,331
280
1,170
1.00%), Current Coupon
7.19%, Secured Debt
(Maturity — April 26,
2024)(9)
136
4,402
4,336
4,452
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments — (Continued)
December 31, 2017
(dollars in thousands)
Portfolio Company(1)(20)
Investment
Date(28)
Business
Description
Type of Investment(2)(3)
(27)
Principal(4) Cost(4)
Fair
Value(18)
New Media
June 10, 2014 Local Newspaper
Holdings II LLC(11)(13)
Operator
NNE Partners, LLC(10)
March 2,
2017
Oil & Gas
Exploration &
Production
North American Lifting
February 26,
Holdings, Inc.(11)
2015
Crane Service
Provider
Novetta Solutions, LLC(11)
June 21, 2017 Provider of
Advanced
Analytics
Solutions for
Defense
Agencies
NTM Acquisition Corp.(11)
July 12, 2016 Provider of B2B
Travel
Information
Content
Ospemifene Royalty
July 8, 2013 Estrogen-
Sub LLC (QuatRx)(10)
Deficiency
Drug
Manufacturer
and Distributor
P.F. Chang's China
Bistro, Inc.(11)
September 6,
Casual Restaurant
2017
Group
Paris Presents
Incorporated(11)
February 5,
2015
Branded Cosmetic
and Bath
Accessories
Parq Holdings Limited
December 22,
Partnership(11)(13)(21)
2014
Hotel & Casino
Operator
LIBOR Plus 6.25% (Floor
1.00%), Current Coupon
7.82%, Secured Debt
(Maturity — July 14, 2022)
(9)
LIBOR Plus 8.00%, Current
Coupon 9.49%, Secured
Debt (Maturity —
March 2, 2022)
LIBOR Plus 4.50% (Floor
1.00%), Current Coupon
6.19%, Secured Debt
(Maturity — November 27,
2020)(9)
LIBOR Plus 5.00% (Floor
1.00%), Current Coupon
6.70%, Secured Debt
(Maturity — October 17,
2022)(9)
LIBOR Plus 6.25% (Floor
1.00%), Current Coupon
7.94%, Secured Debt
(Maturity — June 7, 2022)
(9)
17,715
17,342
17,864
11,958
11,854
11,854
7,745
6,913
7,256
14,636
14,189
14,239
6,186
6,126
6,155
11.5% Secured Debt
(Maturity — November 15,
2026)(14)
5,071
5,071
1,198
LIBOR Plus 5.00% (Floor
1.00%), Current Coupon
6.51%, Secured Debt
(Maturity — September 1,
2022)(9)
LIBOR Plus 8.75% (Floor
1.00%), Current Coupon
10.32%, Secured Debt
(Maturity — December 31,
2021)(9)
LIBOR Plus 7.50% (Floor
4,988
4,846
4,715
4,500
4,471
4,477
1.00%), Current Coupon
9.19%, Secured Debt
(Maturity — December 17,
2020)(9)
137
7,481
7,399
7,528
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments — (Continued)
December 31, 2017
(dollars in thousands)
Portfolio Company(1)(20)
Investment
Date(28)
Business
Description
Type of Investment(2)(3)
(27)
Principal(4) Cost(4)
Fair
Value(18)
Permian Holdco 2, Inc.(11) February 12,
Storage Tank
2013
Manufacturer
14% PIK Unsecured Debt
(Maturity — October 15,
2021)(19)
Preferred Stock (Permian
Holdco 1, Inc.) (154,558
units)
Common Stock (Permian
Holdco 1, Inc.) (154,558
units)
306
306
799
—
1,105
306
980
140
1,426
12% Secured Debt (Maturity
— August 1, 2020)
3,129
3,129
1,971
Warrants (65,463 equivalent
shares; Expiration —
July 7, 2020; Strike price
— $0.75 per share)
Common Stock (163,658
shares)
LIBOR Plus 6.00% (Floor
1.00%), Current Coupon
7.69%, Secured Debt
(Maturity — December 22,
2021)(9)
LIBOR Plus 4.50% (Floor
1.00%), Current Coupon
6.19%, Secured Debt
(Maturity — January 28,
2020)(9)
69
273
342
—
11
11
6,869
6,748
6,869
12,830
11,332
12,253
LIBOR Plus 5.50% (Floor
1.00%), Current Coupon
6.86%, Secured Debt
(Maturity — November 30,
2021)(9)
8,553
8,553
8,553
LIBOR Plus 4.75% (Floor
1.00%), Current Coupon
6.13%, Secured Debt
(Maturity — August 7,
2021)(9)
14,272
14,114
14,165
Pernix Therapeutics
Holdings, Inc.(10)
August 18,
2014
Pharmaceutical
Royalty
Point.360(10)
July 8, 2015 Fully Integrated
Provider of
Digital Media
Services
PPC/SHIFT LLC(10)
December 22,
Provider of
2016
Digital
Solutions to
Automotive
Industry
Prowler Acquisition Corp.
February 11,
Specialty
(11)
2014
Distributor to
the Energy
Sector
PT Network, LLC(10)
November 1,
Provider of
2013
Outpatient
Physical
Therapy and
Sports Medicine
Services
QBS Parent, Inc.(11)
August 12,
2014
Provider of
Software and
Services to the
Oil & Gas
Industry
Research Now Group, Inc.
Provider of
Research Now Group, Inc.
and Survey Sampling
International, LLC(11)
December 31,
2017
Provider of
Outsourced
Online
Surveying
LIBOR Plus 5.50% (Floor
1.00%), Current Coupon
7.13%, Secured Debt
(Maturity — December 20,
2024)(9)
138
13,500
12,826
12,826
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments — (Continued)
December 31, 2017
(dollars in thousands)
Portfolio Company(1)(20)
Resolute
Industrial, LLC(10)
Investment
Date(28)
Business
Description
Type of Investment(2)(3)
(27)
Principal(4) Cost(4)
Fair
Value(18)
July 26, 2017 HVAC Equipment
Rental and
Remanufacturing
LIBOR Plus 7.62% (Floor
1.00%), Current Coupon
8.95%, Secured Debt
(Maturity — July 26, 2022)
(9)(25)
Member Units (601 units)
17,088
16,770
750
17,520
16,770
750
17,520
1% Current / 9% PIK
Secured Debt (Maturity —
December 21, 2024)(19)
721
407
407
Warrants (327,532 equivalent
units; Expiration —
October 20, 2025; Strike
price — $14.28 per unit)
Member Units (2,779 units)
425
46
471
—
20
20
Member Units (2,000,000
units)
2,000
1,670
LIBOR Plus 8.50% (Floor
1.00%), Current Coupon
9.85%, Secured Debt
(Maturity — June 9, 2021)
(9)
10,081
9,870
9,778
10.375% Secured Debt
(Maturity — July 1, 2019)
10,429
7,006
7,040
LIBOR Plus 6.25% (Floor
1.00%), Current Coupon
7.66%, Secured Debt
(Maturity — August 9,
2022)(9)
LIBOR Plus 5.75% (Floor
2.25%), Current Coupon
8.00%, Secured Debt
(Maturity — April 30,
2020)(9)
14,625
14,351
14,552
13,234
13,170
13,341
RGL Reservoir
Operations Inc.(11)(13)
(21)
August 25,
2014
Oil & Gas
Equipment and
Services
RM Bidder, LLC(10)
November 12,
Scripted and
2015
Unscripted TV
and Digital
Programming
Provider
SAFETY Investment
Holdings, LLC
April 29, 2016 Provider of
Intelligent
Driver Record
Monitoring
Software and
Services
Salient Partners L.P.(11)
June 25, 2015 Provider of Asset
Management
Services
SiTV, LLC(11)
September 26,
2017
Cable Networks
Operator
SMART Modular
Technologies, Inc.(10)(13)
August 18,
2017
Provider of
Specialty
Memory
Solutions
Sorenson
June 7, 2016 Manufacturer of
Communications, Inc.(11)
Communication
Products for
Hearing
Impaired
Staples Canada ULC(10)
Office Supplies
Staples Canada ULC(10)
(13)(21)
September 14,
2017
Office Supplies
Retailer
LIBOR Plus 7.00% (Floor
1.00%), Current Coupon
8.43%, Secured Debt
(Maturity — September 12,
2023)(9)(22)
139
20,000
19,617
18,891
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments — (Continued)
December 31, 2017
(dollars in thousands)
Portfolio Company(1)(20)
Investment
Date(28)
Business
Description
Type of Investment(2)(3)
(27)
Principal(4) Cost(4)
Fair
Value(18)
Strike, LLC(11)
December 12,
Pipeline
2016
Construction
and
Maintenance
Services
LIBOR Plus 8.00% (Floor
1.00%), Current Coupon
9.50%, Secured Debt
(Maturity — November 30,
2022)(9)
LIBOR Plus 8.00% (Floor
1.00%), Current Coupon
9.45%, Secured Debt
(Maturity — May 30,
2019)(9)
LIBOR Plus 6.00% (Floor
1.50%), Current Coupon
7.50%, Secured Debt
(Maturity — March 17,
2020)(9)
LIBOR Plus 5.50% (Floor
1.00%), Current Coupon
7.19%, Secured Debt
(Maturity — August 22,
2020)(9)
9,500
9,250
9,643
2,500
2,479
11,729
2,513
12,156
7,687
7,637
7,687
9,161
8,933
8,608
Member Units (200,000
units)(8)
2,000
2,320
Member Units (97,048 units)
970
158
LIBOR Plus 8.50% (Floor
1.00%), Current Coupon
10.07%, Secured Debt
(Maturity — April 12,
2024)(9)
LIBOR Plus 5.00% (Floor
1.00%), Current Coupon
6.69%, Secured Debt
(Maturity — September 25,
2024)(9)
LIBOR Plus 8.50% (Floor
1.00%), Current Coupon
10.19%, Secured Debt
(Maturity — September 25,
2025)(9)
7,750
7,602
7,808
6,898
6,820
6,969
5,000
4,927
11,747
5,075
12,044
Subsea Global
Solutions, LLC(10)
March 17,
Underwater
2015
Maintenance
and Repair
Services
Synagro Infrastructure
Company, Inc(11)
August 29,
2013
Waste
Management
Services
Tectonic Holdings, LLC
May 15, 2017 Financial
Services
Organization
TE Holdings, LLC(11)
December 5,
Oil & Gas
2013
Exploration &
Production
TeleGuam
Holdings, LLC(11)
June 26, 2013 Cable and
Telecom
Services
Provider
TGP Holdings III LLC(11) September 30,
Outdoor
2017
Cooking &
Accessories
The Container Store, Inc.
August 22,
Operator of
(11)
2017
Stores Offering
Storage and
Organizational
Products
TMC Merger Sub Corp.
December 22,
Refractory &
(11)
2016
Maintenance
Services
Provider
LIBOR Plus 7.00% (Floor
1.00%), Current Coupon
8.69%, Secured Debt
(Maturity — August 15,
2021)(9)
LIBOR Plus 6.25% (Floor
1.00%), Current Coupon
7.88%, Secured Debt
(Maturity — October 31,
2022)(9)(26)
140
9,938
9,660
9,652
17,653
17,516
17,741
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments — (Continued)
December 31, 2017
(dollars in thousands)
Portfolio Company(1)(20)
TOMS Shoes, LLC(11)
Investment
Date(28)
November 13,
2014
Business Description
Type of Investment(2)(3)
(27)
Principal(4) Cost(4)
Fair
Value(18)
Global Designer,
Distributor, and
Retailer of Casual
Footwear
Turning Point Brands, Inc.
February 17,
Marketer/Distributor
(10)(13)
2017
of Tobacco Products
TVG-I-E CMN
November 3,
Organic Lead
ACQUISITION, LLC(10)
2016
Generation for
Online
Postsecondary
Schools
Tweddle Group, Inc.(11)
November 15,
2016
Provider of Technical
Information
Services to
Automotive OEMs
U.S. TelePacific Corp.(11)
September 14,
2016
Provider of
Communications
and Managed
Services
US Joiner Holding
Company(11)
April 23, 2014 Marine Interior Design
and Installation
VIP Cinema Holdings, Inc.
March 9, 2017 Supplier of Luxury
(11)
Seating to the
Cinema Industry
Vistar Media, Inc.(10)
February 17,
2017
Operator of Digital
Out-of-Home
Advertising
Platform
LIBOR Plus 5.50% (Floor
1.00%), Current Coupon
6.98%, Secured Debt
(Maturity — October 30,
2020)(9)
LIBOR Plus 6.00% (Floor
1.00%), Current Coupon
7.61%, Secured Debt
(Maturity — May 17,
2022)(9)(25)
LIBOR Plus 6.00% (Floor
1.00%), Current Coupon
7.56%, Secured Debt
(Maturity — November 3,
2021)(9)
LIBOR Plus 6.00% (Floor
1.00%), Current Coupon
7.38%, Secured Debt
(Maturity — October 21,
2022)(9)
LIBOR Plus 5.00% (Floor
1.00%), Current Coupon
6.69%, Secured Debt
(Maturity — May 2, 2023)
(9)
LIBOR Plus 6.00% (Floor
1.00%), Current Coupon
7.70%, Secured Debt
(Maturity — April 16,
2020)(9)
LIBOR Plus 6.00% (Floor
1.00%), Current Coupon
7.70%, Secured Debt
(Maturity — March 1,
2023)(9)
LIBOR Plus 10.00% (Floor
1.00%), Current Coupon
11.69%, Secured Debt
(Maturity — February 16,
2022)(9)
Warrants (70,207 equivalent
4,875
4,610
2,901
8,436
8,364
8,605
8,170
8,031
8,170
6,114
6,011
6,023
20,703
20,507
19,862
13,465
13,366
13,398
7,700
7,666
7,777
3,319
3,048
3,102
Warrants (70,207 equivalent
shares; Expiration —
February 17, 2027; Strike
price — $0.01 per share)
141
331
3,379
499
3,601
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments — (Continued)
December 31, 2017
(dollars in thousands)
Portfolio Company(1)(20)
Investment
Date(28)
Business Description
Type of Investment(2)(3)
(27)
Principal(4) Cost(4)
Fair
Value(18)
Wellnext, LLC(10)
May 23, 2016 Manufacturer of
Supplements and
Vitamins
Wireless Vision
Holdings, LLC(10)
September 29,
2017
Provider of Wireless
Telecommunications
Carrier Services
Wirepath LLC(11)
August 16,
2017
E-Commerce Provider
into Connected
Home Market
Zilliant Incorporated
June 15, 2012 Price Optimization and
Margin Management
Solutions
Subtotal Non-Control/Non-
Affiliate Investments
(78.4% of net assets at
fair value)
Total Portfolio Investments,
December 31, 2017
LIBOR Plus 10.10% (Floor
1.00%), Current Coupon
11.67%, Secured Debt
(Maturity — July 21,
2022)(9)(23)
LIBOR Plus 8.91% (Floor
1.00%), Current Coupon
10.27%, Secured Debt
(Maturity — September 29,
2022)(9)(24)
LIBOR Plus 5.25% (Floor
1.00%), Current Coupon
6.87%, Secured Debt
(Maturity — August 5,
2024)(9)
Preferred Stock (186,777
shares)
Warrants (952,500 equivalent
shares; Expiration —
June 15, 2022; Strike price
— $0.001 per share)
9,930
9,857
9,930
12,932
12,654
12,654
4,988
4,964
5,055
154
260
1,071
1,225
1,189
1,449
$1,107,447 $
1,081,745
$2,004,798 $
2,171,305
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
All investments are Lower Middle Market portfolio investments, unless otherwise noted. See Note B for a description of Lower Middle Market
portfolio investments. All of the Company's investments, unless otherwise noted, are encumbered either as security for the Company's Credit
Agreement or in support of the SBA-guaranteed debentures issued by the Funds.
Debt investments are income producing, unless otherwise noted. Equity and warrants are non-income producing, unless otherwise noted.
See Note C for a summary of geographic location of portfolio companies.
Principal is net of repayments. Cost is net of repayments and accumulated unearned income.
Control investments are defined by the Investment Company Act of 1940, as amended ("1940 Act") as investments in which more than 25% of the
voting securities are owned or where the ability to nominate greater than 50% of the board representation is maintained.
Affiliate investments are defined by the 1940 Act as investments in which between 5% and 25% of the voting securities are owned and the
investments are not classified as Control investments.
Non-Control/Non-Affiliate investments are defined by the 1940 Act as investments that are neither Control investments nor Affiliate investments.
Income producing through dividends or distributions.
Index based floating interest rate is subject to contractual minimum interest rate. A majority of the variable rate loans in the Company's investment
portfolio bear interest at a rate that may be determined by reference to either LIBOR or an alternate Base Rate (commonly based on the Federal
Funds Rate or the Prime Rate), which typically resets semi-annually, quarterly, or monthly at the borrower's option. The borrower may also elect to
have multiple interest reset periods for each loan. For each such loan, the Company has provided the weighted average annual stated interest rate in
effect at December 31, 2017. As noted in this schedule, 67% of the loans (based on the par amount) contain LIBOR floors which range between
0.50% and 2.25%, with a weighted-average LIBOR floor of approximately 1.02%.
(10)
Private Loan portfolio investment. See Note B for a description of Private Loan portfolio investments.
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Consolidated Schedule of Investments — (Continued)
December 31, 2017
(dollars in thousands)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
(19)
(20)
(21)
(22)
(23)
(24)
(25)
(26)
(27)
(28)
Middle Market portfolio investment. See Note B for a description of Middle Market portfolio investments.
Other Portfolio investment. See Note B for a description of Other Portfolio investments.
Investment is not a qualifying asset as defined under Section 55(a) of the 1940 Act. Qualifying assets must represent at least 70% of total assets at
the time of acquisition of any additional non-qualifying assets.
Non-accrual and non-income producing investment.
Portfolio company is in a bankruptcy process and, as such, the maturity date of our debt investments in this portfolio company will not be finally
determined until such process is complete. As noted in footnote (14), our debt investments in this portfolio company are on non-accrual status.
External Investment Manager. Investment is not encumbered as security for the Company's Credit Agreement or in support of the SBA-guaranteed
debentures issued by the Funds.
Maturity date is under on-going negotiations with the portfolio company and other lenders, if applicable.
Investment fair value was determined using significant unobservable inputs, unless otherwise noted. See Note C for further discussion.
PIK interest income and cumulative dividend income represent income not paid currently in cash.
All portfolio company headquarters are based in the United States, unless otherwise noted.
Portfolio company headquarters are located outside of the United States.
In connection with the Company's debt investment in Staples Canada ULC to help mitigate any potential adverse change in foreign exchange rates
during the term of the Company's investment, the Company entered into a forward foreign currency contract with Cadence Bank to lend
$24.2 million Canadian Dollars and receive $20.0 million U.S. Dollars with a settlement date of September 12, 2018. The unrealized appreciation on
the forward foreign currency contract is $0.7 million as of December 31, 2017. This unrealized appreciation is offset by the foreign currency
translation depreciation on the investment.
The Company has entered into an intercreditor agreement that entitles the Company to the "last out" tranche of the first lien secured loans,
whereby the "first out" tranche will receive priority as to the "last out" tranche with respect to payments of principal, interest, and any other
amounts due thereunder. Therefore, the Company receives a higher interest rate than the contractual stated interest rate of LIBOR plus 7.50%
(Floor 1.00%) per the Credit Agreement and the Consolidated Schedule of Investments above reflects such higher rate.
The Company has entered into an intercreditor agreement that entitles the Company to the "last out" tranche of the first lien secured loans,
whereby the "first out" tranche will receive priority as to the "last out" tranche with respect to payments of principal, interest, and any other
amounts due thereunder. Therefore, the Company receives a higher interest rate than the contractual stated interest rate of LIBOR plus 8.50%
(Floor 1.00%) per the Credit Agreement and the Consolidated Schedule of Investments above reflects such higher rate.
As part of the credit agreement with the portfolio company, the Company is entitled to the "last out" tranche of the first lien secured loans, whereby
the "first out" tranche receives priority over the "last out" tranche with respect to payments of principal, interest, and any other amounts due
thereunder. The rate the Company receives per the Credit Agreement is the same as the rate reflected in the Consolidated Schedule of Investments
above.
The Company has entered into an intercreditor agreement that entitles the Company to the "first out" tranche of the first lien secured loans,
whereby the "first out" tranche will receive priority as to the "last out" tranche with respect to payments of principal, interest, and any other
amounts due thereunder. Therefore, the Company receives a lower interest rate than the contractual stated interest rate of LIBOR plus 6.64%
(Floor 1.00%) per the Credit Agreement and the Consolidated Schedule of Investments above reflects such lower rate.
All of the Company's portfolio investments are generally subject to restrictions on resale as "restricted securities."
Investment date represents the date of initial investment in the portfolio company.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A — ORGANIZATION AND BASIS OF PRESENTATION
1. Organization
Main Street Capital Corporation ("MSCC") is a principal investment firm primarily focused on providing customized debt and equity
financing to lower middle market ("LMM") companies and debt capital to middle market ("Middle Market") companies. The portfolio
investments of MSCC and its consolidated subsidiaries are typically made to support management buyouts, recapitalizations, growth
financings, refinancings and acquisitions of companies that operate in a variety of industry sectors. MSCC seeks to partner with
entrepreneurs, business owners and management teams and generally provides "one stop" financing alternatives within its LMM portfolio.
MSCC and its consolidated subsidiaries invest primarily in secured debt investments, equity investments, warrants and other securities of
LMM companies based in the United States and in secured debt investments of Middle Market companies generally headquartered in the
United States.
MSCC was formed in March 2007 to operate as an internally managed business development company ("BDC") under the Investment
Company Act of 1940, as amended (the "1940 Act"). MSCC wholly owns several investment funds, including Main Street Mezzanine
Fund, LP ("MSMF"), Main Street Capital II, LP ("MSC II") and Main Street Capital III, LP ("MSC III" and, collectively with MSMF and
MSC II, the "Funds"), and each of their general partners. The Funds are each licensed as a Small Business Investment Company ("SBIC")
by the United States Small Business Administration ("SBA"). Because MSCC is internally managed, all of the executive officers and other
employees are employed by MSCC. Therefore, MSCC does not pay any external investment advisory fees, but instead directly incurs the
operating costs associated with employing investment and portfolio management professionals.
MSC Adviser I, LLC (the "External Investment Manager") was formed in November 2013 as a wholly owned subsidiary of MSCC to
provide investment management and other services to parties other than MSCC and its subsidiaries or their portfolio companies ("External
Parties") and receives fee income for such services. MSCC has been granted no-action relief by the Securities and Exchange Commission
("SEC") to allow the External Investment Manager to register as a registered investment adviser under the Investment Advisers Act of
1940, as amended. Since the External Investment Manager conducts all of its investment management activities for External Parties, it is
accounted for as a portfolio investment of MSCC and is not included as a consolidated subsidiary of MSCC in MSCC's consolidated
financial statements.
MSCC has elected 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"). As a result, MSCC generally will not pay corporate-level U.S. federal
income taxes on any net ordinary taxable income or capital gains that it distributes to its stockholders.
MSCC has certain direct and indirect wholly owned subsidiaries that have elected to be taxable entities (the "Taxable Subsidiaries").
The primary purpose of the Taxable Subsidiaries is to permit MSCC to hold equity investments in portfolio companies which are "pass-
through" entities for tax purposes.
Unless otherwise noted or the context otherwise indicates, the terms "we," "us," "our," the "Company" and "Main Street" refer to
MSCC and its consolidated subsidiaries, which include the Funds and the Taxable Subsidiaries.
2. Basis of Presentation
Main Street's consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United
States of America ("U.S. GAAP"). The Company is an investment company following accounting and reporting guidance in Financial
Accounting Standards Board ("FASB")
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Accounting Standards Codification ("ASC") 946, Financial Services — Investment Companies ("ASC 946"). For each of the periods
presented herein, Main Street's consolidated financial statements include the accounts of MSCC and its consolidated subsidiaries. The
Investment Portfolio, as used herein, refers to all of Main Street's investments in LMM portfolio companies, investments in Middle Market
portfolio companies, Private Loan portfolio investments, Other Portfolio investments and the investment in the External Investment
Manager (see "Note C — Fair Value Hierarchy for Investments and Debentures — Portfolio Composition — Investment Portfolio
Composition" for additional discussion of Main Street's Investment Portfolio and definitions for the terms Private Loan and Other
Portfolio). Main Street's results of operations and cash flows for the years ended December 31, 2018, 2017 and 2016 and financial position
as of December 31, 2018 and 2017, are presented on a consolidated basis. The effects of all intercompany transactions between Main Street
and its consolidated subsidiaries have been eliminated in consolidation. Certain reclassifications have been made to prior period balances to
conform with the current presentation.
Under ASC 946, Main Street is precluded from consolidating other entities in which Main Street has equity investments, including
those in which it has a controlling interest, unless the other entity is another investment company. An exception to this general principle in
ASC 946 occurs if Main Street holds a controlling interest in an operating company that provides all or substantially all of its services
directly to Main Street or to its portfolio companies. Accordingly, as noted above, MSCC's consolidated financial statements include the
financial position and operating results for the Funds and the Taxable Subsidiaries. Main Street has determined that all of its portfolio
investments do not qualify for this exception, including the investment in the External Investment Manager. Therefore, Main Street's
Investment Portfolio is carried on the consolidated balance sheet at fair value, as discussed further in Note B.1., with any adjustments to
fair value recognized as "Net Unrealized Appreciation (Depreciation)" on the consolidated statements of operations until the investment is
realized, usually upon exit, resulting in any gain or loss being recognized as a "Net Realized Gain (Loss)."
Portfolio Investment Classification
Main Street classifies its Investment Portfolio in accordance with the requirements of the 1940 Act. Under the 1940 Act, (a) "Control
Investments" are defined as investments in which Main Street owns more than 25% of the voting securities or has rights to maintain greater
than 50% of the board representation, (b) "Affiliate Investments" are defined as investments in which Main Street owns between 5% and
25% of the voting securities and does not have rights to maintain greater than 50% of the board representation, and (c) "Non-Control/Non-
Affiliate Investments" are defined as investments that are neither Control Investments nor Affiliate Investments.
NOTE B — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Valuation of the Investment Portfolio
Main Street accounts for its Investment Portfolio at fair value. As a result, Main Street follows the provisions of ASC 820, Fair Value
Measurements and Disclosures ("ASC 820"). ASC 820 defines fair value, establishes a framework for measuring fair value, establishes a
fair value hierarchy based on the quality of inputs used to measure fair value and enhances disclosure requirements for fair value
measurements. ASC 820 requires Main Street to assume that the portfolio investment is to be sold in the principal market to independent
market participants, which may be a hypothetical market. Market participants are defined as buyers and sellers in the principal market that
are independent, knowledgeable and willing and able to transact.
Main Street's portfolio strategy calls for it to invest primarily in illiquid debt and equity securities issued by privately held, LMM
companies and more liquid debt securities issued by Middle Market companies that
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
are generally larger in size than the LMM companies. Main Street categorizes some of its investments in LMM companies and Middle
Market companies as Private Loan portfolio investments, which are primarily debt securities in privately held companies which have been
originated through strategic relationships with other investment funds on a collaborative basis, and are often referred to in the debt markets
as "club deals." Private Loan investments are typically similar in size, structure, terms and conditions to investments Main Street holds in
its LMM portfolio and Middle Market portfolio. Main Street's portfolio also includes Other Portfolio investments which primarily consist
of investments that are not consistent with the typical profiles for its LMM portfolio investments, Middle Market portfolio investments or
Private Loan portfolio investments, including investments which may be managed by third parties. Main Street's portfolio investments may
be subject to restrictions on resale.
LMM investments and Other Portfolio investments generally have no established trading market while Middle Market securities
generally have established markets that are not active. Private Loan investments may include investments which have no established
trading market or have established markets that are not active. Main Street determines in good faith the fair value of its Investment
Portfolio pursuant to a valuation policy in accordance with ASC 820 and a valuation process approved by its Board of Directors and in
accordance with the 1940 Act. Main Street's valuation policies and processes are intended to provide a consistent basis for determining the
fair value of Main Street's Investment Portfolio.
For LMM portfolio investments, Main Street generally reviews external events, including private mergers, sales and acquisitions
involving comparable companies, and includes these events in the valuation process by using an enterprise value waterfall methodology
("Waterfall") for its LMM equity investments and an income approach using a yield-to-maturity model ("Yield-to-Maturity") for its LMM
debt investments. For Middle Market portfolio investments, Main Street primarily uses quoted prices in the valuation process. Main Street
determines the appropriateness of the use of third-party broker quotes, if any, in determining fair value based on its 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, the
depth and consistency of broker quotes and the correlation of changes in broker quotes with underlying performance of the portfolio
company and other market indices. For Middle Market and Private Loan portfolio investments in debt securities for which it has
determined that third-party quotes or other independent pricing are not available or appropriate, Main Street generally estimates the fair
value based on the assumptions that it believes hypothetical market participants would use to value the investment in a current hypothetical
sale using the Yield-to-Maturity valuation method. For its Other Portfolio equity investments, Main Street generally calculates the fair
value of the investment primarily based on the net asset value ("NAV") of the fund and adjusts the fair value for other factors that would
affect the fair value of the investment. All of the valuation approaches for Main Street's portfolio investments estimate the value of the
investment as if Main Street were to sell, or exit, the investment as of the measurement date.
These valuation approaches consider the value associated with Main Street's ability to control the capital structure of the portfolio
company, as well as the timing of a potential exit. For valuation purposes, "control" portfolio investments are composed of debt and equity
securities in companies for which Main Street has a controlling interest in the equity ownership of the portfolio company or the ability to
nominate a majority of the portfolio company's board of directors. For valuation purposes, "non-control" portfolio investments are
generally composed of debt and equity securities in companies for which Main Street does not have a controlling interest in the equity
ownership of the portfolio company or the ability to nominate a majority of the portfolio company's board of directors.
Under the Waterfall valuation method, Main Street estimates the enterprise value of a portfolio company using a combination of
market and income approaches or other appropriate valuation methods, such as considering recent transactions in the equity securities of
the portfolio company or third-party valuations of
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the portfolio company, and then performs a waterfall calculation by allocating the enterprise value over the portfolio company's securities
in order of their preference relative to one another. The enterprise value is the fair value at which an enterprise could be sold in a transaction
between two willing parties, other than through a forced or liquidation sale. Typically, privately held companies are bought and sold based
on multiples of earnings before interest, taxes, depreciation and amortization ("EBITDA"), cash flows, net income, revenues, or in limited
cases, book value. There is no single methodology for estimating enterprise value. For any one portfolio company, enterprise value is
generally described as a range of values from which a single estimate of enterprise value is derived. In estimating the enterprise value of a
portfolio company, Main Street analyzes various factors including the portfolio company's historical and projected financial results. Due to
SEC deadlines for Main Street's quarterly and annual financial reporting, the operating results of a portfolio company used in the current
period valuation are generally the results from the period ended three months prior to such valuation date and may include unaudited,
projected, budgeted or pro forma financial information and may require adjustments for non-recurring items or to normalize the operating
results that may require significant judgment in its determination. In addition, projecting future financial results requires significant
judgment regarding future growth assumptions. In evaluating the operating results, Main Street also analyzes the impact of exposure to
litigation, loss of customers or other contingencies. After determining the appropriate enterprise value, Main Street allocates the enterprise
value to investments in order of the legal priority of the various components of the portfolio company's capital structure. In applying the
Waterfall valuation method, Main Street assumes the loans are paid off at the principal amount in a change in control transaction and are
not assumed by the buyer, which Main Street believes is consistent with its past transaction history and standard industry practices.
Under the Yield-to-Maturity valuation method, Main Street also uses the income approach to determine the fair value of debt securities
based on projections of the discounted future free cash flows that the debt security will likely generate, including analyzing the discounted
cash flows of interest and principal amounts for the debt security, as set forth in the associated loan agreements, as well as the financial
position and credit risk of the portfolio company. Main Street's estimate of the expected repayment date of its debt securities is generally
the maturity date of the instrument, as Main Street generally intends to hold its loans and debt securities to maturity. The Yield-to-Maturity
analysis also considers changes in leverage levels, credit quality, portfolio company performance and other factors. Main Street will
generally use the value determined by the Yield-to-Maturity analysis as the fair value for that security; however, because of Main Street's
general intent to hold its loans to maturity, the fair value will not exceed the principal amount of the debt security valued using the Yield-
to-Maturity valuation method. A change in the assumptions that Main Street uses to estimate the fair value of its debt securities using the
Yield-to-Maturity valuation method could have a material impact on the determination of fair value. If there is deterioration in credit
quality or if a debt security is in workout status, Main Street may consider other factors in determining the fair value of the debt security,
including the value attributable to the debt security from the enterprise value of the portfolio company or the proceeds that would most
likely be received in a liquidation analysis.
Under the NAV valuation method, for an investment in an investment fund that does not have a readily determinable fair value, Main
Street measures the fair value of the investment predominately based on the NAV of the investment fund as of the measurement date and
adjusts the investment's fair value for factors known to Main Street that would affect that fund's NAV, including, but not limited to, fair
values for individual investments held by the fund if Main Street holds the same investment or for a publicly traded investment. In addition,
in determining the fair value of the investment, Main Street considers whether adjustments to the NAV are necessary in certain
circumstances, based on the analysis of any restrictions on redemption of Main Street's investment as of the measurement date, recent
actual sales or redemptions of interests in the investment fund, and expected future cash flows available to equity holders, including the rate
of return on those cash flows compared to an implied market return on equity required by market
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
participants, or other uncertainties surrounding Main Street's ability to realize the full NAV of its interests in the investment fund.
Pursuant to its internal valuation process and the requirements under the 1940 Act, Main Street performs valuation procedures on each
of its portfolio investments quarterly. In addition to its internal valuation process, in arriving at estimates of fair value for its investments in
its LMM portfolio companies, Main Street, among other things, consults with a nationally recognized independent financial advisory
services firm. The nationally recognized independent financial advisory services firm analyzes and provides observations,
recommendations and an assurance certification regarding the Company's determinations of the fair value of its LMM portfolio company
investments. The nationally recognized independent financial advisory services firm is generally consulted relative to Main Street's
investments in each LMM portfolio company at least once every calendar year, and for Main Street's investments in new LMM portfolio
companies, at least once in the twelve-month period subsequent to the initial investment. In certain instances, Main Street may determine
that it is not cost-effective, and as a result is not in its stockholders' best interest, to consult with the nationally recognized independent
financial advisory services firm on its investments in one or more LMM portfolio companies. Such instances include, but are not limited to,
situations where the fair value of Main Street's investment in a LMM portfolio company is determined to be insignificant relative to the
total Investment Portfolio. Main Street consulted with and received an assurance certification from its independent financial advisory
services firm in arriving at Main Street's determination of fair value on its investments in a total of 54 LMM portfolio companies for the
year ended December 31, 2018, representing approximately 87% of the total LMM portfolio at fair value as of December 31, 2018, and on
a total of 53 LMM portfolio companies for the year ended December 31, 2017, representing approximately 91% of the total LMM portfolio
at fair value as of December 31, 2017. Excluding its investments in new LMM portfolio companies which have not been in the Investment
Portfolio for at least twelve months subsequent to the initial investment as of December 31, 2018 and 2017, as applicable, or whose primary
purpose is to own real estate for which a third-party appraisal is obtained on at least an annual basis, the percentage of the LMM portfolio
reviewed and certified by its independent financial advisory services firm for the years ended December 31, 2018 and 2017 was 98% and
97% of the total LMM portfolio at fair value as of December 31, 2018 and 2017, respectively.
For valuation purposes, all of Main Street's Middle Market portfolio investments are non-control investments. To the extent sufficient
observable inputs are available to determine fair value, Main Street uses observable inputs to determine the fair value of these investments
through obtaining third-party quotes or other independent pricing. For Middle Market portfolio investments for which it has determined
that third-party quotes or other independent pricing are not available or appropriate, Main Street generally estimates the fair value based on
the assumptions that it believes hypothetical market participants would use to value such Middle Market debt investments in a current
hypothetical sale using the Yield-to-Maturity valuation method and such Middle Market equity investments in a current hypothetical sale
using the Waterfall valuation method. Because the vast majority of the Middle Market portfolio investments are typically valued using
third-party quotes or other independent pricing services (including 94% and 95% of the Middle Market portfolio investments as of
December 31, 2018 and 2017, respectively), Main Street generally does not consult with any financial advisory services firms in connection
with determining the fair value of its Middle Market investments.
For valuation purposes, all of Main Street's Private Loan portfolio investments are non-control investments. For Private Loan portfolio
investments for which it has determined that third-party quotes or other independent pricing are not available or appropriate, Main Street
generally estimates the fair value based on the assumptions that it believes hypothetical market participants would use to value such Private
Loan debt investments in a current hypothetical sale using the Yield-to-Maturity valuation method and such Private Loan equity
investments in a current hypothetical sale using the Waterfall valuation method.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In addition to its internal valuation process, in arriving at estimates of fair value for its investments in its Private Loan portfolio
companies, Main Street, among other things, consults with a nationally recognized independent financial advisory services firm. The
nationally recognized independent financial advisory services firm analyzes and provides observations and recommendations and an
assurance certification regarding the Company's determinations of the fair value of its Private Loan portfolio company investments. The
nationally recognized independent financial advisory services firm is generally consulted relative to Main Street's investments in each
Private Loan portfolio company at least once every calendar year, and for Main Street's investments in new Private Loan portfolio
companies, at least once in the twelve-month period subsequent to the initial investment. In certain instances, Main Street may determine
that it is not cost-effective, and as a result is not in its stockholders' best interest, to consult with the nationally recognized independent
financial advisory services firm on its investments in one or more Private Loan portfolio companies. Such instances include, but are not
limited to, situations where the fair value of Main Street's investment in a Private Loan portfolio company is determined to be insignificant
relative to the total Investment Portfolio. Main Street consulted with and received an assurance certification from its independent financial
advisory services firm in arriving at its determination of fair value on its investments in a total of 27 Private Loan portfolio companies for
the year ended December 31, 2018, representing approximately 57% of the total Private Loan portfolio at fair value as of December 31,
2018, and on a total of 26 Private Loan portfolio companies for the year ended December 31, 2017, representing approximately 57% of the
total Private Loan portfolio at fair value as of December 31, 2017. Excluding its investments in new Private Loan portfolio companies
which have not been in the Investment Portfolio for at least twelve months subsequent to the initial investment decision as of December 31,
2018 and 2017, as applicable, and its investments in its Private Loan portfolio companies that were not reviewed because the investment is
valued based upon third-party quotes or other independent pricing, the percentage of the Private Loan portfolio reviewed and certified by
its independent financial advisory services firm for the years ended December 31, 2018 and 2017 was 91% and 94% of the total Private
Loan portfolio at fair value as of December 31, 2018 and 2017, respectively.
For valuation purposes, all of Main Street's Other Portfolio investments are non-control investments. Main Street's Other Portfolio
investments comprised 4.4% and 4.8% of Main Street's Investment Portfolio at fair value as of December 31, 2018 and 2017, respectively.
Similar to the LMM investment portfolio, market quotations for Other Portfolio equity investments are generally not readily available. For
its Other Portfolio equity investments, Main Street generally determines the fair value of these investments using the NAV valuation
method.
For valuation purposes, Main Street's investment in the External Investment Manager is a control investment. Market quotations are
not readily available for this investment, and as a result, Main Street determines the fair value of the External Investment Manager using
the Waterfall valuation method under the market approach. In estimating the enterprise value, Main Street analyzes various factors,
including the entity's historical and projected financial results, as well as its size, marketability and performance relative to the population
of market comparables. This valuation approach estimates the value of the investment as if Main Street were to sell, or exit, the investment.
In addition, Main Street considers its ability to control the capital structure of the company, as well as the timing of a potential exit, in
connection with determining the fair value of the External Investment Manager.
Due to the inherent uncertainty in the valuation process, Main Street's determination of fair value for its Investment Portfolio may
differ materially from the values that would have been determined had a ready market for the securities existed. In addition, changes in the
market environment, portfolio company performance and other events that may occur over the lives of the investments may cause the gains
or losses ultimately realized on these investments to be materially different than the valuations currently assigned. Main
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Street determines the fair value of each individual investment and records changes in fair value as unrealized appreciation or depreciation.
Main Street uses an internally developed portfolio investment rating system in connection with its investment oversight, portfolio
management and analysis and investment valuation procedures for its LMM portfolio companies. This system takes into account both
quantitative and qualitative factors of the LMM portfolio company and the investments held therein.
The Board of Directors of Main Street has the final responsibility for overseeing, reviewing and approving, in good faith, Main Street's
determination of the fair value for its Investment Portfolio, as well as its valuation procedures, consistent with 1940 Act requirements.
Main Street believes its Investment Portfolio as of December 31, 2018 and 2017 approximates fair value as of those dates based on the
markets in which Main Street operates and other conditions in existence on those reporting dates.
2. Use of Estimates
The preparation of financial statements in conformity with U.S. 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 financial statements
and the reported amounts of revenue and expenses during the period. Actual results may differ from these estimates under different
conditions or assumptions. Additionally, as explained in Note B.1., the consolidated financial statements include investments in the
Investment Portfolio whose values have been estimated by Main Street with the oversight, review and approval by Main Street's Board of
Directors in the absence of readily ascertainable market values. Because of the inherent uncertainty of the Investment Portfolio valuations,
those estimated values may differ materially from the values that would have been determined had a ready market for the securities existed.
3. Cash and Cash Equivalents
Cash and cash equivalents consist of cash and highly liquid investments with an original maturity of three months or less at the date of
purchase. Cash and cash equivalents are carried at cost, which approximates fair value.
At December 31, 2018, cash balances totaling $50.3 million exceeded Federal Deposit Insurance Corporation insurance protection
levels, subjecting the Company to risk related to the uninsured balance. All of the Company's cash deposits are held at large established
high credit quality financial institutions and management believes that the risk of loss associated with any uninsured balances is remote.
4. Interest, Dividend and Fee Income
Main Street records interest and dividend income on the accrual basis to the extent amounts are expected to be collected. Dividend
income is recorded as dividends are declared by the portfolio company or at the point an obligation exists for the portfolio company to
make a distribution. In accordance with Main Street's valuation policies, Main Street evaluates accrued interest and dividend income
periodically for collectability. When a loan or debt security becomes 90 days or more past due, and if Main Street otherwise does not expect
the debtor to be able to service all of its debt or other obligations, Main Street will generally place the loan or debt security on non-accrual
status and cease recognizing interest income on that loan or debt security until the borrower has demonstrated the ability and intent to pay
contractual amounts due. If a loan or debt security's status significantly improves regarding the debtor's ability to service the debt or other
obligations, or if a loan or debt security is sold or written-off, Main Street removes it from non-accrual status.
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As of December 31, 2018, Main Street's total Investment Portfolio had six investments on non-accrual status, which comprised
approximately 1.3% of its fair value and 3.9% of its cost. As of December 31, 2017, Main Street's total Investment Portfolio had five
investments on non-accrual status, which comprised approximately 0.2% of its fair value and 2.3% of its cost.
Main Street holds certain debt and preferred equity instruments in its Investment Portfolio that contain payment-in-kind ("PIK") interest
and cumulative dividend provisions. The PIK interest, computed at the contractual rate specified in each debt agreement, is periodically
added to the principal balance of the debt and is recorded as interest income. Thus, the actual collection of this interest may be deferred
until the time of debt principal repayment. Cumulative dividends are recorded as dividend income, and any dividends in arrears are added
to the balance of the preferred equity investment. The actual collection of these dividends in arrears may be deferred until such time as the
preferred equity is redeemed or sold. To maintain RIC tax treatment (as discussed in Note B.9. below), these non-cash sources of income
may need to be paid out to stockholders in the form of distributions, even though Main Street may not have collected the PIK interest and
cumulative dividends in cash. Main Street stops accruing PIK interest and cumulative dividends and writes off any accrued and uncollected
interest and dividends in arrears when it determines that such PIK interest and dividends in arrears are no longer collectible. For the years
ended December 31, 2018, 2017 and 2016, (i) approximately 1.0%, 2.4% and 3.6%, respectively, of Main Street's total investment income
was attributable to PIK interest income not paid currently in cash and (ii) approximately 1.0%, 1.6% and 1.2%, respectively, of Main
Street's total investment income was attributable to cumulative dividend income not paid currently in cash.
Main Street may periodically provide services, including structuring and advisory services, to its portfolio companies or other third
parties. For services that are separately identifiable and evidence exists to substantiate fair value, fee income is recognized as earned, which
is generally when the investment or other applicable transaction closes. Fees received in connection with debt financing transactions for
services that do not meet these criteria are treated as debt origination fees and are deferred and accreted into income over the life of the
financing.
A presentation of the investment income Main Street received from its Investment Portfolio in each of the periods presented is as
follows:
Twelve Months Ended December 31,
2016
2017
2018
(dollars in thousands)
Interest, fee and dividend income:
Interest income
Dividend income
Fee income
Total interest, fee and dividend income
5. Deferred Financing Costs
$ 177,103 $ 161,934 $ 138,689
32,182
7,294
$ 233,355 $ 205,741 $ 178,165
34,704
9,103
46,471
9,781
Deferred financing costs include commitment fees and other costs related to Main Street's multi-year revolving credit facility (the
"Credit Facility") and its notes, as well as the commitment fees and leverage fees (approximately 3.4% of the total commitment and draw
amounts, as applicable) on the SBIC debentures which are not accounted for under the fair value option under ASC 825 (as discussed
further in Note B.11.). See further discussion of Main Street's debt in Note E. Deferred financing costs in connection with the Credit
Facility are capitalized as an asset. Deferred financing costs in connection with all other debt arrangements not using the fair value option
are a direct deduction from the related debt liability.
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6. Equity Offering Costs
MAIN STREET CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company's offering costs are charged against the proceeds from equity offerings when the proceeds are received.
7. Unearned Income — Debt Origination Fees and Original Issue Discount and Discounts/Premiums to Par Value
Main Street capitalizes debt origination fees received in connection with financings and reflects such fees as unearned income netted
against the applicable debt investments. The unearned income from the fees is accreted into income based on the effective interest method
over the life of the financing.
In connection with its portfolio debt investments, Main Street sometimes receives nominal cost warrants or warrants with an exercise
price below the fair value of the underlying equity (together, "nominal cost equity") that are valued as part of the negotiation process with
the particular portfolio company. When Main Street receives nominal cost equity, Main Street allocates its cost basis in its investment
between its debt security and its nominal cost equity at the time of origination based on amounts negotiated with the particular portfolio
company. The allocated amounts are based upon the fair value of the nominal cost equity, which is then used to determine the allocation of
cost to the debt security. Any discount recorded on a debt investment resulting from this allocation is reflected as unearned income, which
is netted against the applicable debt investment, and accreted into interest income based on the effective interest method over the life of the
debt investment. The actual collection of this interest is deferred until the time of debt principal repayment.
Main Street may also purchase debt securities at a discount or at a premium to the par value of the debt security. In the case of a
purchase at a discount, Main Street records the investment at the par value of the debt security net of the discount, and the discount is
accreted into interest income based on the effective interest method over the life of the debt investment. In the case of a purchase at a
premium, Main Street records the investment at the par value of the debt security plus the premium, and the premium is amortized as a
reduction to interest income based on the effective interest method over the life of the debt investment.
To maintain RIC tax treatment (as discussed in Note B.9. below), these non-cash sources of income may need to be paid out to
stockholders in the form of distributions, even though Main Street may not have collected the interest income. For the years ended
December 31, 2018, 2017 and 2016, approximately 3.0%, 3.6% and 3.1%, respectively, of Main Street's total investment income was
attributable to interest income from the accretion of discounts associated with debt investments, net of any premium reduction.
8. Share-Based Compensation
Main Street accounts for its share-based compensation plans using the fair value method, as prescribed by ASC 718, Compensation —
Stock Compensation. Accordingly, for restricted stock awards, Main Street measures the grant date fair value based upon the market price
of its common stock on the date of the grant and amortizes the fair value of the awards as share-based compensation expense over the
requisite service period, which is generally the vesting term.
Main Street has also adopted Accounting Standards Update ("ASU") 2016-09, Compensation — Stock Compensation: Improvements to
Employee Share-Based Payment Accounting, which requires that all excess tax benefits and tax deficiencies (including tax benefits of
dividends on share-based payment awards) be recognized as income tax expense or benefit in the income statement and not delay
recognition of a tax benefit until the tax benefit is realized through a reduction to taxes payable. The tax effects of exercised or vested
awards should be treated as discrete items in the reporting period in which they occur. Additionally, Main Street has elected to account for
forfeitures as they occur.
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9. Income Taxes
MAIN STREET CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
MSCC has elected to be treated for U.S. federal income tax purposes as a RIC. MSCC's taxable income includes the taxable income
generated by MSCC and certain of its subsidiaries, including the Funds, which are treated as disregarded entities for tax purposes. As a
RIC, MSCC generally will not pay corporate-level U.S. federal income taxes on any net ordinary taxable income or capital gains that
MSCC distributes to its stockholders. MSCC must generally distribute at least 90% of its "investment company taxable income" (which is
generally its net ordinary taxable income and realized net short-term capital gains in excess of realized net long-term capital losses) and
90% of its tax-exempt income to maintain its RIC status (pass-through tax treatment for amounts distributed). As part of maintaining RIC
status, undistributed taxable income (subject to a 4% non-deductible U.S. federal excise tax) pertaining to a given fiscal year may be
distributed up to 12 months subsequent to the end of that fiscal year, provided such dividends are declared on or prior to the later of (i) the
filing of the U.S. federal income tax return for the applicable fiscal year or (ii) the fifteenth day of the ninth month following the close of
the year in which such taxable income was generated.
The Taxable Subsidiaries primarily hold certain portfolio investments for Main Street. The Taxable Subsidiaries permit Main Street to
hold equity investments in portfolio companies which are "pass-through" entities for tax purposes and to continue to comply with the
"source-of-income" requirements contained in the RIC tax provisions of the Code. The Taxable Subsidiaries are consolidated with Main
Street for U.S. GAAP financial reporting purposes, and the portfolio investments held by the Taxable Subsidiaries are included in Main
Street's consolidated financial statements as portfolio investments and recorded at fair value. The Taxable Subsidiaries are not consolidated
with MSCC for income tax purposes and may generate income tax expense, or benefit, and tax assets and liabilities, as a result of their
ownership of certain portfolio investments. The taxable income, or loss, of the Taxable Subsidiaries may differ from their book income, or
loss, due to temporary book and tax timing differences and permanent differences. The Taxable Subsidiaries are each taxed at their normal
corporate tax rates based on their taxable income. The income tax expense, or benefit, if any, and the related tax assets and liabilities, of the
Taxable Subsidiaries are reflected in Main Street's consolidated financial statements.
The External Investment Manager is an indirect wholly owned subsidiary of MSCC owned through a Taxable Subsidiary and is a
disregarded entity for tax purposes. The External Investment Manager has entered into a tax sharing agreement with its Taxable Subsidiary
owner. Since the External Investment Manager is accounted for as a portfolio investment of MSCC and is not included as a consolidated
subsidiary of MSCC in MSCC's consolidated financial statements, and as a result of the tax sharing agreement with its Taxable Subsidiary
owner, for its stand-alone financial reporting purposes the External Investment Manager is treated as if it is taxed at normal corporate tax
rates based on its taxable income and, as a result of its activities, may generate income tax expense or benefit. The income tax expense, or
benefit, if any, and the related tax assets and liabilities, of the External Investment Manager are reflected in the External Investment
Manager's separate financial statements.
In December 2017, the "Tax Cuts and Jobs Act" legislation was enacted. The Tax Cuts and Jobs Act includes significant changes to the
U.S. corporate tax system, including a U.S. federal corporate income tax rate reduction from 35% to 21% and other changes. ASC 740,
Income Taxes, requires the effects of changes in tax rates and laws on deferred tax balances to be recognized in the period in which the
legislation was enacted. As such, Main Street has accounted for the tax effects as a result of the enactment of the Tax Cuts and Jobs Act
beginning with the period ended December 31, 2017.
The Taxable Subsidiaries and the External Investment Manager use the liability method in accounting for income taxes. Deferred tax
assets and liabilities are recorded for temporary differences between the tax basis of assets and liabilities and their reported amounts in the
consolidated financial statements, using statutory tax
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
rates in effect for the year in which the temporary differences are expected to reverse. A valuation allowance is provided, if necessary,
against deferred tax assets when it is more likely than not that some portion or all of the deferred tax asset will not be realized.
Taxable income generally differs from net income for financial reporting purposes due to temporary and permanent differences in the
recognition of income and expenses. Taxable income generally excludes net unrealized appreciation or depreciation, as investment gains or
losses are not included in taxable income until they are realized.
10. Net Realized Gains or Losses and Net Unrealized Appreciation or Depreciation
Realized gains or losses are measured by the difference between the net proceeds from the sale or redemption of an investment or a
financial instrument and the cost basis of the investment or financial instrument, without regard to unrealized appreciation or depreciation
previously recognized, and includes investments written-off during the period net of recoveries and realized gains or losses from in-kind
redemptions. Net unrealized appreciation or depreciation reflects the net change in the fair value of the Investment Portfolio and financial
instruments and the reclassification of any prior period unrealized appreciation or depreciation on exited investments and financial
instruments to realized gains or losses.
11. Fair Value of Financial Instruments
Fair value estimates are made at discrete points in time based on relevant information. These estimates may be subjective in nature and
involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Main Street believes that the
carrying amounts of its financial instruments, consisting of cash and cash equivalents, receivables, payables and other liabilities
approximate the fair values of such items due to the short-term nature of these instruments.
As part of Main Street's acquisition of the majority of the equity interests of MSC II in January 2010 (the "MSC II Acquisition"), Main
Street elected the fair value option under ASC 825, Financial Instruments ("ASC 825"), relating to accounting for debt obligations at their
fair value, for the MSC II SBIC debentures acquired as part of the acquisition accounting related to the MSC II Acquisition and values
those obligations as discussed further in Note C. In order to provide for a more consistent basis of presentation, Main Street has continued
to elect the fair value option for SBIC debentures issued by MSC II subsequent to the MSC II Acquisition. When the fair value option is
elected for a given SBIC debenture, the deferred loan costs associated with the debenture are fully expensed in the current period to "Net
Unrealized Appreciation (Depreciation) — SBIC debentures" as part of the fair value adjustment. Interest incurred in connection with
SBIC debentures which are valued at fair value is included in interest expense.
12. Earnings per Share
Basic and diluted per share calculations are computed utilizing the weighted-average number of shares of common stock outstanding
for the period. In accordance with ASC 260, Earnings Per Share, the unvested shares of restricted stock awarded pursuant to Main Street's
equity compensation plans are participating securities and, therefore, are included in the basic earnings per share calculation. As a result,
for all periods presented, there is no difference between diluted earnings per share and basic earnings per share amounts.
13. Recently Issued or Adopted Accounting Standards
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 supersedes the
revenue recognition requirements under ASC 605, Revenue Recognition, and most industry-specific guidance throughout the Industry
Topics of the ASC. The core principle of the
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that
reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. Under the guidance, an entity is
required to perform the following five steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the
contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract, and
(5) recognize revenue when (or as) the entity satisfies a performance obligation. The guidance will significantly enhance comparability of
revenue recognition practices across entities, industries, jurisdictions and capital markets. Additionally, the guidance requires improved
disclosures as to the nature, amount, timing and uncertainty of revenue that is recognized. In March 2016, the FASB issued ASU 2016-08,
Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) , which
clarified the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU 2016-10, Revenue
from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which clarified the implementation
guidance regarding performance obligations and licensing arrangements. In May 2016, the FASB issued ASU No. 2016-12, Revenue from
Contracts with Customers (Topic 606) — Narrow-Scope Improvements and Practical Expedients, which clarified guidance on assessing
collectability, presenting sales tax, measuring noncash consideration, and certain transition matters. In December 2016, the FASB issued
ASU No. 2016-20, Revenue from Contracts with Customers (Topic 606) — Technical Corrections and Improvements, which provided
disclosure relief, and clarified the scope and application of the new revenue standard and related cost guidance. The guidance is effective
for the annual reporting period beginning after December 15, 2017, including interim periods within that reporting period. Substantially all
of Main Street's income is not within the scope of ASU 2014-09. For those income items that are within the scope (primarily fee income),
Main Street has similar performance obligations as compared with deliverables and separate units of account previously identified. As a
result, Main Street's timing of its income recognition remains the same and the adoption of the standard was not material.
In February 2016, the FASB issued ASU 2016-02, Leases, which requires lessees to recognize on the balance sheet a right-of-use
asset, representing its right to use the underlying asset for the lease term, and a lease liability for all leases with terms greater than
12 months. The guidance also requires qualitative and quantitative disclosures designed to assess the amount, timing, and uncertainty of
cash flows arising from leases. The standard requires the use of a modified retrospective transition approach, which includes a number of
optional practical expedients that entities may elect to apply. The guidance is effective for annual periods beginning after December 15,
2018, and interim periods therein. Early application is permitted. While Main Street continues to assess the effect of adoption, Main Street
currently believes the most significant change relates to the recognition of a new right-of-use asset and lease liability on its consolidated
balance sheet for its office space operating lease. Main Street currently has one operating lease for office space and does not expect a
significant change in the leasing activity between now and adoption. See further discussion of the operating lease obligation in Note K.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), which is intended to reduce the existing
diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The
guidance is effective for annual periods beginning after December 15, 2017, and interim periods therein. Main Street has adopted
ASU 2016-15 and the impact of the adoption of this accounting standard on Main Street's consolidated financial statements was not
material.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), which is intended to improve fair value and
defined benefit disclosure requirements by removing disclosures that are not cost beneficial, clarifying disclosures' specific requirements,
and adding relevant disclosure requirements. The amendments take effect for all organizations for fiscal years, and interim periods within
those fiscal years, beginning after December 15, 2019. Early adoption is permitted. Main Street elected to early adopt ASU 2018-13 in the
current annual period. No significant changes were made to the fair value disclosures in the notes to the consolidated financial statements
in order to comply with ASU 2018-13.
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MAIN STREET CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In August 2018, the SEC adopted rules (the "SEC Release") amending certain disclosure requirements intended to eliminate redundant,
duplicative, overlapping, outdated, or superseded, in light of other SEC disclosure requirements, US GAAP requirements, or changes in the
information environment. In part, the SEC Release requires an investment company to present distributable earnings in total on the
consolidated balance sheet and consolidated statement of changes in net assets, rather than showing the three components of distributable
earnings as previously shown. Main Street adopted this part of the SEC Release in the current annual period and the changes in
presentation have been retrospectively applied to the consolidated balance sheet as of December 31, 2017 and to the consolidated
statements of changes in net assets for the years ended December 31, 2017 and 2016. The impact of the adoption of these rules on Main
Street's consolidated financial statements was not material. Additionally, the SEC Release requires disclosure of changes in net assets
within a registrant's Form 10-Q filing on a quarter-to-date and year-to-date basis for both the current year and prior year comparative
periods. Main Street expects to adopt the new requirement to present changes in shareholders' equity in interim financial statements within
Form 10-Q filings starting with the quarter ending March 31, 2019. The compliance date for the SEC Release was for all filings, as
applicable, on or after November 5, 2018. The adoption of these rules will not have a material impact on the consolidated financial
statements.
From time to time, new accounting pronouncements are issued by the FASB or other standards setting bodies that are adopted by Main
Street as of the specified effective date. Main Street believes that the impact of recently issued standards and any that are not yet effective
will not have a material impact on its consolidated financial statements upon adoption.
NOTE C — FAIR VALUE HIERARCHY FOR INVESTMENTS AND DEBENTURES — PORTFOLIO COMPOSITION
ASC 820 defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of
inputs used to measure fair value and enhances disclosure requirements for fair value measurements. Main Street accounts for its
investments at fair value.
Fair Value Hierarchy
In accordance with ASC 820, Main Street has categorized its investments based on the priority of the inputs to the valuation technique
into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical
investments (Level 1) and the lowest priority to unobservable inputs (Level 3).
Investments recorded on Main Street's balance sheet are categorized based on the inputs to the valuation techniques as follows:
Level 1 — Investments whose values are based on unadjusted quoted prices for identical assets in an active market that Main
Street has the ability to access (examples include investments in active exchange-traded equity securities and investments in most
U.S. government and agency securities).
Level 2 — Investments whose values are based on quoted prices in markets that are not active or model inputs that are
observable either directly or indirectly for substantially the full term of the investment. Level 2 inputs include the following:
•
•
Quoted prices for similar assets in active markets (for example, investments in restricted stock);
Quoted prices for identical or similar assets in non-active markets (for example, investments in thinly traded public
companies);
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MAIN STREET CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
•
•
Pricing models whose inputs are observable for substantially the full term of the investment (for example, market
interest rate indices); and
Pricing models whose inputs are derived principally from, or corroborated by, observable market data through
correlation or other means for substantially the full term of the investment.
Level 3 — Investments whose values are based on prices or valuation techniques that require inputs that are both unobservable
and significant to the overall fair value measurement (for example, investments in illiquid securities issued by privately held
companies). These inputs reflect management's own assumptions about the assumptions a market participant would use in pricing
the investment.
As required by ASC 820, when the inputs used to measure fair value fall within different levels of the hierarchy, the level within which
the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement in its entirety.
For example, a Level 3 fair value measurement may include inputs that are observable (Levels 1 and 2) and unobservable (Level 3).
Therefore, unrealized appreciation and depreciation related to such investments categorized within the Level 3 tables below may include
changes in fair value that are attributable to both observable inputs (Levels 1 and 2) and unobservable inputs (Level 3).
As of December 31, 2018 and 2017, all of Main Street's LMM portfolio investments consisted of illiquid securities issued by privately
held companies. As a result, the fair value determination for all of Main Street's LMM portfolio investments primarily consisted of
unobservable inputs. As a result, all of Main Street's LMM portfolio investments were categorized as Level 3 as of December 31, 2018 and
2017
As of December 31, 2018 and 2017, Main Street's Middle Market portfolio investments consisted primarily of investments in secured
and unsecured debt investments and independently rated debt investments. The fair value determination for these investments consisted of
a combination of observable inputs in non-active markets for which sufficient observable inputs were not available to determine the fair
value of these investments and unobservable inputs. As a result, all of Main Street's Middle Market portfolio investments were categorized
as Level 3 as of December 31, 2018 and 2017.
As of December 31, 2018 and 2017, Main Street's Private Loan portfolio investments primarily consisted of investments in interest-
bearing secured debt investments. The fair value determination for these investments consisted of a combination of observable inputs in
non-active markets for which sufficient observable inputs were not available to determine the fair value of these investments and
unobservable inputs. As a result, all of Main Street's Private Loan portfolio investments were categorized as Level 3 as of December 31,
2018 and 2017.
As of December 31, 2018 and 2017, Main Street's Other Portfolio investments consisted of illiquid securities issued by privately held
companies. The fair value determination for these investments primarily consisted of unobservable inputs. As a result, all of Main Street's
Other Portfolio investments were categorized as Level 3 as of December 31, 2018 and 2017.
The fair value determination of each portfolio investment categorized as Level 3 required one or more of the following unobservable
inputs:
•
•
•
Financial information obtained from each portfolio company, including unaudited statements of operations and
balance sheets for the most recent period available as compared to budgeted numbers;
Current and projected financial condition of the portfolio company;
Current and projected ability of the portfolio company to service its debt obligations;
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Type and amount of collateral, if any, underlying the investment;
Current financial ratios (e.g., fixed charge coverage ratio, interest coverage ratio and net debt/EBITDA ratio)
applicable to the investment;
Current liquidity of the investment and related financial ratios (e.g., current ratio and quick ratio);
Pending debt or capital restructuring of the portfolio company;
Projected operating results of the portfolio company;
Current information regarding any offers to purchase the investment;
Current ability of the portfolio company to raise any additional financing as needed;
Changes in the economic environment which may have a material impact on the operating results of the portfolio
company;
Internal occurrences that may have an impact (both positive and negative) on the operating performance of the
portfolio company;
Qualitative assessment of key management;
Contractual rights, obligations or restrictions associated with the investment; and
Other factors deemed relevant.
•
•
•
•
•
•
•
•
•
•
•
•
The use of significant unobservable inputs creates uncertainty in the measurement of fair value as of the reporting date. The significant
unobservable inputs used in the fair value measurement of Main Street's LMM equity securities, which are generally valued through an
average of the discounted cash flow technique and the market comparable/enterprise value technique (unless one of these approaches is
determined to not be appropriate), are (i) EBITDA multiples and (ii) the weighted-average cost of capital ("WACC"). Significant increases
(decreases) in EBITDA multiple inputs in isolation would result in a significantly higher (lower) fair value measurement. On the contrary,
significant increases (decreases) in WACC inputs in isolation would result in a significantly lower (higher) fair value measurement. The
significant unobservable inputs used in the fair value measurement of Main Street's LMM, Middle Market and Private Loan securities are
(i) risk adjusted discount rates used in the Yield-to-Maturity valuation technique (see "Note B.1. — Valuation of the Investment Portfolio")
and (ii) the percentage of expected principal recovery. Significant increases (decreases) in any of these discount rates in isolation would
result in a significantly lower (higher) fair value measurement. Significant increases (decreases) in any of these expected principal recovery
percentages in isolation would result in a significantly higher (lower) fair value measurement. However, due to the nature of certain
investments, fair value measurements may be based on other criteria, such as third-party appraisals of collateral and fair values as
determined by independent third parties, which are not presented in the tables below.
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MAIN STREET CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following tables provide a summary of the significant unobservable inputs used to fair value Main Street's Level 3 portfolio
investments as of December 31, 2018 and 2017:
Type of Investment
Equity investments
Fair Value as of
December 31,
2018
(in thousands)
Valuation Technique
Significant
Unobservable Inputs
$
767,156 Discounted cash flow
Market comparable /
WACC
EBITDA multiple(1)
Enterprise Value
Range(3)
9.9% - 20.7%
4.7x - 8.0x(2)
Weighted
Average(3) Median(3)
14.3%
6.0x
13.7%
7.0x
Debt investments
$
1,039,453
Discounted cash flow
Risk adjusted discount
8.5% - 17.0%(2)
12.2%
12.0%
factor
Expected principal
1.5% - 100.0%
99.3%
100.0%
recovery percentage
Debt investments
Total Level 3
$
647,300
Market approach
Third-party quote
37.5 - 101.0
96.0
98.3
investments
$
2,453,909
(1)
(2)
(3)
EBITDA may include proforma adjustments and/or other addbacks based on specific circumstances related to each investment.
Range excludes outliers that are greater than one standard deviation from the mean. Including these outliers, the range for EBITDA multiple is 3.9x - 15.0x
and the range for risk adjusted discount factor is 5.3% - 30.3%.
Does not include investments for which the valuation technique does not include the use of the applicable fair value input.
Fair Value as of
December 31,
2017
(in thousands)
Type of Investment
Equity investments
$
Valuation Technique
653,008 Discounted cash flow WACC
Market comparable /
EBITDA multiple(1)
Enterprise Value
Significant
Unobservable Inputs
Range(3)
11.1% - 23.2%
4.3x - 8.5x(2)
Weighted
Average(3) Median(3)
13.7%
7.3x
14.0%
6.0x
Debt investments
$
858,816 Discounted cash flow Risk adjusted discount
6.7% - 16.1%(2)
11.2%
11.0%
Debt investments
Total Level 3
$
659,481 Market approach
Third-party quote
11.0 - 106.0
95.9%
99.4%
investments
$
2,171,305
factor
Expected principal
2.9% - 100.0%
99.8%
100.0%
recovery percentage
(1)
(2)
(3)
EBITDA may include proforma adjustments and/or other addbacks based on specific circumstances related to each investment.
Range excludes outliers that are greater than one standard deviation from the mean. Including these outliers, the range for EBITDA multiple is 4.0x - 17.5x
and the range for risk adjusted discount factor is 4.3% - 30.0%.
Does not include investments for which the valuation technique does not include the use of the applicable fair value input.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following tables provide a summary of changes in fair value of Main Street's Level 3 portfolio investments for the years ended
December 31, 2018 and 2017 (amounts in thousands):
Fair Value
as of
December 31,
2017
$ 1,518,297 $
641,493
11,515
Type of
Investment
Debt
Equity
Equity
Transfers
Into
Level 3
Hierarchy
Redemptions/
Repayments
New
Investments
Net
Changes
from
Unrealized
to Realized
Net
Unrealized
Appreciation
(Depreciation)
Fair Value
as of
December 31,
2018
Other(1)
— $ (653,200) $ 837,162 $ 38,722 $
(33,971)
—
(720)
—
(48,585) 114,639
181
(680)
(45,778) $ (8,450) $ 1,686,753
755,710
73,684 8,450
11,446
—
1,150
Warrant
$ 2,171,305 $
— $ (702,465) $ 951,982 $
4,031 $
29,056 $ — $ 2,453,909
(1)
Includes the impact of non-cash conversions. These transactions represent non-cash investing activities. See additional
cash flow information at the consolidated statements of cash flows.
Fair Value
as of
December 31,
2016
$ 1,427,823 $
549,453
17,550
Type of
Investment
Debt
Equity
Equity
Transfers
Into
Level 3
Hierarchy
Redemptions/
Repayments
New
Investments
Net
Changes
from
Unrealized
to Realized
Net
Unrealized
Appreciation
(Depreciation)
Fair Value
as of
December 31,
2017
Other(1)
— $ (753,240) $ 848,014 $ 25,146 $
(25,596)
—
(549)
—
(44,773)
(4,697)
74,227
331
(19,664) $ (9,782) $ 1,518,297
641,493
77,583 10,599
11,515
(817)
(303)
Warrant
$ 1,994,826 $
— $ (802,710) $ 922,572 $
(999) $
57,616 $ — $ 2,171,305
(1)
Includes the impact of non-cash conversions. These transactions represent non-cash investing activities. See additional
cash flow information at the consolidated statements of cash flows.
As of December 31, 2018 and 2017, the fair value determination for the SBIC debentures recorded at fair value primarily consisted of
unobservable inputs. As a result, the SBIC debentures which are recorded at fair value were categorized as Level 3. Main Street determines
the fair value of these instruments primarily using a Yield-to-Maturity approach that analyzes the discounted cash flows of interest and
principal for each SBIC debenture recorded at fair value based on estimated market interest rates for debt instruments of similar structure,
terms, and maturity. Main Street's estimate of the expected repayment date of principal for each SBIC debenture recorded at fair value is
the legal maturity date of the instrument. The significant unobservable inputs used in the fair value measurement of Main Street's SBIC
debentures recorded at fair value are the estimated market interest rates used to fair value each debenture using the yield valuation
technique described above. Significant increases (decreases) in the estimated market interest rates in isolation would result in a significantly
lower (higher) fair value measurement.
The following tables provide a summary of the significant unobservable inputs used to fair value Main Street's Level 3 SBIC
debentures as of December 31, 2018 and 2017 (amounts in thousands):
Type of Instrument
SBIC
debentures
$
Fair Value
as of
December 31, 2018
44,688
Valuation Technique
Discounted cash
flow
Significant
Unobservable Inputs
Estimated market interest
rates
Range
Weighted
Average
5.5% - 5.8%
5.6%
Type of Instrument
SBIC
debentures
$
Fair Value
as of
December 31, 2017
48,608
Valuation Technique
Discounted cash
flow
Significant
Unobservable Inputs
Estimated market interest
rates
Range
Weighted
Average
4.9% - 5.5%
5.1%
160
Table of Contents
MAIN STREET CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following tables provide a summary of changes for the Level 3 SBIC debentures recorded at fair value for the years ended
December 31, 2018 and 2017 (amounts in thousands):
Fair Value
as of
December 31,
2017
Repayments
Net Realized
Loss
New SBIC
Debentures
Net
Unrealized
(Appreciation)
Depreciation
Fair Value
as of
December 31,
2018
Type of Instrument
SBIC debentures at
fair value
$
48,608 $
(4,000) $
1,374 $
— $
(1,294) $
44,688
Fair Value
as of
December 31,
2016
Repayments
Net Realized
Loss
New SBIC
Debentures
Net
Unrealized
(Appreciation)
Depreciation
Fair Value
as of
December 31,
2017
Type of Instrument
SBIC debentures at
fair value
$
74,803 $
(25,200) $
5,217 $
— $
(6,212) $
48,608
At December 31, 2018 and 2017, Main Street's investments and SBIC debentures at fair value were categorized as follows in the fair
value hierarchy for ASC 820 purposes:
Fair Value Measurements
(in thousands)
At December 31, 2018
LMM portfolio investments
Middle Market portfolio investments
Private Loan portfolio investments
Other Portfolio investments
External Investment Manager
Total investments
SBIC debentures at fair value
At December 31, 2017
LMM portfolio investments
Middle Market portfolio investments
Private Loan portfolio investments
Other Portfolio investments
External Investment Manager
Total investments
SBIC debentures at fair value
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
— $
—
—
—
—
— $
— $
— $ 1,195,035
576,929
—
507,892
—
108,305
—
65,748
—
— $ 2,453,909
44,688
— $
Fair Value
$ 1,195,035 $
576,929
507,892
108,305
65,748
$ 2,453,909 $
44,688 $
$
Fair Value Measurements
(in thousands)
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Fair Value
$
948,196 $
609,256
467,475
104,610
41,768
$ 2,171,305 $
48,608 $
$
161
— $
—
—
—
—
— $
— $
948,196
— $
609,256
—
467,475
—
104,610
—
—
41,768
— $ 2,171,305
48,608
— $
Table of Contents
MAIN STREET CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Investment Portfolio Composition
Main Street's LMM portfolio investments primarily consist of secured debt, equity warrants and direct equity investments in privately
held, LMM companies based in the United States. Main Street's LMM portfolio companies generally have annual revenues between
$10 million and $150 million, and its LMM investments generally range in size from $5 million to $50 million. The LMM debt
investments are typically secured by either a first or second priority lien on the assets of the portfolio company, can include either fixed or
floating rate terms and generally have a term of between five and seven years from the original investment date. In most LMM portfolio
investments, Main Street receives nominally priced equity warrants and/or makes direct equity investments in connection with a debt
investment.
Main Street's Middle Market portfolio investments primarily consist of direct investments in or secondary purchases of interest-bearing
debt securities in privately held companies based in the United States that are generally larger in size than the companies included in Main
Street's LMM portfolio. Main Street's Middle Market portfolio companies generally have annual revenues between $150 million and
$1.5 billion, and its Middle Market investments generally range in size from $3 million to $20 million. Main Street's Middle Market
portfolio debt investments are generally secured by either a first or second priority lien on the assets of the portfolio company and typically
have a term of between three and seven years from the original investment date.
Main Street's private loan ("Private Loan") portfolio investments are primarily debt securities in privately held companies which have
been originated through strategic relationships with other investment funds on a collaborative basis, and are often referred to in the debt
markets as "club deals." Private Loan investments are typically similar in size, structure, terms and conditions to investments Main Street
holds in its LMM portfolio and Middle Market portfolio. Main Street's Private Loan portfolio debt investments are generally secured by
either a first or second priority lien on the assets of the portfolio company and typically have a term of between three and seven years from
the original investment date.
Main Street's other portfolio ("Other Portfolio") investments primarily consist of investments which are not consistent with the typical
profiles for LMM, Middle Market and Private Loan portfolio investments, including investments which may be managed by third parties.
In the Other Portfolio, Main Street may incur indirect fees and expenses in connection with investments managed by third parties, such as
investments in other investment companies or private funds. For Other Portfolio investments, Main Street generally receives distributions
related to the assets held by the portfolio company. Those assets are typically expected to be liquidated over a five to ten year period.
Main Street's external asset management business is conducted through its External Investment Manager. The External Investment
Manager earns management fees based on the assets of the funds under management and may earn incentive fees, or a carried interest,
based on the performance of the funds managed. Main Street entered into an agreement with the External Investment Manager to share
employees in connection with its asset management business generally, and specifically for its relationship with HMS Income Fund, Inc.
("HMS Income"). Through this agreement, Main Street shares employees with the External Investment Manager, including their related
infrastructure, business relationships, management expertise and capital raising capabilities. Main Street allocates the related expenses to
the External Investment Manager pursuant to the sharing agreement. Main Street's total expenses for the years ended December 31, 2018,
2017 and 2016 are net of expenses allocated to the External Investment Manager of $6.8 million, $6.4 million and $5.1 million,
respectively.
Investment income, consisting of interest, dividends and fees, can fluctuate dramatically due to various factors, including the level of
new investment activity, repayments of debt investments or sales of equity interests. Investment income in any given year could also be
highly concentrated among several portfolio
162
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MAIN STREET CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
companies. For the years ended December 31, 2018, 2017 and 2016, Main Street did not record investment income from any single
portfolio company in excess of 10% of total investment income.
The following tables provide a summary of Main Street's investments in the LMM, Middle Market and Private Loan portfolios as of
December 31, 2018 and 2017 (this information excludes the Other Portfolio investments and the External Investment Manager which are
discussed further below):
Number of portfolio companies
Fair value
Cost
% of portfolio at cost — debt
% of portfolio at cost — equity
% of debt investments at cost secured by first priority lien
Weighted-average annual effective yield(b)
Average EBITDA(c)
LMM(a)
As of December 31, 2018
Middle
Market
(dollars in millions)
69
56
Private
Loan
59
$ 1,195.0 $ 576.9 $ 507.9
990.9 $ 608.8 $ 553.3
$
93.0%
68.7%
7.0%
31.3%
92.0%
98.5%
10.4%
12.3%
46.1
96.3%
3.7%
87.9%
9.6%
99.1 $
4.7 $
$
(a)
(b)
(c)
At December 31, 2018, Main Street had equity ownership in approximately 99% of its LMM portfolio companies, and
the average fully diluted equity ownership in those portfolio companies was approximately 40%.
The weighted-average annual effective yields were computed using the effective interest rates for all debt investments
at cost as of December 31, 2018, including amortization of deferred debt origination fees and accretion of original
issue discount but excluding fees payable upon repayment of the debt instruments and any debt investments on non-
accrual status. The weighted-average annual effective yield is higher than what an investor in shares of Main Street's
common stock will realize on its investment because it does not reflect Main Street's expenses or any sales load paid
by an investor.
The average EBITDA is calculated using a simple average for the LMM portfolio and a weighted-average for the
Middle Market and Private Loan portfolios. These calculations exclude certain portfolio companies, including two
LMM portfolio companies, one Middle Market portfolio company and four Private Loan portfolio companies, as
EBITDA is not a meaningful valuation metric for Main Street's
163
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MAIN STREET CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
investments in these portfolio companies, and those portfolio companies whose primary purpose is to own real estate.
As of December 31, 2017
Middle
Market
(dollars in millions)
Private
Loan
LMM(a)
Number of portfolio companies
Fair value
Cost
% of portfolio at cost — debt
% of portfolio at cost — equity
% of debt investments at cost secured by first priority lien
Weighted-average annual effective yield(b)
Average EBITDA(c)
62
70
54
$ 948.2 $ 609.3 $ 467.5
$ 776.5 $ 629.7 $ 489.2
93.6%
97.3%
6.4%
2.7%
94.5%
90.5%
9.2%
9.0%
39.6
78.3 $
67.1%
32.9%
98.1%
12.0%
4.4 $
$
(a)
(b)
(c)
At December 31, 2017, Main Street had equity ownership in approximately 97% of its LMM portfolio companies, and
the average fully diluted equity ownership in those portfolio companies was approximately 39%.
The weighted-average annual effective yields were computed using the effective interest rates for all debt investments
at cost as of December 31, 2017, including amortization of deferred debt origination fees and accretion of original
issue discount but excluding fees payable upon repayment of the debt instruments and any debt investments on non-
accrual status. The weighted-average annual effective yield is higher than what an investor in shares of Main Street's
common stock will realize on its investment because it does not reflect Main Street's expenses or any sales load paid
by an investor.
The average EBITDA is calculated using a simple average for the LMM portfolio and a weighted-average for the
Middle Market and Private Loan portfolios. These calculations exclude certain portfolio companies, including six
LMM portfolio companies, one Middle Market portfolio company and three Private Loan portfolio companies, as
EBITDA is not a meaningful valuation metric for Main Street's investments in these portfolio companies, and those
portfolio companies whose primary purpose is to own real estate.
As of December 31, 2018, Main Street had Other Portfolio investments in eleven companies, collectively totaling approximately
$108.3 million in fair value and approximately $116.0 million in cost basis and which comprised approximately 4.4% of Main Street's
Investment Portfolio at fair value. As of December 31, 2017, Main Street had Other Portfolio investments in eleven companies, collectively
totaling approximately $104.6 million in fair value and approximately $109.4 million in cost basis and which comprised approximately
4.8% of Main Street's Investment Portfolio at fair value.
As discussed further in Note A.1., Main Street holds an investment in the External Investment Manager, a wholly owned subsidiary
that is treated as a portfolio investment. As of December 31, 2018, there was no cost basis in this investment and the investment had a fair
value of approximately $65.7 million, which comprised approximately 2.7% of Main Street's Investment Portfolio at fair value. As of
December 31, 2017, there was no cost basis in this investment and the investment had a fair value of approximately $41.8 million, which
comprised approximately 1.9% of Main Street's Investment Portfolio at fair value.
The following tables summarize the composition of Main Street's total combined LMM portfolio investments, Middle Market portfolio
investments and Private Loan portfolio investments at cost and fair value by type of investment as a percentage of the total combined LMM
portfolio investments, Middle
164
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MAIN STREET CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Market portfolio investments and Private Loan portfolio investments, as of December 31, 2018 and 2017 (this information excludes the
Other Portfolio investments and the External Investment Manager).
Cost:
First lien debt
Equity
Second lien debt
Equity warrants
Other
Fair Value:
First lien debt
Equity
Second lien debt
Equity warrants
Other
December 31,
2018
December 31,
2017
77.1%
16.6%
5.3%
0.6%
0.4%
100.0%
79.0%
15.3%
4.5%
0.7%
0.5%
100.0%
December 31,
2018
December 31,
2017
69.0%
25.5%
4.6%
0.5%
0.4%
100.0%
70.5%
24.4%
4.1%
0.6%
0.4%
100.0%
The following tables summarize the composition of Main Street's total combined LMM portfolio investments, Middle Market portfolio
investments and Private Loan portfolio investments by geographic region of the United States and other countries at cost and fair value as a
percentage of the total combined LMM portfolio investments, Middle Market portfolio investments and Private Loan portfolio investments,
as of December 31, 2018 and 2017 (this information excludes the Other Portfolio investments and the External Investment Manager). The
geographic composition is determined by the location of the corporate headquarters of the portfolio company.
Cost:
West
Southwest
Midwest
Northeast
Southeast
Canada
Other Non-United States
December 31,
2018
December 31,
2017
27.2%
26.7%
19.4%
14.3%
10.0%
1.4%
1.0%
100.0%
20.7%
26.1%
22.3%
15.2%
12.8%
1.9%
1.0%
100.0%
165
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MAIN STREET CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Fair Value:
Southwest
West
Midwest
Northeast
Southeast
Canada
Other Non-United States
December 31,
2018
December 31,
2017
28.4%
28.2%
18.9%
13.4%
8.9%
1.2%
1.0%
100.0%
26.8%
23.7%
20.3%
14.6%
11.9%
1.8%
0.9%
100.0%
Main Street's LMM portfolio investments, Middle Market portfolio investments and Private Loan portfolio investments are in
companies conducting business in a variety of industries. The following tables summarize the composition of Main Street's total combined
LMM portfolio investments, Middle Market portfolio investments and Private Loan portfolio investments by industry at cost and fair value
as of
166
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MAIN STREET CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
December 31, 2018 and 2017 (this information excludes the Other Portfolio investments and the External Investment Manager).
Cost:
Construction & Engineering
Media
Machinery
Energy Equipment & Services
Commercial Services & Supplies
Diversified Telecommunication Services
Specialty Retail
Internet Software & Services
Leisure Equipment & Products
IT Services
Aerospace & Defense
Food Products
Electronic Equipment, Instruments & Components
Hotels, Restaurants & Leisure
Oil, Gas & Consumable Fuels
Health Care Providers & Services
Professional Services
Computers & Peripherals
Software
Communications Equipment
Containers & Packaging
Construction Materials
Road & Rail
Distributors
Building Products
Internet & Catalog Retail
Diversified Financial Services
Health Care Equipment & Supplies
Diversified Consumer Services
Real Estate Management & Development
Auto Components
Other(1)
December 31,
2018
December 31,
2017
7.5%
6.5%
6.5%
6.4%
4.9%
4.8%
4.2%
4.1%
3.9%
3.8%
3.8%
3.8%
3.5%
3.3%
3.0%
2.8%
2.6%
2.6%
2.6%
2.5%
1.9%
1.8%
1.8%
1.7%
1.6%
1.1%
0.6%
0.6%
0.4%
0.3%
0.0%
5.1%
100.0%
6.4%
4.4%
5.2%
6.9%
4.5%
4.1%
5.3%
3.4%
3.0%
3.9%
3.3%
1.9%
3.4%
6.2%
1.6%
2.9%
3.7%
2.8%
2.5%
2.3%
0.0%
1.7%
1.0%
1.9%
1.9%
1.3%
1.6%
2.0%
1.6%
1.0%
1.9%
6.4%
100.0%
(1)
Includes various industries with each industry individually less than 1.0% of the total combined LMM portfolio
investments, Middle Market portfolio investments and Private Loan portfolio investments at each date.
167
Table of Contents
MAIN STREET CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Fair Value:
Machinery
Construction & Engineering
Energy Equipment & Services
Media
Commercial Services & Supplies
Specialty Retail
Diversified Telecommunication Services
IT Services
Internet Software & Services
Computers & Peripherals
Leisure Equipment & Products
Aerospace & Defense
Food Products
Hotels, Restaurants & Leisure
Diversified Consumer Services
Software
Electronic Equipment, Instruments & Components
Health Care Providers & Services
Oil, Gas & Consumable Fuels
Professional Services
Communications Equipment
Construction Materials
Containers & Packaging
Road & Rail
Building Products
Distributors
Diversified Financial Services
Internet & Catalog Retail
Air Freight & Logistics
Health Care Equipment & Supplies
Real Estate Management & Development
Auto Components
Other(1)
December 31,
2018
December 31,
2017
8.8%
7.9%
5.7%
5.4%
4.4%
4.2%
4.0%
3.9%
3.8%
3.8%
3.7%
3.5%
3.5%
3.2%
2.9%
2.9%
2.8%
2.7%
2.7%
2.4%
2.2%
2.1%
1.8%
1.8%
1.6%
1.5%
0.9%
0.8%
0.6%
0.5%
0.4%
0.0%
3.6%
100.0%
6.4%
6.3%
6.2%
3.8%
4.1%
5.3%
3.4%
4.0%
3.2%
3.0%
2.9%
3.1%
1.8%
5.9%
5.9%
2.5%
2.8%
2.8%
1.5%
3.5%
2.2%
1.9%
0.0%
1.0%
1.8%
1.8%
1.6%
1.1%
1.0%
2.1%
1.1%
1.6%
4.4%
100.0%
(1)
Includes various industries with each industry individually less than 1.0% of the total combined LMM portfolio
investments, Middle Market portfolio investments and Private Loan portfolio investments at each date.
At December 31, 2018 and 2017, Main Street had no portfolio investment that was greater than 10% of the Investment Portfolio at fair
value.
Unconsolidated Significant Subsidiaries
In accordance with Rules 3-09 and 4-08(g) of Regulation S-X, Main Street must determine which of its unconsolidated controlled
portfolio companies, if any, are considered "significant subsidiaries." In evaluating these unconsolidated controlled portfolio companies,
there are three tests utilized to determine if any of Main
168
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MAIN STREET CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Street's Control Investments (as defined in Note A, including those unconsolidated portfolio companies defined as Control Investments in
which Main Street does not own greater than 50% of the voting securities) are considered significant subsidiaries: the investment test, the
asset test and the income test. The income test is measured by dividing the absolute value of the combined total of total investment income,
net realized gain (loss) and net unrealized appreciation (depreciation) from each Control Investment for the period being tested by the
absolute value of Main Street's pre-tax income for the same period. Rule 3-09 of Regulation S-X, as interpreted by the SEC, requires Main
Street to include separate audited financial statements of an unconsolidated majority-owned subsidiary (Control Investments in which Main
Street owns greater than 50% of the voting securities) in an annual report if any of the three tests exceed 20% of Main Street's total
investments at fair value, total assets or total income, respectively. Rule 4-08(g) of Regulation S-X requires summarized financial
information of a Control Investment in an annual report if any of the three tests exceeds 10% of Main Street's annual total amounts and
Rule 10-01(b)(1) of Regulation S-X requires summarized financial information in a quarterly report if any of the three tests exceeds 20% of
Main Street's year-to-date total amounts.
As of December 31, 2018 and 2017, Main Street had no single investment that represented greater than 10% of its total Investment
Portfolio at fair value and no single investment whose total assets represented greater than 10% of its total assets. After performing the
income test for the year ended December 31, 2018, Main Street determined that its income from three of its Control Investments
individually generated more than 10% of its total income, primarily due to the unrealized appreciation that was recognized on the
investments. As such, Gamber Johnson Holdings, LLC ("GJH"), GRT Rubber Technologies LLC ("GRT") and the wholly owned External
Investment Manager were each considered significant subsidiaries at the 10% income level (see further discussion and summarized
financial information of the External Investment Manager in Note D). Additionally, after performing the income test for the years ended
December 31, 2017 and 2016, Main Street determined that its income from one of its Control Investments individually generated more than
10% of its total income, primarily due to unrealized appreciation that was recognized on the investment. As such, CBT Nuggets, LLC
("CBT"), an unconsolidated portfolio company that was a Control Investment, but for which Main Street was not the majority owner and
did not have rights to maintain greater than 50% of the board representation, was considered a significant subsidiary at the 10% level as of
December 31, 2017 and 2016.
The following table shows the summarized financial information for CBT:
As of December 31,
2017
2018
(dollars in thousands)
Balance Sheet Data
Current Assets
Noncurrent Assets
Current Liabilities
Noncurrent Liabilities
Summary of Operations
Total Revenue
Gross Profit
Income from Operations
Net Income
$
4,025 $ 14,585
11,769
17,570
—
11,372
15,103
—
Twelve Months Ended December 31,
2017
(dollars in thousands)
2016
2018
$ 39,209 $ 40,802 $ 38,779
33,661
35,837
13,117
9,018
12,819
18,379
35,160
3,978
4,868
169
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MAIN STREET CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table shows the summarized financial information for GJH:
Balance Sheet Data
Current Assets
Noncurrent Assets
Current Liabilities
Noncurrent Liabilities
Summary of Operations
Total Revenue
Gross Profit
Income from Operations
Net Income
The following table shows the summarized financial information for GRT:
As of December 31,
2018
2017
(dollars in thousands)
$ 17,113 $ 13,473
37,177
5,769
27,959
38,038
6,825
26,857
Twelve Months Ended
December 31,
2017
(dollars in thousands)
2016
2018
$ 53,715 $ 42,429 $ 31,581
13,380
17,067
3,712
3,149
1,865
(486)
20,927
5,374
2,799
As of December 31,
2017
2018
(dollars in thousands)
Balance Sheet Data
Current Assets
Noncurrent Assets
Current Liabilities
Noncurrent Liabilities
Summary of Operations
Total Revenue
Gross Profit
Income from Operations
Net Income
$
8,399 $
24,242
2,870
14,445
8,375
28,121
3,577
15,876
Twelve Months Ended
December 31,
2017
(dollars in thousands)
2016
2018
$ 37,821 $ 31,165 $ 26,140
6,330
2,181
(270)
6,737
2,329
(103)
9,526
4,934
2,470
NOTE D — EXTERNAL INVESTMENT MANAGER
As discussed further in Note A.1., the External Investment Manager provides investment management and other services to External
Parties. The External Investment Manager is accounted for as a portfolio investment of MSCC since the External Investment Manager
conducts all of its investment management activities for External Parties.
During May 2012, Main Street entered into an investment sub-advisory agreement with HMS Adviser, LP ("HMS Adviser"), which is
the investment advisor to HMS Income, a non-listed BDC, to
170
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MAIN STREET CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
provide certain investment advisory services to HMS Adviser. In December 2013, after obtaining required no-action relief from the SEC to
allow it to own a registered investment adviser, Main Street assigned the sub-advisory agreement to the External Investment Manager since
the fees received from such arrangement could otherwise have negative consequences on MSCC's ability to meet the source-of-income
requirement necessary for it to maintain its RIC tax treatment. Under the investment sub-advisory agreement, the External Investment
Manager is entitled to 50% of the base management fee and the incentive fees earned by HMS Adviser under its advisory agreement with
HMS Income. The External Investment Manager has conditionally agreed to waive the historical incentive fees otherwise earned. During
the years ended December 31, 2018, 2017 and 2016, the External Investment Manager earned $11.6 million, $10.9 million and
$9.5 million, respectively, of management fees (net of fees waived, if any) under the sub-advisory agreement with HMS Adviser.
The investment in the External Investment Manager is accounted for using fair value accounting, with the fair value determined by
Main Street and approved, in good faith, by Main Street's Board of Directors. Main Street determines the fair value of the External
Investment Manager using the Waterfall valuation method under the market approach (see further discussion in Note B.1.). Any change in
fair value of the investment in the External Investment Manager is recognized on Main Street's consolidated statements of operations in
"Net Unrealized Appreciation (Depreciation) — Control investments."
The External Investment Manager is an indirect wholly owned subsidiary of MSCC owned through a Taxable Subsidiary and is a
disregarded entity for tax purposes. The External Investment Manager has entered into a tax sharing agreement with its Taxable Subsidiary
owner. Since the External Investment Manager is accounted for as a portfolio investment of MSCC and is not included as a consolidated
subsidiary of MSCC in MSCC's consolidated financial statements, and as a result of the tax sharing agreement with its Taxable Subsidiary
owner, for financial reporting purposes the External Investment Manager is treated as if it is taxed at normal corporate tax rates based on its
taxable income and, as a result of its activities, may generate income tax expense or benefit. Main Street owns the External Investment
Manager through the Taxable Subsidiary to allow MSCC to continue to comply with the "source-of-income" requirements contained in the
RIC tax provisions of the Code. The taxable income, or loss, of the External Investment Manager may differ from its book income, or loss,
due to temporary book and tax timing differences and permanent differences. As a result of the above described financial reporting and tax
treatment, the External Investment Manager provides for any income tax expense, or benefit, and any tax assets or liabilities in its separate
financial statements.
Main Street shares employees with the External Investment Manager and allocates costs related to such shared employees to the
External Investment Manager generally based on a combination of the direct time spent, new investment origination activity and assets
under management, depending on the nature of the expense. For the years ended December 31, 2018, 2017 and 2016, Main Street allocated
$6.8 million, $6.4 million and $5.1 million of total expenses, respectively, to the External Investment Manager. The total contribution of
the External Investment Manager to Main Street's net investment income consists of the combination of the expenses allocated to the
External Investment Manager and the dividend income received from the External Investment Manager. For the years ended December 31,
2018, 2017 and 2016, the total contribution to Main Street's net investment income was $10.6 million, $9.4 million and $7.9 million,
respectively.
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MAIN STREET CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Summarized financial information from the separate financial statements of the External Investment Manager as of December 31, 2018
and 2017 and for the years ended December 31, 2018, 2017 and 2016 is as follows:
Cash
Accounts receivable — HMS Income
Total assets
Accounts payable to MSCC and its subsidiaries
Dividend payable to MSCC and its subsidiaries
Equity
Total liabilities and equity
Management fee income
Expenses allocated from MSCC or its subsidiaries:
Salaries, share-based compensation and other
personnel costs
Other G&A expenses
Total allocated expenses
Pre-tax income
Tax expense
Net income
As of
December 31,
2018
2017
(dollars in thousands)
$ —
2,947
$ 2,947
$ 1,786
1,161
—
$ 2,947
$ —
2,863
$ 2,863
$ 1,963
900
—
$ 2,863
2018
Year Ended December 31,
2017
(dollars in thousands)
$ 10,946
2016
$ 9,540
$ 11,592
(4,324)
(2,444)
(6,768)
4,824
(1,002)
3,822
(3,989)
(2,381)
(6,370)
4,576
(1,544)
3,032
$
(3,470)
(1,619)
(5,089)
4,451
(1,623)
$ 2,828
$
NOTE E — DEBT
SBIC Debentures
Under existing SBA regulations, SBA approved SBICs under common control have the ability to issue debentures guaranteed by the
SBA up to a regulatory maximum amount of $350.0 million. Main Street, through the Funds, has an effective maximum amount of
$346.0 million following the prepayment of $4.0 million of existing SBIC debentures as discussed below. SBIC debentures payable were
$345.8 million and $295.8 million at December 31, 2018 and 2017, respectively. SBIC debentures provide for interest to be paid
semiannually, with principal due at the applicable 10-year maturity date of each debenture. During the year ended December 31, 2018,
Main Street issued $54.0 million of SBIC debentures and opportunistically prepaid $4.0 million of existing SBIC debentures as part of an
effort to manage the maturity dates of the oldest SBIC debentures. As a result of this prepayment, Main Street recognized a realized loss of
$1.4 million due to the previously recognized gain recorded as a result of recording the MSC II debentures at fair value on the date of the
acquisition of the majority interests of MSC II. The effect of the realized loss is offset by the reversal of all previously recognized
unrealized depreciation due to fair value adjustments since the date of the acquisition. Main Street expects to issue new SBIC debentures
under the SBIC program in the future in an amount up to the regulatory maximum amount for affiliated SBIC funds. The weighted-average
annual
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
interest rate on the SBIC debentures was 3.7% and 3.6% as of December 31, 2018 and 2017, respectively. The first principal maturity due
under the existing SBIC debentures is in 2019, and the weighted-average remaining duration as of December 31, 2018 was approximately
5.6 years. For the years ended December 31, 2018, 2017 and 2016, Main Street recognized interest expense, including the amortization of
upfront leverage and other miscellaneous fees, attributable to the SBIC debentures of $12.8 million, $10.5 million and $10.0 million,
respectively. In accordance with SBA regulations, the Funds are precluded from incurring additional non-SBIC debt without the prior
approval of the SBA.
As of December 31, 2018, the recorded value of the SBIC debentures was $338.2 million which consisted of (i) $44.7 million recorded
at fair value, or $1.3 million less than the $46.0 million par value of the SBIC debentures issued in MSC II, (ii) $149.8 million par value of
SBIC debentures outstanding held in MSMF, with a recorded value of $148.0 million that was net of unamortized debt issuance costs of
$1.8 million and (iii) $150.0 million par value of SBIC debentures held in MSC III with a recorded value of $145.5 million that was net of
unamortized debt issuance costs of $4.5 million. As of December 31, 2018, if Main Street had adopted the fair value option under ASC 825
for all of its SBIC debentures, Main Street estimates the fair value of its SBIC debentures would be approximately $310.0 million, or
$35.8 million less than the $345.8 million face value of the SBIC debentures.
The maturity dates and fixed interest rates for Main Street's SBIC Debentures as of December 31, 2018 and 2017 are summarized in
the following table:
Maturity Date
9/1/2019
3/1/2020
9/1/2020
9/1/2020
3/1/2021
3/1/2021
9/1/2021
9/1/2022
3/1/2023
3/1/2024
3/1/2024
3/1/2027
9/1/2027
3/1/2028
9/1/2028
Ending Balance
Fixed
Interest
Rate
December 31,
2018
4.95% 16,000,000
4.51% 10,000,000
3.50% 35,000,000
3.93% 10,000,000
4.37% 10,000,000
4.60% 20,000,000
3.39% 10,000,000
2.53%
5,000,000
3.16% 16,000,000
3.95% 39,000,000
3.55% 24,800,000
3.52% 40,400,000
3.19% 34,600,000
3.41% 43,000,000
3.55% 32,000,000
345,800,000
December 31,
2017
20,000,000
10,000,000
35,000,000
10,000,000
10,000,000
20,000,000
10,000,000
5,000,000
16,000,000
39,000,000
24,800,000
40,400,000
34,600,000
21,000,000
—
295,800,000
Credit Facility
Main Street maintains the Credit Facility to provide additional liquidity to support its investment and operational activities. The Credit
Facility was amended and restated during 2018 to provide for an increase in total commitments from $585.0 million to $705.0 million and
to increase the diversified group of lenders to eighteen, eliminate interest rate adjustments previously subject to Main Street's maintenance
of an investment grade rating and extend the final maturity by two years to September 2023. The amended Credit Facility also contains an
upsized accordion feature which allows Main Street to increase the total commitments under the
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
facility to up to $800.0 million from new and existing lenders on the same terms and conditions as the existing commitments.
Borrowings under the Credit Facility bear interest, subject to Main Street's election, on a per annum basis at a rate equal to the
applicable LIBOR rate (2.5% as of December 31, 2018) plus (i) 1.875% (or the applicable base rate (Prime Rate of 5.5% as of
December 31, 2018) plus 0.875%) as long as Main Street meets certain agreed upon excess collateral and maximum leverage requirements
or (ii) 2.0% (or the applicable base rate plus 1.0%) otherwise. Main Street pays unused commitment fees of 0.25% per annum on the
unused lender commitments under the Credit Facility. The Credit Facility is secured by a first lien on the assets of MSCC and its
subsidiaries, excluding the equity ownership or assets of the Funds and the External Investment Manager. The Credit Facility contains
certain affirmative and negative covenants, including but not limited to: (i) maintaining a minimum availability of at least 10% of the
borrowing base, (ii) maintaining an interest coverage ratio of at least 2.0 to 1.0, (iii) maintaining an asset coverage ratio (tangible net worth
to Credit Facility borrowings) of at least 1.5 to 1.0 and (iv) maintaining a minimum tangible net worth. The Credit Facility is provided on a
revolving basis through its final maturity date in September 2023, and contains two, one-year extension options which could extend the
final maturity by up to two years, subject to certain conditions, including lender approval.
At December 31, 2018, Main Street had $301.0 million in borrowings outstanding under the Credit Facility. As of December 31, 2018,
if Main Street had adopted the fair value option under ASC 825 for its Credit Facility, Main Street estimates its fair value would
approximate its recorded value. Main Street recognized interest expense related to the Credit Facility, including unused commitment fees
and amortization of deferred issuance costs, of $11.7 million, $10.6 million and $9.2 million, respectively, for the years ended
December 31, 2018, 2017 and 2016. As of December 31, 2018, the interest rate on the Credit Facility was 4.2% and the average interest
rate for the year ended December 31, 2018 was 3.9%. As of December 31, 2018, Main Street was in compliance with all financial
covenants of the Credit Facility.
6.125% Notes
In April 2013,Main Street issued $92.0 million, including the underwriters' full exercise of their option to purchase additional principal
amounts to cover over-allotments, in aggregate principal amount of 6.125% Notes due 2023 (the "6.125% Notes"). The 6.125% Notes bore
interest at a rate of 6.125% per year payable quarterly on January 1, April 1, July 1 and October 1 of each year. The total net proceeds to
Main Street from the 6.125% Notes, after underwriting discounts and estimated offering expenses payable, were approximately
$89.0 million. On April 2, 2018, Main Street redeemed the entire principal amount of the issued and outstanding 6.125% Notes effective
April 1, 2018 (the "Redemption Date"). The 6.125% Notes were redeemed at par value, plus the accrued and unpaid interest thereon from
January 1, 2018, through, but excluding, the Redemption Date. As part of the redemption, Main Street recognized a realized loss on
extinguishment of debt of $1.5 million in the second quarter of 2018 related to the write-off of the related unamortized deferred financing
costs. Main Street recognized interest expense related to the 6.125% Notes, including amortization of unamortized deferred issuance costs,
of $1.5 million for the year ended December 31 2018 and $5.9 million for each of the years ended December 31, 2017 and 2016.
4.50% Notes due 2019
In November 2014, Main Street issued $175.0 million in aggregate principal amount of 4.50% unsecured notes due 2019 (the "4.50%
Notes due 2019") at an issue price of 99.53%. The 4.50% Notes due 2019 are unsecured obligations and rank pari passu with Main Street's
current and future unsecured indebtedness; senior to any of its future indebtedness that expressly provides it is subordinated to the 4.50%
Notes due 2019; effectively subordinated to all of its existing and future secured indebtedness, to the extent of the value
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
of the assets securing such indebtedness, including borrowings under the Credit Facility; and structurally subordinated to all existing and
future indebtedness and other obligations of any of its subsidiaries, including without limitation, the indebtedness of the Funds. The 4.50%
Notes due 2019 mature on December 1, 2019, and may be redeemed in whole or in part at any time at Main Street's option subject to certain
make-whole provisions. The 4.50% Notes due 2019 bear interest at a rate of 4.50% per year payable semiannually on June 1 and
December 1 of each year. The total net proceeds from the 4.50% Notes due 2019, resulting from the issue price and after underwriting
discounts and estimated offering expenses payable, were approximately $171.2 million. Main Street may from time to time repurchase the
4.50% Notes due 2019 in accordance with the 1940 Act and the rules promulgated thereunder. As of December 31, 2018, the outstanding
balance of the 4.50% Notes due 2019 was $175.0 million and the recorded value of $174.3 million was net of unamortized debt issuance
costs of $0.7 million. As of December 31, 2018, if Main Street had adopted the fair value option under ASC 825 for the 4.50% Notes due
2019, Main Street estimates its fair value would be approximately $175.0 million. Main Street recognized interest expense related to the
4.50% Notes due 2019, including amortization of unamortized deferred issuance costs, of $8.6 million for each of the years ended
December 31, 2018, 2017 and 2016.
The indenture governing the 4.50% Notes due 2019 (the "4.50% Notes due 2019 Indenture") contains certain covenants, including
covenants requiring Main Street's compliance with (regardless of whether Main Street is subject to) the asset coverage requirements set
forth in Section 18(a)(1)(A) as modified by Section 61(a)(1) of the 1940 Act, as well as covenants requiring Main Street to provide
financial information to the holders of the 4.50% Notes due 2019 and the Trustee if Main Street ceases to be subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These covenants are subject to limitations and
exceptions that are described in the 4.50% Notes due 2019 Indenture. As of December 31, 2018, Main Street was in compliance with these
covenants.
4.50% Notes due 2022
In November 2017, Main Street issued $185.0 million in aggregate principal amount of 4.50% unsecured notes due 2022 (the "4.50%
Notes due 2022") at an issue price of 99.16%. The 4.50% Notes due 2022 are unsecured obligations and rank pari passu with Main Street's
current and future unsecured indebtedness; senior to any of its future indebtedness that expressly provides it is subordinated to the 4.50%
Notes due 2022; effectively subordinated to all of its existing and future secured indebtedness, to the extent of the value of the assets
securing such indebtedness, including borrowings under its Credit Facility; and structurally subordinated to all existing and future
indebtedness and other obligations of any of its subsidiaries, including without limitation, the indebtedness of the Funds. The 4.50% Notes
due 2022 mature on December 1, 2022, and may be redeemed in whole or in part at any time at Main Street's option subject to certain
make-whole provisions. The 4.50% Notes due 2022 bear interest at a rate of 4.50% per year payable semiannually on June 1 and
December 1 of each year. The total net proceeds from the 4.50% Notes due 2022, resulting from the issue price and after underwriting
discounts and estimated offering expenses payable, were approximately $182.2 million. Main Street may from time to time repurchase the
4.50% Notes due 2022 in accordance with the 1940 Act and the rules promulgated thereunder. As of December 31, 2018, the outstanding
balance of the 4.50% Notes due 2022 was $185.0 million and the recorded value of $182.6 million was net of unamortized debt issuance
costs of $2.4 million. As of December 31, 2018, if Main Street had adopted the fair value option under ASC 825 for the 4.50% Notes due
2022, Main Street estimates its fair value would be approximately $186.2 million. Main Street recognized interest expense related to the
4.50% Notes due 2022, including amortization of unamortized deferred issuance costs, of $9.0 million and $0.9 million for the years ended
December 31, 2018 and 2017, respectively.
The indenture governing the 4.50% Notes due 2022 (the "4.50% Notes due 2022 Indenture") contains certain covenants, including
covenants requiring Main Street's compliance with (regardless of whether Main
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MAIN STREET CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Street is subject to) the asset coverage requirements set forth in Section 18(a)(1)(A) as modified by Section 61(a)(1) of the 1940 Act, as
well as covenants requiring Main Street to provide financial information to the holders of the 4.50% Notes due 2022 and the Trustee if
Main Street ceases to be subject to the reporting requirements of the Exchange Act. These covenants are subject to limitations and
exceptions that are described in the 4.50% Notes due 2022 Indenture. As of December 31, 2018, Main Street was in compliance with these
covenants.
Contractual Payment Obligations
A summary of Main Street's contractual payment obligations for the repayment of outstanding indebtedness at December 31, 2018 is as
follows:
SBIC debentures
4.50% Notes due
2019
4.50% Notes due
2022
Credit Facility
Total
2019
16,000 $ 55,000 $ 40,000 $
2020
2021
2022
5,000 $
Thereafter
2023
16,000 $ 213,800 $
Total
345,800
$
175,000
—
—
—
—
—
175,000
185,000
301,000
$ 191,000 $ 55,000 $ 40,000 $ 190,000 $ 317,000 $ 213,800 $ 1,006,800
185,000
—
—
301,000
—
—
—
—
—
—
—
—
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MAIN STREET CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE F — FINANCIAL HIGHLIGHTS
Per Share Data:
NAV at the beginning of the period $
Net investment income(1)
Net realized gain (loss)(1)(2)
Net unrealized appreciation
(depreciation)(1)(2)
Income tax benefit (provision)(1)(2)
Net increase in net assets resulting
from operations(1)
Dividends paid from net investment
income
Distributions from capital gains
Total dividends paid
Impact of the net change in monthly
dividends declared prior to the end
of the period and paid in the
subsequent period
Accretive effect of stock offerings
(issuing shares above NAV per
share)
Accretive effect of DRIP issuance
(issuing shares above NAV per
share)
Other(3)
NAV at the end of the period
Market value at the end of the
period
Shares outstanding at the end of the
Twelve Months Ended December 31,
2016
2015
2017
2018
23.53 $
2.60
(0.03)
0.32
(0.09)
22.10 $
2.39
0.19
0.86
(0.43)
21.24 $
2.23
0.56
(0.14)
0.02
2.80
3.01
2.67
20.85 $
2.18
(0.43)
0.20
0.18
2.13
(2.69)
(0.16)
(2.85)
(2.47)
(0.32)
(2.79)
(1.99)
(0.74)
(2.73)
(2.49)
(0.16)
(2.65)
2014
19.89
2.20
0.53
(0.27)
(0.15)
2.31
(2.17)
(0.38)
(2.55)
(0.01)
(0.01)
(0.01)
(0.01)
(0.01)
0.47
1.07
0.76
0.74
1.07
0.09
0.06
24.09 $
0.06
0.09
23.53 $
0.08
0.09
22.10 $
0.12
0.06
21.24 $
33.81 $
39.73 $
36.77 $
29.08 $
0.12
0.02
20.85
29.24
$
$
period
61,264,861
58,660,680
54,354,857
50,413,744
45,079,150
(1)
(2)
Based on weighted-average number of common shares outstanding for the period.
Net realized gains or losses, net unrealized appreciation or depreciation, and income taxes can fluctuate significantly
from period to period.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(3)
Includes the impact of the different share amounts as a result of calculating certain per share data based on the
weighted-average basic shares outstanding during the period and certain per share data based on the shares
outstanding as of a period end or transaction date.
NAV at end of period
Average NAV
Average outstanding debt
Ratio of total expenses, including income
tax expense, to average NAV(1)
Ratio of operating expenses to average
NAV(2)
Ratio of operating expenses, excluding
interest expense, to average NAV(2)
Ratio of net investment income to average
NAV
Portfolio turnover ratio
Total investment return(3)
Total return based on change in NAV(4)
2018
Twelve Months Ended December 31,
2016
2017
(dollars in thousands)
$1,476,049 $1,380,368 $1,201,481 $1,070,894 $ 939,982
$1,441,163 $1,287,639 $1,118,567 $1,055,313 $ 885,568
$ 947,694 $ 843,993 $ 801,048 $ 759,396 $ 575,524
2015
2014
5.75%
7.37%
5.48%
4.63%
5.82%
5.32%
5.47%
5.59%
5.45%
5.11%
2.30%
2.63%
2.58%
2.41%
2.44%
10.87%
29.13%
–8.25%
12.19%
10.51%
38.18%
16.02%
14.20%
10.35%
24.63%
37.36%
12.97%
10.15%
25.37%
8.49%
11.11%
10.79%
35.71%
–3.09%
12.71%
(1)
(2)
(3)
(4)
Total expenses are the sum of operating expenses and net income tax provision/benefit. Net income tax
provision/benefit includes the accrual of net deferred tax provision/benefit relating to the net unrealized
appreciation/depreciation on portfolio investments held in Taxable Subsidiaries and due to the change in the loss
carryforwards, which are non-cash in nature and may vary significantly from period to period. Main Street is required
to include net deferred tax provision/benefit in calculating its total expenses even though these net deferred taxes are
not currently payable/receivable.
Unless otherwise noted, operating expenses include interest, compensation, general and administrative and share-
based compensation expenses, net of expenses allocated to the External Investment Manager.
Total investment return is based on the purchase of stock at the current market price on the first day and a sale at the
current market price on the last day of each period reported on the table and assumes reinvestment of dividends at
prices obtained by Main Street's dividend reinvestment plan during the period. The return does not reflect any sales
load that may be paid by an investor.
Total return is based on change in net asset value was calculated using the sum of ending net asset value plus
dividends to stockholders and other non-operating changes during the period, as divided by the beginning net asset
value. Non-operating changes include any items that affect net asset value other than the net increase in net assets
resulting from operations, such as the effects of stock offerings, shares issued under the DRIP and equity incentive
plans and other miscellaneous items.
NOTE G — DIVIDENDS, DISTRIBUTIONS AND TAXABLE INCOME
During 2018, Main Street paid supplemental dividends of $0.275 per share in each of June and December 2018, regular monthly
dividends of $0.190 per share for each month of January through September 2018, regular monthly dividends of $0.195 per share for each
month of October through December 2018, with such dividends totaling $170.9 million, or $2.845 per share. The 2018 regular monthly
dividends, which total $137.5 million, or $2.295 per share, represent a 2.7% increase from the regular monthly dividends paid per share for
the year ended 2017. For tax purposes, the 2018 dividends, which included the effects of dividends on an accrual basis, total $2.85 per
share and were comprised of (i) ordinary income totaling approximately $2.270 per share, (ii) long term capital gain totaling approximately
$0.375 per share, and (iii) qualified dividend income totaling approximately $0.205 per share. As of December 31, 2018, Main Street
estimates that it has generated undistributed taxable income of approximately $53.4 million, or $0.87 per share, that will be carried forward
toward distributions to be paid in 2019. For the years ended
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MAIN STREET CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
December 31, 2017 and 2016, Main Street paid total dividends of approximately $157.6 million, or $2.785 per share, and $141.6 million, or
$2.725 per share, respectively.
MSCC has elected to be treated for U.S. federal income tax purposes as a RIC. MSCC's taxable income includes the taxable income
generated by MSCC and certain of its subsidiaries, including the Funds, which are treated as disregarded entities for tax purposes. As a
RIC, MSCC generally will not pay corporate-level U.S. federal income taxes on any net ordinary taxable income or capital gains that
MSCC distributes to its stockholders. MSCC must generally distribute at least 90% of its "investment company taxable income" (which is
generally its net ordinary taxable income and realized net short-term capital gains in excess of realized net long-term capital losses) and
90% of its tax-exempt income to maintain its RIC status (pass-through tax treatment for amounts distributed). As part of maintaining RIC
status, undistributed taxable income (subject to a 4% non-deductible U.S. federal excise tax) pertaining to a given fiscal year may be
distributed up to 12 months subsequent to the end of that fiscal year, provided such dividends are declared on or prior to the later of
(i) filing of the U.S. federal income tax return for the applicable fiscal year or (ii) the fifteenth day of the ninth month following the close
of the year in which such taxable income was generated.
Ordinary dividend distributions from a RIC do not qualify for the 20% maximum tax rate (plus a 3.8% Medicare surtax, if applicable)
on dividend income from domestic corporations and qualified foreign corporations, except to the extent that the RIC received the income in
the form of qualifying dividends from domestic corporations and qualified foreign corporations. The tax attributes for distributions will
generally include both ordinary income and capital gains, but may also include qualified dividends or return of capital. The tax character of
distributions paid for the years ended December 31, 2018, 2017 and 2016 was as follows:
Ordinary income(1)
Qualified dividends
Distributions of long term capital gains
Distributions on tax basis
Twelve Months Ended December 31,
2016
2017
2018
(dollars in thousands)
$ 136,934 $ 126,540 $ 100,059
2,992
39,522
$ 171,724 $ 158,675 $ 142,573
4,656
27,479
12,277
22,513
(1)
The years ended December 31, 2018, 2017 and 2016 include $1.4 million, $1.5 million and $1.6 million, respectively,
that was reported as compensation for services for tax purposes in accordance with Section 83 of the Code.
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MAIN STREET CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Listed below is a reconciliation of "Net increase in net assets resulting from operations" to taxable income and to total distributions
declared to common stockholders for the years ended December 31, 2018, 2017 and 2016.
Net increase in net assets resulting from operations
Book-tax difference from share-based compensation expense
Net unrealized (appreciation) depreciation
Income tax provision (benefit)
Pre-tax book (income) loss not consolidated for tax purposes
Book income and tax income differences, including debt origination,
structuring fees, dividends, realized gains and changes in estimates
Estimated taxable income(1)
Taxable income earned in prior year and carried forward for
2016
2018
Year Ended December 31,
2017
(estimated, dollars in thousands)
$ 168,213 $ 170,622 $ 138,899
1,619
7,519
(1,227)
15,742
(1,430)
(19,275)
6,152
(454)
(867)
(48,757)
24,471
2,357
17,649
170,855
10,844
158,670
(7,300)
155,252
distribution in current year
42,357
42,362
29,683
Taxable income earned prior to period end and carried forward for
distribution next period
Dividend payable as of period end and paid in the following period
Total distributions accrued or paid to common stockholders
(53,436)
11,948
(52,410)
10,048
$ 171,724 $ 158,675 $ 142,573
(53,503)
11,146
(1)
Main Street's taxable income for each period is an estimate and will not be finally determined until the company files
its tax return for each year. Therefore, the final taxable income, and the taxable income earned in each period and
carried forward for distribution in the following period, may be different than this estimate.
The Taxable Subsidiaries primarily hold certain portfolio investments for Main Street. The Taxable Subsidiaries permit Main Street to
hold equity investments in portfolio companies which are "pass-through" entities for tax purposes and to continue to comply with the
"source-of-income" requirements contained in the RIC tax provisions of the Code. The Taxable Subsidiaries are consolidated with Main
Street for U.S. GAAP financial reporting purposes, and the portfolio investments held by the Taxable Subsidiaries are included in Main
Street's consolidated financial statements as portfolio investments and recorded at fair value. The Taxable Subsidiaries are not consolidated
with MSCC for income tax purposes and may generate income tax expense, or benefit, and tax assets and liabilities, as a result of their
ownership of certain portfolio investments. The taxable income, or loss, of the Taxable Subsidiaries may differ from their book income, or
loss, due to temporary book and tax timing differences and permanent differences. The Taxable Subsidiaries are each taxed at their normal
corporate tax rates based on their taxable income. The income tax expense, or benefit, if any, and the related tax assets and liabilities, of the
Taxable Subsidiaries are reflected in Main Street's consolidated financial statements.
The income tax expense, or benefit, and the related tax assets and liabilities generated by the Taxable Subsidiaries, if any, are reflected
in Main Street's consolidated statement of operations. Main Street's
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MAIN STREET CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
provision for income taxes was comprised of the following for the years ended December 31, 2018, 2017 and 2016 (amounts in thousands):
Current tax expense (benefit):
Federal
State
Total current tax expense (benefit)
Deferred tax expense (benefit):
Federal
State
Total deferred tax expense (benefit)
Excise tax
Total income tax provision (benefit)
Twelve Months Ended
December 31,
2017
2016
2018
$ (2,398) $
1,688
(710)
1,865 $
1,415
3,280
1
347
348
3,763
2,070
5,833
1,029
(5,359)
2,043
(3,316)
1,741
$ 6,152 $ 24,471 $ (1,227)
15,248
4,017
19,265
1,926
MSCC operates in a manner to maintain its RIC status and to eliminate corporate-level U.S. federal income tax (other than the 4%
excise tax) by distributing sufficient investment company taxable income and long-term capital gains. As a result, MSCC will have an
effective tax rate equal to 0% before the excise tax and income taxes incurred by the Taxable Subsidiaries. As such, a reconciliation of the
differences between Main Street's reported income tax expense and its tax expense at the federal statutory rate of 21% is not meaningful.
As of December 31, 2018, the cost of investments for U.S. federal income tax purposes was $2,244.0 million, with such investments
having a gross unrealized appreciation of $385.6 million and gross unrealized depreciation of $172.0 million.
The net deferred tax liability at December 31, 2018 was $17.0 million compared to $10.6 million at December 31, 2017, primarily
related to loss carryforwards, timing differences in net unrealized appreciation or depreciation and other temporary book-tax differences
relating to portfolio investments held by the Taxable Subsidiaries. The net deferred tax liability as of December 31, 2017 equal to
$10.6 million reflects a reduction of $2.8 million resulting from the decrease in the U.S. federal corporate income tax rate from 35% to 21%
as enacted by the Tax Cuts and Jobs Act (see further discussion in Note B.9.). For the year ended December 31, 2018, for U.S. federal
income tax purposes, the Taxable Subsidiaries had capital loss carryforwards totaling approximately $7.8 million which, if unused, will
expire in taxable year 2021 and generated a capital loss carryforward of $5.1 million which, if unused, will expire in taxable year 2023. At
December 31, 2018, for U.S. federal income tax purposes, the Taxable Subsidiaries had a net operating loss carryforward from prior years
which, if unused, will expire in various taxable years from 2028 through 2037. Under the Tax Cuts and Jobs Act, any net operating losses
generated in 2018 and future periods will have an indefinite carryforward. The timing and manner in which Main Street will utilize any loss
carryforwards generated before December 31, 2018 may be limited in the future under the provisions of the Code. Additionally, as a result
of the Tax Cuts and Jobs Act, our Taxable Subsidiaries have an interest expense limitation carryforward which have an indefinite
carryforward.
Management believes that the realization of the deferred tax assets is more likely than not based on expectations as to future taxable
income and scheduled reversals of temporary differences. Accordingly, Main Street did not record a valuation allowance related to its
deferred tax assets at December 31, 2018 and
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MAIN STREET CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
2017. The following table sets forth the significant components of net deferred tax assets and liabilities as of December 31, 2018 and 2017
(amounts in thousands):
Deferred tax assets:
Net operating loss carryforwards
Interest Expense Carryforwards
Capital loss carryforwards
Other
Total deferred tax assets
Deferred tax liabilities:
Net unrealized appreciation of portfolio investments
Net basis differences in portfolio investments
Other
Total deferred tax liabilities
Total deferred tax asset (liabilities), net
Years Ended
December 31,
2018
2017
$ 29,546 $ 28,422
—
1,011
893
30,326
5,199
2,795
1,532
39,072
(37,137)
(18,961)
(31,711)
(9,168)
—
(40,879)
$ (17,026) $ (10,553)
(56,098)
—
NOTE H — COMMON STOCK
Main Street maintains a program with certain selling agents through which it can sell shares of its common stock by means of at-the-
market offerings from time to time (the "ATM Program"). During the year ended December 31, 2018, Main Street sold 2,060,019 shares of
its common stock at a weighted-average price of $38.48 per share and raised $79.3 million of gross proceeds under the ATM Program. Net
proceeds were $78.0 million after commissions to the selling agents on shares sold and offering costs. As of December 31, 2018, 2,994,469
shares remained available for sale under the ATM Program.
During the year ended December 31, 2017, Main Street sold 3,944,972 shares of its common stock at a weighted-average price of
$38.72 per share and raised $152.8 million of gross proceeds under the ATM Program. Net proceeds were $150.9 million after
commissions to the selling agents on shares sold and offering costs.
During the year ended December 31, 2016, Main Street sold 3,324,646 shares of its common stock at a weighted-average price of
$34.17 per share and raised $113.6 million of gross proceeds under the ATM Program. Net proceeds were $112.0 million after
commissions to the selling agents on shares sold and offering costs.
NOTE I — DIVIDEND REINVESTMENT PLAN ("DRIP")
Main Street's DRIP provides for the reinvestment of dividends on behalf of its stockholders, unless a stockholder has elected to receive
dividends in cash. As a result, if Main Street declares a cash dividend, its stockholders who have not "opted out" of the DRIP by the
dividend record date will have their cash dividend automatically reinvested into additional shares of MSCC common stock. The share
requirements of the DRIP may be satisfied through the issuance of shares of common stock or through open market purchases of common
stock by the DRIP plan administrator. Newly issued shares will be valued based upon the final closing price of MSCC's common stock on
the valuation date determined for each dividend by Main Street's Board of Directors. Shares purchased in the open market to satisfy the
DRIP requirements will be valued based upon the average price of the applicable shares purchased, before any associated brokerage or
other
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MAIN STREET CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
costs. Main Street's DRIP is administered by its transfer agent on behalf of Main Street's record holders and participating brokerage firms.
Brokerage firms and other financial intermediaries may decide not to participate in Main Street's DRIP but may provide a similar dividend
reinvestment plan for their clients.
For the year ended December 31, 2018, $14.9 million of the total $170.9 million in dividends paid to stockholders represented DRIP
participation. During this period, the DRIP participation requirements were satisfied with the issuance of 394,403 newly issued shares. For
the year ended December 31, 2017, $9.2 million of the total $157.6 million in dividends paid to stockholders represented DRIP
participation. During this period, the DRIP participation requirements were satisfied with the issuance of 234,513 newly issued shares. For
the year ended December 31, 2016, $14.1 million of the total $141.6 million in dividends paid to stockholders represented DRIP
participation. During this period, the DRIP participation requirements were satisfied with the issuance of 434,631 newly issued shares. The
shares disclosed above relate only to Main Street's DRIP and exclude any activity related to broker-managed dividend reinvestment plans.
NOTE J — SHARE-BASED COMPENSATION
Main Street accounts for its share-based compensation plans using the fair value method, as prescribed by ASC 718, Compensation —
Stock Compensation. Accordingly, for restricted stock awards, Main Street measured the grant date fair value based upon the market price
of its common stock on the date of the grant and amortizes the fair value of the awards as share-based compensation expense over the
requisite service period, which is generally the vesting term.
Main Street's Board of Directors approves the issuance of shares of restricted stock to Main Street employees pursuant to the Main
Street Capital Corporation 2015 Equity and Incentive Plan (the "Equity and Incentive Plan"). These shares generally vest over a three-year
period from the grant date. The fair value is expensed over the service period, starting on the grant date. The following table summarizes
the restricted stock issuances approved by Main Street's Board of Directors under the Equity and Incentive Plan, net of shares forfeited, if
any, and the remaining shares of restricted stock available for issuance as of December 31, 2018.
Restricted stock authorized under the plan
Less net restricted stock granted during:
Year ended December 31, 2015
Year ended December 31, 2016
Year ended December 31, 2017
Year ended December 31, 2018
Restricted stock available for issuance as of December 31, 2018
3,000,000
(900)
(260,514)
(223,812)
(243,779)
2,270,995
As of December 31, 2018, the following table summarizes the restricted stock issued to Main Street's non-employee directors and the
remaining shares of restricted stock available for issuance pursuant to the Main Street Capital Corporation 2015 Non-Employee Director
Restricted Stock Plan. These shares are
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MAIN STREET CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
granted upon appointment or election to the board and vest on the day immediately preceding the annual meeting of stockholders following
the respective grant date and are expensed over such service period.
Restricted stock authorized under the plan
Less net restricted stock granted during:
Year ended December 31, 2015
Year ended December 31, 2016
Year ended December 31, 2017
Year ended December 31, 2018
Restricted stock available for issuance as of December 31, 2018
300,000
(6,806)
(6,748)
(5,948)
(6,376)
274,122
For the years ended December 31, 2018, 2017 and 2016, Main Street recognized total share-based compensation expense of
$9.2 million, $10.0 million and $8.3 million, respectively, related to the restricted stock issued to Main Street employees and non-employee
directors. As of December 31, 2018, there was $10.8 million of total unrecognized compensation expense related to Main Street's non-
vested restricted shares. This compensation expense is expected to be recognized over a remaining weighted-average period of
approximately 1.8 years as of December 31, 2018.
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MAIN STREET CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE K — COMMITMENTS AND CONTINGENCIES
As of December 31, 2018, Main Street had the following outstanding commitments (in thousands):
Investments with equity capital commitments that have not yet funded:
Congruent Credit Opportunities Funds
Congruent Credit Opportunities Fund II, LP
Congruent Credit Opportunities Fund III, LP
Encap Energy Fund Investments
EnCap Energy Capital Fund VIII, L.P.
EnCap Energy Capital Fund IX, L.P.
EnCap Energy Capital Fund X, L.P.
EnCap Flatrock Midstream Fund II, L.P.
EnCap Flatrock Midstream Fund III, L.P.
Brightwood Capital Fund Investments
Brightwood Capital Fund III, LP
Brightwood Capital Fund IV, LP
Freeport Fund Investments
Freeport Financial SBIC Fund LP
Freeport First Lien Loan Fund III LP
Harris Preston Fund Investments
HPEP 3, L.P.
EIG Fund Investments
LKCM Headwater Investments I, L.P.
Dos Rios Partners
Dos Rios Partners, LP
Dos Rios Partners — A, LP
Copper Trail Fund Investments
Copper Trail Energy Fund I, LP
I-45 SLF LLC
Access Media Holdings, LLC
Total equity commitments
185
Amount
$
$
$
$
$
$
$
$
8,488
8,117
16,605
240
344
2,467
6,311
2,083
11,445
3,000
3,000
6,000
1,375
1,345
2,720
$
3,267
$
4,668
$
2,500
$
$
1,594
506
2,100
$
1,232
$
$
$
800
284
51,621
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MAIN STREET CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Investments with commitments to fund revolving loans that have not been fully
drawn or term loans with additional commitments not yet funded:
Independent Pet Partners Intermediate Holdings, LLC
GRT Rubber Technologies LLC
SI East, LLC
California Splendor Holdings LLC
NexRev LLC
PT Network, LLC
Hoover Group, Inc.
Boccella Precast Products LLC
Arcus Hunting LLC
Chamberlin Holding LLC
Direct Marketing Solutions, Inc.
Meisler Operating LLC
Lamb Ventures, LLC
Gamber-Johnson Holdings, LLC
Volusion, LLC
NRI Clinical Research, LLC
Aethon United BR LP
Kickhaefer Manufacturing Company, LLC
CTVSH, PLLC
BBB Tank Services, LLC
DTE Enterprises RLOC
ASC Ortho Management Company, LLC
Adams Publishing Group, LLC
Tedder Industries, LLC
HDC/HW Intermediate Holdings
Wireless Vision Holdings, LLC
Jensen Jewelers of Idaho, LLC
New Era Technology, Inc.
Barfly Ventures, LLC
American Nuts, LLC
Dynamic Communities, LLC
ATS Workholding, LLC
BigName Commerce, LLC
Total loan commitments
Total commitments
Amount
$
29,089
8,375
7,500
7,409
4,000
3,618
2,250
2,000
1,807
1,600
1,600
1,600
1,500
1,200
1,075
1,000
938
936
800
800
750
750
750
720
640
592
500
479
368
280
250
42
29
$
85,247
$ 136,868
Main Street will fund its unfunded commitments from the same sources it uses to fund its investment commitments that are funded at
the time they are made (which are typically through existing cash and cash equivalents and borrowings under the Credit Facility). Main
Street follows a process to manage its liquidity and ensure that it has available capital to fund its unfunded commitments as necessary. The
Company had total unrealized depreciation of $0.3 million on the outstanding unfunded commitments as of December 31, 2018.
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MAIN STREET CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Main Street has an operating lease for office space. Total rent expense incurred by Main Street for the years ended December 31 2018,
2017 and 2016 was $0.7 million, $0.7 million and $0.6 million, respectively.
The following table shows future minimum payments under Main Street's operating lease as of December 31, 2018:
For the Years Ended December 31,
2019
2020
2021
2022
2023
Thereafter
Total
Amount
$
748
762
776
790
804
3,429
$ 7,309
Main Street may, from time to time, be involved in litigation arising out of its operations in the normal course of business or otherwise.
Furthermore, third parties may try to impose liability on Main Street in connection with the activities of its portfolio companies. While the
outcome of any current legal proceedings cannot at this time be predicted with certainty, Main Street does not expect any current matters
will materially affect its financial condition or results of operations; however, there can be no assurance whether any pending legal
proceedings will have a material adverse effect on Main Street's financial condition or results of operations in any future reporting period.
NOTE L — SELECTED QUARTERLY DATA (UNAUDITED)
2018
(dollars in thousands,
except per share amounts)
Qtr. 1
Qtr. 2
Qtr. 3
Qtr. 4
Total investment income
Net investment income
Net increase in net assets resulting from operations
Net investment income per share — basic and diluted
Net increase in net assets resulting from operations per
$ 55,942 $ 59,869 $ 58,263 $ 59,280
$ 36,975 $ 39,512 $ 38,075 $ 42,083
9,505
$ 34,517 $ 55,451 $ 68,740 $
0.69
0.63 $
$
0.66 $
0.63 $
share — basic and diluted
$
0.59 $
0.93 $
1.13 $
0.16
2017
(dollars in thousands,
except per share amounts)
Qtr. 1
Qtr. 2
Qtr. 3
Qtr. 4
Total investment income
Net investment income
Net increase in net assets resulting from operations
Net investment income per share — basic and diluted
Net increase in net assets resulting from operations per
share — basic and diluted
187
$ 47,889 $ 50,271 $ 51,786 $ 55,795
$ 31,166 $ 32,693 $ 34,029 $ 37,483
$ 31,450 $ 42,829 $ 34,899 $ 61,444
0.64
0.58 $
$
1.05
0.76 $
$
0.60 $
0.61 $
0.57 $
0.57 $
Table of Contents
MAIN STREET CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
2016
(dollars in thousands,
except per share amounts)
Qtr. 1
Qtr. 2
Qtr. 3
Qtr. 4
Total investment income
Net investment income
Net increase in net assets resulting from operations
Net investment income per share — basic and diluted
Net increase in net assets resulting from operations per
$ 42,006 $ 42,902 $ 46,599 $ 46,830
$ 27,164 $ 27,648 $ 30,557 $ 30,432
$ 16,812 $ 30,911 $ 43,181 $ 47,993
0.57
0.54 $
$
0.58 $
0.54 $
share — basic and diluted
$
0.33 $
0.60 $
0.82 $
0.90
NOTE M — RELATED PARTY TRANSACTIONS
As discussed further in Note D, the External Investment Manager is treated as a wholly owned portfolio company of MSCC and is
included as part of Main Street's Investment Portfolio. At December 31, 2018, Main Street had a receivable of approximately $2.9 million
due from the External Investment Manager which included (i) approximately $1.8 million related primarily to operating expenses incurred
by MSCC or its subsidiaries as required to support the External Investment Manager's business and amounts due from the External
Investment Manager to Main Street under a tax sharing agreement (see further discussion in Note D) and (ii) approximately $1.2 million of
dividends declared but not paid by the External Investment Manager.
In November 2015, Main Street's Board of Directors approved and adopted the Main Street Capital Corporation Deferred
Compensation Plan (the "2015 Deferred Compensation Plan"). The 2015 Deferred Compensation Plan became effective on January 1, 2016
and replaced the Deferred Compensation Plan for Non-Employee Directors previously adopted by the Board of Directors in June 2013 (the
"2013 Deferred Compensation Plan"). Under the 2015 Deferred Compensation Plan, non-employee directors and certain key employees
may defer receipt of some or all of their cash compensation and directors' fees, subject to certain limitations. Individuals participating in the
2015 Deferred Compensation Plan receive distributions of their respective balances based on predetermined payout schedules or other
events as defined by the plan and are also able to direct investments made on their behalf among investment alternatives permitted from
time to time under the plan, including phantom Main Street stock units. As of December 31, 2018, $6.1 million of compensation and
directors' fees had been deferred under the 2015 Deferred Compensation Plan (including amounts previously deferred under the 2013
Deferred Compensation Plan). Of this amount, $3.3 million was deferred into phantom Main Street stock units, representing 97,344 shares
of Main Street's common stock. Including phantom stock units issued through dividend reinvestment and net of any shares distributed, the
phantom stock units outstanding as of December 31, 2018 represented 119,639 shares of Main Street's common stock. Any amounts
deferred under the plan represented by phantom Main Street stock units will not be issued or included as outstanding on the consolidated
statements of changes in net assets until such shares are actually distributed to the participant in accordance with the plan, but are included
in operating expenses and weighted-average shares outstanding in Main Street's consolidated statements of operations as earned.
NOTE N — SUBSEQUENT EVENTS
In January 2019, Main Street led a new portfolio investment to facilitate the minority recapitalization of Centre Technologies, Inc.
("Centre"), a premier provider of IT hardware, software and service solutions. Main Street, along with its co-investors, partnered with
Centre's founder and Chief Executive Officer and management team to facilitate the transaction, with Main Street funding $18.1 million in
a combination of first-lien, senior secured term debt and a direct equity investment. Headquartered in Houston, Texas, and founded in 2006,
Centre has established itself as a mission critical IT solutions provider offering a full suite
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
of solutions including managed and hosted services, value-added sourcing and integration, and project services.
In January 2019, Main Street led new portfolio investment to facilitate the management buyout of CompareNetworks Inc.
("CompareNetworks"), a leading provider of media, marketing and technology solutions that drive revenue for life science and healthcare
product manufacturers. Main Street, along with its co-investors, partnered with CompareNetworks' founders and management team to
facilitate the transaction, with Main Street funding $10.7 million in a combination of first-lien, senior secured term debt and a direct equity
investment. Headquartered in South San Francisco, California, and founded in 2000, CompareNetworks provides life scientists,
researchers, lab-based professionals, pharmaceutical professionals and healthcare professionals with digital tools and information resources
to research, identify and determine which products and technologies to use.
In January 2019, Main Street fully exited its equity investment in Boss Industries, LLC ("Boss"). Boss markets, designs and
manufacturers vehicle-mounted, and portable air compressor and generator systems utilized in municipal and utility services, energy
product and industrial services. Main Street realized a gain of approximately $4.0 million on the exit of its equity investment in Boss.
During February 2019, Main Street declared regular monthly dividends of $0.200 per share for each month of April, May and June
2019. These regular monthly dividends equal a total of $0.600 per share for the second quarter of 2019 and represent a 5.3% increase from
the dividends declared for the second quarter of 2018. Including the dividends declared for the second quarter of 2019, Main Street will
have paid $25.420 per share in cumulative dividends since its October 2007 initial public offering.
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Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders'
Main Street Capital Corporation
Opinion on financial statement schedule
We have audited in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB") the
consolidated financial statements of Main Street Capital Corporation and subsidiaries (the "Company") referred to in our report dated
March 1, 2019, which is included in the annual report on Form 10-K. Our audits of the consolidated financial statements also included the
audit of the financial statement schedule (listed in the index appearing under Item 15(2)). In our opinion, this financial statement schedule,
when considered in relation to the consolidated financial statements as a whole, presents fairly, in all material respects, the information set
forth therein.
Basis for opinion
This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on the
Company's financial statement schedule based on our audits. We are a public accounting firm registered with the PCAOB and are required
to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations
of the Securities and Exchange Commission and the PCAOB.
/s/ GRANT THORNTON LLP
Houston, Texas
March 1, 2019
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MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments in and Advances to Affiliates
December 31, 2018
(dollars in thousands)
Schedule 12-14
Investment(1)(10)(11) Geography
Amount of
Realized
Gain/(Loss)
Amount of
Unrealized
Gain/(Loss)
Amount
of
Interest,
Fees or
Dividends
Credited
to
Income(2)
December 31,
2017
Fair Value
Gross
Additions(3)
Gross
Reductions(4)
December 31,
2018
Fair Value
Company
Majority-owned
investments
Café Brazil, LLC
California Splendor
Holdings LLC
Member Units
LIBOR Plus 8.00%
(Floor 1.00%)
LIBOR Plus 10.00%
(Floor 1.00%)
Preferred Member
Units
Clad-Rex Steel, LLC LIBOR Plus 9.50%
(Floor 1.00%)
Member Units
10% Secured Debt
Member Units
Member Units
LIBOR Plus 11.00%
(Floor 1.00%)
Preferred Stock
LIBOR Plus 7.50%
(Floor 2.00%)
Member Units
CMS Minerals
Investments
Direct Marketing
Solutions, Inc.
Gamber-Johnson
Holdings, LLC
GRT Rubber
LIBOR Plus 7.00%
Technologies LLC
Harborside
Holdings, LLC
Harris Preston Fund
Investments
Hydratec, Inc.
IDX Broker, LLC
Jensen Jewelers of
Idaho, LLC
Member Units
Member Units
LP Interests (2717
MH, L.P.)
Common Stock
11.5% Secured Debt
Preferred Member
Units
Prime Plus 6.75%
(Floor 2.00%)
Member Units
Lamb Ventures, LLC 11% Secured Debt
Preferred Equity
Member Units
9.5% Secured Debt
Member Units
Mid-Columbia
10% Secured Debt
Lumber
Products, LLC
12% Secured Debt
Member Units
9.5% Secured Debt
Member Units
MSC Adviser I, LLC Member Units
Mystic Logistics
Holdings, LLC
12% Secured Debt
NexRev LLC
NRP Jones, LLC
PPL RVs, Inc.
Principle
Environmental, LLC
(d/b.a TruHorizon
Environmental
Common Stock
11% Secured Debt
Preferred Member
Units
12% Secured Debt
Member Units
LIBOR Plus 7.00%
(Floor 0.50%)
Common Stock
13% Secured Debt
Preferred Member
Units
(8)
$
— $
(120)$
291 $
4,900 $
— $
120 $
4,780
(9)
(9)
(9)
(5)
(5)
(5)
(5)
(9)
(9)
(9)
(5)
(5)
(8)
(8)
(8)
(8)
(9)
(9)
(9)
(9)
(9)
(8)
(8)
(8)
(8)
(8)
(9)
(9)
(9)
(9)
(9)
(8)
(6)
(6)
(8)
(8)
(5)
(5)
(8)
(8)
(8)
(8)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,025
—
2,990
(1,030)
178
—
—
—
21,128
10,200
10,928
27,755
—
27,755
12,500
2,755
9,745
(33)
1,517
13,280
1,110
—
70
500
117
—
9,500
1,183
280
33
1,110
—
70
921
117
2,392
921
18,631
14,900
57
22,090
—
2,502
6,500
—
(57)
22,090
(30)
17,090
2,579
1,797
1,199
2,876
—
—
23,400
23,370
11,603
21,970
—
—
9,400
1,233
—
22
—
733
783
—
1,971
—
30
1,893
17,090
100
597
—
47
—
—
—
15,000
947
—
7,922
—
93
(7,905)
(47)
—
332
1,765
536
15,000
15,250
12,080
10,610
1,161
350
2,580
17,848
14,900
21,486
45,460
9,740
39,060
9,500
1,133
—
14,350
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,860
276
11,660
1,860
—
13,520
(20)
(10)
(18)
—
650
—
110
—
—
1,689
—
180
23,980
—
(6,610)
—
1,010
—
2,710
450
250
976
—
—
42
53
182
491
6
74
57
3,822
969
—
1,829
60
776
—
3,955
5,100
9,942
400
6,790
432
520
1,390
3,863
1,575
791
1,290
41,768
7,696
6,820
—
—
6,376
3,250
(35)
1,487
(2,060)
3
16,100
12,440
(51)
1,037
7,477
20
—
218
—
650
—
110
356
17
2,285
—
180
23,980
42
—
17,288
7,890
—
2,710
35
—
51
1,600
1,482
11,490
1,600
620
10
1,821
—
—
—
—
—
—
—
45
—
—
232
6,610
—
—
—
—
1,035
2,060
51
—
3,355
5,090
8,339
400
7,440
432
630
1,746
3,880
3,860
746
1,470
65,748
7,506
210
17,288
7,890
6,376
5,960
15,100
10,380
7,477
13,090
Environmental
Solutions)
Quality Lease
Service, LLC
Tedder
Industries, LLC
Warrants
Zero Coupon Secured
Debt
Member Units
12%, Secured Debt
12%, Secured Debt
Member Units
The MPI Group, LLC 9% Secured Debt
Series A Preferred
Units
Warrants
Member Units
Uvalco Supply, LLC 9% Secured Debt
Vision Interests, Inc.
Member Units
13% Secured Debt
Series A Preferred
Stock
Common Stock
(8)
(7)
(7)
(9)
(9)
(9)
(7)
(7)
(7)
(7)
(8)
(8)
(9)
(9)
(9)
—
—
—
20
1,010
—
268
—
—
190
7
898
364
—
—
130
(500)
(2,303)
—
—
—
171
440
—
90
—
(301)
—
740
280
—
—
—
—
—
—
—
—
—
—
—
301
—
—
—
191
650
130
—
780
6,950
4,938
—
—
—
2,410
—
—
2,389
348
3,880
2,797
3,000
—
—
1,174
480
16,246
7,476
172
440
—
90
—
—
17
740
280
500
2,303
—
—
—
—
—
—
—
348
3,880
661
—
—
6,450
3,809
480
16,246
7,476
2,582
440
—
2,479
—
—
2,153
3,740
280
Table of Contents
Amount
of
Interest,
Fees or
Dividends
Credited
to
Income(2)
68
Amount of
Realized
Gain/(Loss)
—
Amount of
Unrealized
Gain/(Loss)
2
December 31,
2017
Fair Value
996
Gross
Additions(3)
4
Gross
Reductions(4)
—
December 31,
2018
Fair Value
1,000
—
—
—
—
—
—
47
390
—
300
2,750
—
—
(1,970)
—
3,220
125
—
—
—
—
—
—
425
2,750
—
1,971
1,249
—
(8,592)
25
17,150
—
8,592
8,558
(1,517)
—
—
(160)
—
—
199
—
—
—
1,795
1,530
—
—
—
1,233
1,517
(117)
334
3,249
1,258
—
229
—
—
1,482
—
3,726
11,596
9,370
—
—
—
—
1,274
—
9,839
372
9,467
—
173
160
117
—
—
—
(284)
—
1,622
1,370
4,390
3,726
11,596
9,370
—
27,950
1,397
—
—
1,600
6,500
—
—
274
110
4,280
61,610
20,028
18,940
732
—
11,888
2,270
872
4,170
1,690
—
(27,950)
117
11,395
—
89,560
4,280
—
21,425
18,940
732
1,600
163
—
—
—
—
—
7,500
2,645
2,349
—
45
—
—
83
2,034
18,225
1,620
250
650
1,620
—
22
—
872
675
(110)
57
33
2,500
1,575
1,944
225
—
(1,493)
330
11,110
(843)
—
—
—
—
2,713
—
150
730
—
—
—
169
113
—
1,493
9,786
843
—
—
—
26,171
660
25,511
8,800
334
8,466
—
650
642
—
5,443
1,940
18
650
362
—
5,099
2,590
(570)
1,312
10,632
2,340
970
12,002
—
—
—
—
—
—
—
—
—
—
—
—
1,630
1,227
10,060
1,630
—
—
(720)
11
1,634
—
80
12,703
4,840
160
25
—
4,490
180
3,580
4,490
—
1,431
9,918
2
(3)
(33)
4,190
170
9
546
842
3,940
375
5,900
4,420
20
2
3
33
4,190
—
—
—
—
240
134
720
—
—
—
378
5,933
—
—
—
—
11,690
—
12,594
4,120
8,070
9,938
3,942
—
—
8,610
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Company
Ziegler's NYPD, LLC 6.5% Secured Debt
12% Secured Debt
Investment(1)(10)(11) Geography
Other controlled
investments
Access Media
Holdings, LLC
14% Secured Debt
Warrants
Preferred Member
Units
10% PIK Secured
Debt
Preferred Member
Units(12)
Member Units
ASC Interests, LLC 11% Secured Debt
ATS
Workholding, LLC
Bond-Coat, Inc.
Brewer Crane
Holdings, LLC
Member Units
5% Secured Debt
Preferred Member
Units
12% Secured Debt
Common Stock
LIBOR Plus 10.00%
(Floor 1.00%)
Preferred Member
Units
CBT Nuggets, LLC Member Units
Chamberlin
Holding LLC
Charps, LLC
Copper Trail Fund
Investments
Datacom, LLC
Digital Products
Holdings LLC
Garreco, LLC
Guerdon Modular
Holdings, Inc.
Gulf
LIBOR Plus 10.00%
(Floor 1.00%)
Member Units
Member Units
LIBOR Plus 7.00%
(Floor 1.00%)
12% Secured Debt
Preferred Member
Units
LP Interests
(CTMH, LP)
LP Interests (Copper
Trail Energy Fund
I, LP)
8% Secured Debt
10.50% PIK Secured
Debt
Class A Preferred
Member Units
Class B Preferred
Member Units
LIBOR Plus 10.00%
(Floor 1.00%)
Preferred Member
Units
LIBOR Plus 8.00%
(Floor 1.00%, Ceiling
1.50%)
Member Units
13% Secured Debt
Preferred Stock
Common Stock
Warrants
Member Units
Manufacturing, LLC
Gulf Publishing
Holdings, LLC
LIBOR Plus 9.50%
(Floor 1.00%)
12.5% Secured Debt
Member Units
Harrison Hydra-
Common Stock
Gen, Ltd.
HW Temps LLC
LIBOR Plus 13.00%
(Floor 1.00%)
Preferred Member
Units
KBK Industries, LLC 10% Secured Debt
12.5% Secured Debt
Member Units
(8)
(8)
(8)
(8)
(8)
(5)
(5)
(5)
(8)
(8)
(9)
(9)
(8)
(8)
(9)
(9)
(9)
(8)
(8)
(8)
(5)
(5)
(5)
(9)
(9)
(8)
(8)
(8)
(8)
(5)
(5)
(8)
(8)
(9)
(9)
(9)
(9)
(8)
(8)
(8)
(8)
(8)
(6)
(6)
(5)
(5)
(5)
Kickhaefer
11.5% Secured Debt
Manufacturing
Company, LLC
11.5% Secured Debt
Member Units
9.0% Secured Debt
Member Units
12% PIK Secured
Debt
Preferred Member
Units
LIBOR Plus 7.00%
(Floor 1.00%)
LIBOR Plus 11.00%
(Floor 1.00%)
Member Units
10% Current/3% PIK
Secured Debt
Preferred Member
Units
Marine Shelters
Holdings, LLC
Market Force
Information, LLC
MH Corbin
Holding LLC
NAPCO Precast, LLC LIBOR Plus 8.50%
NRI Clinical
Research, LLC
NuStep, LLC
OMi Holdings, Inc.
Pegasus Research
Group, LLC
Member Units
14% Secured Debt
Warrants
Member Units
12% Secured Debt
Preferred Member
Units
Common Stock
Member Units
(5)
(5)
(5)
(5)
(5)
(8)
(8)
(9)
(9)
(9)
(5)
(5)
(8)
(8)
(9)
(9)
(9)
(5)
(5)
(8)
(8)
—
—
—
—
—
—
—
—
—
—
(3,361)
3,078
(5,352)
5,352
—
33
1,125
—
63
—
—
—
26
—
—
—
—
—
—
—
—
1,045
27,730
12,240
3,970
992
—
—
—
—
—
3,361
3,361
5,352
5,352
1,045
27,730
12,240
3,970
992
—
—
680
480
200
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3,121
(1,600)
—
23,143
14,700
41
—
560
1,600
22,624
13,100
(387)
1,187
12,526
119
912
11,733
(5,000)
(25)
2,320
140
160
(22)
—
—
1,910
140
1,277
1,862
982
—
—
2,550
—
1,608
6,000
11,475
11,670
4,265
500
2,500
20,420
10,200
14,110
—
25
2,320
3,035
160
152
38
—
1,910
5,000
25
—
615
—
174
—
—
—
1,000
11,475
13,990
6,685
660
2,478
20,458
10,200
16,020
—
(2,630)
—
10,310
—
2,630
7,680
192
Table of Contents
Company
River
Aggregates, LLC
SoftTouch
Medical
Holdings LLC
Other
Amounts related to
investments
transferred to or
from other 1940
Act classification
during the period
Total Control
investments
Amount
of
Interest,
Fees or
Dividends
Credited
to
Income(2)
December 31,
2017
Fair Value
Gross
Additions(3)
Gross
Reductions(4)
December 31,
2018
Fair Value
Amount of
Realized
Gain/(Loss)
Amount of
Unrealized
Gain/(Loss)
—
—
—
(28)
—
370
43
—
—
707
4,610
2,559
—
(30)
5,171
(5,159)
119
865
7,140
10,089
43
—
371
30
—
28
—
—
7,170
10,089
722
4,610
2,930
—
—
Investment(1)(10)(11) Geography
Zero Coupon Secured
Debt
Member Units
(8)
(8)
Member Units
LIBOR Plus 9.00%
(Floor 1.00%)
Member Units
(8)
(7)
(7)
—
—
25
(10,632)
—
—
—
$
4,681 $
37,826 $
85,853 $
750,706 $
400,284 $
156,629 $
1,004,993
193
Table of Contents
Investment(1)(10)(11) Geography
Amount of
Realized
Gain/(Loss)
Amount of
Unrealized
Gain/(Loss)
Company
Affiliate
Investments
Amount
of
Interest,
Fees or
Dividends
Credited
to
Income(2)
December 31,
2017
Fair Value
Gross
Additions(3)
Gross
Reductions(4)
December 31,
2018
Fair Value
AFG Capital
Group, LLC
Warrants
Barfly
Ventures, LLC
BBB Tank
Services, LLC
Boccella Precast
Products LLC
Boss
Industries, LLC
Bridge Capital
Solutions
Corporation
Buca C, LLC
Preferred Member
Units
12% Secured Debt
Options
Warrants
LIBOR Plus 10%
(Floor 1.00%)
LIBOR Plus 11%
(Floor 1.00%)
Preferred Member
Units
Member Units
LIBOR Plus 10%
(Floor 1.00%)
Member Units
Preferred Member
Units
13% Secured Debt
Warrants
13% Secured Debt
Preferred Member
Units
LIBOR Plus 9.25%
(Floor 1.00%)
Preferred Member
Units
CAI Software LLC 12% Secured Debt
Chandler Signs
Holdings, LLC
Member Units
12% Secured
Debt/1.00% PIK
Class A Units
Charlotte Russe,
8.50% Secured Debt
Inc
Common Stock
Member Units
LP Interests (Fund II)
LP Interests (Fund III)
Condit
Exhibits, LLC
Congruent Credit
Opportunities
Funds
Dos Rios Partners LP Interests (Dos Rios
East Teak Fine
Hardwoods, Inc.
EIG Fund
Investments
Freeport Financial
Funds
Gault
Financial, LLC
(RMB
Capital, LLC)
Harris Preston
Fund Investments
Hawk Ridge
Systems, LLC
Houston Plating
Partners, LP)
LP Interests (Dos Rios
Partners — A, LP)
Common Stock
LP Interests (EIG
Global Private Debt
fund-A, L.P.)
LP Interests (Freeport
Financial SBIC
Fund LP)
LP Interests (Freeport
First Lien Loan Fund
III LP)
8% Secured Debt
Warrants
LP Interests (HPEP
3, L.P.)
10.5% Secured Debt
Preferred Member
Units
Preferred Member
Units
8% Unsecured
Convertible Debt
and
Coatings, LLC Member Units
Member Units
I-45 SLF LLC
L.F.
(8)
(8)
(5)
(5)
(5)
(8)
(8)
(8)
(8)
(6)
(6)
(5)
(6)
(6)
(6)
(6)
(7)
(7)
(6)
(6)
(8)
(8)
(9)
(9)
(9)
(8)
(8)
(8)
(8)
(7)
(8)
(5)
(5)
(7)
(7)
(8)
(9)
(9)
(9)
(8)
(8)
(8)
$
— $
90 $
— $
40
1,177
210
—
83
860 $
90 $
3,590
390
8,715
1,467
920
520
778
693
3,876
—
—
—
500
390
(164)
(190)
(110)
—
—
—
(270)
43
1,964
1,640
635
16,400
3,440
2,164
1,640
2,080
849
3,930
2,246
—
500
(2)
1,351
—
134
5,884
3,520
1,000
—
108
1,000
—
2,286
20,193
4,172
4,083
3,230
4,500
2,650
5
94
(610)
(8)
(530)
4,663
(3,141)
—
(140)
254
726
20
604
60
630
—
123
—
210
—
434
—
113
—
337
500
2
—
45
259
7,797
97
54
—
— $
—
164
190
110
1,212
950
3,980
10,018
940
410
—
43
3,833
—
270
2,840
—
—
—
—
2
—
113
230
15,724
5,080
6,176
6,221
4,020
1,000
1,000
1,200
19,038
—
1,000
610
8
530
4,431
10,880
2,717
4,546
2,120
3,930
—
1,950
855
7,807
16,659
—
3,141
20,536
3,141
1,950
1,515
—
—
—
660
(254)
2,017
18,632
4,014
5,178
17,468
138
430
(70)
—
—
35
7,165
1,889
630
138
430
—
150
7,153
48
70
2,271
560
—
—
64
1,055
479
1,029
505
—
(215)
102
5,614
—
215
5,399
—
(123)
902
8,506
2,597
123
10,980
(33)
950
815
11,532
950
12,482
(400)
400
—
—
—
943
—
400
790
26
(26)
1,561
14,300
3,460
352
3,800
3,460
180
—
200
180
520
2,133
243
289
3,200
6,140
520
2,190
—
—
1,733
14,300
7,260
380
3,720
8,330
400
—
26
—
—
—
—
(1,214)
2,945
16,841
—
1,214
15,627
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
L.F.
Manufacturing
Holdings, LLC
Meisler
Operating LLC
OnAsset
Intelligence, Inc.
Member Units
LIBOR Plus 8.50%
(Floor 1.00%)
Member Units
12% PIK Secured
Debt
10% PIK Secured
Debt
Preferred Stock
Warrants
OPI
Common Stock
International Ltd.
PCI Holding
Company, Inc.
12% Current/3% PIK
Secured Debt
Preferred Stock
Preferred Stock
Rocaceia, LLC
12% Secured Debt
(Quality Lease
and Rental
Holdings, LLC)
Salado Stone
Holdings, LLC
SI East, LLC
Slick
Innovations, LLC
Tin Roof
Acquisition
Company
Preferred Member
Units
Class A Preferred
Units
10.25% Current,
Secured Debt
Preferred Member
Units
14.00% Current,
Secured Debt
Warrants
Member Units
12% Secured Debt
Class C Preferred
Stock
(8)
(5)
(5)
(8)
(8)
(8)
(8)
(8)
(9)
(9)
(9)
(8)
(8)
(8)
(7)
(7)
(6)
(6)
(6)
(7)
(7)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
60
—
2,000
60
—
2,060
—
735
2,228
—
16,633
3,390
3,999
2,390
—
—
—
—
649
5,094
649
5
—
—
—
48
—
—
—
5
—
—
—
2,105
12,593
320
—
—
—
—
—
20,312
5,780
5,743
53
—
—
—
(1,371)
1,371
1,371
1,371
890
2,610
250
—
1,790
—
—
—
—
—
615
—
870
—
—
—
1,300
11,908
550
—
—
—
340
3,480
250
—
750
1,040
36,501
1,616
34,885
6,000
6,959
181
700
—
—
—
—
6,000
6,959
181
700
—
—
841
12,722
561
13,283
152
3,027
152
3,179
(550)
870
—
—
(750)
—
—
—
—
23
—
1,471
—
463
—
—
—
—
—
—
—
—
194
Table of Contents
Company
UniTek Global
Services, Inc.
Universal
(6)
Investment(1)(10)(11) Geography
LIBOR Plus 5.50%
(Floor 1.00%)
LIBOR Plus 8.50%
(Floor 1.00%)
LIBOR Plus 7.50%
(Floor 1.00%)/1.00%
PIK
15% PIK Unsecured
Debt
Preferred Stock
(6)
(6)
(6)
Preferred Stock
Preferred Stock
Common Stock
Amount of
Realized
Gain/(Loss)
Amount of
Unrealized
Gain/(Loss)
—
—
—
—
—
—
—
(6)
—
—
—
41
—
8
399
(1,069)
(6)
(6)
(6)
(6)
(8)
(8)
(8)
(8)
(8)
(8)
(8)
(8)
Preferred Member
Units
Wellhead
Services
Holdings, LLC Member Units
Valley
Healthcare
Group, LLC
LIBOR Plus 10.50%
(Floor 0.50%)
Preferred Member
Units
Volusion, LLC 11.5% Secured Debt
8% Unsecured
Convertible Debt
Preferred Member
Units
Warrants
Other
Amounts related
to investments
transferred to
or from other
1940 Act
classification
during the
period
Total Affiliate
investments
Amount
of
Interest,
Fees or
Dividends
Credited
to
Income(2)
December 31,
2017
Fair Value
Gross
Additions(3)
Gross
Reductions(4)
December 31,
2018
Fair Value
127
819
—
2,975
6
2,969
8,535
6
8,541
7
137
122
1,038
121
580
—
865
7,320
—
2,850
2,490
—
87
1,080
1,852
587
—
—
—
—
7,413
1,637
3,038
1,420
950
2,330
137
952
987
215
399
1,070
—
—
—
—
—
420
120
—
830
1,910
120
420
—
—
1,400
11,685
81
11,766
—
1,898
—
—
—
—
—
—
—
—
(190)
58
2,818
1,600
15,200
—
3,207
15
1
—
—
297
14,000
2,080
—
—
1,600
—
—
—
190
—
18,407
297
14,000
1,890
(473)
473
365
2,825
—
—
—
$
20 $
12,062 $
36,800 $
338,854 $
125,544 $
101,683 $
359,890
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
The principal amount, the ownership detail for equity investments and if the investment is income producing is included in the consolidated schedule of
investments.
Represents the total amount of interest, fees and dividends credited to income for the portion of the period for which an investment was included in Control or
Affiliate categories, respectively. For investments transferred between Control and Affiliate categories during the period, any income or investment balances
related to the time period it was in the category other than the one shown at period end is included in "Amounts from investments transferred from other 1940
Act classifications during the period."
Gross additions include increases in the cost basis of investments resulting from new portfolio investments, follow-on investments and accrued PIK interest,
and the exchange of one or more existing securities for one or more new securities. Gross additions also include net increases in unrealized appreciation or
net decreases in net unrealized depreciation as well as the movement of an existing portfolio company into this category and out of a different category.
Gross reductions include decreases in the cost basis of investments resulting from principal repayments or sales and the exchange of one or more existing
securities for one or more new securities. Gross reductions also include net increases in net unrealized depreciation or net decreases in unrealized
appreciation as well as the movement of an existing portfolio company out of this category and into a different category.
Portfolio company located in the Midwest region as determined by location of the corporate headquarters. The fair value as of December 31, 2018 for control
investments located in this region was $257,870. This represented 17.5% of net assets as of December 31, 2018. The fair value as of December 31, 2018 for
affiliate investments located in this region was $60,015. This represented 4.1% of net assets as of December 31, 2018.
Portfolio company located in the Northeast region as determined by location of the corporate headquarters. The fair value as of December 31, 2018 for
control investments located in this region was $21,596. This represented 1.5% of net assets as of December 31, 2018. The fair value as of December 31, 2018
for affiliate investments located in this region was $70,959. This represented 4.8% of net assets as of December 31, 2018.
Portfolio company located in the Southeast region as determined by location of the corporate headquarters. The fair value as of December 31, 2018 for
control investments located in this region was $15,760. This represented 1.1% of net assets as of December 31, 2018. The fair value as of December 31, 2018
for affiliate investments located in this region was $64,914. This represented 4.4% of net assets as of December 31, 2018.
Portfolio company located in the Southwest region as determined by location of the corporate headquarters. The fair value as of December 31, 2018 for
control investments located in this region was $401,355. This represented 27.2% of net assets as of December 31, 2018. The fair value as of December 31,
2018 for affiliate investments located in this region was $120,454. This represented 8.2% of net assets as of December 31, 2018.
Portfolio company located in the West region as determined by location of the corporate headquarters. The fair value as of December 31, 2018 for control
investments located in this region was $308,412. This represented 20.9% of net assets as of December 31, 2018. The fair value as of December 31, 2018 for
affiliate investments located in this region was $43,548. This represented 3.0% of net assets as of December 31, 2018.
(10)
All of the Company's portfolio investments are generally subject to restrictions on resale as "restricted securities," unless otherwise noted.
(11)
(12)
This schedule should be read in conjunction with the consolidated schedule of investments and notes to the consolidated financial statements. Supplemental
information can be located within the schedule of investments including end of period interest rate, preferred dividend rate, maturity date, investments not
paid currently in cash and investments whose value was determined using significant unobservable inputs.
Investment has an unfunded commitment as of December 31, 2018 (see Note K). The fair value of the investment includes the impact of the fair value of any
unfunded commitments.
195
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments in and Advances to Affiliates
December 31, 2017
(dollars in thousands)
Schedule 12-14
Investment(1)(10)(11) Geography
Amount of
Realized
Gain/(Loss)
Amount of
Unrealized
Gain/(Loss)
Company
Majority-owned
investments
Amount
of
Interest,
Fees or
Dividends
Credited
to
Income(2)
December 31,
2016
Fair Value
Gross
Additions(3)
Gross
Reductions(4)
December 31,
2017
Fair Value
Café Brazil, LLC
Clad-Rex Steel, LLC LIBOR Plus 9.50%
Member Units
(8)
$
— $
(1,140)$
179 $
6,040 $
— $
1,140 $
4,900
(Floor 1.00)
Member Units
10% Secured Debt
Member Units
Preferred Member
Units
Member Units
LIBOR Plus 11.00%
(Floor 1.00%)
Member Units
LIBOR Plus 9.00%
(Floor 1.00%)
Member Units
Member Units
LP Interests (2717
MH, L.P.)
Common Stock
11.5% Secured Debt
Preferred Member
Units
Prime Plus 6.75%
(Floor 2.00%)
Member Units
CMS Minerals
Investments
Gamber-Johnson
Holdings, LLC
GRT Rubber
Technologies LLC
Harborside
Holdings, LLC
Harris Preston Fund
Investments
Hydratec, Inc.
IDX Broker, LLC
Jensen Jewelers of
Idaho, LLC
Lamb Ventures, LLC 11% Secured Debt
Preferred Equity
Member Units
9.5% Secured Debt
Member Units
8% Secured Debt
Preferred Equity
Warrants
Member Units
Lighting
Unlimited, LLC
Mid-Columbia
Lumber
Products, LLC
10% Secured Debt
12% Secured Debt
Member Units
9.5% Secured Debt
Member Units
MSC Adviser I, LLC Member Units
Mystic Logistics
Holdings, LLC
NRP Jones, LLC
PPL RVs, Inc.
12% Secured Debt
Common Stock
12% Secured Debt
Warrants
Member Units
LIBOR Plus 7.00%
(Floor 0.50%)
Common Stock
Principle
Environmental, LLC
(d/b.a TruHorizon
Environmental
Solutions)
Quality Lease
Service, LLC
The MPI Group, LLC
13% Secured Debt
Preferred Member
Units
Warrants
Zero Coupon Secured
Debt
Member Units
(5)
(5)
(5)
(5)
(8)
(8)
(5)
(5)
(8)
(8)
(8)
(8)
(9)
(9)
(9)
(9)
(9)
(8)
(8)
(8)
(8)
(8)
(8)
(8)
(8)
(8)
(9)
(9)
(9)
(9)
(9)
(8)
(6)
(6)
(5)
(5)
(5)
(8)
(8)
(8)
(8)
(8)
(7)
(7)
4,274
136
7,040
4,620
—
11,660
1,405
(1,578)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(434)
(54)
(100)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
112
1,542
14,337
2,220
12
70
(600)
520
119
—
96
212
187
4,450
2,988
592
(34)
1,314
1,660
746
7,280
1,190
210
3,682
3,381
23,846
18,920
13,274
20,310
143
2,220
12
70
—
—
235
4,450
34
1,660
3,194
—
—
9,400
—
(640)
88
—
1,631
1,316
—
15,640
10,950
536
—
5,500
(20)
640
52
—
800
4
451
207
994
—
40
65
(820)
845
—
24
54
100
—
—
(1,500)
—
150
11,151
(124)
1,040
—
687
2,023
128
660
29
—
—
—
176
477
6
78
72
3,032
1,073
—
4,117
—
18
1,473
80
4,055
4,460
7,657
400
5,990
1,170
1,340
1,514
410
—
—
1,750
3,900
2,480
836
600
30,617
9,176
5,780
13,915
130
410
17,826
11,780
131
998
7,438
520
640
2,850
—
800
432
—
—
24
54
100
593
—
595
—
690
11,151
52
1,040
7,821
687
2,840
174
660
39
(63)
6,183
—
—
—
380
(391)
—
—
—
273
—
5,370
6,183
270
380
7,068
3,188
273
1,750
1,200
13,280
—
19
—
3,682
989
681
—
1,705
—
—
—
640
1,200
9,500
1,183
280
—
2,392
23,400
23,370
11,603
21,970
9,400
536
15,000
15,250
620
—
565
—
—
1,170
820
1,514
434
54
100
953
37
1,500
45
—
—
1,532
—
15,360
817
—
1,900
—
—
63
—
391
—
3,955
5,100
9,942
400
6,790
432
520
—
—
—
—
1,390
3,863
1,575
791
1,290
41,768
7,696
6,820
6,376
—
3,250
16,100
12,440
7,477
11,490
650
6,950
4,938
The MPI Group, LLC 9% Secured Debt
Series A Preferred
Units
Warrants
Member Units
Uvalco Supply, LLC 9% Secured Debt
Vision Interests, Inc.
Member Units
13% Secured Debt
Series A Preferred
Stock
Common Stock
Ziegler's NYPD, LLC 6.5% Secured Debt
12% Secured Debt
14% Secured Debt
Warrants
Preferred Member
Units
(7)
(7)
(7)
(7)
(8)
(8)
(9)
(9)
(9)
(8)
(8)
(8)
(8)
(8)
(513)
268
2,922
—
—
90
—
(496)
—
—
—
—
—
—
(240)
—
—
92
54
235
382
—
—
68
37
390
—
—
—
2,300
872
4,640
2,814
3,000
—
994
300
2,750
240
(880)
—
4,100
1
—
—
89
—
—
—
—
—
2
—
—
—
—
513
—
—
—
524
760
17
—
—
—
—
—
240
880
2,410
—
—
2,389
348
3,880
2,797
3,000
—
996
300
2,750
—
3,220
—
—
—
—
—
69
—
—
—
—
—
—
—
—
196
Table of Contents
Company
Other controlled
investments
Access Media
Holdings, LLC
Ameritech College
Operations, LLC
Investment(1)(10)(11) Geography
Amount of
Realized
Gain/(Loss)
Amount
of
Interest,
Fees or
Dividends
Credited
to
Income(2)
Amount of
Unrealized
Gain/(Loss)
December 31,
2016
Fair Value
Gross
Additions(3)
Gross
Reductions(4)
December 31,
2017
Fair Value
—
(3,714)
2,379
19,700
1,164
3,714
17,150
5% Current/5% PIK
Secured Debt
Preferred Member
Units
Member Units
13% Secured Debt
13% Secured Debt
Preferred Member
Units
ASC Interests, LLC 11% Secured Debt
Member Units
ATS
Bond-Coat, Inc.
Workholding, LLC
5% Secured Debt
Preferred Member
Units
12% Secured Debt
Common Stock
CBT Nuggets, LLC Member Units
Charps, LLC
12% Secured Debt
Preferred Member
Units
Copper Trail Energy
Fund I, LP
Datacom, LLC
Garreco, LLC
Gulf
LP Interests
8% Secured Debt
5.25% Current / 5.25%
PIK Secured Debt
Class A Preferred
Member Units
Class B Preferred
Member Units
LIBOR Plus 10.00%
(Floor 1.00%)
Member Units
Manufacturing, LLC
Gulf Publishing
Holdings, LLC
Harrison Hydra-
Gen, Ltd.
Hawthorne Customs
and
Dispatch
Services, LLC
HW Temps LLC
Indianapolis Aviation
Partners, LLC
9% PIK Secured Debt
Member Units
LIBOR Plus 9.50%
(Floor 1.00%)
12.5% Secured Debt
Member Units
Common Stock
Member Units
Member Units
LIBOR Plus 11.00%
(Floor 1.00%)
Preferred Member
Units
15% Secured Debt
Warrants
KBK Industries, LLC 10% Secured Debt
Marine Shelters
Holdings, LLC
Market Force
Information, LLC
MH Corbin
Holding LLC
12.5% Secured Debt
Member Units
12% PIK Secured
Debt
Preferred Member
Units
LIBOR Plus 11.00%
(Floor 1.00%)
Member Units
13% Secured Debt
Preferred Member
Units
NAPCO Precast, LLC LIBOR Plus 8.50%
Prime Plus 2.00%
(Floor 7.00%)
18% Secured Debt
Member Units
NRI Clinical
(5)
(5)
(5)
(9)
(9)
(9)
(8)
(8)
(9)
(9)
(8)
(8)
(9)
(5)
(5)
(9)
(8)
(8)
(8)
(8)
(8)
(8)
(8)
(8)
(8)
(8)
(8)
(8)
(8)
(8)
(6)
(6)
(8)
(8)
(5)
(5)
(5)
(8)
(8)
(9)
(9)
(5)
(5)
(8)
(8)
(8)
(8)
(599)
1,296
11,049
660
599
11,110
1,908
—
1,003
3,025
6,191
316
1,150
—
—
40
—
—
800
—
—
270
—
—
—
—
—
1,795
1,530
3,249
3,726
11,596
9,370
89,560
18,225
650
2,500
1,575
638
1,529
767
—
777
—
—
—
—
—
589
2,040
730
—
5,443
1,940
—
10,060
80
12,703
4,840
3,580
—
—
600
9,918
—
3,940
3,100
2,649
975
—
—
—
—
375
5,900
4,420
—
—
23,143
14,700
—
—
—
—
(3,321)
—
(1,908)
—
—
—
—
(16)
—
(1,150)
—
—
(40)
2,710
34,080
—
—
—
96
285
198
232
(12)
36
—
1,450
—
9,439
2,371
240
—
1,003
3,025
2,291
2,100
2,680
1,668
—
—
—
3,900
11
—
—
3,249
—
11,596
6,660
55,480
—
3,726
40
2,710
34,080
19,025
250
—
—
650
—
—
—
101
—
900
2,500
945
—
—
—
—
—
—
—
—
—
—
—
—
—
991
790
—
1,290
80
2,792
1,716
460
309
—
18
—
—
—
100
11
1,640
(638)
—
(1,529)
—
—
—
—
—
—
—
—
—
790
—
1,290
—
—
1,159
460
(159)
309
—
—
702
—
51
437
5
1,557
40
—
—
1,368
1,529
5,219
1,150
777
8,770
—
9,911
3,124
3,120
280
632
(825)
127
2,040
—
1,430
10,500
140
3,940
3,100
2,649
1,250
5,889
2,780
—
—
(1,520)
3
33
1,197
—
—
—
292
—
100
788
183
—
—
1,541
—
—
(2,551)
—
—
—
2,384
—
—
—
(100)
—
—
—
—
—
—
—
—
9,387
—
9,387
—
—
—
100
23,815
14,700
100
672
—
—
2,030
13,197
29
700
12,526
—
36
(20)
(30)
750
140
917
122
327
393
6,000
—
—
11,475
2,713
3,952
10,920
20
30
750
—
—
2,733
3,982
—
6,000
11,475
—
—
11,670
LIBOR Plus 6.50%
(Floor 1.50%)
14% Secured Debt
Warrants
Member Units
12% Secured Debt
Preferred Member
Units
Common Stock
Member Units
Zero Coupon Secured
Debt
Member Units
Member Units
LIBOR Plus 9.00%
(Floor 1.00%)
Member Units
(9)
(9)
(9)
(9)
(5)
(5)
(8)
(8)
(8)
(8)
(8)
(7)
(7)
NRI Clinical
Research, LLC
NuStep, LLC
OMi Holdings, Inc.
Pegasus Research
Group, LLC
River
Aggregates, LLC
SoftTouch Medical
Holdings LLC
Other
Amounts related to
investments
transferred to or from
other 1940 Act
classification during
the period
Total Control
investments
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(33)
(180)
40
—
—
1,030
36
650
—
—
2,646
—
1,081
200
4,261
680
2,462
—
—
13,080
200
33
—
360
20,420
10,200
1,030
1,690
157
8,620
1,690
—
10
50
(15)
920
80
—
—
748
969
627
4,600
2,510
7,140
9,170
80
10
49
15
919
—
429
180
322
—
—
—
—
—
—
—
15
—
400
3,865
500
2,500
20,420
10,200
14,110
10,310
707
4,610
2,559
7,140
10,089
—
—
(219)
(9,919)
—
—
—
$
259 $
63,627 $
62,762 $
594,282 $
239,770 $
93,265 $
750,706
197
Investment(1)(10)(11) Geography
Amount of
Realized
Gain/(Loss)
Amount of
Unrealized
Gain/(Loss)
Amount
of
Interest,
Fee or
Dividends
Credited
to
Income(2)
December 31,
2016
Fair Value
Gross
Additions(3)
Gross
Reductions(4)
December 31,
2017
Fair Value
Table of Contents
Company
Affiliate
Investments
AFG Capital
Group, LLC
Barfly
Ventures, LLC
BBB Tank
Services, LLC
Boccella Precast
Products LLC
Boss
Industries, LLC
Bridge Capital
Solutions
Corporation
Buca C, LLC
Warrants
Member Units
12% Secured Debt
Options
Warrants
LIBOR Plus 8.00%
(Floor 1.00%)
15% Secured Debt
Member Units
LIBOR Plus 10.0%
(Floor 1.00%)
Member Units
Preferred Member
Units
13% Secured Debt
Warrants
13% Secured Debt
Preferred Member
Units
LIBOR Plus 7.25%
(Floor 1.00%)
Preferred Member
Units
CAI Software LLC 12% Secured Debt
Chandler Signs
Holdings, LLC
Condit
Exhibits, LLC
Congruent Credit
Opportunities
Funds
Daseke, Inc.
Member Units
12% Secured Debt
Class A Units
Member Units
LP Interests (Fund II)
LP Interests (Fund III)
12% Current / 2.5%
PIK Secured Debt
Common Stock
Dos Rios Partners LP Interests (Dos Rios
Partners, LP)
LP Interests (Dos Rios
Partners—A, LP)
Class A Units
Dos Rios Stone
Products LLC
East Teak Fine
Hardwoods, Inc.
Common Stock
East West
Copolymer &
Rubber, LLC
EIG Fund
Investments
Freeport Financial
Fund Investments
Gault
Financial, LLC
(RMB
Capital, LLC)
Glowpoint, Inc.
12% Current/2% PIK
Secured Debt
Warrants
LP Interests (EIG
Global Private Debt
fund-A, L.P.)
LP Interests (EIG
Traverse Co-
Investment, L.P.)
LP Interests (Freeport
Financial SBIC
Fund LP)
LP Interests (Freeport
First Lien Loan
Fund III LP)
10.5% Current
Secured Debt
Warrants
12% Secured Debt
Common Stock
Guerdon Modular
Holdings, Inc.
13% Secured Debt
(8)
(8)
(5)
(5)
(5)
(8)
(8)
(8)
(6)
(6)
(5)
(6)
(6)
(6)
(6)
(7)
(7)
(6)
(6)
(8)
(8)
(9)
(8)
(8)
(8)
(8)
(8)
(8)
(8)
(7)
(8)
(8)
(8)
(8)
(5)
(5)
(7)
(7)
(6)
(6)
(9)
840 $
190
176
430
240
—
—
(300)
— $
34
670 $
2,750
190 $
840
1,005
5,827
2,888
—
—
84
623
—
490
280
797
3,991
800
430
240
861
—
—
170
1,203
1,280
37
—
—
16,400
3,440
— $
—
—
—
—
880
115
300
—
—
860
3,590
8,715
920
520
778
3,876
500
16,400
3,440
1,476
193
2,800
1,667
537
3,930
—
151
(2)
1,262
—
133
5,610
3,370
1,000
—
100
1,000
(167)
1,891
22,671
(728)
—
750
(7)
(590)
240
456
87
555
13
4,660
3,683
2,480
4,500
3,240
274
150
2
—
56
240
800
750
7
—
—
—
2
—
5,884
3,520
1,000
1,000
2,534
20,193
728
400
—
7
590
4,172
4,083
3,230
4,500
2,650
110
41
1,840
110
—
1,950
$
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(3)
336
(167)
22,859
(18,849)
—
—
—
—
2,240
445
(280)
(230)
(3,626)
(50)
961
50
2
1,555
676
—
1,518
16,181
21,799
24,063
—
2,451
255
—
—
—
23
66
—
—
4,925
2,240
1,444
445
2,070
860
8,630
—
—
—
961
50
3
—
1,515
18,632
22,054
24,063
—
—
280
230
9,591
50
—
—
7,165
1,889
1,790
630
—
—
71
(48)
90
2,804
1,160
2,909
1,055
—
(100)
1,534
9,905
—
9,905
—
—
(6)
408
5,620
—
6
5,614
—
—
(52)
688
4,763
3,795
52
8,506
1,016
1,302
11,079
1,016
563
11,532
—
(6,450)
(3,974)
—
4,951
1,878
—
685
—
—
3,997
2,080
—
5,003
1,878
—
9,000
3,958
—
—
—
—
—
1,450
10,594
38
—
10,632
Preferred Stock
Common Stock
LP Interests (HPEP
3, L.P.)
Harris Preston
Fund Investments
Hawk Ridge
Systems, LLC
Houston Plating
and
Coatings, LLC
I-45 SLF LLC
Indianhead
Pipeline
Services, LLC
L.F.
Manufacturing
Holdings, LLC
Meisler
Operating LLC
OnAsset
Intelligence, Inc.
11% Secured Debt
Preferred Member
Units
Preferred Member
Units
8% Unsecured
Convertible Debt
Member Units
Member Units
12% Secured Debt
Preferred Member
Units
Warrants
Member Units
Member Units
LIBOR Plus 8.50%
(Floor 1.00%)
Member Units
12% PIK Secured
Debt
10% PIK Secured
Debt
Preferred Stock
Warrants
OPI
International Ltd.
10% Unsecured Debt
Common Stock
(9)
(9)
(8)
(9)
(9)
(9)
(8)
(8)
(8)
(5)
(5)
(5)
(5)
(8)
(5)
(5)
(8)
(8)
(8)
(8)
(8)
(8)
—
—
—
—
—
—
—
—
—
—
—
134
272
—
—
—
(29)
—
—
—
(86)
—
(1,140)
(80)
—
—
—
—
1,140
80
—
—
—
1,140
80
—
—
1,343
400
943
125
1,229
9,901
4,899
500
14,300
950
320
2,850
50
6
150
200
1,390
255
165
5
2,881
—
4,000
14,586
—
947
5,079
(338)
459
1
514
—
—
2,677
—
—
950
50
3,200
2,140
2,255
562
514
459
1
620
—
1,380
620
—
190
1,249
—
—
—
16,633
3,390
576
4,519
575
3
—
—
16
—
—
—
—
473
1,600
48
—
—
—
—
—
—
—
—
(473)
(1,600)
198
—
—
—
—
—
5,641
3,191
459
1
—
—
—
—
—
—
—
473
1,600
3,800
200
3,200
6,140
16,841
—
—
—
—
2,000
16,633
3,390
5,094
48
—
—
—
—
Table of Contents
Company
PCI Holding
Company, Inc.
Rocaceia, LLC
(Quality Lease
and
Rental
Investment(1)(10)(11) Geography
Amount of
Realized
Gain/(Loss)
Amount of
Unrealized
Gain/(Loss)
Amount
of
Interest,
Fee or
Dividends
Credited
to
Income(2)
December 31,
2016
Fair Value
Gross
Additions(3)
Gross
Reductions(4)
December 31,
2017
Fair Value
12% Secured Debt
Preferred Stock
Preferred Stock
(103)
1,922
(5,028)
870
548
—
13,000
5,370
345
548
—
2,610
752
5,028
—
12,593
890
2,610
(9)
(9)
(9)
(8)
(8)
(7)
(7)
(6)
(6)
(6)
(6)
(6)
(6)
(8)
(8)
(8)
(8)
(8)
(8)
(8)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
250
—
—
1,656
13,385
—
—
66
289
—
(5)
—
—
288
722
9
129
(637)
1,547
(8)
(520)
339
—
2,738
5,021
3,519
824
3
745
6,410
—
3,010
120
1,547
2,858
—
109
1,300
—
—
720
610
110
1,300
—
—
250
—
729
12,722
—
5
690
—
637
8
520
—
—
3,027
8,535
137
865
7,320
2,850
2,490
830
1,910
—
1,728
12,844
31
1,190
11,685
—
—
—
2,659
—
(496)
—
—
1,600
15,298
14,000
2,576
—
668
—
—
—
766
—
496
1,600
15,200
14,000
2,080
12% Secured Debt
Preferred Member
Units
Holdings, LLC)
Tin Roof
Acquisition
Company
UniTek Global
Services, Inc.
12% Secured Debt
Class C Preferred
Stock
LIBOR Plus 8.50%
(Floor 1.00%)
LIBOR Plus 7.50%
(Floor 1.00%)
15% PIK Unsecured
Debt
Preferred Stock
Preferred Stock
Common Stock
Universal
Wellhead
Services
Holdings, LLC Member Units
Preferred Member
Units
LIBOR Plus 12.50%
(Floor 0.50%)
Preferred Member
Units
11.5% Secured Debt
Preferred Member
Units
Warrants
Valley Healthcare
Group, LLC
Volusion, LLC
Other
Amounts related to
investments
transferred to or
from other 1940
Act classification
during the period
Total Affiliate
investments
(1,077)
(3,582)
1,615
24,321
—
—
—
$
8,044 $
(11,330)$
37,509 $
375,948 $
100,290 $
113,063 $
338,854
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
The principal amount, the ownership detail for equity investments and if the investment is income producing is included in the consolidated schedule of investments.
Represents the total amount of interest, fees and dividends credited to income for the portion of the period for which an investment was included in Control or Affiliate
categories, respectively. For investments transferred between Control and Affiliate categories during the period, any income or investment balances related to the time period it
was in the category other than the one shown at period end is included in "Amounts from investments transferred from other 1940 Act classifications during the period."
Gross additions include increases in the cost basis of investments resulting from new portfolio investments, follow-on investments and accrued PIK interest, and the exchange of
one or more existing securities for one or more new securities. Gross additions also include net increases in unrealized appreciation or net decreases in net unrealized
depreciation as well as the movement of an existing portfolio company into this category and out of a different category.
Gross reductions include decreases in the cost basis of investments resulting from principal repayments or sales and the exchange of one or more existing securities for one or
more new securities. Gross reductions also include net increases in net unrealized depreciation or net decreases in unrealized appreciation as well as the movement of an
existing portfolio company out of this category and into a different category.
Portfolio company located in the Midwest region as determined by location of the corporate headquarters. The fair value as of December 31, 2017 for control investments
located in this region was $176,505. This represented 12.8% of net assets as of December 31, 2017. The fair value as of December 31, 2017 for affiliate investments located in
this region was $48,228. This represented 3.5% of net assets as of December 31, 2017.
Portfolio company located in the Northeast region as determined by location of the corporate headquarters. The fair value as of December 31, 2017 for control investments
located in this region was $28,374. This represented 2.1% of net assets as of December 31, 2017. The fair value as of December 31, 2017 for affiliate investments located in this
region was $60,754. This represented 4.4% of net assets as of December 31, 2017.
Portfolio company located in the Southeast region as determined by location of the corporate headquarters. The fair value as of December 31, 2017 for control investments
located in this region was $33,916. This represented 2.5% of net assets as of December 31, 2017. The fair value as of December 31, 2017 for affiliate investments located in this
region was $52,276. This represented 3.8% of net assets as of December 31, 2017.
Portfolio company located in the Southwest region as determined by location of the corporate headquarters. The fair value as of December 31, 2017 for control investments
located in this region was $302,097. This represented 21.9% of net assets as of December 31, 2017. The fair value as of December 31, 2017 for affiliate investments located in
this region was $130,621. This represented 9.5% of net assets as of December 31, 2017.
Portfolio company located in the West region as determined by location of the corporate headquarters. The fair value as of December 31, 2017 for control investments located in
this region was $209,814. This represented 15.2% of net assets as of December 31, 2017. The fair value as of December 31, 2017 for affiliate investments located in this region
(10)
(11)
was $46,975. This represented 3.4% of net assets as of December 31, 2017.
All Company's portfolio investments are generally subject to restrictions on resale as "restricted securities," unless otherwise noted.
This schedule should be read in conjunction with the consolidated schedule of investments and notes to the consolidated financial statements. Supplemental information can be
located within the schedule of investments including end of period interest rate, preferred dividend rate, maturity date, investments not paid currently in cash and investments
whose value was determined using significant unobservable inputs.
199
Table of Contents
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this annual report on Form 10-K, our
Chief Executive Officer, Chief Financial Officer, Chief Compliance Officer and Chief Accounting Officer conducted an evaluation of our
disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934). Based upon this evaluation, our
Chief Executive Officer, Chief Financial Officer, Chief Compliance Officer and Chief Accounting Officer concluded that our disclosure
controls and procedures are effective to allow timely decisions regarding required disclosure of any material information relating to us that
is required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934.
(b) Management's Report on Internal Control Over Financial Reporting. The management of Main Street Capital Corporation and
its subsidiaries (the Company) is responsible for establishing and maintaining adequate internal control over financial reporting, as such
term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of management, including the Chief
Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of the Company's internal
control over financial reporting based on the criteria established in Internal Control — Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Based on the Company's evaluation under the framework in Internal
Control — Integrated Framework, management concluded that the Company's internal control over financial reporting was effective as of
December 31, 2018. Grant Thornton LLP, the Company's independent registered public accounting firm, has issued an attestation report on
the effectiveness of the Company's internal control over financial reporting as of December 31, 2018, as stated in its report which is
included herein.
(c) Attestation Report of the Registered Public Accounting Firm. Our independent registered public accounting firm, Grant
Thornton LLP, has issued an attestation report on the effectiveness of our internal control over financial reporting, which is set forth above
under the heading "Reports of Independent Registered Public Accounting Firm" in Item 8.
(d) Changes in Internal Control over Financial Reporting. There have been no changes in our internal control over financial
reporting (as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934) that occurred during our most recently completed fiscal
quarter, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
200
Table of Contents
Item 10. Directors, Executive Officers and Corporate Governance
PART III
The information required by this Item will be contained in the definitive proxy statement relating to our 2019 annual meeting of
stockholders (the "Proxy Statement") under the headings "Election of Directors," "Corporate Governance," "Executive Officers" and
"Section 16(a) Beneficial Ownership Reporting Compliance," to be filed with the Securities and Exchange Commission on or prior to
April 30, 2019, and is incorporated herein by reference.
We have adopted a code of business conduct and ethics that applies to directors, officers and employees of Main Street. This code of
ethics is published on our Web site at www.mainstcapital.com. We intend to disclose any substantive amendments to, or waivers from, this
code of conduct within four business days of the waiver or amendment through a Web site posting.
Item 11. Executive Compensation
The information required by this Item will be contained in the Proxy Statement under the headings "Compensation of Executive
Officers," "Compensation of Directors," "Compensation Discussion and Analysis," "Compensation Committee Interlocks and Insider
Participation" and "Compensation Committee Report," to be filed with the Securities and Exchange Commission on or prior to April 30,
2019, and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table provides information regarding our equity compensation plans as of December 31, 2018:
Number of Securities to be
Issued Upon Exercise of
Outstanding Options,
Warrants and Rights
Weighted-Average Exercise
Price of Outstanding
Options, Warrants and
Rights
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation Plans
(Excluding Securities
Reflected in Column)
— $
— $
2,545,117
119,639
119,639 $
—
— $
—
2,545,117
Plan Category
Equity compensation
plans approved by
security holders(1)
Equity compensation
plans not approved
by security
holders(2)
Total
$
$
(1)
Consists of our Main Street Capital Corporation 2015 Equity and Incentive Plan and our Main Street Capital
Corporation 2015 Non-Employee Director Restricted Stock Plan. As of December 31, 2018, we had issued 764,224
shares of restricted stock pursuant to these plans, of which 285,053 had vested and 9,128 shares were forfeited.
Pursuant to each of these plans, if any award issued thereunder shall for any reason expire or otherwise terminate or
be forfeited, in whole or in part, the shares of stock not acquired under such award shall revert to and again become
available for issuance under such plan. For more information regarding these plans, see "Note J — Share-Based
Compensation" in the notes to the consolidated financial statements.
(2)
Consists of our 2015 Deferred Compensation Plan. For more information regarding this plan, see "Note M —
Related Party Transactions" in the notes to the consolidated financial statements.
201
Table of Contents
The other information required by this Item will be contained in the Proxy Statement under the heading "Security Ownership of
Certain Beneficial Owners and Management," to be filed with the Securities and Exchange Commission on or prior to April 30, 2019, and is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item will be contained in the Proxy Statement under the headings "Certain Relationships and Related
Party Transactions" and "Corporate Governance," to be filed with the Securities and Exchange Commission on or prior to April 30, 2019,
and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
The information required by this Item will be contained in the Proxy Statement under the heading "Ratification of Appointment of
Independent Registered Public Accounting Firm for Year Ending December 31, 2018," to be filed with the Securities and Exchange
Commission on or prior to April 30, 2019, and is incorporated herein by reference.
202
Table of Contents
PART IV
Item 15. Exhibits and Consolidated Financial Statement Schedules
The following documents are filed or incorporated by reference as part of this Annual Report:
1. Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2018 and 2017
Consolidated Statements of Operations for the Years Ended December 31, 2018, 2017 and 2016
Consolidated Statements of Changes in Net Assets for the Years Ended December 31, 2018, 2017 and
2016
80
82
83
84
Consolidated Statements of Cash Flows for the Years Ended December 31, 2018, 2017 and 2016
85
Consolidated Schedules of Investments as of December 31, 2018 and 2017
Notes to Consolidated Financial Statements
2. Consolidated Financial Statement Schedule
Report of Independent Registered Public Accounting Firm
Schedule of Investments in and Advances to Affiliates for the Years Ended December 31, 2018
and 2017
3. Exhibits
86
144
190
191
The following exhibits are filed as part of this report or hereby incorporated by reference to exhibits previously filed with the SEC:
Exhibit
Number
Description
3.1*
Articles of Amendment and Restatement of Main Street Capital Corporation (previously filed as
Exhibit (a) to Main Street Capital Corporation's Pre-Effective Amendment No. 2 to the Registration
Statement on Form N-2 filed on August 15, 2007 (Reg. No. 333-142879))
3.2*
Amended and Restated Bylaws of Main Street Capital Corporation (previously filed as Exhibit 3.1
to Main Street Capital Corporation's Current Report on Form 8-K filed on March 6, 2013
(File No. 1-33723))
4.1*
Form of Common Stock Certificate (previously filed as Exhibit (d) to Main Street Capital
Corporation's Pre-Effective Amendment No. 2 to the Registration Statement on Form N-2 filed on
August 15, 2007 (Reg. No. 333-142879))
4.2*
Dividend Reinvestment and Direct Stock Purchase Plan dated July 18, 2017 (previously filed as
Exhibit (e) to Main Street Capital Corporation's Post-Effective Amendment No. 12 to the
Registration Statement on Form N-2 filed on July 18, 2017 (Reg. No. 333-203147))
4.3*
4.4*
4.5*
Main Street Mezzanine Fund, LP SBIC debentures guaranteed by the SBA (previously filed as
Exhibit (f)(1) to Main Street Capital Corporation's Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-2 filed on June 22, 2007 (Reg. No. 333-142879))
Main Street Capital II, LP SBIC debentures guaranteed by the SBA (see Exhibit (f)(1) to Main
Street Capital Corporation's Pre-Effective Amendment No. 1 to the Registration Statement on
Form N-2 filed on June 22, 2007 for a substantially identical copy of the form of debentures)
Main Street Capital III, LP SBIC debentures guaranteed by the SBA (see Exhibit (f)(1) to Main
Street Capital Corporation's Pre-Effective Amendment No. 1 to the Registration Statement on
Form N-2 filed on June 22, 2007 for a substantially identical copy of the form of debentures)
203
Table of Contents
Exhibit
Number
Description
4.6*
Form of Indenture between Main Street Capital Corporation and The Bank of New York Mellon
Trust Company, N.A. (previously filed as Exhibit (d)(6) to Main Street Capital Corporation's Post-
Effective Amendment No. 2 to the Registration Statement on Form N-2 filed on March 28, 2013
(Reg. No. 333-183555))
4.7*
Form of Second Supplemental Indenture relating to the 4.50% Notes due 2019, between Main
Street Capital Corporation and The Bank of New York Mellon Trust Company, N.A. (previously
filed as Exhibit (d)(10) to Main Street Capital Corporation's Post-Effective Amendment No. 9 to the
Registration Statement on Form N-2 filed on November 4, 2014 (Reg. No. 333-183555))
4.8*
Form of 4.50% Notes due 2019 (incorporated by reference to Exhibit 4.7)
4.9*
Form of Third Supplemental Indenture relating to the 4.50% Notes due 2022, between Main Street
Capital Corporation and The Bank of New York Mellon Trust Company, N.A. (previously filed as
Exhibit (d)(12) to Main Street Capital Corporation's Post-Effective Amendment No. 14 to the
Registration Statement on Form N-2 filed on November 17, 2017 (Reg. No. 333-203147))
4.10*
Form of 4.50% Notes due 2022 (incorporated by reference to Exhibit 4.9)
10.1*
10.2*
10.3*
Third Amended and Restated Credit Agreement dated June 5, 2018 (previously filed as Exhibit 10.1
to Main Street Capital Corporation's Current Report on Form 8-K filed on June 6, 2018 (File No. 1-
33723))
Third Amended and Restated General Security Agreement dated June 5, 2018 (previously filed as
Exhibit 10.2 to Main Street Capital Corporation's Current Report on Form 8-K filed on June 6,
2018 (File No. 1-33723))
Third Amended and Restated Equity Pledge Agreement dated June 5, 2018 (previously filed as
Exhibit 10.3 to Main Street Capital Corporation's Current Report on Form 8-K filed on June 6,
2018 (File No. 1-33723))
10.4*
Amended and Restated Custodial Agreement dated September 20, 2010 (previously filed as
Exhibit 10.3 to Main Street Capital Corporation's Current Report on Form 8-K filed September 21,
2010 (File No. 1-33723))
10.5*
Third Amendment to Amended and Restated Credit Agreement and First Amendment to Amended
and Restated Custodial Agreement dated November 21, 2011 (previously filed as Exhibit 10.1 to
Main Street Capital Corporation's Current Report on Form 8-K filed November 22, 2011
(File No. 1-33723))
10.6*
Supplement Agreement dated July 19, 2018 (previously filed as Exhibit 10.1 to Main Street Capital
Corporation's Current Report on Form 8-K filed on July 20, 2018 (File No. 1-33723))
10.7*
Supplement Agreement dated November 15, 2018 (previously filed as Exhibit 10.1 to Main Street
Capital Corporation's Current Report on Form 8-K filed on November 15, 2018 (File No. 1-33723))
10.8*† Main Street Capital Corporation 2015 Equity and Incentive Plan (previously filed as Exhibit 4.4 to
Main Street Capital Corporation's Registration Statement on Form S-8 filed on May 5, 2015
(Reg. No. 333-203893))
10.9*† Main Street Capital Corporation 2015 Non-Employee Director Restricted Stock Plan (previously
filed as Exhibit 4.5 to Main Street Capital Corporation's Registration Statement on Form S-8 filed
on May 5, 2015 (Reg. No. 333-203893))
10.10*† Form of Restricted Stock Agreement for Executive Officers — Main Street Capital Corporation
2015 Equity and Incentive Plan (previously filed as Exhibit 4.6 to Main Street Capital Corporation's
Registration Statement on Form S-8 filed on May 5, 2015 (Reg. No. 333-203893))
204
Table of Contents
Exhibit
Number
Description
10.11*† Form of Restricted Stock Agreement for Non-Employee Directors — Main Street Capital
Corporation 2015 Non-Employee Director Restricted Stock Plan (previously filed as Exhibit 4.7 to
Main Street Capital Corporation's Registration Statement on Form S-8 filed on May 5, 2015 (Reg.
No. 333-203893))
10.12* Custodian Agreement (previously filed as Exhibit (j) to Main Street Capital Corporation's Pre-
Effective Amendment No. 3 to the Registration Statement on Form N-2 filed on September 21,
2007 (Reg. No. 333-142879))
10.13*† Form of Confidentiality and Non-Compete Agreement by and between Main Street Capital
Corporation and Vincent D. Foster (previously filed as Exhibit (k)(12) to Main Street Capital
Corporation's Pre-Effective Amendment No. 3 to the Registration Statement on Form N-2 filed on
September 21, 2007 (Reg. No. 333-142879))
10.14*† Form of Indemnification Agreement by and between Main Street Capital Corporation and each
executive officer and director (previously filed as Exhibit (k)(13) to Main Street Capital
Corporation's Pre-Effective Amendment No. 3 to the Registration Statement on Form N-2 filed on
September 21, 2007 (Reg. No. 333-142879))
10.15* Investment Sub-Advisory Agreement dated May 31, 2012 by and among HMS Adviser, LP, Main
Street Capital Partners, LLC, Main Street Capital Corporation and HMS Income Fund, Inc.
(previously filed as Exhibit (g)(2) to HMS Income Fund, Inc.'s Pre-Effective Amendment No. 3 to
the Registration Statement on Form N-2 filed on May 31, 2012 (Reg. No. 333-178548))
10.16* Assignment and Assumption of Investment Sub-Advisory Agreement dated December 31, 2013 by
and among MSC Adviser I, LLC, HMS Adviser, LP, Main Street Capital Partners, LLC, Main
Street Capital Corporation and HMS Income Fund, Inc. (previously filed as Exhibit 10.14 to Main
Street Capital Corporation's Annual Report on Form 10-K for the year ended December 31, 2013
filed on February 28, 2014 (File No. 1-33723))
10.17*† Main Street Capital Corporation Deferred Compensation Plan Adoption Agreement and Plan
Document (previously filed as Exhibit 4.1 to Main Street Capital Corporation's Registration
Statement on Form S-8 filed on December 18, 2015 (File No. 333-208643))
10.18* Form of Equity Distribution Agreement dated May 10, 2018 (previously filed as Exhibit (h)(3) to
Main Street Capital Corporation's Post-Effective Amendment No. 1 to the Registration Statement
on Form N-2 filed on May 10, 2018 (Reg. No. 333-223483))
14.1*
Code of Business Conduct and Ethics (previously filed as Exhibit 14.1 to Main Street Capital
Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 filed on
November 2, 2018 (File No. 1-33723))
21.1
List of Subsidiaries
23.1
Consent of Grant Thornton LLP, independent registered public accounting firm
31.1
Rule 13a-14(a)/15d-14(a) certification of Chief Executive Officer
31.2
Rule 13a-14(a)/15d-14(a) certification of Chief Financial Officer
32.1
Section 1350 certification of Chief Executive Officer
32.2
Section 1350 certification of Chief Financial Officer
*
†
Exhibit previously filed with the Securities and Exchange Commission, as indicated, and incorporated herein by
reference.
Management contract or compensatory plan or arrangement.
205
Table of Contents
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
MAIN STREET CAPITAL CORPORATION
By: /s/ DWAYNE L. HYZAK
Dwayne L. Hyzak
Chief Executive Officer and Director
Date: March 1, 2019
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ DWAYNE L. HYZAK
Dwayne L. Hyzak
/s/ VINCENT D. FOSTER
Vincent D. Foster
/s/ BRENT D. SMITH
Brent D. Smith
Chief Executive Officer and Director
(principal executive officer)
March 1, 2019
Executive Chairman of the Board of
Directors
March 1, 2019
Chief Financial Officer and Treasurer
(principal financial officer)
March 1, 2019
/s/ SHANNON D. MARTIN
Vice President, Chief Accounting Officer
March 1, 2019
Shannon D. Martin
/s/ JOSEPH E. CANON
Joseph E. Canon
/s/ MICHAEL APPLING JR.
Michael Appling Jr.
/s/ ARTHUR L. FRENCH
Arthur L. French
/s/ J. KEVIN GRIFFIN
J. Kevin Griffin
/s/ JOHN E. JACKSON
John E. Jackson
/s/ BRIAN E. LANE
Brian E. Lane
/s/ STEVEN B. SOLCHER
Steven B. Solcher
/s/ VALERIE L. BANNER
Valerie L. Banner
(principal accounting officer)
Director
March 1, 2019
Director
March 1, 2019
Director
March 1, 2019
Director
March 1, 2019
Director
March 1, 2019
Director
March 1, 2019
Director
March 1, 2019
Director
March 1, 2019
206
Exhibit 21.1
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Main Street Capital Partners, LLC, a Delaware limited liability company
Main Street Mezzanine Management, LLC, a Delaware limited liability company
LIST OF SUBSIDIARIES
Main Street Equity Interests, Inc., a Delaware corporation
Main Street Mezzanine Fund, LP, a Delaware limited partnership
Main Street Capital II GP, LLC, a Delaware limited liability company
Main Street Capital II, LP, a Delaware limited partnership
Main Street Capital III GP, LLC, a Delaware limited liability company
Main Street Capital III, LP, a Delaware limited partnership
Main Street CA Lending, LLC, a Delaware limited liability company
1
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Exhibit 21.1
LIST OF SUBSIDIARIES
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CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have issued our reports dated March 1, 2019, with respect to the consolidated financial statements and financial highlights,
financial statement schedule and internal control over financial reporting included in the Annual Report of Main Street Capital Corporation
on Form 10-K for the year ended December 31, 2018. We consent to the incorporation by reference of said reports in the Registration
Statements of Main Street Capital Corporation on Form S-8 (File Nos. 333-203893 and 333-208643).
Exhibit 23.1
/s/ GRANT THORNTON LLP
Houston, Texas
March 1, 2019
1
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Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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Exhibit 31.1
CERTIFICATION PURSUANT TO
RULE 13a-14(a) and 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED
I, Dwayne L. Hyzak, certify that:
1. I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2018 of Main Street Capital Corporation (the
"registrant");
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect
to the period covered by this report;
3. Based on my knowledge, the consolidated financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the registrant's Board of Directors (or persons performing the
equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: March 1, 2019
By:
/s/ DWAYNE L. HYZAK
Dwayne L. Hyzak
Chief Executive Officer
1
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Exhibit 31.1
CERTIFICATION PURSUANT TO RULE 13a-14(a) and 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED
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Exhibit 31.2
CERTIFICATION PURSUANT TO
RULE 13a-14(a) and 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED
I, Brent D. Smith, certify that:
1. I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2018 of Main Street Capital Corporation (the
"registrant");
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect
to the period covered by this report;
3. Based on my knowledge, the consolidated financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the registrant's Board of Directors (or persons performing the
equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: March 1, 2019
By:
/s/ BRENT D. SMITH
Brent D. Smith
Chief Financial Officer
1
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Exhibit 31.2
CERTIFICATION PURSUANT TO RULE 13a-14(a) and 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED
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CERTIFICATION PURSUANT TO
SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the accompanying Annual Report of Main Street Capital Corporation (the "Company") on Form 10-K for the year
ended December 31, 2018 (the "Report"), I, Dwayne L. Hyzak, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C.
§1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as
amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of
the Company.
Date: March 1, 2019
By:
/s/ DWAYNE L. HYZAK
Dwayne L. Hyzak
Chief Executive Officer
1
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Exhibit 32.1
CERTIFICATION PURSUANT TO SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
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CERTIFICATION PURSUANT TO
SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the accompanying Annual Report of Main Street Capital Corporation (the "Company") on Form 10-K for the year
ended December 31, 2018 (the "Report"), I, Brent D. Smith, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350,
as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as
amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of
the Company.
Date: March 1, 2019
By:
/s/ BRENT D. SMITH
Brent D. Smith
Chief Financial Officer
1
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Exhibit 32.2
CERTIFICATION PURSUANT TO SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002