Solar Senior Capital Ltd.
Annual Report 2013

Plain-text annual report

Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549 FORM 10-K xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE FISCAL YEAR ENDED DECEMBER 31, 2013OR ¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER: 814-00849 SOLAR SENIOR CAPITAL LTD.(Exact name of registrant as specified in its charter) Maryland 27-4288022(State of Incorporation) (I.R.S. EmployerIdentification Number)500 Park AvenueNew York, N.Y. 10022(Address of principal executive offices) (Zip Code)Registrant’s telephone number, including area code: (212) 993-1670Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which RegisteredCommon Stock, par value$0.01 per share The NASDAQ Global Select MarketSecurities 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 ¨ No xIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No xIndicate 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 1934during 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 filingrequirements for the past 90 days. Yes x No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data Filerequired to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant wasrequired to submit and post such files). Yes ¨ No ¨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 thebest 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 thisForm 10-K. xIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. Seethe definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ¨ Accelerated filer xNon-accelerated filer ¨ Smaller Reporting Company ¨Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes ¨ No xThe aggregate market value of common stock held by non-affiliates of the Registrant on June 28, 2013 based on the closing price on that date of $18.41on the NASDAQ Global Select Market was approximately $198.3 million. For the purposes of calculating this amount only, all directors and executiveofficers of the Registrant have been treated as affiliates. There were 11,531,949 shares of the Registrant’s common stock outstanding as of February 21, 2014.Portions of the registrant’s Proxy Statement for its 2014 Annual Meeting of Stockholders to be filed not later than 120 days after the end of the fiscalyear covered by this Annual Report on Form 10-K are incorporated by reference into Part III of this Form 10-K. Table of ContentsSOLAR SENIOR CAPITAL LTD.FORM 10-KFOR THE FISCAL YEAR ENDED DECEMBER 31, 2013TABLE OF CONTENTS Page PART I Item 1. Business 1 Item 1A. Risk Factors 25 Item 1B. Unresolved Staff Comments 50 Item 2. Properties 50 Item 3. Legal Proceedings 50 Item 4. Mine Safety Disclosures 50 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 51 Item 6. Selected Financial Data 55 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 56 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 70 Item 8. Financial Statements and Supplementary Data 71 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 100 Item 9A. Controls and Procedures 100 Item 9B. Other Information 100 PART III Item 10. Directors, Executive Officers and Corporate Governance 101 Item 11. Executive Compensation 101 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 101 Item 13. Certain Relationships and Related Transactions, and Director Independence 101 Item 14. Principal Accounting Fees and Services 101 PART IV Item 15. Exhibits, Financial Statement Schedules 102 Signatures 104 Table of ContentsPART I Item 1.BusinessSolar Senior Capital Ltd. (“Solar Senior”, the “Company”, “SUNS”, “we”, “us” or “our”), a Maryland corporation formed in December 2010, is aclosed-end, externally managed, non-diversified management investment company that has elected to be treated as a business development company(“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). Furthermore, as the Company is an investment company, it continues toapply the guidance in FASB Accounting Standards Codification (“ASC”) Topic 946. In addition, for tax purposes we elected to be treated as a regulatedinvestment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).On February 24, 2011, we priced our initial public offering (the “IPO”), selling 9.0 million shares, including the underwriters’ over-allotment, at a priceof $20.00 per share. Concurrent with this offering, management purchased an additional 500,000 shares through a private placement transaction exempt fromregistration under the Securities Act of 1933, as amended, or the Securities Act (the “Concurrent Private Placement”), also at $20.00 per share.On August 26, 2011, the Company established the SUNS SPV which entered into a $200 million senior secured revolving credit facility (the “CreditFacility”) with Citigroup Global Markets Inc. acting as administrative agent. The Credit Facility was scheduled to mature on August 26, 2016 and generallybore interest at the London Interbank Offered Rate (“LIBOR”) plus 2.25%. The Credit Facility has $150 million immediately available with an additional$50 million available under a delayed draw feature. The Credit Facility can also be expanded up to $600 million and is secured by all of the assets held bythe SUNS SPV. Under the terms of the Credit Facility, Solar Senior and the SUNS SPV, as applicable, have made certain customary representations andwarranties, and are required to comply with various covenants, including leverage restrictions, reporting requirements and other customary requirements forsimilar credit facilities. The Credit Facility also includes usual and customary events of default for credit facilities of this nature.On November 7, 2012, we amended our Credit Facility. As a result of the amendment, the stated interest rate on the Credit Facility was reduced toLIBOR plus 2.00% from LIBOR plus 2.25%, and the Credit Facility continues to have no LIBOR floor requirement. In addition, the amendment reducedcertain non-usage fees. The amendment also provided us greater flexibility and extended the final maturity date to November 6, 2017.We invest primarily in U.S. middle market companies, where we believe the supply of primary capital is limited and the investment opportunities aremost attractive. Our investment objective is to seek to maximize current income consistent with the preservation of capital. We seek to achieve ourinvestment objective by investing primarily in senior loans, including first lien, uni-tranche, and second lien debt instruments, made to private middle-market companies whose debt is rated below investment grade, which we refer to collectively as “senior loans.” We may also invest in debt of publiccompanies that are thinly traded. Under normal market conditions, at least 80% of the value of our net assets (including the amount of any borrowings forinvestment purposes) will be invested in senior loans. Senior loans typically pay interest at rates which are determined periodically on the basis of a floatingbase lending rate, primarily LIBOR, plus a premium. Senior loans in which we expect to invest are typically made to U.S. and, to a limited extent, non-U.S.corporations, partnerships and other business entities which operate in various industries and geographical regions. Senior loans typically are rated belowinvestment grade. Securities rated below investment grade are often referred to as “leveraged loans” or “high yield” securities, and may be considered “highrisk” compared to debt instruments that are rated investment grade.We invest in senior loans made primarily to private leveraged middle-market companies with approximately $20 million to $100 million of EBITDA.Our business is focused primarily on the direct origination of investments through portfolio companies or their financial sponsors. We expect that ourinvestments will generally range between $5 million and $30 million each, although we expect that this investment size will vary 1Table of Contentsproportionately with the size of our capital base. In addition, we may invest a portion of our portfolio in other types of investments, which we refer to asopportunistic investments, which are not our primary focus but are intended to enhance our overall returns. These opportunistic investments may include, butare not limited to, direct investments in public companies that are not thinly traded and securities of leveraged companies located in select countries outsideof the United States. We may invest up to 30% of our total assets in such opportunistic investments, including senior loans issued by non-U.S. issuers, subjectto compliance with our regulatory obligations as a BDC under the 1940 Act. We are managed by Solar Capital Partners, LLC (“Solar Capital Partners”). SolarCapital Management, LLC (“Solar Capital Management”) provides the administrative services necessary for us to operate.As of December 31, 2013, our investments totaled $267.9 million and our net asset value was $208.0 million. Our portfolio was comprised of debt andequity investments in 36 portfolio companies with our portfolio of income producing investments having a weighted average annualized yield on a fairvalue basis of approximately 7.5%.During our fiscal year ended December 31, 2013, we invested $202.1 million across 26 portfolio companies through a combination of primary andsecondary market purchases. Investments sold or prepaid during the fiscal year ended December 31, 2013 totaled $147.9 million.Solar Capital PartnersSolar Capital Partners, our investment adviser, is controlled and led by Michael S. Gross, our chairman and chief executive officer, and Bruce Spohler,our chief operating officer. They are supported by a team of dedicated investment professionals. Solar Capital Partners’ investment team has extensiveexperience in leveraged lending and private equity, as well as significant contacts with financial sponsors.In addition, Solar Capital Partners presently serves as the investment adviser for Solar Capital Ltd., or “Solar Capital,” a publicly traded businessdevelopment company with approximately $1.7 billion of investable capital that invests in the senior debt securities, mezzanine loans and equity securitiesof leveraged middle market companies similar to those we intend to target for investment. Through December 31, 2013, the investment team led byMessrs. Gross and Spohler has invested approximately $3.9 billion in more than 140 different portfolio companies for Solar Capital and Solar Senior,involving an aggregate of more than 100 different financial sponsors. As of February 21, 2014, Mr. Gross and Mr. Spohler beneficially owned, either directlyor indirectly, approximately 6.2% and 4.3%, respectively, of our outstanding common stock.Solar Capital ManagementPursuant to an administration agreement (the “Administration Agreement”), Solar Capital Management furnishes us with office facilities, equipmentand clerical, bookkeeping and record keeping services at such facilities. Under the Administration Agreement, Solar Capital Management also performs, oroversees the performance of, our required administrative services, which include, among other things, being responsible for the financial records which we arerequired to maintain and preparing reports to our stockholders. In addition, Solar Capital Management assists us in determining and publishing our net assetvalue, oversees the preparation and filing of our tax returns and the printing and dissemination of reports to our stockholders, and generally oversees thepayment of our expenses and the performance of administrative and professional services rendered to us by others. Solar Capital Management also providesmanagerial assistance, if any, on our behalf to those portfolio companies that request such assistance.Operating and Regulatory StructureA BDC is regulated by the 1940 Act. A BDC must be organized in the United States for the purpose of investing in or lending to primarily privatecompanies and making significant managerial assistance available to 2Table of Contentsthem. A BDC may use capital provided by public stockholders and from other sources to make long-term, private investments in businesses. A BDC providesstockholders the ability to retain the liquidity of a publicly traded stock while sharing in the possible benefits, if any, of investing in primarily privatelyowned companies.We may not change the nature of our business so as to cease to be, or withdraw our election as, a BDC unless authorized by vote of a majority of ouroutstanding voting securities, as required by the 1940 Act. A majority of the outstanding voting securities of a company is defined under the 1940 Act as thelesser of: (a) 67% or more of such company’s voting securities present at a meeting if more than 50% of the outstanding voting securities of such company arepresent or represented by proxy, or (b) more than 50% of the outstanding voting securities of such company. We do not anticipate any substantial change inthe nature of our business.As with other companies regulated by the 1940 Act, a BDC must adhere to certain substantive regulatory requirements. A majority of our directors mustbe persons who are not interested persons, as that term is defined in the 1940 Act. Additionally, we are required to provide and maintain a bond issued by areputable fidelity insurance company to protect the BDC. Furthermore, as a BDC, we are prohibited from protecting any director or officer against anyliability to us or our stockholders arising from willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct ofsuch person’s office.As a BDC, we are required to meet an asset coverage ratio, reflecting the value of our total assets to our total senior securities, which include all of ourborrowings and any preferred stock we may issue in the future, of at least 200%. We may also be prohibited under the 1940 Act from knowingly participatingin certain transactions with our affiliates without the prior approval of our directors who are not interested persons and, in some cases, prior approval by theSecurities and Exchange Commission (“SEC”).We are generally not able to issue and sell our common stock at a price below net asset value per share. We may, however, sell our common stock, orwarrants, options or rights to acquire our common stock, at a price below the then-current net asset value of our common stock if our board of directorsdetermines that such sale is in our best interests and the best interests of our stockholders, and our stockholders approve such sale. In addition, we maygenerally issue new shares of our common stock at a price below net asset value in rights offerings to existing stockholders, in payment of dividends and incertain other limited circumstances.As a BDC, we are generally limited in our ability to invest in any portfolio company in which our investment adviser or any of its affiliates currentlyhave an investment or to make any co-investments with our investment adviser or its affiliates without an exemptive order from the SEC, subject to certainexceptions.We will be periodically examined by the SEC for compliance with the 1940 Act.Qualifying AssetsUnder 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 asqualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the BDC’s total assets. The principal categories ofqualifying assets relevant to our proposed business are the following: (1)Securities purchased in transactions not involving any public offering from the issuer of such securities, which issuer (subject to certain limitedexceptions) is an eligible portfolio company, or from any person who is, or has been during the preceding 13 months, an affiliated person of aneligible portfolio company, or from any other person, subject to such rules as may be prescribed by the SEC. An eligible portfolio company isdefined in the 1940 Act as any issuer which:(a) is organized under the laws of, and has its principal place of business in, the United States;(b) is not an investment company (other than a small business investment company wholly owned by the BDC) or a company that would be aninvestment company but for certain exclusions under the 1940 Act; and 3Table of Contents(c) satisfies any of the following:i.) does not have any class of securities that is traded on a national securities exchange;ii.) has a class of securities listed on a national securities exchange, but has an aggregate market value of outstanding voting andnon-voting common equity of less than $250 million;iii.) 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 theeligible portfolio company; oriv.) is a small and solvent company having total assets of not more than $4.0 million and capital and surplus of not less than $2.0million. (2)Securities of any eligible portfolio company which we control. (3)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 intransactions incident thereto, if the issuer is in bankruptcy and subject to reorganization or if the issuer, immediately prior to the purchase of itssecurities, was unable to meet its obligations as they came due without material assistance other than conventional lending or financingarrangements. (4)Securities of an eligible portfolio company purchased from any person in a private transaction if there is no ready market for such securities andwe already own 60% of the outstanding equity of the eligible portfolio company. (5)Securities received in exchange for or distributed on or with respect to securities described in (1) through (4) above, or pursuant to the exercise ofwarrants or rights relating to such securities. (6)Cash, cash equivalents, U.S. government securities or high-quality debt securities maturing in one year or less from the time of investment. (7)Office furniture and equipment, interests in real estate and leasehold improvements and facilities maintained to conduct the business operationsof the business development company, deferred organization and operating expenses, and other noninvestment assets necessary and appropriateto its operations as a business development company, including notes of indebtedness of directors, officers, employees, and general partners heldby a business development company as payment for securities of such company issued in connection with an executive compensation plandescribed in section 57(j) of the 1940 Act.Under Section 55(b) of the 1940 Act, the value of a BDC’s assets shall be determined as of the date of the most recent financial statements filed by suchcompany with the SEC pursuant to section 13 of the Securities Exchange Act of 1934 (the “1934 Act”), and shall be determined no less frequently thanannually.Managerial Assistance to Portfolio CompaniesAs a BDC, we offer, and must provide upon request, managerial assistance to our portfolio companies. This assistance could involve, among otherthings, monitoring the operations of our portfolio companies, participating in board and management meetings, consulting with and advising officers ofportfolio companies and providing other organizational and financial guidance. We may also receive fees for these services. Solar Capital Managementprovides such managerial assistance on our behalf to portfolio companies that request this assistance.Temporary InvestmentsPending investment in other types of “qualifying assets,” as described above, our investments may consist of cash, cash equivalents, U.S. governmentsecurities or high-quality investment grade debt securities maturing in one year or less from the time of investment, which we refer to, collectively, astemporary investments, so that 70% of our assets are qualifying assets. Typically, we will invest in U.S. Treasury bills or in repurchase 4Table of Contentsagreements, provided that such repurchase agreements are fully collateralized by cash or securities issued by the U.S. government or its agencies. Arepurchase agreement involves the purchase by an investor, such as us, of a specified security and the simultaneous agreement by the seller to repurchase it atan agreed-upon future date and at a price which is greater than the purchase price by an amount that reflects an agreed-upon interest rate. There is nopercentage restriction on the proportion of our assets that may be invested in such repurchase agreements. However, if more than 25% of our total assetsconstitute repurchase agreements from a single counterparty, we would not meet the diversification tests in order to qualify as a RIC for federal income taxpurposes. Thus, we do not intend to enter into repurchase agreements with a single counterparty in excess of this limit. Our investment adviser will monitorthe creditworthiness of the counterparties with which we enter into repurchase agreement transactions.Senior SecuritiesWe are permitted, under specified conditions, to issue multiple classes of indebtedness and one class of stock senior to our common stock if our assetcoverage, as defined in the 1940 Act, is at least equal to 200% immediately after each such issuance. In addition, while any senior securities remainoutstanding, we must make provisions to prohibit any distribution to our stockholders or the repurchase of such securities or shares unless we meet theapplicable 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 fortemporary or emergency purposes without regard to asset coverage. We may borrow money, which would magnify the potential for gain or loss on amountsinvested and may increase the risk of investing in us.Code of EthicsWe and Solar Capital Partners have each adopted a code of ethics pursuant to Rule 17j-1 under the 1940 Act and Rule 204A-1 under the InvestmentAdvisers Act of 1940 (the “Advisers Act”), respectively, that establishes procedures for personal investments and restricts certain transactions by ourpersonnel. Our codes of ethics generally do not permit investments by our employees in securities that may be purchased or held by us. You may read andcopy these codes of ethics at the SEC’s Public Reference Room in Washington, D.C. You may obtain information on the operation of the Public ReferenceRoom by calling the SEC at 1 (800) SEC-0330. In addition, each code of ethics is available on the EDGAR Database on the SEC’s Internet site athttp://www.sec.gov. You may also obtain copies of the codes of ethics, after paying a duplicating fee, by electronic request at the following Email address:publicinfo@sec.gov, or by writing the SEC’s Public Reference Section, 100 F Street, N.E., Washington, D.C. 20549.Compliance Policies and ProceduresWe and our investment adviser have adopted and implemented written policies and procedures reasonably designed to detect and prevent violation ofthe federal securities laws. We are required to review these compliance policies and procedures annually for their adequacy and the effectiveness of theirimplementation and to designate a chief compliance officer to be responsible for their administration. Guy Talarico currently serves as our chief complianceofficer.Proxy Voting Policies and ProceduresWe have delegated our proxy voting responsibility to our investment adviser. A summary of the Proxy Voting Policies and Procedures of our adviserare set forth below. The guidelines are reviewed periodically by the adviser and our non-interested directors, and, accordingly, are subject to change.As an investment adviser registered under the Investment Advisers Act of 1940, Solar Capital Partners has a fiduciary duty to act solely in the bestinterests of its clients. As part of this duty, it recognizes that it must vote securities held by its clients in a timely manner free of conflicts of interest. Thesepolicies and procedures for voting proxies for investment advisory clients are intended to comply with Section 206 of, and Rule 206(4)-6 under, the AdvisersAct. 5Table of ContentsOur investment adviser votes proxies relating to our portfolio securities in the best interest of our stockholders. Solar Capital Partners reviews on acase-by-case basis each proposal submitted for a proxy vote to determine its impact on our investments. Although it generally votes against proposals thatmay have a negative impact on our investments, it may vote for such a proposal if there exists compelling long-term reasons to do so. The proxy votingdecisions of our investment adviser are made by the senior investment professionals who are responsible for monitoring each of our investments. To ensurethat our vote is not the product of a conflict of interest, it requires that: (i) anyone involved in the decision making process disclose to a managing member ofSolar Capital Partners LLC any potential conflict that he or she is aware of and any contact that he or she has had with any interested party regarding a proxyvote; and (ii) employees involved in the decision making process or vote administration are prohibited from revealing how we intend to vote on a proposal inorder to reduce any attempted influence from interested parties.You may obtain information about how we voted proxies by making a written request for proxy voting information to: Solar Capital Partners, LLC,500 Park Avenue, New York, NY 10022.Privacy PrinciplesWe are committed to maintaining the privacy of our stockholders and to safeguarding their non-public personal information. The followinginformation is provided to help you understand what personal information we collect, how we protect that information and why, in certain cases, we mayshare information with select other parties.Generally, we do not receive any non-public personal information relating to our stockholders, although certain non-public personal information ofour stockholders may become available to us. We do not disclose any non-public personal information about our stockholders (or former stockholders) toanyone, except as permitted by law or as is necessary in order to service stockholder accounts (for example, to a transfer agent or third party administrator).We restrict access to non-public personal information about our stockholders to employees of our investment adviser and its affiliates with a legitimatebusiness need for the information. We maintain physical, electronic and procedural safeguards designed to protect the non-public personal information of ourstockholders.Taxation as a Regulated Investment CompanyAs a BDC, we elected to be treated, and intend to qualify annually thereafter, as a RIC under Subchapter M of the Code. As a RIC, we generally will nothave to pay corporate-level federal income taxes on any ordinary income or capital gains that we distribute to our stockholders as dividends. To continue toqualify as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements (as described below). In addition, toqualify for RIC tax treatment we must distribute to our stockholders, for each taxable year, at least 90% of our “investment company taxable income,” whichis generally our ordinary income plus the excess of our realized net short-term capital gains over our realized net long-term capital losses (the “AnnualDistribution Requirement”). If we qualify as a RIC and satisfy the Annual Distribution Requirement, then we will not be subject to federal income tax on theportion of our investment company taxable income and net capital gain (i.e., realized net long-term capital gains in excess of realized net short-term capitallosses) we distribute to stockholders. We will be subject to U.S. federal income tax at the regular corporate rates on any income or capital gain not distributed(or deemed not distributed) to our stockholders.We will be subject to a 4% nondeductible federal excise tax on certain undistributed income unless we distribute in a timely manner an amount at leastequal to the sum of (1) 98% of our ordinary income for each calendar year, (2) 98.2% of our capital gain net income for the one-year period endingOctober 31 in that calendar year and (3) any income realized, but not distributed, and on which we paid no federal income tax, in preceding years (the“Excise Tax Avoidance Requirement”). 6Table of ContentsIn order to qualify as a RIC for federal income tax purposes, we must, among other things: • at all times during each taxable year, have in effect an election to be treated as a BDC under the 1940 Act; • derive in each taxable year at least 90% of our gross income from (a) dividends, interest, payments with respect to certain securities loans, gainsfrom the sale of stock or other securities or currencies, or other income derived with respect to our business of investing in such stock, securitiesor currencies and (b) net income derived from an interest in a “qualified publicly traded partnership;” and • 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 othersecurities 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 theoutstanding voting securities of the issuer; and • no more than 25% of the value of our assets is invested in (i) the securities, other than U.S. government securities or securities of otherRICs, of one issuer, (ii) the securities of two or more issuers that are controlled, as determined under applicable tax rules, by us and thatare engaged in the same or similar or related trades or businesses or (iii) the securities of one or more “qualified publicly tradedpartnerships.”The Regulated Investment Company Modernization Act of 2010, which was generally effective for 2011 and subsequent tax years, provides somerelief from RIC disqualification due to failures of the income and asset diversification requirements, although there may be additional taxes due in such cases.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 aretreated under applicable tax rules as having original issue discount (such as debt instruments with payment-in-kind (“PIK”) interest or, in certain cases,increasing interest rates or debt instruments issued with warrants), we must include in income each year a portion of the original issue discount that accruesover the life of the obligation, regardless of whether cash representing such income is received by us in the same taxable year. Because any original issuediscount accrued will be included in our investment company taxable income for the year of accrual, we may be required to make a distribution to ourstockholders in order to satisfy the Annual Distribution Requirement, even though we will not have received any corresponding cash amount.Because we may use debt financing, we will be subject to certain asset coverage ratio requirements under the 1940 Act and financial covenants underloan and credit agreements that could, under certain circumstances, restrict us from making distributions necessary to satisfy the Annual DistributionRequirement. If we are unable to obtain cash from other sources or are otherwise limited in our ability to make distributions, we could fail to qualify for RICtax treatment and thus become subject to corporate-level income tax.Certain of our investment practices may be subject to special and complex U.S. federal income tax provisions that may, among other things:(i) disallow, suspend or otherwise limit the allowance of certain losses or deductions; (ii) convert lower taxed long-term capital gain into higher taxed short-term capital gain or ordinary income; (iii) convert an ordinary loss or a deduction into a capital loss (the deductibility of which is more limited); (iv) cause usto recognize income or gain without a corresponding receipt of cash; (v) adversely affect the time as to when a purchase or sale of securities is deemed tooccur; (vi) adversely alter the characterization of certain complex financial transactions; and (vii) produce income that will not be qualifying income forpurposes of the 90% gross income test described above. We will monitor our transactions and may make certain tax elections in order to mitigate thepotential adverse effect of these provisions.Gain or loss realized by us from the sale or exchange of warrants acquired by us as well as any loss attributable to the lapse of such warrants generallywill be treated as capital gain or loss. The treatment of such 7Table of Contentsgain or loss as long-term or short-term will depend on how long we held a particular warrant. Upon the exercise of a warrant acquired by us, our tax basis inthe stock purchased under the warrant will equal the sum of the amount paid for the warrant plus the strike price paid on the exercise of the warrant. Except asset forth in “Failure to Qualify as a Regulated Investment Company,” the remainder of this discussion assumes we will qualify as a RIC for each taxable year.Failure to Qualify as a Regulated Investment CompanyIf we were unable to qualify for treatment as a RIC, we would be subject to tax on all of our taxable income at regular corporate rates. We would not beable to deduct distributions to stockholders, nor would they be required to be made. Such distributions would be taxable to our stockholders as dividendsand, provided certain holding period and other requirements were met, could qualify for treatment as “qualified dividend income” in the hands of non-corporate stockholders (and thus eligible for the same lower maximum tax rate applicable to long-term capital gains) to the extent of our current andaccumulated earnings and profits. Subject to certain limitations under the Code, corporate shareholders would be eligible for the dividends receiveddeduction. Distributions in excess of our current and accumulated earnings and profits would be treated first as a return of capital to the extent of thestockholder’s tax basis, and any remaining distributions would be treated as a capital gain. To re-qualify as a RIC in a subsequent taxable year, we would berequired 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 aRIC. Subject to a limited exception applicable to RICs that qualified as such under Subchapter M of the Code for at least one year prior to disqualificationand that re-qualify as a RIC no later than the second year following the non-qualifying year, we could be subject to tax on any unrealized net built-in gains inthe assets held by us during the period in which we failed to qualify as a RIC that are recognized within the subsequent 10 years, unless we made a specialelection to pay corporate-level tax on such built-in gain at the time of our requalification as a RIC.Investment Advisory FeesPursuant to an investment advisory and management agreement (the “Investment Advisory and Management Agreement”), we have agreed to pay SolarCapital Partners a fee for investment advisory and management services consisting of two components – a base management fee and an incentive fee.The base management fee is calculated at an annual rate of 1.00% of our gross assets. For services rendered under the Investment Advisory andManagement Agreement, the base management fee is payable quarterly in arrears. The base management fee is calculated based on the average value of ourgross assets at the end of the two most recently completed calendar quarters, and appropriately adjusted for any share issuances or repurchases during thecurrent calendar quarter. Base management fees for any partial month or quarter will be appropriately pro-rated.The incentive fee has two parts, as follows: one is calculated and payable quarterly in arrears based on our pre-incentive fee net investment income forthe immediately preceding calendar quarter. For this purpose, pre-incentive fee net investment income means interest income, dividend income and any otherincome (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence andconsulting fees or other fees that we receive from portfolio companies) accrued during the calendar quarter, minus our operating expenses for the quarter(including the base management fee, expenses payable under the Administration Agreement to Solar Capital Management, and any interest expense anddividends paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-incentive fee net investment income includes, in the caseof investments with a deferred interest feature (such as original issue discount, debt instruments with pay in kind interest and zero coupon securities), accruedincome that we have not yet received in cash. Pre-incentive fee net investment income does not include any realized capital gains, computed net of allrealized capital losses or unrealized capital appreciation or depreciation. Pre-incentive fee net investment income, expressed as a rate of return on the value ofour net assets at the end of the immediately preceding calendar quarter, is compared to a hurdle of 1.75% per quarter (7.00% annualized). Our net investment 8Table of Contentsincome used to calculate this part of the incentive fee is also included in the amount of our gross assets used to calculate the 1.00% base management fee. Wepay Solar Capital Partners an incentive fee with respect to our pre-incentive fee net investment income in each calendar quarter as follows: • no incentive fee in any calendar quarter in which our pre-incentive fee net investment income does not exceed the hurdle of 1.75%; • 50% of our pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, thatexceeds the hurdle but is less than 2.9167% in any calendar quarter (11.67% annualized). We refer to this portion of our pre-incentive fee netinvestment income (which exceeds the hurdle but is less than 2.9167%) as the “catch-up.” The “catch-up” is meant to provide our investmentadviser with 20% of our pre-incentive fee net investment income as if a hurdle did not apply if this net investment income exceeds 2.9167% inany calendar quarter; and • 20% of the amount of our pre-incentive fee net investment income, if any, that exceeds 2.9167% in any calendar quarter (11.67% annualized) ispayable to Solar Capital Partners (once the hurdle is reached and the catch-up is achieved, 20% of all pre-incentive fee investment incomethereafter is allocated to Solar Capital Partners).The following is a graphical representation of the calculation of the income-related portion of the incentive fee:Pre-incentive fee net investment income(expressed as a percentage of the value of net assets) Percentage of pre-incentive fee net investment incomeallocated to Solar Capital PartnersThese calculations are appropriately pro-rated for any period of less than three months and adjusted for any share issuances or repurchases during therelevant quarter. You should be aware that a rise in the general level of interest rates can be expected to lead to higher interest rates applicable to our debtinvestments. Accordingly, an increase in interest rates would make it easier for us to meet or exceed the incentive fee hurdle rate and may result in asubstantial increase of the amount of incentive fees payable to our investment adviser with respect to pre-incentive fee net investment income.The second part of the incentive fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the InvestmentAdvisory and Management Agreement, as of the termination date), and equals 20% of our realized capital gains, if any, on a cumulative basis from inceptionthrough the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less theaggregate amount of any previously paid capital gain incentive fees with respect to each of the investments in our portfolio. 9Table of ContentsExamples of Quarterly Incentive Fee CalculationExample 1: Income Related Portion of Incentive Fee (*):Alternative 1:AssumptionsInvestment income (including interest, dividends, fees, etc.) = 1.25%Hurdle rate (1) = 1.75%Management fee (2) = 0.25%Other expenses (legal, accounting, custodian, transfer agent, etc.) (3) = 0.20%Pre-incentive fee net investment income(investment income – (management fee + other expenses)) = 0.80%Pre-incentive net investment income does not exceed hurdle rate, therefore there is no incentive fee.Alternative 2:AssumptionsInvestment income (including interest, dividends, fees, etc.) = 2.70%Hurdle rate (1) = 1.75%Management fee (2) = 0.50%Other expenses (legal, accounting, custodian, transfer agent, etc.) (3) = 0.20%Pre-incentive fee net investment income(investment income – (management fee + other expenses)) = 2.25%Incentive fee = 50% × pre-incentive fee net investment income, subject to the “catch-up” (4)= 50% × (2.25% – 1.75%)= 0.25% 10Table of ContentsAlternative 3:AssumptionsInvestment income (including interest, dividends, fees, etc.) = 4.00%Hurdle rate (1) = 1.75%Management fee (2) = 0.25%Other expenses (legal, accounting, custodian, transfer agent, etc.) (3) = 0.20%Pre-incentive fee net investment income(investment income – (management fee + other expenses)) = 3.55%Incentive fee = 20% × pre-incentive fee net investment income, subject to “catch-up” (4)Incentive fee = 50% × “catch-up” + (20% × (pre-incentive fee net investment income – 2.9167%))Catch-up = 2.9167% – 1.75%= 1.1667%Incentive fee = (50% × 1.1667%) + (20% × (3.55% – 2.9167%))= 0.58334% + (20% × 0.6333%)= 0.58334% + 0.12667%= 0.71001% (*)The hypothetical amount of pre-incentive fee net investment income shown is based on a percentage of total net assets.(1)Represents 7% annualized hurdle rate.(2)Represents 1% annualized management fee.(3)Excludes organizational and offering expenses.(4)The “catch-up” provision is intended to provide our investment adviser with an incentive fee of approximately 20% on all of our pre-incentive fee netinvestment income as if a hurdle rate did not apply when our net investment income exceeds 2.9167% in any calendar quarter.Example 2: Capital Gains Portion of Incentive Fee:Alternative 1:Assumptions • Year 1: $20 million investment made in Company A (“Investment A”), and $30 million investment made in Company B (“Investment B”) • Year 2: Investment A sold for $50 million and fair market value (“FMV”) of Investment B determined to be $32 million • Year 3: FMV of Investment B determined to be $25 million • Year 4: Investment B sold for $31 million 11Table of ContentsThe capital gains portion of the incentive fee would be: • Year 1: None • Year 2: Capital gains incentive fee of $6 million ($30 million realized capital gains on sale of Investment A multiplied by 20%) • Year 3: None$5 million cumulative fee (20% multiplied by $25 million ($30 million cumulative capital gains less $5 million cumulative capital depreciation)) less$6 million (previous capital gains fee paid in Year 2) • Year 4: Capital gains incentive fee of $200,000$6.2 million cumulative fee ($31 million cumulative realized capital gains multiplied by 20%) less $6 million (previous capital gains fee paid in Year2)Alternative 2:Assumptions • Year 1: $20 million investment made in Company A (“Investment A”), $30 million investment made in Company B (“Investment B”) and $25million investment made in Company C (“Investment C”) • Year 2: Investment A sold for $50 million, FMV of Investment B determined to be $25 million and FMV of Investment C determined to be $25million • Year 3: FMV of Investment B determined to be $27 million and Investment C sold for $30 million • Year 4: FMV of Investment B determined to be $24 million • Year 5: Investment B sold for $20 millionThe capital gains incentive fee, if any, would be: • Year 1: None • Year 2: $5 million capital gains incentive fee20% multiplied by $25 million ($30 million realized capital gains on sale of Investment A less $5 million unrealized capital depreciation onInvestment B) • Year 3: $1.4 million capital gains incentive fee$6.4 million cumulative fee (20% multiplied by $32 million ($35 million cumulative realized capital gains less $3 million unrealized capitaldepreciation)) less $5 million (previous capital gains fee paid in Year 2) • Year 4: None • Year 5: None$5 million cumulative fee (20% multiplied by $25 million (cumulative realized capital gains of $35 million less realized capital losses of $10 million))less $6.4 million (previous cumulative capital gains fee paid in Year 2 and Year 3) (1)As illustrated in Year 3 of Alternative 1 above, if Solar Senior Capital were to be wound up on a date other than December 31 of any year, SolarSenior Capital may have paid aggregate capital gain incentive fees that are more than the amount of such fees that would be payable if SolarSenior Capital had been wound up on December 31 of such year. 12(1)Table of ContentsPayment of Our ExpensesAll investment professionals of the investment adviser and their respective staffs, when and to the extent engaged in providing investment advisoryand management services, and the compensation and routine overhead expenses of such personnel allocable to such services, are provided and paid for bySolar Capital Partners. We bear all other costs and expenses of our operations and transactions, including (without limitation): • the cost of our organization and public offerings; • the cost of calculating our net asset value, including the cost of any third-party valuation services; • the cost of effecting sales and repurchases of our shares and other securities; • interest payable on debt, if any, to finance our investments; • fees payable to third parties relating to, or associated with, making investments, including fees and expenses associated with performing duediligence reviews of prospective investments and advisory fees; • transfer agent and custodial fees; • fees and expenses associated with marketing efforts; • federal and state registration fees, any stock exchange listing fees; • federal, state and local taxes; • independent directors’ fees and expenses; • brokerage commissions; • fidelity bond, directors and officers errors and omissions liability insurance and other insurance premiums; • direct costs and expenses of administration, including printing, mailing, long distance telephone and staff; • fees and expenses associated with independent audits and outside legal costs; • costs associated with our reporting and compliance obligations under the 1940 Act and applicable federal and state securities laws; and • all other expenses incurred by either Solar Capital Management or us in connection with administering our business, including payments underthe Administration Agreement that will be based upon our allocable portion of overhead and other expenses incurred by Solar CapitalManagement in performing its obligations under the Administration Agreement, including rent, the fees and expenses associated withperforming compliance functions, and our allocable portion of the costs of compensation and related expenses of our chief compliance officerand our chief financial officer and any administrative support staff.InvestmentsSolar Senior Capital seeks to create a diverse portfolio of senior loans by investing approximately $5 million to $30 million of capital, on average, inthe securities of leveraged companies, including middle-market companies. We may also invest in debt of public companies that are thinly traded. Undernormal market conditions, at least 80% of the value of our net assets (including the amount of any borrowings for investment purposes) will be invested insenior loans.Senior loans typically pay interest at rates which are determined periodically on the basis of a floating base lending rate, primarily LIBOR, plus apremium. Senior loans in which we invest are typically made to U.S. and, to a limited extent, non-U.S. corporations, partnerships and other business entitieswhich operate in various 13Table of Contentsindustries and geographical regions. Senior loans typically are rated below investment grade. Securities rated below investment grade are often referred to as“leveraged loans,” “high yield” or “junk” securities, and may be considered “high risk” compared to debt instruments that are rated above investment grade.Senior secured loans, however are generally less risky than subordinated debt, bearing lower leverage and higher recovery statistics.In addition to senior secured loans, we may invest a portion of our portfolio in opportunistic investments, which are not our primary focus, but areintended to enhance our returns to stockholders. These investments may include similar direct investments in public companies that are not thinly traded andsecurities of leveraged companies located in select countries outside of the United States. We may invest up to 30% of our total assets in such opportunisticinvestments, including senior loans issued by non-U.S. issuers, subject to compliance with our regulatory obligations as a BDC under the 1940 Act. See“Regulation as a Business Development Company.”We currently borrow funds under our Credit Facility and may borrow additional funds to make investments. As a result, we are exposed to the risks ofleverage, which may be considered a speculative investment technique. The use of leverage magnifies the potential for loss on amounts invested andtherefore increases the risks associated with investing in our securities. In addition, the costs associated with our borrowings, including any increase inmanagement fees payable to our investment adviser, Solar Capital Partners, will be borne by our common stockholders.Additionally, we may in the future seek to securitize our loans to generate cash for funding new investments. To securitize loans, we may create awholly owned subsidiary and contribute a pool of loans to the subsidiary. This could include the sale of interests in the subsidiary on a non-recourse basis topurchasers who we would expect to be willing to accept a lower interest rate to invest in investment grade loan pools, and we would retain a portion of theequity in the securitized pool of loans.Moreover, we may acquire investments in the secondary market and, in analyzing such investments, we expect to employ a similar analytical processas we use for our primary investments.We may utilize instruments such as forward contracts, currency options and interest rate swaps, caps, collars and floors to seek to hedge againstfluctuations in the relative values of our portfolio positions from changes in currency exchange rates and market interest rates. Hedging against a decline inthe values of our portfolio positions does not eliminate the possibility of fluctuations in the values of such positions or prevent losses if the values of suchpositions decline. However, such hedging can establish other positions designed to gain from those same developments, thereby offsetting the decline in thevalue of such portfolio positions. Such hedging transactions may also limit the opportunity for gain if the values of the underlying portfolio positions shouldincrease. It may not be possible to hedge against an exchange rate or interest rate fluctuation that is so generally anticipated that we are not able to enter intoa hedging transaction at an acceptable price. Moreover, for a variety of reasons, we may not seek to establish a perfect correlation between such hedginginstruments and the portfolio holdings being hedged. Any such imperfect correlation may prevent us from achieving the intended hedge and expose us torisk of loss. In addition, it may not be possible to hedge partially, fully or perfectly against currency fluctuations affecting the value of securitiesdenominated in non-U.S. currencies because the value of those securities is likely to fluctuate as a result of factors not related to currency fluctuations.Our principal focus is to provide senior secured loans, including first lien, uni-tranche and second lien loans, to private middle-market companies in avariety of industries. We generally seek to target companies that generate positive cash flows. We generally seek to invest in companies from the broadvariety of industries in which our investment adviser has direct expertise. 14Table of ContentsThe following is a representative list of the industries in which we may invest: • Aerospace & Defense • Health Care Services• Air Freight & Logistics • Health Care Technology• Automobiles • Hotels, Restaurants & Leisure• Asset Management & Custody Banks • Industrial Conglomerates• Building Products • Insurance• Chemicals • Internet Software & Services• Commercial Services & Supplies • IT Services• Communications Equipment • Leisure Equipment & Products• Construction & Engineering • Machinery• Consumer Finance • Media• Containers & Packaging • Multiline Retail• Distributors • Paper & Forest Products• Diversified Consumer Services • Personal Products• Diversified Financial Services • Professional Services• Diversified Real Estate Activities • Research & Consulting Services• Diversified Telecommunications Services • Software• Education Services • Specialty Retail• Food Products • Textiles, Apparel & Luxury Goods• Footwear • Utilities• Health Care Equipment & Supplies We may also invest in other industries if we are presented with attractive opportunities.We may invest, to the extent permitted by law, in the securities and instruments of other investment companies, including private funds. We may alsoco-invest on a concurrent basis with affiliates of ours, subject to compliance with applicable regulations and our allocation procedures. Certain types ofnegotiated co-investments may be made only if we receive an order from the SEC permitting us to do so. There can be no assurance that any such order willbe obtained.At December 31, 2013, our portfolio consisted of 36 portfolio companies and was invested 89% in senior secured loans, 3% in unsecured loans and 8%in common equity, in each case, measured at fair value. We expect that our portfolio will continue to include primarily senior secured loans.While our primary investment objective is to generate current income through investments in U.S. senior secured loans, and we may also invest aportion of the portfolio in opportunistic investments, including foreign securities.Listed below are our top ten portfolio companies and industries based on their fair value and represented as a percentage of total assets as ofDecember 31, 2013 and 2012: 15Table of ContentsTOP TEN PORTFOLIO COMPANIES AND INDUSTRIES AS OF DECEMBER 31, 2013 Portfolio Company % of TotalAssets Gemino Senior Secured Healthcare LLC 12.7% Fulton Holdings Corp. 5.5% AmeriQual Group, LLC 4.4% Confie Seguros Holding II Co. 4.3% Attachmate Corporation 3.9% Trident USA Health Services 3.7% ABG Intermediate Holdings 2 LLC (Authentic Brands) 3.7% Securus Technologies, Inc. 3.6% Hearthside Food Solutions 3.6% Shield Finance Co. SARL 3.6% Industry % of TotalAssets Diversified Financial Services 14.1% Specialty Retail 10.7% Food Products 8.0% Software 7.6% Professional Services 7.5% Insurance 6.9% Health Care Services 6.2% Communications Equipment 4.7% Textiles, Apparel & Luxury Goods 3.7% IT Services 3.6% TOP TEN PORTFOLIO COMPANIES AND INDUSTRIES AS OF DECEMBER 31, 2012 Portfolio Company % of TotalAssets KIK Custom Products 6.8% AmeriQual Group, LLC 5.8% Attachmate Corporation 5.4% Hearthside Food Solutions 4.6% Shield Finance Co. SARL 4.6% TriNet HR Corporation 4.6% National Vision, Inc. 4.6% Confie Seguros Holding II Co. 4.5% SLT Environmental Inc. 4.5% Things Remembered, Inc. 4.1% Industry % of TotalAssets Food Products 14.3% Specialty Retail 10.9% Software 9.9% Insurance 9.5% Chemicals, Plastics & Rubber 8.7% Diversified/Conglomerate Service 6.8% Aerospace & Defense 5.9% Personal & Nondurable Consumer Products 5.2% IT Services 4.6% Professional Services 4.6% 16Table of ContentsListed below is the geographic breakdown of the portfolio based on fair value as of December 31, 2013 and 2012: Geographic Region % of Portfolioat December 31, 2013 United States 96.3% Western Europe 3.7% 100.0% Geographic Region % of Portfolioat December 31, 2012 United States 95.3% Western Europe 4.7% 100.0% Investment Selection ProcessSolar Capital Partners is committed to and utilizes a value-oriented investment philosophy with a focus on the preservation of capital and acommitment to managing downside exposure.Portfolio Company CharacteristicsWe have identified several criteria that we believe are important in identifying and investing in prospective portfolio companies. These criteria providegeneral guidelines for our investment decisions; however, not all of these criteria will be met by each prospective portfolio company in which we choose toinvest.Stable Earnings and Strong Free Cash Flow. We seek to invest in companies who have demonstrated stable earnings through economic cycles. Wetarget companies that can de-lever through consistent generation of cash flows rather than relying solely on growth to service and repay our loans.Value Orientation. Our investment philosophy places a premium on fundamental analysis from an investor’s perspective and has a distinct valueorientation. We intend to focus on companies in which we can invest at relatively low multiples of operating cash flow and that are profitable at the time ofinvestment on an operating cash flow basis.Value of Assets. The prospective value of the assets, if any, that collateralizes the loans in which we invest, will be an important factor in our creditanalysis. Our analysis emphasizes both tangible assets, such as accounts receivable, inventory, equipment and real estate, and intangible assets, such asintellectual property, customer lists, networks and databases. In some of our senior loan transactions, the portfolio company’s fundings may be derived from aborrowing base determined by the value of such company’s assets.Strong Competitive Position in Industry. We seek to invest in target companies that have developed leading market positions within their respectivemarkets and are well positioned to capitalize on growth opportunities. We seek companies that demonstrate significant competitive advantages versus theircompetitors, which we believe should help to protect their market position and profitability.Diversified Customer and Supplier Base. We seek to invest in businesses that have a diversified customer and supplier base. We believe thatcompanies with a diversified customer and supplier base are generally better able to endure economic downturns, industry consolidation, changing businesspreferences and other factors that may negatively impact their customers, suppliers and competitors.Exit Strategy. We seek to predominantly invest in companies which provide multiple alternatives for an eventual exit. We look for opportunities thatprovide an exit typically within three years of the initial capital commitment. 17Table of ContentsWe generally seek companies that we believe will provide a steady stream of cash flow to repay our loans and reinvest in their respective businesses.We believe that such internally generated cash flow, leading to the payment of interest on, and the repayment of the principal of, our investments in portfoliocompanies represents a key means by which we will be able to exit from our investments over time.In addition, we also seek to invest in companies whose business models or expected future cash flows offer attractive exit possibilities. Thesecompanies include candidates for strategic acquisition by other industry participants and companies that may repay our investments through an initial publicoffering of common stock or another capital market transaction. We generally underwrite our investments on a hold-to-maturity basis, but expensive capitalis often repaid prior to stated maturity.Experienced and Committed Management. We generally require that portfolio companies have an experienced management team. We plan to alsorequire portfolio companies have in place proper incentives to induce management to succeed and to act in concert with our interests as investors, includinghaving significant equity interests.Strong Sponsorship. We generally aim to invest alongside other sophisticated investors. We typically seek to partner with successful financialsponsors who have historically generated high returns. We believe that investing in these sponsors’ portfolio companies enables us to benefit from theirdirect involvement and due diligence.The illustration below provides Solar Senior Capital’s target portfolio companies and the targeted size of its investment in a company’s capitalstructure: (1) Investment size may vary proportionally as the size of the capital base changes.Solar Senior Capital’s senior investment team works in concert with sponsors to proactively manage investment opportunities by acting as a partnerthroughout the investment process. We actively focus on the middle-market financial sponsor community, with a particular focus on the upper-end of themiddle-market (sponsors with equity funds of $800 million to $3 billion). We favor such sponsors because they typically: • buy larger companies with strong business franchises; 18Table of Contents • invest significant amounts of equity in their portfolio companies; • value flexibility and creativity in structuring their transactions; • possess longer track records over multiple investment funds; • have deep management experience and resources; • have better ability to withstand downturns; and • possess the ability to support portfolio companies with additional capital.We divide our coverage of these sponsors among our investment professionals, who are responsible for day-to-day interaction with financial sponsors.We take a proactive approach, provide quick feedback, deliver on commitments, and are constructive throughout the life cycle of an investment.Due DiligenceOur “private equity” approach to credit investing typically incorporates extensive in-depth due diligence often alongside the private equity sponsor.In conducting due diligence, we will use publicly available information as well as information from relationships with former and current management teams,consultants, competitors and investment bankers. We believe that our due diligence methodology allows us to screen a high volume of potential investmentopportunities on a consistent and thorough basis.Our due diligence typically includes: • review of historical and prospective financial information; • review and valuation of assets; • research relating to the company’s management, industry, markets, products and services and competitors; • on-site visits; • discussions with management, employees, customers or vendors of the potential portfolio company; • review of senior loan documents; and • background investigations.We also expect to evaluate the private equity sponsor making the investment. Further, due to Solar Capital Partners’ considerable repeat business withsponsors, we have direct experience with the management teams of many sponsors. A private equity sponsor is typically the controlling shareholder uponcompletion of an investment and as such is considered critical to the success of the investment. The equity sponsor is evaluated along several key criteria,including: • investment track record; • industry experience; • capacity and willingness to provide additional financial support to the company through additional capital contributions, if necessary; and • reference checks.Throughout the due diligence process, a deal team is in constant dialogue with the management team of the company in which we are considering toinvest to ensure that any concerns are addressed as early as possible through the process and that unsuitable investments are filtered out before considerabletime has been invested. 19Table of ContentsUpon the completion of due diligence and a decision to proceed with an investment in a company, the investment professionals leading the investmentpresent the investment opportunity to Solar Capital Partners’ investment committee, which then determine whether to pursue the potential investment.Additional due diligence with respect to any investment may be conducted on our behalf by attorneys and independent accountants prior to the closing ofthe investment, as well as other outside advisers, as appropriate.The Investment CommitteeAll new investments are required to be approved by a consensus of the investment committee of Solar Capital Partners, which is led by Messrs. Grossand Spohler. The members of Solar Capital Partners’ investment committee receive no compensation from us. Such members may be employees or partners ofSolar Capital Partners and may receive compensation or profit distributions from Solar Capital Partners.Investment StructureOnce we determine that a prospective portfolio company is suitable for investment, we will work with the management of that company and its othercapital providers, including senior, junior and equity capital providers, to structure an investment. We negotiate among these parties to agree on how ourinvestment is expected to perform relative to the other capital in the portfolio company’s capital structure.We seek to invest in portfolio companies primarily in the form of senior loans. These senior loans typically have current cash pay interest with someamortization of principal. Interest is typically paid on a floating rate basis, often with a floor on the LIBOR rate. We generally seek to obtain security interestsin the assets of our portfolio companies that serve as collateral in support of the repayment of these loans. This collateral may take the form of first or secondpriority liens on the assets of a portfolio company.Typically, we expect that our senior loans will have final maturities of four to seven years. However, we also expect that our portfolio companies oftenmay repay these loans early, generally within three years from the date of initial investment.We seek to tailor the terms of the investment to the facts and circumstances of the transaction and the prospective portfolio company, negotiating astructure that protects our rights and manages our risk while creating incentives for the portfolio company to achieve its business plan and improve itsprofitability. We seek to limit the downside potential of our investments by negotiating covenants in connection with our investments that afford ourportfolio companies as much flexibility in managing their businesses as possible, consistent with preservation of our capital. Such restrictions may includeaffirmative and negative covenants, default penalties, lien protection, change of control provisions and board rights, including either observation orparticipation rights.We typically seek to hold most of our investments to maturity or repayment, but have the ability to sell our investments earlier.Managerial assistanceAs a business development company, we offer, and must provide upon request, managerial assistance to our portfolio companies. This assistance couldinvolve, among other things, monitoring the operations of our portfolio companies, participating in board and management meetings, consulting with andadvising officers of portfolio companies and providing other organizational and financial guidance. We may receive fees for these services. 20Table of ContentsOngoing Relationships with Portfolio CompaniesSolar Capital Partners monitors our portfolio companies on an ongoing basis. Solar Capital Partners monitors the financial trends of each portfoliocompany to determine if it is meeting its business plan and to assess the appropriate course of action for each company.Solar Capital Partners has several methods of evaluating and monitoring the performance and fair value of our investments, which include thefollowing: • Assessment of success in adhering to each portfolio company’s business plan and compliance with covenants; • Periodic and regular contact with portfolio company management and, if appropriate, the financial or strategic sponsor, to discuss financialposition, requirements and accomplishments; • Comparisons to other Solar Capital and Solar Senior Capital portfolio companies in the industry, if any; and • Review of monthly and quarterly financial statements, asset valuations, and financial projections for portfolio companies.In addition to various risk management and monitoring tools, Solar Capital Partners also uses an investment rating system to characterize and monitorour expected level of returns on each investment in our portfolio.We use an investment rating scale of 1 to 4. The following is a description of the conditions associated with each investment rating: InvestmentRating Summary Description1 Involves the least amount of risk in our portfolio, the portfolio company is performing above expectations, and the trends and riskfactors are generally favorable (including a potential exit)2 Risk that is similar to the risk at the time of origination, the portfolio company is performing as expected, and the risk factors areneutral to favorable; all new investments are initially assessed a grade of 23 The portfolio company is performing below expectations, may be out of compliance with debt covenants, and requires procedures forcloser monitoring4 The investment is performing well below expectations and is not anticipated to be repaid in fullSolar Capital Partners monitors and, when appropriate, changes the investment ratings assigned to each investment in our portfolio. As of December 31,2013, the weighted average investment rating on the fair market value of our portfolio was 2. In connection with our valuation process, Solar Capital Partnersreviews these investment ratings on a quarterly basis.Valuation ProceduresWe conduct the valuation of our assets, pursuant to which our net asset value shall be determined, at all times consistent with U.S. generally acceptedaccounting principles (“GAAP”) and the 1940 Act and generally value our assets (and certain liabilities) on a quarterly basis, or more frequently if required.Our valuation procedures are set forth in more detail below:Securities for which market quotations are readily available on an exchange shall be valued at the closing price on the day of valuation. We may alsoobtain quotes with respect to certain of our investments from pricing services or brokers or dealers in order to value assets. When doing so, we determinewhether the quote obtained is sufficient according to GAAP to determine the fair value of the security. If determined adequate, we use the quote obtained. 21Table of ContentsSecurities for which reliable market quotations are not readily available or for which the pricing source does not provide a valuation or methodology orprovides a valuation or methodology that, in the judgment of our investment adviser or board of directors, does not represent fair value, shall each be valuedas follows: (i) each portfolio company or investment is initially valued by the investment professionals responsible for the portfolio investment;(ii) preliminary valuation conclusions are documented and discussed with our senior management; (iii) independent third-party valuation firms engaged by,or on behalf of, the board of directors will conduct independent appraisals and review management’s preliminary valuations and make their own assessmentfor (a) each portfolio investment that, when taken together with all other investments in the same portfolio company, exceeds 10% of our total assets, plusavailable borrowings, as of the end of the most recently completed fiscal quarter, and (b) each portfolio investment that is presently in default; (iv) the boardof directors will discuss valuations and determine the fair value of each investment in our portfolio in good faith based on the input of the investment adviserand, where appropriate, the respective third-party valuation firms.The recommendation of fair value will generally consider the following factors among others, as relevant: • the nature and realizable value of any collateral; • the portfolio company’s ability to make payments; • the portfolio company’s earnings and discounted cash flow; • the markets in which the issuer does business; and • comparisons to publicly traded securities.Securities for which market quotations are not readily available or for which a pricing source is not sufficient may include, but are not limited to, thefollowing: • private placements and restricted securities that do not have an active trading market; • securities whose trading has been suspended or for which market quotes are no longer available; • debt securities that have recently gone into default and for which there is no current market; • securities whose prices are stale; • securities affected by significant events; and • securities that the investment adviser believes were priced incorrectly.Determination of fair value involves subjective judgments and estimates. Accordingly, the notes to our consolidated financial statements express theuncertainty with respect to the possible effect of such valuations, and any change in such valuations, on our consolidated financial statements.CompetitionOur primary competitors provide financing to middle-market companies and include other business development companies, commercial andinvestment banks, commercial financing companies and, to the extent they provide an alternative form of financing, private equity funds. Additionally,alternative investment vehicles, such as hedge funds, frequently invest in middle-market companies. As a result, competition for investment opportunities atmiddle-market companies can be intense. However, we continue to believe that there has been a reduction in the amount of debt capital available since thedownturn in the credit markets, which began in mid-2007, and that this has resulted in a less competitive environment for making new investments. Whilemany middle-market companies were previously able to raise senior debt financing through traditional large financial institutions, we believe this approachto financing remains more difficult with the implementation of U.S. and international financial reforms, such as Basel 3, limits the capacity of large financialinstitutions to hold non-investment grade leveraged loans on their balance sheets. We continue to believe that many of these financial institutions have de-emphasized their service and product offerings to middle-market companies in particular. 22Table of ContentsMany 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 funds and access to funding sources that are not available to us. In addition, some of our competitors may havehigher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships thanus. Furthermore, many of our competitors are not subject to the regulatory restrictions that the 1940 Act imposes on us as a business development company.We use the industry information available to Messrs. Gross and Spohler and the other investment professionals of Solar Capital Partners to assess investmentrisks and determine appropriate pricing for our investments in portfolio companies. In addition, we believe that the relationships of Messrs. Gross and Spohlerand the other investment professionals of our investment adviser enable us to learn about, and compete effectively for, financing opportunities with attractiveleveraged companies in the industries in which we seek to invest.StaffingWe do not currently have any employees. Mr. Gross, our chairman and chief executive officer, and Mr. Spohler, our chief operating officer, currentlyserve as managing members of our investment adviser, Solar Capital Partners, and Brian Gerson currently serves as a partner. Richard Peteka, our chieffinancial officer and corporate secretary, is an employee of Solar Capital Management, and performs his functions as chief financial officer under the terms ofour Administration Agreement. Guy Talarico, our chief compliance officer, is the chief executive officer of Alaric Compliance Services, LLC, and performshis functions as our chief compliance officer under the terms of an agreement between Solar Capital Management and Alaric Compliance Services, LLC.Solar Capital Management has retained Mr. Talarico and Alaric Compliance Services, LLC pursuant to its obligations under our Administration Agreement.Our day-to-day investment operations are managed by Solar Capital Partners. Solar Capital Management is responsible for all other day-to-dayoperations. We will reimburse Solar Capital Management for the allocable portion of overhead and other expenses incurred by it in performing its obligationsunder the Administration Agreement, including rent, the fees and expenses associated with performing compliance functions, and the compensation of ourchief compliance officer and chief financial officer and any administrative support staff.Sarbanes-Oxley Act of 2002The Sarbanes-Oxley Act of 2002 imposes a wide variety of regulatory requirements on publicly-held companies and their insiders. Many of theserequirements affect us. For example: • Pursuant to Rule 13a-14 of the 1934 Act, our Chief Executive Officer and Chief Financial Officer must certify the accuracy of the consolidatedfinancial statements contained in our periodic reports; • Pursuant to Item 307 of Regulation S-K, our periodic reports must disclose our conclusions about the effectiveness of our disclosure controls andprocedures; • Pursuant to Rule 13a-15 of the 1934 Act, our management must prepare an annual report regarding its assessment of the effectiveness of internalcontrols over financial reporting and obtain an audit of the effectiveness of internal controls over financial reporting performed by ourindependent registered public accounting firm; and • Pursuant to Item 308 of Regulation S-K and Rule 13a-15 of the 1934 Act, our periodic reports must disclose whether there were significantchanges in our internal controls 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 Sarbanes-Oxley Act requires us to review our current policies and procedures to determine whether we comply with the Sarbanes-Oxley Act andthe regulations promulgated thereunder. We will continue to monitor our compliance with all regulations that are adopted under the Sarbanes-Oxley Act andwill take actions necessary to ensure that we are in compliance therewith. 23Table of ContentsAvailable InformationYou may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549, on officialbusiness days during the hours of 10:00 am to 3:00 pm. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that fileelectronically with the SEC. The address of that site is (http://www.sec.gov).Our internet address is www.solarseniorcap.com. We make available free of charge on our website our annual report on Form 10-K, quarterly reports onForm 10-Q, current reports on Form 8-K and amendments to those reports as soon as reasonably practicable after we electronically file such material with, orfurnish it to, the SEC. Information contained on our website is not incorporated by reference into this annual report on Form 10-K, and you should notconsider information contained on our website to be part of this annual report on Form 10-K. 24Table of ContentsItem 1A.Risk FactorsAn investment in our securities involves certain risks relating to our structure and investment objectives. The risks set forth below are not the onlyrisks we face, and we face other risks which we have not yet identified, which we do not currently deem material or which are not yet predictable. If any ofthe following risks occur, our business, financial condition and results of operations could be materially adversely affected. In such case, our net assetvalue and the trading price of our common stock could decline, and you may lose all or part of your investment.Risks Related to Our InvestmentsWe operate in a highly competitive market for investment opportunities.A number of entities compete with us to make the types of investments that we target in leveraged companies. We compete with other BDCs, publicand private funds, commercial and investment banks, commercial financing companies and, to the extent they provide an alternative form of financing,private equity funds. 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 funds and access to funding sources that are not available to us. In addition, some of our competitorsmay have higher risk tolerances or different risk assessments than we do, which could allow them to consider a wider variety of investments and establishmore relationships than us. Furthermore, many of our potential competitors are not subject to the regulatory restrictions that the 1940 Act imposes on us. Wecannot assure you that the competitive pressures we face will not have a material adverse effect on our business, financial condition and results of operations.Also, as a result of this competition, we may not be able to take advantage of attractive investment opportunities from time to time, and we can offer noassurance that we will be able to identify and make investments that are consistent with our investment objective.We do not seek to compete primarily based on the interest rates we offer, and we believe that some of our competitors may make loans with interestrates that may be comparable to or lower than the rates we may offer. We may lose investment opportunities if we do not match our competitors’ pricing,terms and structure. However, if we match our competitors’ pricing, terms and structure, we may experience decreased net interest income and increased riskof credit loss.Our investments are very risky and highly speculative.We invest primarily in senior secured loans, including first lien, uni-tranche and second lien debt instruments, made to middle-market companieswhose debt is rated below investment grade. Securities rated below investment grade are often referred to as “leveraged loans,” “high yield” or “junk”securities, and may be considered “high risk” compared to debt instruments that are rated above investment grade.When we make a senior secured term loan investment in a portfolio company, we generally take a security interest in the available assets of theportfolio company, including the equity interests of its subsidiaries, which we expect to help mitigate the risk that we will not be repaid. However, there is arisk that the collateral securing our loans may decrease in value over time, may be difficult to sell in a timely manner, may be difficult to appraise and mayfluctuate in value based upon the success of the business and market conditions, including as a result of the inability of the portfolio company to raiseadditional capital, and, in some circumstances, our lien could be subordinated to claims of other creditors. In addition, deterioration in a portfolio company’sfinancial condition and prospects, including its inability to raise additional capital, may be accompanied by deterioration in the value of the collateral for theloan. Consequently, the fact that a loan is secured does not guarantee that we will receive principal and interest payments according to the loan’s terms, or atall, or that we will be able to collect on the loan should we be forced to enforce our remedies. 25Table of ContentsIn addition, investing in middle-market companies involves a number of significant risks, including: • these companies may have limited financial resources and may be unable to meet their obligations under their debt securities that we hold, whichmay be accompanied by a deterioration in the value of any collateral and a reduction in the likelihood of us realizing any guarantees we mayhave obtained in connection with our investment; • they typically have shorter operating histories, narrower product lines and smaller market shares than larger businesses, which tend to renderthem more vulnerable to competitors’ actions and market conditions, as well as general economic downturns; • they are more likely to depend on the management talents and efforts of a small group of persons; therefore, the death, disability, resignation ortermination of one or more of these persons could have a material adverse impact on our portfolio company and, in turn, on us; • they generally have less predictable operating results, may from time to time be parties to litigation, may be engaged in rapidly changingbusinesses 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. In addition, our executive officers, directors and our investment adviser may, in theordinary course of business, be named as defendants in litigation arising from our investments in the portfolio companies; and • they may have difficulty accessing the capital markets to meet future capital needs, which may limit their ability to grow or to repay theiroutstanding indebtedness upon maturity.The lack of liquidity in our investments may adversely affect our business.We generally make investments in private companies. We invest and expect to continue investing in companies whose securities have no establishedtrading market and whose securities are and will be subject to legal and other restrictions on resale or whose securities are and will be less liquid than arepublicly-traded securities. The illiquidity of our investments may make it difficult for us to sell such investments if the need arises. In addition, if we arerequired to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we have previously recorded ourinvestments. As a result, we do not expect to achieve liquidity in our investments in the near-term. However, to maintain our qualification as a businessdevelopment company and as a RIC, we may have to dispose of investments if we do not satisfy one or more of the applicable criteria under the respectiveregulatory frameworks. In addition, we may face other restrictions on our ability to liquidate an investment in a portfolio company to the extent that we havematerial non-public information regarding such portfolio company.Our portfolio may be concentrated in a limited number of portfolio companies and industries, which will subject us to a risk of significant loss if any ofthese companies performs poorly or defaults on its obligations under any of its debt instruments or if there is a downturn in a particular industry.Our portfolio may be concentrated in a limited number of portfolio companies and industries. Beyond the asset diversification requirements associatedwith our qualification as a RIC under Subchapter M of the Code, we do not have fixed guidelines for diversification, and while we are not targeting anyspecific industries, our investments may be concentrated in relatively few industries or portfolio companies. As a result, the aggregate returns we realize maybe significantly adversely affected if a small number of investments perform poorly or if we need to write down the value of any one investment.Additionally, a downturn in any particular industry in which we are invested could also significantly impact the aggregate returns we realize. 26Table of ContentsOur investments in securities rated below investment grade are speculative in nature and are subject to additional risk factors such as increasedpossibility of default, illiquidity of the security, and changes in value based on changes in interest rates.The securities that we invest in are typically rated below investment grade. Securities rated below investment grade are often referred to as “leveragedloans,” “high yield” or “junk” securities, and may be considered “high risk” compared to debt instruments that are rated investment grade. High yieldsecurities are regarded as having predominantly speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal inaccordance with the terms of the obligations and involve major risk exposure to adverse conditions. In addition, high yield securities generally offer a highercurrent yield than that available from higher grade issues, but typically involve greater risk. These securities are especially sensitive to adverse changes ingeneral economic conditions, to changes in the financial condition of their issuers and to price fluctuation in response to changes in interest rates. Duringperiods of economic downturn or rising interest rates, issuers of below investment grade instruments may experience financial stress that could adverselyaffect their ability to make payments of principal and interest and increase the possibility of default. The secondary market for high yield securities may notbe as liquid as the secondary market for more highly rated securities. In addition, some of our debt investments are not scheduled to fully amortize over theirstated terms, which could cause us to suffer losses if the respective issuer of such debt investment is unable to refinance or repay their remaining indebtednessat maturity.Capital markets have recently been in a period of disruption and instability. These market conditions have materially and adversely affected debt andequity capital markets in the United States and abroad, which may in the future have a negative impact on our business and operations.The global capital markets have recently been in a period of disruption as evidenced by a lack of liquidity in the debt capital markets, significantwrite-offs in the financial services sector, the re-pricing of credit risk in the broadly syndicated credit market and the failure of certain major financialinstitutions. Despite actions of the United States federal government and foreign governments, these events contributed to worsening general economicconditions that materially and adversely impacted the broader financial and credit markets and reduced the availability of debt and equity capital for themarket as a whole and financial services firms in particular.These conditions could continue for a prolonged period of time or worsen in the future. While these conditions persist, we and other companies in thefinancial services sector may have to access, if available, alternative markets for debt and equity capital. Equity capital may be difficult to raise because,subject to some limited exceptions which apply to us, as a BDC we are generally not able to issue additional shares of our common stock at a price less thannet asset value without first obtaining approval for such issuance from our stockholders and our independent directors. At our 2013 Annual StockholdersMeeting, our stockholders approved our ability to sell or otherwise issue shares of our common stock, not exceeding 25% of our then outstanding commonstock immediately prior to each such offering, at a price or prices below the then current net asset value per share, in each case subject to the approval of ourboard of directors and compliance with the conditions set forth in the proxy statement pertaining thereto, during a period beginning on April 30, 2013 andexpiring on the earlier of the one-year anniversary of the date of the 2013 Annual Stockholders Meeting and the date of our 2014 Annual StockholdersMeeting, which is expected to be held in May 2014. However, notwithstanding such stockholder approval, since our initial public offering on February 24,2011, we have not sold any shares of our common stock at a price below our then current net asset value per share. Any offering of our common stock thatrequires stockholder approval must occur, if at all, within one year after receiving such stockholder approval. In addition, our ability to incur indebtedness(including by issued preferred stock) is limited by applicable regulations such that our asset coverage, as defined in the 1940 Act, must equal at least 200%immediately after each time we incur indebtedness. The debt capital that will be available, if at all, may be at a higher cost and on less favorable terms andconditions in the future. Any inability to raise capital could have a negative effect on our business, financial condition and results of operations. 27Table of ContentsThe illiquidity of our investments may make it difficult for us to sell such investments if required. As a result, we may realize significantly less than thevalue at which we have recorded our investments. In addition, significant changes in the capital markets, including the recent extreme volatility anddisruption, have had, and may in the future have, a negative effect on the valuations of our investments and on the potential for liquidity events involvingour investments. An inability to raise capital, and any required sale of our investments for liquidity purposes, could have a material adverse impact on ourbusiness, financial condition or results of operations.If we cannot obtain additional capital because of either regulatory or market price constraints, we could be forced to curtail or cease our new lendingand investment activities, our net asset value could decrease and our level of distributions and liquidity could be affected adversely.Our ability to secure additional financing and satisfy our financial obligations under indebtedness outstanding from time to time will depend upon ourfuture operating performance, which is subject to the prevailing general economic and credit market conditions, including interest rate levels and theavailability of credit generally, and financial, business and other factors, many of which are beyond our control. The prolonged continuation or worsening ofcurrent economic and capital market conditions could have a material adverse effect on our ability to secure financing on favorable terms, if at all.If we are unable to obtain debt capital, then our equity investors will not benefit from the potential for increased returns on equity resulting fromleverage to the extent that our investment strategy is successful and we may be limited in our ability to make new commitments or fundings to our portfoliocompanies.Uncertainty about the financial stability of the United States and of several countries in the European Union (EU) could have a significant adverseeffect on our business, results of operations and financial condition.Due to federal budget deficit concerns, S&P downgraded the federal government’s credit rating from AAA to AA+ for the first time in history onAugust 5, 2011. Further, Moody’s and Fitch have warned that they may downgrade the federal government’s credit rating. Further downgrades or warnings byS&P or other rating agencies, and the government’s credit and deficit concerns in general, could cause interest rates and borrowing costs to rise, which maynegatively impact both the perception of credit risk associated with our debt portfolio and our ability to access the debt markets on favorable terms. Inaddition, a decreased credit rating could create broader financial turmoil and uncertainty, which may weigh heavily on our financial performance and thevalue of our common stock.In 2010, a financial crisis emerged in Europe, triggered by high budget deficits and rising direct and contingent sovereign debt in Greece, Ireland, Italy,Portugal and Spain, which created concerns about the ability of these nations to continue to service their sovereign debt obligations. Risks and ongoingconcerns resulting from the debt crisis in Europe could have a detrimental impact on the global economic recovery, sovereign and non-sovereign debt inthese countries and the financial condition of European financial institutions. Market and economic disruptions have affected, and may continue to affect,consumer confidence levels and spending, personal bankruptcy rates, levels of incurrence and default on consumer debt and home prices, among otherfactors. We cannot assure you that the market disruptions in Europe, including the increased cost of funding for certain governments and financialinstitutions, will not spread, and we cannot assure you that future assistance packages will be available, or if available, sufficient to stabilize the affectedcountries and markets in Europe or elsewhere. To the extent uncertainty regarding any economic recovery in Europe continues to negatively impactconsumer confidence and consumer credit factors, our business and results of operations could be significantly and adversely affected.On December 18, 2013, the U.S. Federal Reserve announced that it would scale back its bond-buying program, or quantitative easing, which isdesigned to stimulate the economy and expand the Federal Reserve’s holdings of long-term securities until key economic indicators, such as theunemployment rate, show signs of 28Table of Contentsimprovement. The Federal Reserve signaled it would reduce its purchases of long-term Treasury bonds and would scale back on its purchases of mortgage-backed securities. It is unclear what effect, if any, the incremental reduction in the rate of the Federal Reserve’s monthly purchases will have on the value ofour investments. However, it is possible that absent continued quantitative easing by the Federal Reserve, these developments, along with the Europeansovereign debt crisis, could cause interest rates and borrowing costs to rise, which may negatively impact our ability to access the debt markets on favorableterms.A failure or the perceived risk of a failure to raise the statutory debt limit of the United States could have a material adverse effect on our business,financial condition and results of operations.As has been widely reported, the United States Treasury Secretary has stated that the federal government may not be able to meet its debt payments inthe relatively near future unless the federal debt ceiling is raised. If legislation increasing the debt ceiling is not enacted and the debt ceiling is reached, thefederal government may stop or delay making payments on its obligations. A failure by Congress to raise the debt limit would increase the risk of default bythe United States on its obligations, as well as the risk of other economic dislocations.If the U.S. government fails to complete its budget process or to provide for a continuing resolution before the expiration of the current continuingresolution, another federal government shutdown may result. Such a failure or the perceived risk of such a failure, consequently, could have a materialadverse effect on the financial markets and economic conditions in the United States and throughout the world. It could also limit our ability and the abilityof our portfolio companies to obtain financing, and it could have a material adverse effect on the valuation of our portfolio companies. Consequently, thecontinued uncertainty in the general economic environment, including the recent government shutdown and potential debt ceiling implications, as well inspecific economies of several individual geographic markets in which our portfolio companies operate, could adversely affect our business, financialcondition and results of operations.Uncertainty relating to the LIBOR calculation process may adversely affect the value of our portfolio of the LIBOR-indexed, floating-rate debtsecurities.Concerns have been publicized that some of the member banks surveyed by the British Bankers’ Association (“BBA”) in connection with thecalculation of LIBOR across a range of maturities and currencies may have been under-reporting or otherwise manipulating the inter-bank lending rateapplicable to them in order to profit on their derivatives positions or to avoid an appearance of capital insufficiency or adverse reputational or otherconsequences that may have resulted from reporting inter-bank lending rates higher than those they actually submitted. A number of BBA member bankshave entered into settlements with their regulators and law enforcement agencies with respect to alleged manipulation of LIBOR, and investigations byregulators and governmental authorities in various jurisdictions are ongoing.Actions by the BBA, regulators or law enforcement agencies may result in changes to the manner in which LIBOR is determined. Uncertainty as to thenature of such potential changes may adversely affect the market for LIBOR-based securities, including our portfolio of LIBOR-indexed, floating-rate debtsecurities. In addition, any further changes or reforms to the determination or supervision of LIBOR may result in a sudden or prolonged increase or decreasein reported LIBOR, which could have an adverse impact on the market for LIBOR-based securities or the value of our portfolio of LIBOR-indexed, floating-rate debt securities.Economic recessions or downturns could impair our portfolio companies and harm our operating results.Many of our potential portfolio companies may be susceptible to economic slowdowns or recessions and may be unable to repay our loans duringthese periods. Therefore, our non-performing assets may increase and the value of our portfolio may decrease during these periods as we are required to recordthe values of our investments. Adverse economic conditions also may decrease the value of collateral securing some of our loans and the value of our equityinvestments at fair value. Economic slowdowns or recessions could lead to financial 29Table of Contentslosses in our portfolio and a decrease in revenues, net income and assets. Unfavorable economic conditions also could increase our funding costs, limit ouraccess to the capital markets or result in a decision by lenders not to extend credit to us. These events could prevent us from increasing investments and harmour operating results.A portfolio company’s failure to satisfy financial or operating covenants imposed by us or other lenders could lead to defaults and, potentially,acceleration of the time when the loans are due and foreclosure on its secured assets, which could trigger cross-defaults under other agreements andjeopardize the portfolio company’s ability to meet its obligations under the debt that we hold. We may incur additional expenses to the extent necessary toseek recovery upon default or to negotiate new terms with a defaulting portfolio company. In addition, if one of our portfolio companies were to go bankrupt,depending on the facts and circumstances, including the extent to which we actually provided significant managerial assistance to that portfolio company, abankruptcy court might re-characterize our debt holding and subordinate all or a portion of our claim to that of other creditors.These portfolio companies may face intense competition, including competition from companies with greater financial resources, more extensiveresearch and development, manufacturing, marketing and service capabilities and greater number of qualified and experienced managerial and technicalpersonnel. They may need additional financing which they are unable to secure and which we are unable or unwilling to provide, or they may be subject toadverse developments unrelated to the technologies they acquire.We may suffer a loss if a portfolio company defaults on a loan and the underlying collateral is not sufficient.In the event of a default by a portfolio company on a secured loan, we will only have recourse to the assets collateralizing the loan. If the underlyingcollateral value is less than the loan amount, we will suffer a loss. In addition, we sometimes make loans that are unsecured, which are subject to the risk thatother lenders may be directly secured by the assets of the portfolio company. In the event of a default, those collateralized lenders would have priority over uswith respect to the proceeds of a sale of the underlying assets. In cases described above, we may lack control over the underlying asset collateralizing ourloan or the underlying assets of the portfolio company prior to a default, and as a result the value of the collateral may be reduced by acts or omissions byowners or managers of the assets.In the event of bankruptcy of a portfolio company, we may not have full recourse to its assets in order to satisfy our loan, or our loan may be subject toequitable subordination. In addition, certain of our loans are subordinate to other debt of the portfolio company. If a portfolio company defaults on our loanor on debt senior to our loan, or in the event of a portfolio company bankruptcy, our loan will be satisfied only after the senior debt receives payment. Wheredebt senior to our loan exists, the presence of inter-creditor arrangements may limit our ability to amend our loan documents, assign our loans, acceptprepayments, exercise our remedies (through “standstill” periods) and control decisions made in bankruptcy proceedings relating to the portfolio company.Bankruptcy and portfolio company litigation can significantly increase collection losses and the time needed for us to acquire the underlying collateral inthe event of a default, during which time the collateral may decline in value, causing us to suffer losses.If the value of collateral underlying our loan declines or interest rates increase during the term of our loan, a portfolio company may not be able toobtain the necessary funds to repay our loan at maturity through refinancing. Decreasing collateral value and/or increasing interest rates may hinder aportfolio company’s ability to refinance our loan because the underlying collateral cannot satisfy the debt service coverage requirements necessary to obtainnew financing. If a borrower is unable to repay our loan at maturity, we could suffer a loss which may adversely impact our financial performance. 30Table of ContentsThe business, financial condition and results of operations of our portfolio companies could be adversely affected by worldwide economic conditions,as well as political and economic conditions in the countries in which they conduct business.The business and operating results of our portfolio companies may be impacted by worldwide economic conditions. Although the U.S. economy has inrecent years shown signs of recovery from the 2008–2009 global recession, the strength and duration of any economic recovery will be impacted byworldwide economic growth. For instance, a number of recent reports indicate that growth in China and other emerging markets may be slowing relative tohistorical growth rates. The significant debt in U.S. and European countries is expected to hinder growth in those countries for the foreseeable future.Multiple factors relating to the international operations of some of our portfolio companies and to particular countries in which they operate couldnegatively impact their business, financial condition and results of operations.Some of the products of our portfolio companies are developed, manufactured, assembled, tested or marketed outside the U.S. Any conflict oruncertainty in these countries, including due to natural disasters, public health concerns, political unrest or safety concerns, could harm their business,financial condition and results of operations. In addition, if the government of any country in which their products are developed, manufactured or sold setstechnical or regulatory standards for products developed or manufactured in or imported into their country that are not widely shared, it may lead some oftheir customers to suspend imports of their products into that country, require manufacturers or developers in that country to manufacture or develop productswith different technical or regulatory standards and disrupt cross-border manufacturing, marketing or business relationships which, in each case, could harmtheir businesses.The effect of global climate change may impact the operations of our portfolio companies.There may be evidence of global climate change. Climate change creates physical and financial risk and some of our portfolio companies may beadversely affected by climate change. For example, the needs of customers of energy companies vary with weather conditions, primarily temperature andhumidity. To the extent weather conditions are affected by climate change, energy use could increase or decrease depending on the duration and magnitudeof any changes. Increases in the cost of energy could adversely affect the cost of operations of our portfolio companies if the use of energy products orservices is material to their business. A decrease in energy use due to weather changes may affect some of our portfolio companies’ financial condition,through decreased revenues. Extreme weather conditions in general require more system backup, adding to costs, and can contribute to increased systemstresses, including service interruptions. Energy companies could also be affected by the potential for lawsuits against or taxes or other regulatory costsimposed on greenhouse gas emitters, based on links drawn between greenhouse gas emissions and climate change.Price declines and illiquidity in the corporate debt markets may adversely affect, and may continue to adversely affect, the fair value of our portfolioinvestments, reducing our net asset value through increased net unrealized depreciation. Any unrealized depreciation that we experience on our loanportfolio may be an indication of future realized losses, which could reduce our income available for distribution and could adversely affect our abilityto service our outstanding borrowings.As a BDC, we are required to carry our investments at market value or, if no market value is ascertainable, at fair value as determined in good faith by orunder the direction of our board of directors. Decreases in the market values or fair values of our investments are recorded as unrealized depreciation. Anyunrealized depreciation in our loan portfolio could be an indication of a portfolio company’s inability to meet its repayment obligations to us with respect tothe affected loans. This could result in realized losses in the future and ultimately in reductions of our income available for distribution in future periods andcould materially adversely affect our ability to service our outstanding borrowings. The unprecedented declines in prices and liquidity in the corporate debtmarkets from 2008 through mid-2010 resulted in significant declines in the fair value of loans and other debt investments. Depending on market conditions,we could incur substantial losses in future periods, which could further reduce our net asset value and have a material adverse impact on our business,financial condition and results of operations. 31Table of ContentsOur failure to make follow-on investments in our portfolio companies could impair the value of our portfolio.Following an initial investment in a portfolio company, we may make additional investments in that portfolio company as “follow-on” investments, inorder to: (i) increase or maintain in whole or in part our ownership percentage; (ii) exercise warrants, options or convertible securities that were acquired inthe original or subsequent financing; or (iii) attempt to preserve or enhance the value of our investment. We may elect not to make follow-on investments orotherwise lack sufficient funds to make those investments. We will have the discretion to make any follow-on investments, subject to the availability ofcapital resources. The failure to make follow-on investments may, in some circumstances, jeopardize the continued viability of a portfolio company and ourinitial investment, or may result in a missed opportunity for us to increase our participation in a successful operation. Even if we have sufficient capital tomake a desired follow-on investment, we may elect not to make a follow-on investment because we may not want to increase our concentration of risk, eitherbecause we prefer other opportunities or because we are subject to BDC requirements that would prevent such follow-on investments, or the desire tomaintain our RIC tax status.Where we do not hold controlling equity interests in our portfolio companies, we may not be in a position to exercise control over our portfoliocompanies or to prevent decisions by management of our portfolio companies that could decrease the value of our investments.Although we hold controlling equity positions in some of our portfolio companies, we do not currently hold controlling equity positions in themajority of our portfolio company investments. As a result, we are subject to the risk that a portfolio company may make business decisions with which wedisagree, and that the management and/or stockholders of a portfolio company may take risks or otherwise act in ways that are adverse to our interests. Due tothe lack of liquidity of the investments that we typically hold in our portfolio companies, we may not be able to dispose of our investments in the event wedisagree with the actions of a portfolio company and may therefore suffer a decrease in the value of our investments.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 generallyreinvest these proceeds in temporary investments, pending their future investment in new portfolio companies. These temporary investments will typicallyhave substantially lower yields than the debt being prepaid and we could experience significant delays in reinvesting these amounts. Any future investmentin 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 adverselyaffected if one or more of our portfolio companies elect to prepay amounts owed to us. Additionally, prepayments could negatively impact our return onequity, which could result in a decline in the market price of our common stock.We may choose to waive or defer enforcement of covenants in the debt securities held in our portfolio, which may cause us to lose all or part of ourinvestment in these companies.We structure the debt investments in our portfolio companies to include business and financial covenants placing affirmative and negative obligationson the operation of the company’s business and its financial condition. However, from time to time we may elect to waive breaches of these covenants,including our right to payment, or waive or defer enforcement of remedies, such as acceleration of obligations or foreclosure on collateral, depending uponthe financial condition and prospects of the particular portfolio company. These actions may reduce the likelihood of our receiving the full amount of futurepayments of interest or principal and be accompanied by a deterioration in the value of the underlying collateral as many of these companies may havelimited financial resources, may be unable to meet future obligations and may go bankrupt. This could negatively impact our ability to pay dividends, couldadversely affect our results of operation and financial condition and cause the loss of all or part of your investment. 32Table of ContentsOur loans could be subject to equitable subordination by a court which would increase our risk of loss with respect to such loans.Courts may apply the doctrine of equitable subordination to subordinate the claim or lien of a lender against a borrower to claims or liens of othercreditors of the borrower, when the lender or its affiliates is found to have engaged in unfair, inequitable or fraudulent conduct. The courts have also appliedthe doctrine of equitable subordination when a lender or its affiliates is found to have exerted inappropriate control over a client, including control resultingfrom the ownership of equity interests in a client. Payments on one or more of our loans, particularly a loan to a client in which we may also hold an equityinterest, may be subject to claims of equitable subordination. If we were deemed to have the ability to control or otherwise exercise influence over thebusiness and affairs of one or more of our portfolio companies resulting in economic hardship to other creditors of that company, this control or influencemay constitute grounds for equitable subordination and a court may treat one or more of our loans as if it were unsecured or common equity in the portfoliocompany. In that case, if the portfolio company were to liquidate, we would be entitled to repayment of our loan on a pro-rata basis with other unsecured debtor, if the effect of subordination was to place us at the level of common equity, then on an equal basis with other holders of the portfolio company’s commonequity only after all of its obligations relating to its debt and preferred securities had been satisfied.An investment strategy focused primarily on privately held companies presents certain challenges, including the lack of available information aboutthese companies, a dependence on the talents and efforts of only a few key portfolio company personnel and a greater vulnerability to economicdownturns.We invest primarily in privately held companies. Generally, little public information exists about these companies, and we are required to rely on theability of Solar Capital Partners’ investment professionals to obtain adequate information to evaluate the potential returns from investing in these companies.If we will be unable to uncover all material information about these companies, we may not make a fully informed investment decision, and we may losemoney on our investments. Also, privately held companies frequently have less diverse product lines and smaller market presence than larger competitors.These factors could adversely affect our investment returns as compared to companies investing primarily in the securities of public companies.Our portfolio companies may incur debt that ranks equally with, or senior to, some of our investments in such companies.We invest primarily in senior secured loans, including uni-tranche, second lien, as well as unsecured debt instruments issued by our portfoliocompanies. If we invest in uni-tranche, second lien, or unsecured debt instruments, our portfolio companies typically may be permitted to incur other debtthat ranks equally with, or senior to, such debt instruments. By their terms, such debt instruments may provide that the holders are entitled to receive paymentof interest or principal on or before the dates on which we are entitled to receive payments in respect of the debt securities in which we will invest. Also, inthe event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a portfolio company, holders of debt instruments ranking senior to ourinvestment in that portfolio company would typically be entitled to receive payment in full before we receive any distribution in respect of our investment.In such cases, after repaying such senior creditors, such portfolio company may not have any remaining assets to use for repaying its obligation to us. In thecase of debt ranking equally with debt securities in which we invest, we would have to share on an equal basis any distributions with other creditors holdingsuch debt in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy of the relevant portfolio company. Any such limitations onthe ability of our portfolio companies to make principal or interest payments to us, if at all, may reduce our net asset value and have a negative materialadverse impact to our business, financial condition and results of operation.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 toadditional risks not typically associated with investing in U.S. 33Table of Contentscompanies. These risks include changes in exchange control regulations, political and social instability, expropriation, imposition of foreign taxes, lessliquid markets and less available information than is generally the case in the United States, higher transaction costs, less government supervision ofexchanges, brokers and issuers, less developed bankruptcy laws, difficulty in enforcing contractual obligations, lack of uniform accounting and auditingstandards 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 thatthe value of a particular currency will change in relation to one or more other currencies. Among the factors that may affect currency values are tradebalances, the level of short-term interest rates, differences in relative values of similar assets in different currencies, long-term opportunities for investmentand capital appreciation, and political developments. We may employ hedging techniques to minimize these risks, but we can offer no assurance that we will,in fact, hedge currency risk, or that if we do, such strategies will be effective.We may expose ourselves to risks if we engage in hedging transactions.If we engage in hedging transactions, we may expose ourselves to risks associated with such transactions. We may utilize instruments such as forwardcontracts, currency options and interest rate swaps, caps, collars and floors to seek to hedge against fluctuations in the relative values of our portfoliopositions from changes in currency exchange rates and market interest rates. Hedging against a decline in the values of our portfolio positions does noteliminate the possibility of fluctuations in the values of such positions or prevent losses if the values of such positions decline. However, such hedging canestablish other positions designed to gain from those same developments, thereby offsetting the decline in the value of such portfolio positions. Suchhedging transactions may also limit the opportunity for gain if the values of the underlying portfolio positions should increase. It may not be possible tohedge against an exchange rate or interest rate fluctuation that is so generally anticipated that we are not able to enter into a hedging transaction at anacceptable price. Moreover, for a variety of reasons, we may not seek to establish a perfect correlation between such hedging instruments and the portfolioholdings being hedged. Any such imperfect correlation may prevent us from achieving the intended hedge and expose us to risk of loss. In addition, it maynot be possible to hedge fully or perfectly against currency fluctuations affecting the value of securities denominated in non-U.S. currencies because thevalue of those securities is likely to fluctuate as a result of factors not related to currency fluctuations. To the extent we engage in hedging transactions, wealso face the risk that counterparties to the derivative instruments we hold may default, which may expose us to unexpected losses from positions where webelieved that our risk had been appropriately hedged.Our investment adviser may not be able to achieve the same or similar returns as those achieved by our senior investment professionals while they wereemployed at prior positions.Although in the past Mr. Gross held senior positions at a number of investment firms, including Solar Capital, Apollo Investment Corporation andApollo Management, L.P., Mr. Gross’ track record and achievements are not necessarily indicative of future results that will be achieved by our investmentadviser. In his role at such other firms, Mr. Gross was part of an investment team, and he was not solely responsible for generating investment ideas. Inaddition, such investment teams arrived at investment decisions by consensus.Risks Relating to an Investment in Our SecuritiesOur shares may trade at a substantial discount from net asset value and may continue to do so over the long term.Shares of closed-end investment companies have frequently traded at a market price that is less than the net asset value that is attributable to thoseshares. The possibility that our shares of common stock will trade at a substantial discount from net asset value over the long term is separate and distinctfrom the risk that our net asset value will decrease. We cannot predict whether shares of our common stock will trade above, at or below 34Table of Contentsour net asset value. If our common stock trades below its net asset value, we will generally not be able to issue additional shares or sell our common stock, notexceeding 25% of our then outstanding common stock immediately prior to each such offering, at its market price without first obtaining the approval forsuch issuance from our stockholders and our independent directors. At our 2013 Annual Stockholders Meeting, our stockholders approved our ability to sellor otherwise issue shares of our common stock, not exceeding 25% of our then outstanding common stock immediately prior to each such offering, at a priceor prices below the then current net asset value per share, in each case subject to the approval of our board of directors and compliance with the conditions setforth in the proxy statement pertaining thereto, during a period beginning on April 30, 2013 and expiring on the earlier of the one-year anniversary of thedate of the 2013 Annual Stockholders Meeting and the date of our 2014 Annual Stockholders Meeting, which is expected to be held in May 2014. However,notwithstanding such stockholder approval, since our initial public offering on February 24, 2011, we have not sold any shares of our common stock at aprice below our then current net asset value per share. Any offering of our common stock that requires stockholder approval must occur, if at all, within oneyear after receiving such stockholder approval. If additional funds are not available to us, we could be forced to curtail or cease our new lending andinvestment activities, and our net asset value could decrease and our level of distributions could be impacted.Our common stock price may be volatile and may decrease substantially.The trading price of our common stock may fluctuate substantially. The price of our common stock that will prevail in the market may be higher orlower than the price you pay, depending on many factors, some of which are beyond our control and may not be directly related to our operatingperformance. These factors include, but are not limited to, the following: • price and volume fluctuations in the overall stock market from time to time; • investor demand for our shares; • significant volatility in the market price and trading volume of securities of BDCs or other companies in our sector, which are not necessarilyrelated to the operating performance of these companies; • changes in regulatory policies or tax guidelines with respect to RICs or BDCs; • failure to qualify as a RIC, or the loss of RIC status; • any shortfall in revenue or net income or any increase in losses from levels expected by investors or securities analysts; • changes, or perceived changes, in the value of our portfolio investments; • departures of Solar Capital Partners’ key personnel; • operating performance of companies comparable to us; or • general economic conditions and trends and other external factors.In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been brought againstthat company. Due to the potential volatility of our stock price once a market for our stock is established, we may become the target of securities litigation inthe future. Securities litigation could result in substantial costs and divert management’s attention and resources from our business.There is a risk that our stockholders may not receive distributions or that our distributions may not grow over time.We intend to make distributions on a monthly basis to our stockholders out of assets legally available for distribution. We cannot assure you that wewill achieve investment results that will allow us to make a specified level of cash distributions or year-to-year increases in cash distributions. In addition,due to the asset coverage 35Table of Contentstest applicable to us as a BDC, we may be limited in our ability to make distributions. As a RIC, if we do not distribute a certain percentage of our incomeannually, we will suffer adverse tax consequences, including failure to obtain, or possible loss of, the federal income tax benefits allowable to RICs. Wecannot assure you that you will receive distributions at a particular level or at all.We may choose to pay dividends in our own common stock, in which case our stockholders may be required to pay federal income taxes in excess of thecash dividends they receive.We may distribute taxable dividends that are payable in cash or shares of our common stock at the election of each stockholder. Under certainapplicable provisions of the Code and the Treasury regulations, distributions payable in cash or in shares of stock at the election of stockholders are treatedas taxable dividends. The Internal Revenue Service has issued private rulings indicating that this rule will apply even where the total amount of cash thatmay be distributed is limited to no more than 20% of the total distribution. Under these rulings, if too many stockholders elect to receive their distributions incash, 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 ofstock. If we decide to make any distributions consistent with these rulings that are payable in part in our stock, taxable stockholders receiving such dividendswill be required to include the full amount of the dividend (whether received in cash, our stock, or a combination thereof) as ordinary income (or as long-termcapital gain to the extent such distribution is properly reported as a capital gain dividend) to the extent of our current and accumulated earnings and profitsfor United States 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 cashreceived. 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 inincome 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, wemay 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. Inaddition, 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 downwardpressure on the trading price of our stock.Sales of substantial amounts of our common stock in the public market may have an adverse effect on the market price of our common stock.The 500,000 shares that were issued to Solar Senior Capital Investors LLC in the Concurrent Private Placement pursuant to the exemption fromregistration provided by Section 4(2) under the Securities Act were subject to a 180 day lock-up period. Upon expiration of this lock-up period, such sharesbecame generally freely tradable in the public market, subject to the provisions of Rule 144 promulgated under the Securities Act. Sales of substantialamounts of our common stock, or the availability of such common stock for sale, could adversely affect the prevailing market prices for our common stock. Ifthis occurs and continues, it could impair our ability to raise additional capital through the sale of securities should we desire to do so.We have also committed to file a registration statement to register the resale of the shares of common stock that were issued in the Concurrent PrivatePlacement to Solar Senior Capital Investors LLC within 60 days of receiving a request from Solar Senior Capital Investors LLC to do so. We have committedto use our commercially reasonable efforts to obtain effectiveness of such registration statement as soon as reasonably practicable after the filing of suchregistration statement. Assuming effectiveness of such registration statement, Solar Senior Capital Investors LLC will generally be able to resell its shares ofcommon stock without restriction.The net asset value per share of our common stock may be diluted if we sell shares of our common stock in one or more offerings at prices below thethen current net asset value per share of our common stock.At our 2013 Annual Stockholders Meeting, our stockholders approved our ability to sell or otherwise issue shares of our common stock, not exceeding25% of our then outstanding common stock immediately prior to each such offering, at a price or prices below the then current net asset value per share, ineach case subject to the approval of our board of directors and compliance with the conditions set forth in the proxy statement pertaining 36Table of Contentsthereto, during a period beginning on April 30, 2013 and expiring on the earlier of the one-year anniversary of the date of the 2013 Annual StockholdersMeeting and the date of our 2014 Annual Stockholders Meeting, which is expected to be held in May 2014. However, notwithstanding such stockholderapproval, since our initial public offering on February 24, 2011, we have not sold any shares of our common stock at a price below our then current net assetvalue per share. Any offering of our common stock that requires stockholder approval must occur, if at all, within one year after receiving such stockholderapproval.We may also use newly issued shares to implement our dividend reinvestment plan, whether our shares are trading at a premium or at a discount to ourthen current net asset value per share. Any decision to issue or sell shares of our common stock below our then current net asset value per share or securities tosubscribe for or convertible into shares of our common stock would be subject to the determination by our board of directors that such issuance or sale is inour and our stockholders’ best interests.If we were to issue or sell shares of our common stock below our then current net asset value per share, such issuances or sales would result in animmediate dilution to the net asset value per share of our common stock. This dilution would occur as a result of the issuance or sale of shares at a price belowthe then current net asset value per share of our common stock and a proportionately greater decrease in the stockholders’ interest in our earnings and assetsand their voting interest in us than the increase in our assets resulting from such issuance or sale. Because the number of shares of common stock that couldbe so issued and the timing of any issuance is not currently known, the actual dilutive effect cannot be predicted.Further, if our current stockholders do not purchase any shares to maintain their percentage interest, regardless of whether such offering is above orbelow the then current net asset value per share, their voting power will be diluted. For example, if we sell an additional 10% of our common shares at a 5%discount from net asset value, a stockholder who does not participate in that offering for its proportionate interest will suffer net asset value dilution of up to0.5% or $5 per $1000 of net asset value.Similarly, all dividends declared in cash payable to stockholders that are participants in our dividend reinvestment plan are generally automaticallyreinvested in shares of our common stock. As a result, stockholders that do not participate in the dividend reinvestment plan may experience dilution overtime. Stockholders who do not elect to receive dividends in shares of common stock may experience accretion to the net asset value of their shares if ourshares are trading at a premium and dilution if our shares are trading at a discount. The level of accretion or discount would depend on various factors,including the proportion of our stockholders who participate in the plan, the level of premium or discount at which our shares are trading and the amount ofthe dividend payable to a stockholder.Risks Relating to Our Business and StructureWe are dependent upon Solar Capital Partners’ key personnel for our future success.We depend on the diligence, skill and network of business contacts of Messrs. Gross and Spohler, who serve as managing members of Solar CapitalPartners and who lead Solar Capital Partners’ investment team. Messrs. Gross and Spohler, together with the other dedicated investment professionalsavailable to Solar Capital Partners, evaluate, negotiate, structure, close and monitor our investments. Our future success will depend on the continued serviceof Messrs. Gross and Spohler and the other investment professionals available to Solar Capital Partners. We cannot assure you that unforeseen business,medical, personal or other circumstances would not lead any such individual to terminate his relationship with us. The loss of Mr. Gross or Mr. Spohler, orany of the other senior investment professionals who serve on Solar Capital Partners’ investment team, could have a material adverse effect on our ability toachieve our investment objective as well as on our financial condition and results of operations. In addition, we can offer no assurance that Solar CapitalPartners will remain our investment adviser.The senior investment professionals of Solar Capital Partners are and may in the future become affiliated with entities engaged in business activitiessimilar to those intended to be conducted by us, and may have 37Table of Contentsconflicts of interest in allocating their time. We expect that Messrs. Gross and Spohler will dedicate a significant portion of their time to the activities of SolarSenior Capital; however, they may be engaged in other business activities which could divert their time and attention in the future. Specifically, each ofMessrs. Gross and Spohler serve as chief executive officer and chief operating officer, respectively, of Solar Capital Ltd.Our business model depends to a significant extent upon strong referral relationships with financial sponsors, and the inability of the senior investmentprofessionals of our investment adviser to maintain or develop these relationships, or the failure of these relationships to generate investmentopportunities, could adversely affect our business.We expect that the principals of our investment adviser will maintain and develop their relationships with financial sponsors, and we will rely to asignificant extent upon these relationships to provide us with potential investment opportunities. If the senior investment professionals of our investmentadviser fail to maintain their existing relationships or to develop new relationships with other sponsors or sources of investment opportunities, we will not beable to grow our investment portfolio. In addition, individuals with whom the senior investment professionals of our investment adviser have relationshipsare not obligated to provide us with investment opportunities, and, therefore, there is no assurance that such relationships will generate investmentopportunities for us.A disruption in the capital markets and the credit markets could negatively affect our business.As a BDC, we have to maintain our ability to raise additional capital for investment purposes. Without sufficient access to the capital markets or creditmarkets, we may be forced to curtail our business operations or we may not be able to pursue new business opportunities. Disruptive conditions in thefinancial industry and the impact of new legislation in response to those conditions could restrict our business operations and could adversely impact ourresults of operations and financial condition.If the fair value of our assets declines substantially, we may fail to maintain the asset coverage ratios imposed upon us by the 1940 Act and the CreditFacility. Any such failure could result in an event of default and all of our debt being declared immediately due and payable and would affect our ability toissue senior securities, including borrowings, and pay dividends, which could materially impair our business operations. Our liquidity could be impairedfurther by an inability to access the capital markets or to draw on the Credit Facility. For example, we cannot be certain that we will be able to renew theCredit Facility as it matures or to consummate new borrowing facilities to provide capital for normal operations, including new originations. Reflectingconcern about the stability of the financial markets, many lenders and institutional investors have reduced or ceased providing funding to borrowers. Thismarket turmoil and tightening of credit have led to increased market volatility and widespread reduction of business activity generally.If we are unable to renew or replace the Credit Facility and consummate new facilities on commercially reasonable terms, our liquidity will be reducedsignificantly. If we consummate new facilities but are then unable to repay amounts outstanding under such facilities, and are declared in default or areunable to renew or refinance these facilities, we would not be able to initiate significant originations or to operate our business in the normal course. Thesesituations may arise due to circumstances that we may be unable to control, such as inaccessibility to the credit markets, a severe decline in the value of theU.S. dollar, a further economic downturn or an operational problem that affects third parties or us, and could materially damage our business. Moreover, weare unable to predict when economic and market conditions may become more favorable. Even if such conditions improve broadly and significantly over thelong term, adverse conditions in particular sectors of the financial markets could adversely impact our business.Our financial condition and results of operations will depend on our ability to manage future growth effectively.Our ability to achieve our investment objective and to grow depends on Solar Capital Partners’ ability to identify, invest in and monitor companiesthat meet our investment criteria. 38Table of ContentsAccomplishing this result on a cost-effective basis is largely a function of Solar Capital Partners’ structuring of the investment process, its ability toprovide competent, attentive and efficient services to us and its ability to access financing for us on acceptable terms. The investment team of Solar CapitalPartners has substantial responsibilities under the Investment Advisory and Management Agreement, and they may also be called upon to provide managerialassistance to our portfolio companies as the principals of our administrator. In addition, the members of Solar Capital Partners’ investment team have similarresponsibilities with respect to the management of Solar Capital’s investment portfolio. Such demands on their time may distract them or slow our rate ofinvestment. In order to grow, we and Solar Capital Partners will need to retain, train, supervise and manage new investment professionals. However, we canoffer no assurance that any such investment professionals will contribute effectively to the work of the investment adviser. Any failure to manage our futuregrowth effectively could have a material adverse effect on our business, financial condition and results of operations.We may need to raise additional capital to grow because we must distribute most of our income.We may need additional capital to fund growth in our investments. We expect to issue equity securities and expect to borrow from financialinstitutions in the future. A reduction in the availability of new capital could limit our ability to grow. We must distribute at least 90% of our investmentcompany taxable income to our stockholders to maintain our regulated investment company status. As a result, any such cash earnings may not be availableto fund investment originations. We expect to borrow from financial institutions and issue additional debt and equity securities. If we fail to obtain fundsfrom such sources or from other sources to fund our investments, it could limit our ability to grow, which may have an adverse effect on the value of oursecurities. In addition, as a BDC, our ability to borrow or issue preferred stock may be restricted if our total assets are less than 200% of our total borrowingsand preferred stock.Any failure on our part to maintain our status as a BDC would reduce our operating flexibility and we may be limited in our investment choices as aBDC.The 1940 Act imposes numerous constraints on the operations of BDCs. For example, BDCs are required to invest at least 70% of their total assets inspecified types of securities, primarily in private companies or thinly-traded U.S. public companies, cash, cash equivalents, U.S. government securities andother high quality debt investments that mature in one year or less. Furthermore, any failure to comply with the requirements imposed on BDCs by the 1940Act could cause the SEC to bring an enforcement action against us and/or expose us to claims of private litigants. In addition, upon approval of a majority ofour stockholders, we may elect to withdraw our status as a BDC. If we decide to withdraw our election, or if we otherwise fail to qualify, or maintain ourqualification, as a BDC, we may be subject to the substantially greater regulation under the 1940 Act as a closed-end investment company. Compliance withsuch regulations would significantly decrease our operating flexibility, and could significantly increase our costs of doing business.Regulations governing our operation as a BDC affect our ability to, and the way in which we will, raise additional capital. As a BDC, the necessity ofraising additional capital may expose us to risks, including the typical risks associated with leverage.In order to satisfy the tax requirements applicable to a RIC, to avoid payment of excise taxes and to minimize or avoid payment of income taxes, weintend to distribute to our stockholders substantially all of our ordinary income and realized net capital gains except for certain realized net long-term capitalgains, which we may retain, pay applicable income taxes with respect thereto and elect to treat as deemed distributions to our stockholders. We may issuedebt securities or preferred stock and/or borrow money from banks or other financial institutions, which we refer to collectively as “senior securities,” up tothe maximum amount permitted by the 1940 Act. Under the provisions of the 1940 Act, we are permitted, as a BDC, to issue senior securities in amounts suchthat our asset coverage ratio, as defined in the 1940 Act, equals at least 200% of gross assets less all liabilities and indebtedness not represented by seniorsecurities, after each issuance of senior securities. If the value of our assets declines, we may be unable to satisfy this test. If that happens, we may be requiredto sell a portion of our investments and, depending on the nature of our leverage, repay a portion of our indebtedness at a 39Table of Contentstime when such sales may be disadvantageous. Also, any amounts that we use to service our indebtedness would not be available for distributions to ourcommon stockholders. Furthermore, as a result of issuing senior securities, we would also be exposed to typical risks associated with leverage, including anincreased risk of loss.As of December 31, 2013, we had $61.4 million outstanding under the Credit Facility. If we issue preferred stock, the preferred stock would rank“senior” to common stock in our capital structure, preferred stockholders would have separate voting rights on certain matters and might have other rights,preferences, or privileges more favorable than those of our common stockholders, and the issuance of preferred stock could have the effect of delaying,deferring or preventing a transaction or a change of control that might involve a premium price for holders of our common stock or otherwise be in your bestinterest.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, orwarrants, options or rights to acquire our common stock, at a price below the then-current net asset value per share of our common stock if our board ofdirectors determines that such sale is in the best interests of Solar Senior Capital and its stockholders, and our stockholders approve such sale. In any suchcase, the price at which our securities are to be issued and sold may not be less than a price that, in the determination of our board of directors, closelyapproximates the market value of such securities (less any distributing commission or discount). If we raise additional funds by issuing more common stockor senior securities convertible into, or exchangeable for, our common stock, then the percentage ownership of our stockholders at that time will decrease,and you might experience dilution. This dilution would occur as a result of a proportionately greater decrease in a stockholder’s interest in our earnings andassets and voting interest in us than the increase in our assets resulting from such issuance. Because the number of future shares of common stock that may beissued below our net asset value per share and the price and timing of such issuances are not currently known, we cannot predict the actual dilutive effect ofany such issuance. We cannot determine the resulting reduction in our net asset value per share of any such issuance. We also cannot predict whether sharesof our common stock will trade above, at or below our net asset value.At our 2013 Annual Stockholders Meeting, our stockholders approved our ability to sell or otherwise issue shares of our common stock, not exceeding25% of our then outstanding common stock immediately prior to each such offering, at a price or prices below the then current net asset value per share, ineach case subject to the approval of our board of directors and compliance with the conditions set forth in the proxy statement pertaining thereto, during aperiod beginning on April 30, 2013 and expiring on the earlier of the one-year anniversary of the date of the 2013 Annual Stockholders Meeting and the dateof our 2014 Annual Stockholders Meeting, which is expected to be held in May 2014. However, notwithstanding such stockholder approval, since our initialpublic offering on February 24, 2011, we have not sold any shares of our common stock at a price below our then current net asset value per share. Anyoffering of our common stock that requires stockholder approval must occur, if at all, within one year after receiving such stockholder approval.Our stockholders may experience dilution in their ownership percentage if they do not participate in our dividend reinvestment plan.All dividends declared in cash payable to stockholders that are participants in our dividend reinvestment plan are generally automatically reinvestedin shares of our common stock. As a result, stockholders that do not participate in the dividend reinvestment plan may experience dilution over time.Stockholders who do not elect to receive dividends in shares of common stock may experience accretion to the net asset value of their shares if our shares aretrading at a premium and dilution if our shares are trading at a discount. The level of accretion or discount would depend on various factors, including theproportion of our stockholders who participate in the plan, the level of premium or discount at which our shares are trading and the amount of the dividendpayable to a stockholder. 40Table of ContentsWe may borrow money, which would magnify the potential for loss on amounts invested and may increase the risk of investing in us.The use of leverage magnifies the potential for loss on amounts invested and, therefore, increases the risks associated with investing in our securities.As of December 31, 2013, we had $61.4 million outstanding under the Credit Facility. We may borrow from and/or issue senior debt securities to banks,insurance companies and other lenders in the future. Lenders of these senior securities, including the Credit Facility, will have fixed dollar claims on ourassets that are superior to the claims of our common stockholders, and we would expect such lenders to seek recovery against our assets in the event of adefault. If the value of our assets decreases, leveraging would cause net asset value to decline more sharply than it otherwise would have had we notleveraged. Similarly, any decrease in our income would cause net income to decline more sharply than it would have had we not borrowed. Such a declinecould also negatively affect our ability to make dividend payments on our common stock. Leverage is generally considered a speculative investmenttechnique. Our ability to service any debt that we incur will depend largely on our financial performance and will be subject to prevailing economicconditions and competitive pressures. Moreover, as the management fee payable to our investment adviser, Solar Capital Partners, will be payable based onour gross assets, including those assets acquired through the use of leverage, Solar Capital Partners will have a financial incentive to incur leverage whichmay not be consistent with our stockholders’ interests. In addition, our common stockholders will bear the burden of any increase in our expenses as a resultof leverage, including any increase in the management fee payable to Solar Capital Partners.As a BDC, we generally are required to meet a coverage ratio of total assets to total borrowings and other senior securities, which include all of ourborrowings and any preferred stock that we may issue in the future, of at least 200%. Additionally, the Credit Facility requires us to comply with certainfinancial and other restriction covenants, including maintaining an asset coverage ratio of at least 200% at any time. Failure to maintain compliance withthese covenants could result in an event of default and all of our debt being declared immediately due and payable. If this ratio declines below 200%, we maynot be able to incur additional debt and could be required by law to sell a portion of our investments to repay some debt when it is disadvantageous to do so,which could have a material adverse effect on our operations, and we may not be able to make distributions. The amount of leverage that we employ willdepend on our investment adviser’s and our board of directors’ assessment of market and other factors at the time of any proposed borrowing. We cannotassure you that we will be able to obtain credit at all or on terms acceptable to us.In addition, the Credit Facility imposes, and any other debt facility into which we may enter would likely impose financial and operating covenantsthat restrict our business activities, including limitations that could hinder our ability to finance additional loans and investments or to make thedistributions required to maintain our status as a RIC under Subchapter M of the Code.The debt securities that we may issue will be governed by an indenture or other instrument containing covenants restricting our operating flexibility.We, and indirectly our stockholders, bear the cost of issuing and servicing such debt securities. Any convertible or exchangeable securities that we issue inthe future may have rights, preferences and privileges more favorable than those of our common stock.Illustration. The following table illustrates the effect of leverage on returns from an investment in our Company assuming various annual returns onour total assets, net of interest expense. The calculations in the table below are hypothetical and actual returns may be higher or lower than those appearing inthe table below. Assumed total return(net of interest expense) (10)% (5)% 0% 5% 10% Corresponding return to stockholder(1) (13.8)% (7.2)% (0.6)% 5.9% 12.5% (1)Assumes $272.6 million in total assets and $61.4 million in total debt outstanding, which reflects our total assets and total debt outstanding as ofDecember 31, 2013, and a debt cost of funds of 2.20%. Excludes non-leverage related expenses. 41Table of ContentsIt is likely that the terms of any current or future long-term or revolving credit or warehouse facility we may enter into in the future could constrain ourability to grow our business.Under our borrowings and the Credit Facility, current lenders have, and any future lender or lenders may have, fixed dollar claims on our assets that aresenior to the claims of our stockholders and, thus, will have a preference over our stockholders with respect to our assets in the collateral pool. The CreditFacility and borrowings also subject us to various financial and operating covenants, including, but not limited to, maintaining certain financial ratios andminimum tangible net worth amounts. Future credit facilities and borrowings will likely subject us to similar or additional covenants. In addition, we maygrant a securities interest in our assets in connection with any such credit facilities and borrowings.The Credit Facility contains customary default provisions such as a minimum net worth amount, a profitability test, and a restriction on changing ourbusiness and loan quality standards. In addition, the Credit Facility requires the repayment of all outstanding debt on the maturity which may disrupt ourbusiness and potentially the business of our portfolio companies that are financed through the credit facility. An event of default under the Credit Facilitywould likely result, among other things, in termination of the availability of further funds under the Credit Facility and accelerated maturity dates for allamounts outstanding under the Credit Facility, which would likely disrupt our business and, potentially, the business of the portfolio companies whose loanswe finance through the Credit Facility. This could reduce our revenues and, by delaying any cash payment allowed to us under our the Credit Facility untilthe lender has been paid in full, reduce our liquidity and cash flow and impair our ability to grow our business and maintain our status as a RIC.The terms of future available financing may place limits on our financial and operation flexibility. If we are unable to obtain sufficient capital in thefuture, we may be forced to reduce or discontinue our operations, not be able to make new investments, or otherwise respond to changing business conditionsor competitive pressures.To the extent we use debt or preferred stock to finance our investments, changes in interest rates will affect our cost of capital and net investmentincome.To the extent we borrow money, or issue preferred stock, to make investments, our net investment income will depend, in part, upon the differencebetween the rate at which we borrow funds or pay dividends on preferred stock and the rate at which we invest those funds. As a result, we can offer noassurance that a significant change in market interest rates will not have a material adverse effect on our net investment income in the event we use debt tofinance our investments. In periods of rising interest rates, our cost of funds would increase, except to the extent we issue fixed rate debt or preferred stock,which could reduce our net investment income. We expect that our long-term fixed-rate investments will be financed primarily with equity and long-termdebt. We may use interest rate risk management techniques in an effort to limit our exposure to interest rate fluctuations. Such techniques may includevarious interest rate hedging activities to the extent permitted by the 1940 Act.You should also be aware that a rise in the general level of interest rates can be expected to lead to higher interest rates applicable to our debtinvestments. Accordingly, an increase in interest rates may make it easier for us to meet or exceed the incentive fee hurdle rate and may result in a substantialincrease of the amount of incentive fees payable to our investment adviser with respect to our pre-incentive fee net investment income.We may in the future determine to fund a portion of our investments with preferred stock, which would magnify the potential for loss and the risks ofinvesting in us in the same way as our borrowings.Preferred stock, which is another form of leverage, has the same risks to our common stockholders as borrowings because the dividends on anypreferred stock we issue must be cumulative. Payment of such dividends and repayment of the liquidation preference of such preferred stock must takepreference over any dividends or other payments to our common stockholders, and preferred stockholders are not subject to any of our expenses or losses andare not entitled to participate in any income or appreciation in excess of their stated preference. 42Table of ContentsIf we issue preferred stock, the holders of our common stock may pay higher fees to the extent the proceeds are not used to repay outstandingindebtedness and the common stockholders will have less voting power.In the event that we decide to issue preferred stock, the holders of our common stock may pay higher fees to the extent the proceeds are not used torepay outstanding indebtedness because they will bear all costs and expenses relating to the issuance and ongoing maintenance of the preferred stock,including higher investment advisory fees if our total return exceeds the dividend rate on the preferred stock. The common stockholders will have less votingpower if we issue preferred stock because such stock could convey special rights and privileges to its owners. For example, the 1940 Act provides that certainmatters require the separate vote of the holders of any issued and outstanding preferred stock and that preferred stockholders are entitled to vote separatelyfrom holders of common stock to elect two preferred stock directors.Pending legislation may allow us to incur additional leverage.As a business development company, under the 1940 Act generally we are not permitted to incur indebtedness unless immediately after suchborrowing 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 total assets).Recent legislation introduced in the U.S. House of Representatives, if passed, would modify this section of the 1940 Act and increase the amount of debt thatbusiness development companies may incur by modifying the percentage from 200% to 150%. As a result, we may be able to incur additional indebtednessin the future and therefore your risk of an investment in us may increase.There will be uncertainty as to the value of our portfolio investments.A large percentage of our portfolio investments are in the form of securities that are not publicly traded. The fair value of securities and otherinvestments that are not publicly traded may not be readily determinable. We value these securities and the Credit Facility on a quarterly basis in accordancewith our valuation policy, which is at all times consistent with U.S. generally accepted accounting policies (“GAAP”). Our board of directors utilizes theservices of third-party valuation firms to aid it in determining the fair value of these securities and the Credit Facility. The board of directors discussesvaluations and determines the fair value in good faith based on the input of our investment adviser and the respective third-party valuation firms. The factorsthat may be considered in fair value pricing our investments include the nature and realizable value of any collateral, the portfolio company’s ability to makepayments and its earnings, the markets in which the portfolio company does business, comparisons to publicly traded companies, discounted cash flow andother relevant factors. Because such valuations, and particularly valuations of private securities and private companies, are inherently uncertain, mayfluctuate over short periods of time and may be based on estimates, our determinations of fair value may differ materially from the values that would havebeen used if a ready market for these securities existed. Our net asset value could be adversely affected if our determinations regarding the fair value of ourinvestments were materially higher than the values that we ultimately realize upon the disposal of such securities.Our quarterly and annual operating results are subject to fluctuation as a result of the nature of our business, and if we fail to achieve our investmentobjective, the net asset value of our common stock may decline.We could experience fluctuations in our quarterly and annual operating results due to a number of factors, some of which are beyond our control,including, but not limited to, the interest rate payable on the debt securities that we acquire, the default rate on such securities, the level of our expenses,variations in and the timing of the recognition of realized and unrealized gains or losses, changes in our portfolio composition, the degree to which weencounter competition in our markets, market volatility in our publicly traded securities and the securities of our portfolio companies, and general economicconditions. As a result of these factors, results for any period should not be relied upon as being indicative of performance in future periods. In addition, anyof these factors could negatively impact our ability to achieve our investment objectives, which may cause our net asset value of our common stock todecline. 43Table of ContentsOur investments may be in portfolio companies which may have limited operating histories and financial resources.Our portfolio companies compete with larger, more established companies with greater access to, and resources for, further development in newtechnologies. We also expect that our portfolio will continue to consist of investments that may have relatively limited operating histories. These companiesmay be particularly vulnerable to U.S. and foreign economic downturns such as the current recession and European financial crisis, may have more limitedaccess to capital and higher funding costs, may have a weaker financial position and may need more capital to expand or compete. These businesses also mayexperience substantial variations in operating results. They may face intense competition, including from companies with greater financial, technical andmarketing resources. Furthermore, some of these companies do business in regulated industries and could be affected by changes in government regulation.Accordingly, these factors could impair their cash flow or result in other events, such as bankruptcy, which could limit their ability to repay their obligationsto us, and may adversely affect the return on, or the recovery of, our investment in these companies. We cannot assure you that any of our investments in ourportfolio companies will be successful. Therefore, we may lose our entire investment in any or all of our portfolio companies.There are significant potential conflicts of interest, including Solar Capital Partners’ management of Solar Capital, which could impact our investmentreturns; you will not be purchasing an investment in Solar Capital.Our executive officers and directors, as well as the current and future partners of our investment adviser, Solar Capital Partners, may serve as officers,directors or principals of entities that operate in the same or a related line of business as we do. Currently, the executive officers and directors, as well as thecurrent partners of our investment adviser, Solar Capital Partners, serve as officers and directors of Solar Capital, a publicly-traded BDC. Accordingly, theymay have obligations to investors in those entities, including to investors of Solar Capital, the fulfillment of which obligations might not be in the bestinterests of us or our stockholders. In addition, we note that any affiliate currently existing, or formed in the future, and managed by our investment adviser orany of its affiliates may, notwithstanding different stated investment objectives, have overlapping investment objectives with our own and, accordingly, mayinvest in asset classes similar to those targeted by us. As a result, Solar Capital Partners may face conflicts in allocating investment opportunities between usand such other entities. Although Solar Capital Partners will endeavor to allocate investment opportunities in a fair and equitable manner, it is possible that,in the future, we may not be given the opportunity to participate in investments made by investment funds managed by our investment adviser or aninvestment manager affiliated with our investment adviser. In any such case, when Solar Capital Partners identifies an investment, it will be forced to choosewhich investment fund should make the investment.We may co-invest on a concurrent basis with Solar Capital, and any other affiliates that our investment adviser has or forms in the future, subject tocompliance with applicable regulations and regulatory guidance and our allocation procedures. In certain circumstances, negotiated co-investments may bemade only if we receive an order from the SEC permitting us to do so. There can be no assurance that any such order will be obtained.In the course of our investing activities, we pay management and incentive fees to Solar Capital Partners and reimburse Solar Capital Management forcertain expenses it incurs. As a result, investors in our common stock will invest on a “gross” basis and receive distributions on a “net” basis after expenses,resulting in a lower rate of return than an investor might achieve through direct investments. Accordingly, there may be times when the management team ofSolar Capital Partners has interests that differ from those of our stockholders, giving rise to a conflict.We have entered into a royalty-free license agreement with our investment adviser, pursuant to which our investment adviser has granted us a non-exclusive license to use the name “Solar Senior Capital.” Under the License Agreement, we have the right to use the “Solar Senior Capital” name for so longas Solar Capital Partners or one of its affiliates remains our investment adviser. In addition, we reimburse Solar Capital 44Table of ContentsManagement, an affiliate of Solar Capital Partners, our allocable portion of overhead and other expenses incurred by Solar Capital Management inperforming its obligations under the Administration Agreement, including rent, the fees and expenses associated with performing compliance functions, andour allocable portion of the compensation of our chief financial officer and any administrative support staff. These arrangements create conflicts of interestthat our board of directors must monitor.We may be obligated to pay our investment adviser incentive compensation even if we incur a loss.Our investment adviser will be entitled to incentive compensation for each fiscal quarter in an amount equal to a percentage of the excess of our pre-incentive fee net investment income for that quarter (before deducting incentive compensation) above a performance threshold for that quarter. Accordingly,since the performance threshold is based on a percentage of our net asset value, decreases in our net asset value make it easier to achieve the performancethreshold. Our pre-incentive fee net investment income for incentive compensation purposes excludes realized and unrealized capital losses or depreciationthat we may incur in the fiscal quarter, even if such capital losses or depreciation result in a net loss on our statement of operations for that quarter. Thus, wemay be required to pay Solar Capital Partners incentive compensation for a fiscal quarter even if there is a decline in the value of our portfolio or we incur anet loss for that quarter.Our incentive fee may induce Solar Capital Partners to pursue speculative investments.The incentive fee payable by us to Solar Capital Partners may create an incentive for Solar Capital Partners to pursue investments on our behalf that areriskier or more speculative than would be the case in the absence of such compensation arrangement. The incentive fee payable to our investment adviser iscalculated based on a percentage of our return on invested capital. This may encourage our investment adviser to use leverage to increase the return on ourinvestments. Under certain circumstances, the use of leverage may increase the likelihood of default, which would impair the value of our common stock. Inaddition, the investment adviser receives the incentive fee based, in part, upon net capital gains realized on our investments. Unlike that portion of theincentive fee based on income, there is no hurdle rate applicable to the portion of the incentive fee based on net capital gains. As a result, the investmentadviser may have a tendency to invest more capital in investments that are likely to result in capital gains as compared to income producing securities. Sucha practice could result in our investing in more speculative securities than would otherwise be the case, which could result in higher investment losses,particularly during economic downturns.The incentive fee payable by us to our investment adviser also may induce Solar Capital Partners to invest on our behalf in instruments that have adeferred interest feature, even if such deferred payments would not provide cash necessary to enable us to pay current distributions to our shareholders. Underthese investments, we would accrue interest over the life of the investment but would not receive the cash income from the investment until the end of theterm. Our net investment income used to calculate the income portion of our investment fee, however, includes accrued interest. Thus, a portion of thisincentive fee would be based on income that we have not received in cash. In addition, the “catch-up” portion of the incentive fee may encourage SolarCapital Partners to accelerate or defer interest payable by portfolio companies from one calendar quarter to another, potentially resulting in fluctuations intiming and dividend amounts.We may invest, to the extent permitted by law, in the securities and instruments of other investment companies, including private funds, and, to theextent we so invest, will bear our ratable share of any such investment company’s expenses, including management and performance fees. We will alsoremain obligated to pay management and incentive fees to Solar Capital Partners with respect to the assets invested in the securities and instruments of otherinvestment companies. With respect to each of these investments, each of our stockholders will bear his or her share of the management and incentive fee ofSolar Capital Partners as well as indirectly bearing the management and performance fees and other expenses of any investment companies in which weinvest. 45Table of ContentsWe will become subject to corporate-level income tax if we are unable to qualify and maintain our qualification as a regulated investment companyunder Subchapter M of the Code.Although we have elected to be treated as a RIC under Subchapter M of the Code, no assurance can be given that we will continue to be able to qualifyfor and maintain RIC status. To obtain and maintain RIC tax treatment under the Code, we must meet the following annual distribution, income source andasset 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 netordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any. Because we may use debtfinancing, we will be subject to certain asset coverage ratio requirements under the 1940 Act and financial covenants under loan and creditagreements that could, under certain circumstances, restrict us from making distributions necessary to satisfy the distribution requirement. If weare unable to obtain cash from other sources, we could fail to qualify for RIC tax treatment and thus become subject to corporate-level incometax. • The income source requirement will be satisfied if we obtain at least 90% of our income for each year from dividends, interest, gains from the saleof 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 ourtaxable year. Failure to meet those requirements may result in our having to dispose of certain investments quickly in order to prevent the loss ofRIC status. Because most of our investments will be in private companies, and therefore will be relatively illiquid, any such dispositions couldbe made at disadvantageous prices and could result in substantial losses.If we fail to qualify for RIC tax treatment for any reason and remain or become subject to corporate income tax, the resulting corporate taxes couldsubstantially reduce our net assets, the amount of income available for distribution and the amount of our distributions. Such a failure would have a materialadverse effect on us, the net asset value of our common stock and the total return, if any, obtainable from your investment in our common stock. Any netoperating losses that we incur in periods during which we qualify as a RIC will not offset net capital gains (i.e., net realized long-term capital gains in excessof net realized short-term capital losses) that we are otherwise required to distribute, and we cannot pass such net operating losses through to ourstockholders. In addition, net operating losses that we carry over to a taxable year in which we qualify as a RIC normally cannot offset ordinary income orcapital gains.We may have difficulty satisfying the annual distribution requirement in order to qualify and maintain RIC status if we recognize income before orwithout receiving cash representing such income.In accordance with generally accepted accounting principles and tax requirements, we include in income certain amounts that we have not received incash, such as contractual payment-in-kind (PIK) interest, which represents contractual interest added to a loan balance and due at the end of such loan’s term.In addition to the cash yields received on our loans, in some instances, certain loans may also include any of the following: end-of-term payments, exit fees,balloon payment fees or prepayment fees. The increases in loan balances as a result of contractual PIK arrangements are included in income for the period inwhich such payment-in-kind interest was accrued, which is often in advance of receiving cash payment, and are separately identified on our statements ofcash flows. We also may be required to include in income certain other amounts prior to receiving the related cash.Any warrants that we receive in connection with our debt investments will generally be valued as part of the negotiation process with the particularportfolio company. As a result, a portion of the aggregate purchase price for the debt investments and warrants will be allocated to the warrants that wereceive. This will generally result in “original issue discount” for tax purposes, which we must recognize as ordinary income, increasing the amount that weare required to distribute to qualify for the federal income tax benefits applicable to RICs. Because these warrants generally will not produce distributablecash for us at the same time as we are required to 46Table of Contentsmake distributions in respect of the related original issue discount, we would need to obtain cash from other sources or to pay a portion of our distributionsusing shares of newly issued common stock, consistent with Internal Revenue Service requirements, to satisfy such distribution requirements.Other features of the debt instruments that we hold may also cause such instruments to generate an original issue discount, resulting in a dividenddistribution requirement in excess of current cash interest received. Since in certain cases we may recognize income before or without receiving cashrepresenting such income, we may have difficulty meeting the RIC tax requirement to distribute at least 90% of our net ordinary income and realized netshort-term capital gains in excess of realized net long-term capital losses, if any. Under such circumstances, we may have to sell some of our investments attimes we would not consider advantageous, raise additional debt or equity capital or reduce new investment originations to meet these distributionrequirements. If we are unable to obtain cash from other sources and are otherwise unable to satisfy such distribution requirements, we may fail to qualify forthe federal income tax benefits allowable to RICs and, thus, become subject to a corporate-level income tax on all our income.Our board of directors is authorized to reclassify any unissued shares of common stock into one or more classes of preferred stock, which could conveyspecial rights and privileges to its owners.Under the Maryland General Corporation Law and our charter, our board of directors is authorized to classify and reclassify any authorized butunissued shares of stock into one or more classes of stock, including preferred stock. Prior to issuance of shares of each class or series, the board of directors isrequired by Maryland law and our charter to set the terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends orother distributions, qualifications and terms or conditions of redemption for each class or series. Thus, the board of directors could authorize the issuance ofshares of preferred stock with terms and conditions which could have the effect of delaying, deferring or preventing a transaction or a change in control thatmight involve a premium price for holders of our common stock or otherwise be in their best interest. The cost of any such reclassification would be borne byour existing common stockholders. Certain matters under the 1940 Act require the separate vote of the holders of any issued and outstanding preferred stock.For example, holders of preferred stock would vote separately from the holders of common stock on a proposal to cease operations as a BDC. In addition, the1940 Act provides that holders of preferred stock are entitled to vote separately from holders of common stock to elect two preferred stock directors. Wecurrently have no plans to issue preferred stock. The issuance of preferred shares convertible into shares of common stock might also reduce the net incomeand net asset value per share of our common stock upon conversion, provided, that we will only be permitted to issue such convertible preferred stock to theextent we comply with the requirements of Section 61 of the 1940 Act, including obtaining common stockholder approval. These effects, among others,could have an adverse effect on your investment in our common stock.Provisions of the Maryland General Corporation Law and of our charter and bylaws could deter takeover attempts and have an adverse impact on theprice of our common stock.The Maryland General Corporation Law and our charter and bylaws contain provisions that may discourage, delay or make more difficult a change incontrol of Solar Senior Capital or the removal of our directors. We are subject to the Maryland Business Combination Act, subject to any applicablerequirements of the 1940 Act. Our board of directors has adopted a resolution exempting from the Maryland Business Combination Act any businesscombination between us and any other person, subject to prior approval of such business combination by our board, including approval by a majority of ourdisinterested directors. If the resolution exempting business combinations is repealed or our board does not approve a business combination, the MarylandBusiness Combination Act may discourage third parties from trying to acquire control of us and increase the difficulty of consummating such an offer. Ourbylaws exempt from the Maryland Control Share Acquisition Act acquisitions of our stock by any person. If we amend our bylaws to repeal the exemptionfrom the Maryland Control Share Acquisition Act, the Maryland Control Share Acquisition Act also may make it more difficult for a third party to obtaincontrol of us and increase the difficulty of consummating such a transaction. However, we will amend our bylaws to be subject to the Maryland Control ShareAct only if our board of directors determines that it would be 47Table of Contentsin our best interests and if the SEC staff does not object to our determination that our being subject to the Maryland Control Share Act does not conflict withthe 1940 Act. The SEC staff has issued informal guidance setting forth its position that certain provisions of the Maryland Control Share Act would, ifimplemented, violate Section 18(i) of the 1940 Act.We have also adopted measures that may make it difficult for a third party to obtain control of us, including provisions of our charter classifying ourboard of directors in three classes serving staggered three-year terms, and authorizing our board of directors to classify or reclassify shares of our stock in oneor more classes or series, to cause the issuance of additional shares of our stock, to amend our charter without stockholder approval and to increase or decreasethe number of shares of stock that we have authority to issue. These provisions, as well as other provisions of our charter and bylaws, may delay, defer orprevent a transaction or a change in control that might otherwise be in the best interests of our stockholders.We are highly dependent on information systems and systems failures could significantly disrupt our business, which may, in turn, negatively affect themarket 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. Ourfinancial, accounting, data processing, backup or other operating systems and facilities may fail to operate properly or become disabled or damaged as aresult 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; • disease pandemics; • events arising from local or larger scale political or social matters, including terrorist acts; and • cyber attacks.These events, in turn, could have a material adverse effect on our operating results and negatively affect the market price of our common stock and ourability to pay dividends to our stockholders.Our board of directors may change our investment objective, operating policies and strategies without prior notice or stockholder approval.Our board of directors has the authority to modify or waive certain of our operating policies and strategies without prior notice (except as required bythe 1940 Act) and without stockholder approval. However, absent stockholder approval, we may not change the nature of our business so as to cease to be, orwithdraw our election as, a BDC. We cannot predict the effect any changes to our current operating policies and strategies would have on our business,operating results and value of our stock. Nevertheless, the effects may adversely affect our business and impact our ability to make distributions.Our business is subject to increasingly complex corporate governance, public disclosure and accounting requirements that could adversely affect ourbusiness and financial results.We are subject to changing rules and regulations of federal and state government as well as the stock exchange on which our common stock is listed.These entities, including the Public Company Accounting Oversight Board, the SEC and the NASDAQ Stock Market, have issued a significant number ofnew and increasingly complex requirements and regulations over the course of the last several years and continue to develop additional regulations andrequirements in response to laws enacted by Congress. 48Table of ContentsOn July 21, 2010, the Wall Street Reform and Consumer Protection Act, or Dodd-Frank Act, was signed into law. Although passage of the Dodd-FrankAct has resulted in extensive rulemaking and regulatory changes that affect us and the financial industry as a whole, many of its provisions remain subject toextended implementation periods and delayed effective dates and will require extensive rulemaking by regulatory authorities. While the full impact of theDodd-Frank Act on us and our portfolio companies may not be known for an extended period of time, the Dodd-Frank Act, including future rulesimplementing its provisions and the interpretation of those rules, along with other legislative and regulatory proposals directed at the financial servicesindustry or affecting taxation that are proposed or pending in the U.S. Congress, may negatively impact the operations, cash flows or financial condition of usor our portfolio companies, impose additional costs on us or our portfolio companies, intensify the regulatory supervision of us or our portfolio companies orotherwise adversely affect our business or the business of our portfolio companies.Changes in laws or regulations governing our operations may adversely affect our business.Changes in the laws or regulations, or the interpretations of the laws and regulations, which govern business development companies, RICs or non-depository commercial lenders could significantly affect our operations and our cost of doing business. We are subject to federal, state and local laws andregulations and are subject to judicial and administrative decisions that affect our operations, including our loan originations, maximum interest rates, feesand other charges, disclosures to portfolio companies, the terms of secured transactions, collection and foreclosure procedures, and other trade practices. Ifthese laws, regulations or decisions change, or if we expand our business into jurisdictions that have adopted more stringent requirements than those in whichwe currently conduct business, then we may have to incur significant expenses in order to comply or we may have to restrict our operations. In addition, if wedo not comply with applicable laws, regulations and decisions, then we may lose licenses needed for the conduct of our business and be subject to civil finesand criminal penalties, any of which could have a material adverse effect upon our business results of operations or financial condition.Over the last several years, there has been an increase in regulatory attention to the extension of credit outside of the traditional banking sector, raisingthe possibility that some portion of the non-bank financial sector will be subject to new regulation. While it cannot be known at this time whether theseregulations will be implemented or what form they will take, increased regulation of non-bank credit extension could negatively impact our operations, cashflows or financial condition, impose additional costs on us, intensify the regulatory supervision of us or otherwise adversely affect our business.Our investment adviser can resign on 60 days’ notice, and we may not be able to find a suitable replacement within that time, resulting in a disruptionin our operations that could adversely affect our financial condition, business and results of operations.Our investment adviser has the right, under the Investment Advisory and Management Agreement, to resign at any time on 60 days’ written notice,whether we have found a replacement or not. If our investment adviser resigns, we may not be able to find a new investment adviser or hire internalmanagement with similar expertise and ability to provide the same or equivalent services on acceptable terms within 60 days, or at all. If we are unable to doso quickly, our operations are likely to experience a disruption, our financial condition, business and results of operations as well as our ability to paydistributions are likely to be adversely affected and the market price of our shares may decline. In addition, the coordination of our internal management andinvestment activities is likely to suffer if we are unable to identify and reach an agreement with a single institution or group of executives having theexpertise possessed by our investment adviser and its affiliates. Even if we are able to retain comparable management, whether internal or external, theintegration of such management and their lack of familiarity with our investment objective may result in additional costs and time delays that may adverselyaffect our financial condition, business and results of operations. 49Table of ContentsItem 1B.Unresolved Staff CommentsNone. Item 2.PropertiesOur executive offices are located at 500 Park Avenue, New York, New York 10022, and are provided by Solar Capital Management in accordance withthe terms of the Administration Agreement. We believe that our office facilities are suitable and adequate for our business as it is presently conducted. Item 3.Legal ProceedingsWe are not currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us. Fromtime to time, we may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of ourrights under contracts with our portfolio companies. While the outcome of these legal proceedings cannot be predicted with certainty, we do not expect thatthese proceedings will have a material effect upon our financial condition or results of operations. Item 4.Mine Safety DisclosuresNot applicable. 50Table of ContentsPART II Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesPrice Range of Common StockOur common stock is traded on the NASDAQ Global Select Market under the symbol “SUNS”. The following table sets forth, for each fiscal quarterduring the last two fiscal years, the net asset value (“NAV”) per share of our common stock, the high and low closing sale prices for our common stock, suchsale prices as a percentage of NAV per share and quarterly distributions per share. Fiscal 2013 Price Range Premium or(Discount) of HighClosing Sale Priceto NAV(2) Premium or(Discount) ofLow ClosingSale Price toNAV(2) DeclaredDividends(3) NAV(1) High Low Fourth Quarter $18.04 $18.87 $17.73 4.6% (1.7)% $0.3525 Third Quarter 17.91 19.30 17.68 7.8 (1.3) 0.3525 Second Quarter 18.03 19.37 17.98 7.4 (0.3) 0.3525 First Quarter 18.25 19.45 18.55 6.6 1.6 0.3525 Fiscal 2012 Fourth Quarter $18.33 $18.84 $17.10 2.8% (6.7)% $0.3525 Third Quarter 18.60 18.42 16.72 (1.0) (10.1) 0.3375 Second Quarter 18.54 17.19 15.65 (7.3) (15.6) 0.30 First Quarter 18.45 17.27 15.43 (6.4) (16.4) 0.30 (1)Net asset value per share is determined as of the last day in the relevant quarter and therefore may not reflect the net asset value per share on the date ofthe high and low sales prices. The net asset values shown are based on outstanding shares at the end of each period.(2)Calculated as the respective high or low closing sales price divided by NAV and subtracting 1.(3)Represents the cash dividend or distribution declared for the specified quarter.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 ofcommon stock will trade at a discount from net asset value or at premiums that are unsustainable over the long term are separate and distinct from the risk thatour net asset value will decrease. Since our initial public offering on February 24, 2011, our shares of common stock have traded at both a discount and apremium to the net assets attributable to those shares.The last reported closing market price of our common stock on February 21, 2014 was $18.58 per share. As of February 21, 2014, we had 4stockholders of record.DIVIDENDSTax characteristics of all dividends will be reported to shareholders on Form 1099 after the end of the calendar year. Future monthly dividends, if any,will be determined by our Board. We expect that our dividends and distributions to stockholders will generally be from accumulated net investment incomeand from net realized capital gains, if any, as applicable.We have elected to be taxed as a RIC under Subchapter M of the Code. To maintain our RIC status, we must distribute at least 90% of our ordinaryincome and realized net short-term capital gains in excess of realized net long-term capital losses, if any, out of the assets legally available for distribution. Inaddition, although we 51Table of Contentscurrently intend to distribute realized net capital gains (i.e., net long-term capital gains in excess of short-term capital losses), if any, at least annually, out ofthe assets legally available for such distributions, we may in the future decide to retain such capital gains for investment.We maintain an “opt out” dividend reinvestment plan for our common stockholders. As a result, if we declare a dividend, then stockholders’ cashdividends will be automatically reinvested in additional shares of our common stock, unless they specifically “opt out” of the dividend reinvestment plan soas to receive cash dividends.We may not be able to achieve operating results that will allow us to make distributions at a specific level or to increase the amount of thesedistributions from time to time. In addition, due to the asset coverage test applicable to us as a business development company, we may in the future belimited in our ability to make distributions. Also, our revolving credit facility may limit our ability to declare dividends if we default under certainprovisions. If we do not distribute a certain percentage of our income annually, we will suffer adverse tax consequences, including possible loss of the taxbenefits available to us as a regulated investment company. In addition, in accordance with U.S. generally accepted accounting principles and taxregulations, we include in income certain amounts that we have not yet received in cash, such as contractual payment-in-kind interest, which representscontractual interest added to the loan balance that becomes due at the end of the loan term, or the accrual of original issue or market discount. Since we mayrecognize income before or without receiving cash representing such income, we may have difficulty meeting the requirement to distribute at least 90% ofour investment company taxable income to obtain tax benefits as a regulated investment company.With respect to the dividends to stockholders, income from origination, structuring, closing, commitment and certain other upfront fees associated withinvestments in portfolio companies are treated as taxable income and accordingly, distributed to stockholders.We cannot assure stockholders that they will receive any dividends and distributions or dividends and distributions at a particular level.All dividends declared in cash payable to stockholders that are participants in our dividend reinvestment plan are generally automatically reinvestedin shares of our common stock. As a result, stockholders that do not participate in the dividend reinvestment plan may experience dilution over time.Stockholders who do not elect to receive dividends in shares of common stock may experience accretion to the net asset value of their shares if our shares aretrading at a premium and dilution if our shares are trading at a discount. The level of accretion or discount would depend on various factors, including theproportion of our stockholders who participate in the plan, the level of premium or discount at which our shares are trading and the amount of the dividendpayable to a stockholder. 52Table of ContentsThe following table reflects dividends and distributions per share on our common stock since our initial public offering: Date Declared Record Date Payment Date Amount Fiscal 2014 February 25, 2014 March 20, 2014 April 1, 2014 $0.1175 February 6, 2014 February 20, 2014 February 28, 2014 0.1175 January 9, 2014 January 23, 2014 January 31, 2014 0.1175 Total (2014) $0.3525 Fiscal 2013 December 5, 2013 December 19, 2013 January 3, 2014 $0.1175 October 30, 2013 November 21, 2013 December 3, 2013 0.1175 October 8, 2013 October 24, 2013 November 1, 2013 0.1175 September 5, 2013 September 19, 2013 October 2, 2013 0.1175 July 31, 2013 August 22, 2013 September 4, 2013 0.1175 July 9, 2013 July 25, 2013 August 1, 2013 0.1175 June 5, 2013 June 20, 2013 July 2, 2013 0.1175 May 7, 2013 May 23, 2013 June 3, 2013 0.1175 April 8, 2013 April 25, 2013 May 1, 2013 0.1175 February 25, 2013 March 21, 2013 April 2, 2013 0.1175 February 5, 2013 February 21, 2013 March 1, 2013 0.1175 January 8, 2013 January 24, 2013 February 1, 2013 0.1175 Total (2013) $1.41 Fiscal 2012 December 6, 2012 December 20, 2012 January 3, 2013 $0.1175 November 1, 2012 November 22, 2012 December 4, 2012 0.1175 October 4, 2012 October 25, 2012 November 2, 2012 0.1175 September 11, 2012 September 20, 2012 October 2, 2012 0.1175 July 31, 2012 August 23, 2012 September 5, 2012 0.115 July 9, 2012 July 19, 2012 August 2, 2012 0.105 June 11, 2012 June 21, 2012 July 2, 2012 0.10 May 1, 2012 May 18, 2012 June 4, 2012 0.10 April 5, 2012 April 18, 2012 May 2, 2012 0.10 February 22, 2012 March 20, 2012 April 3, 2012 0.10 February 3, 2012 February 17, 2012 March 2, 2012 0.10 January 6, 2012 January 19, 2012 February 2, 2012 0.10 Total (2012) $1.29 Fiscal 2011 December 6, 2011 December 15, 2011 December 29, 2011 $0.10 November 1, 2011 November 18, 2011 December 2, 2011 0.09 October 7, 2011 October 19, 2011 November 2, 2011 0.08 September 12, 2011 September 20, 2011 October 4, 2011 0.08 August 2, 2011 August 19, 2011 September 2, 2011 0.08 July 7, 2011 July 18, 2011 August 1, 2011 0.07 June 6, 2011 June 16, 2011 June 30, 2011 0.05 Total (2011) $0.55 53Table of ContentsSale of Unregistered SecuritiesInformation regarding the Company’s sales of equity securities that were not registered under the Securities Act was previously included in theCompany’s quarterly report on Form 10-Q for the quarter ended March 31, 2011.STOCK PERFORMANCE GRAPHThis graph compares the return on our common stock with that of the Standard & Poor’s 500 Stock Index and the Russell 2000 Financial ServicesIndex, as we do not believe there is an appropriate index of companies with an investment strategy similar to our own with which to compare the return onour common stock, for the period from February 24, 2011 (the date that shares of our common stock began trading on the NASDAQ Global Select Market)through December 31, 2013. The graph assumes that a person invested $10,000 in each of the following: our common stock (SUNS), the S&P 500 Index, andthe Russell 2000 Financial Index. The graph measures total stockholder return, which takes into account both changes in stock price and dividends. Itassumes that dividends paid are invested in like securities. The graph and other information furnished under this Part II Item 5 of this Form 10-K shall not be deemed to be “soliciting material” or to be “filed”with the SEC or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the 1934 Act. The stock price performance included in the abovegraph is not necessarily indicative of future stock price performance. 54Table of ContentsItem 6.Selected Financial DataThe selected financial and other data below should be read in conjunction with our “Management’s Discussion and Analysis of Financial Conditionand Results of Operations” and the consolidated financial statements and notes thereto. Financial information is presented for the fiscal years endedDecember 31, 2013 and 2012 as well as for the period from January 28, 2011 (commencement of operations) through December 31, 2011. Financialinformation has been derived from our consolidated financial statements that were audited by KPMG LLP (“KPMG”), an independent registered publicaccounting firm. ($ in thousands, except pershare data) Year endedDecember 31,2013 Year endedDecember 31,2012 Period fromJanuary 28, 2011 toDecember 31, 2011 Income statement data: Total investment income $19,765 $20,539 $7,890 Total expenses $6,378 $8,046 $5,290 Net investment income $13,387 $12,493 $2,600 Net realized gain (loss) $(4,978) $618 $(576) Net change in unrealized gain (loss). $4,209 $801 $(2,274) Net increase (decrease) in net assets resulting fromoperations $12,618 $13,912 $(250) Per share data: Net investment income(4) $1.17 $1.32 $0.30 Net realized and unrealized gain (loss)(4) $(0.07) $0.15 $(0.33) Dividends and distributions declared $1.41 $1.29 $0.55 As ofDecember 31,2013 As ofDecember 31,2012 As ofDecember 31,2011 Balance sheet data: Total investment portfolio $267,852 $212,602 $177,749 Cash $2,774 $2,647 $2,934 Total assets $272,561 $217,029 $187,395 Debt $61,400 $39,100 $8,600 Net assets $208,017 $174,103 $172,435 Per share data: Net asset value per share $18.04 $18.33 $18.15 Other data (unaudited): Weighted average annualized yield on income producinginvestments: On fair value(2) 7.5% 7.8% 8.5% On cost(3) 7.8% 7.7% 8.4% Number of portfolio companies at period end 36 31 21 (1)Commencement of operations(2)Throughout this document, the weighted average yield on income producing investments is computed as the (a) annual stated interest on accruingloans and debt securities plus the annual amortization of loan origination fees, original issue discount, and market discount on accruing loans and debtsecurities divided by (b) total income producing investments at fair value. The weighted average yield is computed as of the balance sheet date andexcludes assets on non-accrual status or on a cost recovery basis as of such date.(3)For this calculation, the weighted average yield on income producing investments is computed as the (a) annual stated interest on accruing loans anddebt securities plus the annual amortization of loan origination fees, original issue discount, and market discount on accruing loans and debt securitiesdivided by (b) total income producing investments at cost. The weighted average yield is computed as of the balance sheet date and excludes assets onnon-accrual status or on a cost recovery basis as of such date. 55(1)Table of Contents(4)The per-share calculations are based on weighted average shares of 11,423,958, 9,500,100 and 8,627,696 for the years ended December 31, 2013, 2012and 2011, respectively. Item 7.Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe information contained in this section should be read in conjunction with the Selected Financial and Other Data and our Consolidated FinancialStatements and notes thereto appearing elsewhere in this report.Some of the statements in this report constitute forward-looking statements, which relate to future events or our future performance or financialcondition. The forward-looking statements contained herein involve risks and uncertainties, including statements as to: • our future operating results; • our business prospects and the prospects of our portfolio companies; • the impact of investments that we expect to make; • our contractual arrangements and relationships with third parties; • the dependence of our future success on the general economy and its impact on the industries in which we invest; • the ability of our portfolio companies to achieve their objectives; • our expected financings and investments; • the adequacy of our cash resources and working capital; and • the timing of cash flows, if any, from the operations of our portfolio companies.We generally use words such as “anticipates,” “believes,” “expects,” “intends” and similar expressions to identify forward-looking statements. Ouractual results could differ materially from those projected in the forward-looking statements for any reason, including any factors set forth in “Risk Factors”and elsewhere in this report.We have based the forward-looking statements included in this report on information available to us on the date of this report, and we assume noobligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements, whetheras a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or throughreports that we in the future may file with the SEC, including any annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.OverviewSolar Senior Capital Ltd. (“Solar Senior”, the “Company”, or “we”), a Maryland corporation formed in December 2010, is a closed-end, externallymanaged, non-diversified management investment company that has elected to be treated as a business development company (“BDC”) under the InvestmentCompany Act of 1940, as amended (the “1940 Act”). Furthermore, as the Company is an investment company, it continues to apply the guidance in FASBAccounting Standards Codification (“ASC”) Topic 946. In addition, for tax purposes the Company has elected to be treated as a regulated investmentcompany (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).On February 24, 2011, we priced our initial public offering, selling 9.0 million shares, including the underwriters’ over-allotment, at a price of $20.00per share. Concurrent with this offering, management purchased an additional 500,000 shares through a concurrent private placement, also at $20.00 pershare. 56Table of ContentsOn August 26, 2011, the Company established the SUNS SPV which entered into a $200 million senior secured revolving credit facility (the “CreditFacility”) with Citigroup Global Markets Inc. acting as administrative agent. The Credit Facility was scheduled to mature on August 26, 2016 and generallybore interest at the London Interbank Offered Rate (“LIBOR”) plus 2.25%. The Credit Facility has $150 million immediately available with an additional$50 million available under a delayed draw feature. The Credit Facility can also be expanded up to $600 million and is secured by all of the assets held bythe SUNS SPV. Under the terms of the Credit Facility, Solar Senior and the SUNS SPV, as applicable, have made certain customary representations andwarranties, and are required to comply with various covenants, including leverage restrictions, reporting requirements and other customary requirements forsimilar credit facilities. The Credit Facility also includes usual and customary events of default for credit facilities of this nature.On November 7, 2012, we amended our Credit Facility. As a result of the amendment, the stated interest rate on the Credit Facility was reduced toLIBOR plus 2.00% from LIBOR plus 2.25%, and the Credit Facility continues to have no LIBOR floor requirement. In addition, the amendment reducedcertain non-usage fees. The amendment also provided us greater flexibility and extended the final maturity date to November 6, 2017.We invest primarily in U.S. middle market companies, where we believe the supply of primary capital is limited and the investment opportunities aremost attractive. Our investment objective is to seek to maximize current income consistent with the preservation of capital. We seek to achieve ourinvestment objective by investing primarily in senior loans, including first lien, uni-tranche, and second lien debt instruments, made to private middle-market companies whose debt is rated below investment grade, which we refer to collectively as “senior loans.” We may also invest in debt of publiccompanies that are thinly traded. Under normal market conditions, at least 80% of the value of our net assets (including the amount of any borrowings forinvestment purposes) will be invested in senior loans. Senior loans typically pay interest at rates which are determined periodically on the basis of a floatingbase lending rate, primarily LIBOR, plus a premium. Senior loans in which we expect to invest are typically made to U.S. and, to a limited extent, non-U.S.corporations, partnerships and other business entities which operate in various industries and geographical regions. Senior loans typically are rated belowinvestment grade. Securities rated below investment grade are often referred to as “leveraged loans” or “high yield” securities, and may be considered “highrisk” compared to debt instruments that are rated investment grade.We expect to invest in senior loans made primarily to private, leveraged middle-market companies with approximately $20 million to $100 million ofearnings before income taxes, depreciation and amortization (“EBITDA”). Our business model is focused primarily on the direct origination of investmentsthrough portfolio companies or their financial sponsors. We expect that our investments will generally range between $5 million and $30 million each,although we expect that this investment size will vary proportionately with the size of our capital base. In addition, we may invest a portion of our portfolioin other types of investments, which we refer to as opportunistic investments, which are not our primary focus but are intended to enhance our overall returns.These opportunistic investments may include, but are not limited to, direct investments in public companies that are not thinly traded and securities ofleveraged companies located in select countries outside of the United States. We may invest up to 30% of our total assets in such opportunistic investments,including senior loans issued by non-U.S. issuers, subject to compliance with our regulatory obligations as a BDC under the 1940 Act.As of December 31, 2013, our adviser Solar Capital Partners has invested approximately $3.9 billion in more than 140 different portfolio companiessince it was founded in 2006. Over the same period, Solar Capital Partners completed transactions with more than 100 different financial sponsors. 57Table of ContentsRecent DevelopmentsOn January 9, 2014, our board of directors declared a monthly dividend of $0.1175 per share payable on January 31, 2014 to holders of record as ofJanuary 23, 2014.On February 6, 2014, our board of directors declared a monthly dividend of $0.1175 per share payable on February 28, 2014 to holders of record as ofFebruary 20, 2014.On February 25, 2014, our board of directors declared a monthly dividend of $0.1175 per share payable on April 1, 2014 to holders of record as ofMarch 20, 2014.InvestmentsOur level of investment activity can and does vary substantially from period to period depending on many factors, including the amount of debt andequity capital available to middle market companies, the level of merger and acquisition activity for such companies, the general economic environment andthe competitive environment for the types of investments we make. As a BDC, we must not acquire any assets other than “qualifying assets” specified in the1940 Act unless, at the time the acquisition is made, at least 70% of our total assets are qualifying assets (with certain limited exceptions). Qualifying assetsinclude investments in “eligible portfolio companies.” The definition of “eligible portfolio company” includes certain public companies that do not haveany securities listed on a national securities exchange and companies whose securities are listed on a national securities exchange but whose marketcapitalization is less than $250 million.RevenueWe generate revenue primarily in the form of interest income from the securities we hold and capital gains, if any, on investment securities that we maysell. Our debt investments generally have a stated term of three to seven years and typically bear interest at a floating rate usually determined on the basis of abenchmark London interbank offered rate (“LIBOR”), commercial paper rate, or the prime rate. Interest on our debt investments is generally payable quarterlybut may be monthly or semi-annually. In addition, our investments may provide payment-in-kind (“PIK”) interest. Such amounts of accrued PIK interest areadded to the cost of the investment on the respective capitalization dates and generally become due at maturity of the investment or upon the investmentbeing called by the issuer. We may also generate revenue in the form of commitment, origination, structuring fees, fees for providing managerial assistanceand, if applicable, consulting fees, etc.ExpensesAll investment professionals of Solar Capital Partners (the “Investment Adviser”) and their staff, when and to the extent engaged in providinginvestment advisory and management services to us, and the compensation and routine overhead expenses of that personnel which is allocable to thoseservices are provided and paid for by Solar Capital Partners. We bear all other costs and expenses of our operations and transactions, including those relatingto: • investment advisory and management fees; • expenses incurred by Solar Capital Partners payable to third parties, including agents, consultants or other advisors, in monitoring our financialand legal affairs and in monitoring our investments and performing due diligence on our prospective portfolio companies; • calculation of our net asset value (including the cost and expenses of any independent valuation firm utilized); • direct costs and expenses of administration, including independent registered public accounting and legal costs; • costs of preparing and filing reports or other documents with the SEC; • interest payable on debt, if any, incurred to finance our investments; 58Table of Contents • offerings of our common stock and other securities; • registration and listing fees; • fees payable to third parties, including agents, consultants or other advisors, relating to, or associated with, evaluating and making investments; • transfer agent and custodial fees; • taxes; • independent directors’ fees and expenses; • marketing and distribution-related expenses; • the costs of any reports, proxy statements or other notices to stockholders, including printing and postage costs; • our allocable portion of the fidelity bond, directors and officers/errors and omissions liability insurance, and any other insurance premiums; • organizational costs; and • all other expenses incurred by us or the Administrator in connection with administering our business, such as our allocable portion of overheadunder the administration agreement, including rent and our allocable portion of the cost of our chief financial officer and chief complianceofficer and their respective staffs.We expect our general and administrative operating expenses related to our ongoing operations to increase moderately in dollar terms. During periodsof asset growth, we generally expect our general and administrative operating expenses to decline as a percentage of our total assets and increase duringperiods of asset declines. Incentive fees, interest expense and costs relating to future offerings of securities, among others, may also increase or reduce overalloperating expenses based on portfolio performance, interest rate benchmarks, and offerings of our securities relative to comparative periods, among otherfactors.Portfolio and Investment ActivityDuring our fiscal year ended December 31, 2013, we invested $202.1 million across 26 portfolio companies through a combination of primary andsecondary market purchases. This compares to investing $196.2 million in 28 portfolio companies for the previous fiscal year ended December 31, 2012.Investments sold or prepaid during the fiscal year ended December 31, 2013 totaled $147.9 million versus $162.6 million for the fiscal year endedDecember 31, 2012.At December 31, 2013, our portfolio consisted of 36 portfolio companies and was invested 89% in senior secured loans, 3% in unsecured loans and 8%in common equity, in each case, measured at fair value versus 31 portfolio companies invested 97% in senior secured loans and 3% in unsecured loans atDecember 31, 2012.The weighted average yields on our portfolio of investments were 7.5% and 7.8%, respectively, at December 31, 2013 and December 31, 2012measured at fair value.At December 31, 2013, 92.8% or $244.1 million of our income-producing investment portfolio* is floating rate and 7.2% or $19.0 million is fixed rate,measured at fair value. At December 31, 2012, 98.2% or $208.8 million of our income-producing investment portfolio is floating rate and 1.8% or $3.8million is fixed rate, measured at fair value.Since the initial public offering of Solar Senior Capital Ltd. on February 24, 2011 and through December 31, 2013, invested capital totaledapproximately $610 million in 59 portfolio companies. Over the same period, Solar Senior Capital Ltd. completed transactions with more than 40 differentfinancial sponsors. *We have included Gemino Senior Secured Healthcare LLC as 100% floating rate at December 31, 2013. 59Table of ContentsGemino Senior Secured Healthcare LLCPursuant to a definitive agreement, dated September 30, 2013, we acquired Gemino Healthcare Finance, LLC (d/b/a Gemino Senior Secured HealthcareFinance) (“Gemino”) from affiliates of EDG Partners, D. E. Shaw AQ-SP Series 5-01, L.L.C. and other members of Gemino. Gemino is a commercial financecompany that originates, underwrites, and manages primarily secured, asset-based loans for small and mid-sized companies operating in the healthcareindustry. Our initial investment in Gemino of $32.8 million was funded from our existing credit facility. We have an additional $5.0 million commitment topurchase equity in Gemino (which may be structured as debt or equity in Gemino Senior Secured Healthcare LLC), conditional upon approval of the Geminoboard of managers, among other conditions. The current management team of Gemino has committed to lead Gemino and co-invested in the transaction.Gemino’s management team has approximately 4% of the equity in Gemino.Concurrent with the closing of the transaction, Gemino entered into a new, four-year $100.0 million credit facility, which is expandable to $150.0million under its accordion feature. Pro forma for this transaction and at December 31, 2013, Gemino had $83.0 million outstanding on this credit facility,which is non-recourse to us.On December 31, 2013, we contributed our 32,839 units in Gemino to a newly formed entity called Gemino Senior Secured Healthcare LLC (“GeminoSenior Secured Healthcare”). In exchange for this contribution, we received 19,839 units of common equity and $13.0 million in floating rate secured notesof Gemino Senior Secured Healthcare LLC bearing interest at LIBOR plus 7.50%, maturing on December 31, 2018.We expect Gemino and Gemino Senior Secured Healthcare to be treated as pass-through entities for tax purposes. Gemino Senior Secured Healthcare isexpected to distribute a substantial portion of its current cash earnings to us on a recurring basis.Gemino Senior Secured Healthcare currently manages a highly diverse portfolio of directly-originated and underwritten senior-secured commitments.As of December 31, 2013, the portfolio totaled approximately $170.6 million of commitments, of which $108.6 million were funded. The portfolio consistedof 34 issuers with an average balance outstanding of approximately $3.2 million. All of the commitments in Gemino Senior Secured Healthcare’s portfolioare floating-rate, senior-secured, cash-pay loans. None of these loans were on non-accrual status as of December 31, 2013. For the year ended December 31,2013, Gemino had net income of $0.2 million on gross income of $12.2 million. These results include non-recurring costs related to the acquisition of $3.2million for the year ended December 31, 2013, respectively. Due to the timing of non-cash items, there may be material differences between GAAP netincome and cash distributions available to shareholders.Critical Accounting PoliciesThe preparation of consolidated financial statements and related disclosures in conformity with U.S. GAAP requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financialstatements, and revenues and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified thefollowing items as critical accounting policies.Valuation of Portfolio InvestmentsWe conduct the valuation of our assets, pursuant to which our net asset value is determined, at all times consistent with GAAP, and the 1940 Act. Ourvaluation procedures are set forth in more detail below:The Company conducts the valuation of its assets in accordance with GAAP and the 1940 Act. The Company generally values its assets on a quarterlybasis, or more frequently if required. Investments for which market quotations are readily available on an exchange are valued at the closing price on the dateof valuation. 60Table of ContentsThe Company may also obtain quotes with respect to certain of its investments from pricing services or brokers or dealers in order to value assets. Whendoing so, management determines whether the quote obtained is sufficient according to GAAP to determine the fair value of the investment. If determinedadequate, the Company uses the quote obtained. Debt investments with remaining maturities of 60 days or less shall each be valued at cost with interestaccrued or discount amortized to the date of maturity, unless such valuation, in the judgment of the Investment Adviser, does not represent fair value, inwhich case such investments shall be valued at fair value as determined in good faith by or under the direction of the Company’s board of directors (the“Board”).Investments for which reliable market quotations are not readily available or for which the pricing sources do not provide a valuation or methodologyor provide a valuation or methodology that, in the judgment of the Investment Adviser or the Board does not represent fair value, each shall be valued asfollows: (i) each portfolio company or investment is initially valued by the investment professionals responsible for the portfolio investment; (ii) preliminaryvaluations are discussed with senior management of the Investment Adviser; (iii) independent valuation firms engaged by, or on behalf of, the Board willconduct independent appraisals and review the Investment Adviser’s preliminary valuations and make their own independent assessment for (a) eachportfolio investment that, when taken together with all other investments in the same portfolio company, exceeds 10% of estimated total assets, plusavailable borrowings, as of the end of the most recently completed fiscal quarter, and (b) each portfolio investment that is presently in payment default;(iv) the Board will discuss the valuations and determine the fair value of each investment in our portfolio in good faith based on the input of the InvestmentAdviser and, where appropriate, the respective independent valuation firm.The recommendation of fair value generally considers the following factors among others, as relevant: applicable market yields; the nature andrealizable value of any collateral; the portfolio company’s ability to make payments; the portfolio company’s earnings and discounted cash flow; the marketsin which the issuer does business; and comparisons to publicly traded securities, among others.When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, the Company will consider the pricingindicated by the external event to corroborate the valuation. Due to the inherent uncertainty of determining the fair value of investments that do not have areadily available market value, the fair value of the investments may differ significantly from the values that would have been used had a readily availablemarket value existed for such investments, and the differences could be material. Investments of sufficient credit quality purchased within 60 days of maturityare valued at cost plus accreted discount, or minus amortized premium, which is expected to approximate fair value.Investments are valued utilizing a market approach, an income approach, or both approaches, as appropriate. The market approach uses prices andother relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). The incomeapproach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). Themeasurement is based on the value indicated by current market expectations about those future amounts. In following these approaches, the types of factorsthat we may take into account in fair value pricing our investments include, as relevant: available current market data, including relevant and applicablemarket trading and transaction comparables, applicable market yields and multiples, security covenants, call protection provisions, the nature and realizablevalue of any collateral, the portfolio company’s ability to make payments, its earnings and discounted cash flows, the markets in which the portfoliocompany does business, comparisons of financial ratios of peer companies that are public, M&A comparables, and enterprise values, among other factors.When available, broker quotations and/or quotations provided by pricing services are considered as an input in the valuation process. For the fiscal yearended December 31, 2013, there has been no change to the Company’s valuation techniques and the nature of the related inputs considered in the valuationprocess. 61Table of ContentsAccounting Standards Codification (“ASC”) Topic 820 classifies the inputs used to measure these fair values into the following hierarchy:Level 1: Quoted prices in active markets for identical assets or liabilities, accessible by the Company at the measurement date.Level 2: Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that arenot active, or other observable inputs other than quoted prices.Level 3: Unobservable inputs for the asset or liability.In all cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level ofinput that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entiretyrequires judgment and considers factors specific to each investment.Determination of fair value involves subjective judgments and estimates. Accordingly, the notes to our consolidated financial statements express theuncertainty with respect to the possible effect of such valuations, and any change in such valuations, on our consolidated financial statements.Valuation of Credit FacilityThe Company has made an irrevocable election to apply the fair value option of accounting to the Credit Facility, in accordance with ASC 825-10. Webelieve accounting for the Credit Facility at fair value will better align the measurement methodologies of assets and liabilities, which may mitigate certainearnings volatility. As a result of this election, approximately $2.8 million of costs related to the establishment of the original Credit Facility was expensedduring the period January 28, 2011 (commencement of operations) to December 31, 2011, and approximately $1.0 million was expensed during the yearended December 31, 2012 related to the amendment, rather than being deferred and amortized over the life of the Credit Facility.Revenue RecognitionThe Company records interest income, adjusted for amortization of premium and accretion of discount, on an accrual basis. Investments that areexpected to pay regularly scheduled interest in cash are generally placed on non-accrual status when principal or interest cash payments are past due 30 daysor more and/or when it is no longer probable that principal or interest cash payments will be collected. Such non-accrual investments are restored to accrualstatus if past due principal and interest are paid in cash, and in management’s judgment, are likely to continue timely payment of their remaining interestobligations. Interest cash payments received on designated investments may be recognized as income or applied to principal depending upon management’sjudgment. Some of our investments may have contractual PIK interest. PIK interest computed at the contractual rate is accrued into income and reflected as areceivable up to the capitalization date. PIK investments offer issuers the option at each payment date of making payments in cash or in additional securities.When additional securities are received, they typically have the same terms, including maturity dates and interest rates as the original securities issued. Onthese payment dates, the Company capitalizes the accrued interest receivable (reflecting such amounts as the basis in the additional securities received). PIKgenerally becomes due at the maturity of the investment or upon the investment being called by the issuer. At the point the Company believes PIK is notexpected to be realized, the PIK investment will be placed on non-accrual status. When a PIK investment is placed on non-accrual status, the accrued,uncapitalized interest is reversed from the related receivable through interest income. The Company does not reverse previously capitalized PIK interest.Upon capitalization, PIK is subject to the fair value estimates associated with their related investments. PIK investments on non-accrual status are restored toaccrual status if the Company again believes that PIK is expected to be realized. Loan origination fees, original issue discount, and market discounts arecapitalized and 62Table of Contentsamortized into income using the interest method or straight-line, as applicable. Upon the prepayment of a loan, any unamortized loan origination fees arerecorded as interest income. We record prepayment premiums on loans and other investments as interest income when we receive such amounts. Capitalstructuring fees are recorded as other income when earned.Net Realized Gain or Loss and Net Change in Unrealized Gain or LossWe generally measure realized gain or loss by the difference between the net proceeds from the repayment or sale and the amortized cost basis of theinvestment, without regard to unrealized appreciation or depreciation previously recognized, but considering unamortized origination or commitment feesand prepayment penalties. The net change in unrealized gain or loss reflects the change in portfolio investment values during the reporting period, includingthe reversal of previously recorded unrealized gain or loss, when gains or losses are realized.Within the context of these critical accounting policies, we are not currently aware of any reasonably likely events or circumstances that would resultin materially different amounts being reported.Income TaxesSolar Senior Capital Ltd., a U.S. corporation, has elected to be treated as a RIC under Subchapter M of the Code, as amended. In order to qualify as aRIC, among other things, the Company is required to timely distribute to its stockholders at least 90% of investment company taxable income, as defined bythe Code, for each year. Depending on the level of taxable income earned in a given tax year, we may choose to carry forward taxable income in excess ofcurrent year dividend distributions into the next tax year and pay a 4% excise tax on such income, as required. To the extent that the Company determinesthat its estimated current year annual taxable income will be in excess of estimated current year dividend distributions, the Company accrues an estimatedexcise tax, if any, on estimated excess taxable income.Recent Accounting PronouncementsIn June 2013, the Financial Accounting Standards Board issued Accounting Standards Update 2013-08, Financial Services – Investment Companies(Topic 946): Amendments to the Scope, Measurement, and Disclosure Requirements. The update amends the criteria that define an investment company,requires additional disclosures, and seeks to clarify the measurement guidance. Public companies are required to apply ASU 2013-08 prospectively forinterim and annual reporting periods beginning after December 15, 2013. Accordingly, the Company has evaluated the impact of the adoption of ASU 2013-08 on its financial statements and disclosures and determined the adoption of ASU 2013-08 will not have a material effect on the Company’s financialcondition and results of operations.RESULTS OF OPERATIONSResults comparisons are for the fiscal years ended December 31, 2013, 2012 and the period January 28, 2011 (commencement of operations) toDecember 31, 2011.Investment IncomeFor the fiscal years ended December 31, 2013, 2012 and the period January 28, 2011 (commencement of operations) to December 31, 2011, grossinvestment income totaled $19.8 million, $20.5 million and $7.9 million, respectively. The modest decrease in gross investment income from fiscal year2012 to fiscal year 2013 was primarily due to portfolio yield compression, partially offset by net portfolio growth. The increase in gross investment incomefrom fiscal year 2011 to fiscal year 2012 was primarily due to an increase in the size of the income-producing portfolio as compared to the previous fiscalyear combined with having a full fiscal year for 2012 as compared to a partial fiscal 2011. 63Table of ContentsExpensesExpenses totaled $6.4 million, $8.0 million and $5.3 million, respectively, for the fiscal years ended December 31, 2013, 2012 and the periodJanuary 28, 2011 (commencement of operations) to December 31, 2011, of which $2.7 million, $2.8 million and $0.9 million, respectively, were basemanagement fees and performance-based incentive fees and $1.3 million, $2.4 million and $3.0 million, respectively, were interest and other debt relatedexpenses. Administrative services, insurance and other general and administrative expenses totaled $2.4 million, $2.8 million and $1.3 million, respectively,for the fiscal years ended December 31, 2013, 2012 and the period January 28, 2011 (commencement of operations) to December 31, 2011. Operatingexpenses generally consist of base investment advisory and management fees, insurance expenses, administrative services fees, legal fees, directors’ fees,audit and tax services expenses, transfer agent fees, and other general and administrative expenses, among others. The decrease in expenses from fiscal 2012to fiscal 2013 was primarily due to recognizing approximately $1.0 million in interest costs related to our Credit Facility’s amendment in November 2012 aswell as from the full fiscal year 2013 benefit of the rate reduction. Additionally, insurance expenses were significantly reduced from fiscal 2012 to fiscal2013. The increase in expenses from fiscal 2011 to fiscal 2012 was primarily due to a year that saw significant growth in our portfolio of assets and businessin general, as compared to our partial first fiscal year of operations in 2011.Net Investment IncomeThe Company’s net investment income totaled $13.4 million or $1.17 per average share, $12.5 million or $1.32 per average share and $2.6 million or$0.30 per average share, for the fiscal years ended December 31, 2013, 2012 and the period January 28, 2011 (commencement of operations) to December 31,2011, respectively.Net Realized Gains (Losses)The Company had investment sales and prepayments totaling approximately $147.9 million, $162.6 million and $34.2 million, respectively, for thefiscal years ended December 31, 2013, 2012 and the period January 28, 2011 (commencement of operations) to December 31, 2011. Net realized gains(losses) for the fiscal years ended December 31, 2013, 2012 and the period January 28, 2011 (commencement of operations) to December 31, 2011 totaled($5.0) million, $0.6 million and ($0.6) million, respectively. Net realized losses for fiscal 2013 were primarily related to the restructuring of our investment inEngineering Solutions & Products. Net realized gains for the fiscal year ended 2012 were primarily related to selected sales of assets such as GenesysTelecommunications, KIK Custom Products, and STHI Holdings. Net realized losses incurred in fiscal 2011 were primarily related to our investment inAmerican Airlines.Net Unrealized Appreciation (Depreciation) on Investments and Cash EquivalentsFor the fiscal years ended December 31, 2013, 2012 and the period January 28, 2011 (commencement of operations) to December 31, 2011, net changein unrealized appreciation (depreciation) on the Company’s assets and liabilities totaled $4.2 million, $0.8 million and ($2.3) million, respectively. Netunrealized appreciation for fiscal 2013 was primarily attributable to the reversal of unrealized depreciation on our investment in Engineering Solutions &Products, as well as market improvements on our equity investment in Gemino Senior Secured Healthcare LLC. Net unrealized appreciation for fiscal 2012was primarily attributable to general market improvements, modest yield tightening and overall positive net changes in general portfolio companyfundamentals. During fiscal 2011, unrealized depreciation was recorded primarily due to the general market dislocation and the then overall marketexpectations for pricing increased credit risk.Net Increase (Decrease) in Net Assets From OperationsFor the fiscal years ended December 31, 2013, 2012 and the period January 28, 2011 (commencement of operations) to December 31, 2011, theCompany had a net increase (decrease) in net assets resulting from 64Table of Contentsoperations of $12.6 million, $13.9 million and ($0.3) million, respectively. For the fiscal years ended December 31, 2013, 2012 and the period January 28,2011 (commencement of operations) to December 31, 2011, earnings (loss) per average share were $1.10, $1.46 and ($0.03), respectively.LIQUIDITY AND CAPITAL RESOURCESThe Company’s liquidity and capital resources are generally available through its Credit Facility, through periodic follow-on equity offerings, as wellas from cash flows from operations, investment sales and pre-payments of investments. At December 31, 2013, the Company had $61.4 million in borrowingsoutstanding on its Credit Facility and $88.6 million of unused capacity, subject to effective borrowing base limits. The Company also has a delayed drawfeature on its Credit Facility which may provide an additional $50.0 million of unused capacity.On January 18, 2013, the Company closed a follow-on public equity offering of 2.0 million shares of common stock at $18.85 per share raisingapproximately $37.2 million in net proceeds. In the future, the Company may raise additional equity or debt capital, among other considerations. Theprimary uses of funds will be investments in portfolio companies, reductions in debt outstanding and other general corporate purposes. The issuance of debtor equity securities will depend on future market conditions, funding needs and other factors and there can be no assurance that any such issuance will occuror be successful.We expect that all current liquidity needs will be met with cash flows from operations, borrowings on our Credit Facility, and other activities.Cash EquivalentsWe deem certain U.S. Treasury bills, repurchase agreements and other high-quality, short-term debt securities as cash equivalents. From time to time,including at the end of each fiscal quarter, we consider using various treasury strategies for our business. One strategy includes taking proactive steps byutilizing cash equivalents with the objective of enhancing our investment flexibility during the following quarter pursuant to Section 55 of the 1940 Act.More specifically, we may purchase U.S. Treasury bills from time-to-time on the last business day of the quarter and typically close out that position on thefollowing business day, settling the sale transaction on a net cash basis with the purchase, subsequent to quarter end. We may also utilize repurchaseagreements or other balance sheet transactions, including drawing down on our Credit Facility, as deemed appropriate. The amount of these transactions orsuch drawn cash for this purpose is excluded from total assets for purposes of computing the asset base upon which the management fee is determined. Therewere no cash equivalents held as of December 31, 2013.DebtSenior Secured Revolving Credit Facility – On August 26, 2011, the Company established the SUNS SPV which entered into the Credit Facility withCitigroup Global Markets Inc. acting as administrative agent. The Credit Facility was scheduled to mature on August 26, 2016 and generally bore interest ata rate of LIBOR plus 2.25%. The Credit Facility has $150 million immediately available with an additional $50 million available under a delayed drawfeature. The Credit Facility can also be expanded up to $600 million and is secured by all of the assets held by the SUNS SPV. Under the terms of the CreditFacility, Solar Senior and the SUNS SPV, as applicable, have made certain customary representations and warranties, and are required to comply with variouscovenants, including leverage restrictions, reporting requirements and other customary requirements for similar credit facilities. The Credit Facility alsoincludes usual and customary events of default for credit facilities of this nature.On November 7, 2012, we amended our Credit Facility. As a result of the amendment, the stated interest rate on the Credit Facility was reduced toLIBOR plus 2.00% from LIBOR plus 2.25%, and the Credit Facility 65Table of Contentscontinues to have no LIBOR floor requirement. In addition, the amendment reduced certain non-usage fees. The amendment also provided us greaterflexibility and extended the final maturity date to November 6, 2017. At December 31, 2013, the Company was in compliance with all financial andoperational covenants required by the Credit Facility.Contractual Obligations Payments due by Period as of December 31, 2013(dollars in millions) Total Less than1 year 1-3 years 3-5 years More than5 years Senior Secured Revolving Credit Facility (1) $61.4 $— $— $61.4 $— (1)At December 31, 2013, $88.6 million remained unused. An additional $50.0 million of capacity is available under the delayed draw feature of theCredit Facility.Information about our senior securities is shown in the following table as of each year ended December 31 since the Company commenced operations,unless otherwise noted. The “—” indicates information which the SEC expressly does not require to be disclosed for certain types of senior securities. Class and Year Total AmountOutstanding (dollarsin thousands) (1) AssetCoveragePer Unit (2) InvoluntaryLiquidatingPreferencePer Unit (3) AverageMarket ValuePer Unit (4) Revolving Credit Facility Fiscal 2013 $61,400 $4,388 $— N/A Fiscal 2012 39,100 5,453 — N/A Fiscal 2011 8,600 21,051 — N/A (1)Total amount of each class of senior securities outstanding at the end of the period presented.(2)The asset coverage ratio for a class of senior securities representing indebtedness is calculated as our consolidated total assets, less all liabilities andindebtedness not represented by senior securities, divided by senior securities representing indebtedness. This asset coverage ratio is multiplied by$1,000 to determine the Asset Coverage Per Unit. In order to determine the specific Asset Coverage Per Unit for each class of debt, the total AssetCoverage Per Unit was divided based on the amount outstanding at the end of the period for each.(3)The amount to which such class of senior security would be entitled upon the involuntary liquidation of the issuer in preference to any security juniorto it.(4)Not applicable, we do not have senior securities that are registered for public trading.We have also entered into two contracts under which we have future commitments: the Investment Advisory and Management Agreement, pursuant towhich Solar Capital Partners has agreed to serve as our investment adviser, and the Administration Agreement, pursuant to which Solar Capital Managementhas agreed to furnish us with the facilities and administrative services necessary to conduct our day-to-day operations and provide on our behalf managerialassistance to those portfolio companies to which we are required to provide such assistance. Payments under the Investment Advisory and ManagementAgreement are equal to (1) a percentage of the value of our average gross assets and (2) a two-part incentive fee. Payments under the AdministrationAgreement are equal to an amount based upon our allocable portion of Solar Capital Management’s overhead in performing its obligations under theAdministration Agreement, including rent, technology systems, insurance and our allocable portion of the costs of our chief financial officer and chiefcompliance officer and their respective staffs. Either party may terminate each of the investment advisory and management agreement and administrationagreement without penalty upon 60 days’ written notice to the other. See note 3 to our Consolidated Financial Statements. 66Table of ContentsOff-Balance Sheet ArrangementsOn November 5, 2013, we entered into a commitment to fund a revolving senior secured loan in Engineering Solutions & Products, LLC in the amountof $1.7 million. As of December 31, 2013, this revolving senior secured loan remained unfunded.As of December 31, 2013, we have a $5.0 million commitment to purchase equity in Gemino (which may be structured as debt or equity in GeminoSenior Secured Healthcare LLC), conditional upon approval of the Gemino board of managers, among other conditions.In the normal course of its business, we trade various financial instruments and may enter into various investment activities with off-balance sheet risk,which include forward foreign currency contracts. Generally, these financial instruments represent future commitments to purchase or sell other financialinstruments at specific terms at future dates. These financial instruments contain varying degrees of off-balance sheet risk whereby changes in the marketvalue or our satisfaction of the obligations may exceed the amount recognized in our Statement of Assets and Liabilities. 67Table of ContentsDividends and DistributionsThe following table reflects the cash dividends and distributions per share on our common stock since our initial public offering: Date Declared Record Date Payment Date Amount Fiscal 2014 February 25, 2014 March 20, 2014 April 1, 2014 $0.1175 February 6, 2014 February 20, 2014 February 28, 2014 0.1175 January 9, 2014 January 23, 2014 January 31, 2014 0.1175 Total (2014) $0.3525 Fiscal 2013 December 5, 2013 December 19, 2013 January 3, 2014 $0.1175 October 30, 2013 November 21, 2013 December 3, 2013 0.1175 October 8, 2013 October 24, 2013 November 1, 2013 0.1175 September 5, 2013 September 19, 2013 October 2, 2013 0.1175 July 31, 2013 August 22, 2013 September 4, 2013 0.1175 July 9, 2013 July 25, 2013 August 1, 2013 0.1175 June 5, 2013 June 20, 2013 July 2, 2013 0.1175 May 7, 2013 May 23, 2013 June 3, 2013 0.1175 April 8, 2013 April 25, 2013 May 1, 2013 0.1175 February 25, 2013 March 21, 2013 April 2, 2013 0.1175 February 5, 2013 February 21, 2013 March 1, 2013 0.1175 January 8, 2013 January 24, 2013 February 1, 2013 0.1175 Total (2013) $1.41 Fiscal 2012 December 6, 2012 December 20, 2012 January 3, 2013 $0.1175 November 1, 2012 November 22, 2012 December 4, 2012 0.1175 October 4, 2012 October 25, 2012 November 2, 2012 0.1175 September 11, 2012 September 20, 2012 October 2, 2012 0.1175 July 31, 2012 August 23, 2012 September 5, 2012 0.115 July 9, 2012 July 19, 2012 August 2, 2012 0.105 June 11, 2012 June 21, 2012 July 2, 2012 0.10 May 1, 2012 May 18, 2012 June 4, 2012 0.10 April 5, 2012 April 18, 2012 May 2, 2012 0.10 February 22, 2012 March 20, 2012 April 3, 2012 0.10 February 3, 2012 February 17, 2012 March 2, 2012 0.10 January 6, 2012 January 19, 2012 February 2, 2012 0.10 Total (2012) $1.29 Fiscal 2011 December 6, 2011 December 15, 2011 December 29, 2011 $0.10 November 1, 2011 November 18, 2011 December 2, 2011 0.09 October 7, 2011 October 19, 2011 November 2, 2011 0.08 September 12, 2011 September 20, 2011 October 4, 2011 0.08 August 2, 2011 August 19, 2011 September 2, 2011 0.08 July 7, 2011 July 18, 2011 August 1, 2011 0.07 June 6, 2011 June 16, 2011 June 30, 2011 0.05 Total (2011) $0.55 68Table of ContentsTax characteristics of all dividends will be reported to shareholders on Form 1099 after the end of the calendar year. Future quarterly dividends, if any,will be determined by our Board. We expect that our dividends and distributions to stockholders will generally be from accumulated net investment incomeand from net realized capital gains, if any, as applicable.We have elected to be taxed as a RIC under Subchapter M of the Code. To maintain our RIC status, we must distribute at least 90% of our ordinaryincome and realized net short-term capital gains in excess of realized net long-term capital losses, if any, out of the assets legally available for distribution. Inaddition, although we currently intend to distribute realized net capital gains (i.e., net long-term capital gains in excess of short-term capital losses), if any, atleast annually, out of the assets legally available for such distributions, we may in the future decide to retain such capital gains for investment.We maintain an “opt out” dividend reinvestment plan for our common stockholders. As a result, if we declare a dividend, then stockholders’ cashdividends will be automatically reinvested in additional shares of our common stock, unless they specifically “opt out” of the dividend reinvestment plan soas to receive cash dividends.We may not be able to achieve operating results that will allow us to make distributions at a specific level or to increase the amount of thesedistributions from time to time. In addition, due to the asset coverage test applicable to us as a business development company, we may in the future belimited in our ability to make distributions. Also, our revolving credit facility may limit our ability to declare dividends if we default under certainprovisions. If we do not distribute a certain percentage of our income annually, we will suffer adverse tax consequences, including possible loss of the taxbenefits available to us as a regulated investment company. In addition, in accordance with U.S. generally accepted accounting principles and taxregulations, we include in income certain amounts that we have not yet received in cash, such as contractual payment-in-kind interest, which representscontractual interest added to the loan balance that becomes due at the end of the loan term, or the accrual of original issue or market discount. Since we mayrecognize income before or without receiving cash representing such income, we may have difficulty meeting the requirement to distribute at least 90% ofour investment company taxable income to obtain tax benefits as a regulated investment company.With respect to the dividends to stockholders, income from origination, structuring, closing, commitment and certain other upfront fees associated withinvestments in portfolio companies are treated as taxable income and accordingly, distributed to stockholders.Related PartiesWe have entered into a number of business relationships with affiliated or related parties, including the following: • We have entered into an Investment Advisory and Management Agreement with Solar Capital Partners. Mr. Gross, our chairman and chiefexecutive officer, is a managing member and a senior investment professional of, and has financial and controlling interests in, Solar CapitalPartners. In addition, Mr. Spohler, our chief operating officer is a managing member and a senior investment professional of, and has financialinterests in, Solar Capital Partners. • Solar Capital Management provides us with the office facilities and administrative services necessary to conduct day-to-day operations pursuantto our Administration Agreement. We reimburse Solar Capital Management for the allocable portion of overhead and other expenses incurred byit in performing its obligations under the Administration Agreement, including rent, the fees and expenses associated with performingcompliance functions, and the compensation of our chief compliance officer, our chief financial officer and any administrative support staff.Solar Capital Partners, our investment adviser, is the sole member of and controls Solar Capital Management. • We have entered into a license agreement with Solar Capital Partners, pursuant to which Solar Capital Partners has granted us a non-exclusive,royalty-free license to use the name “Solar Capital.” 69Table of ContentsSolar Capital Partners and its affiliates may also manage other funds in the future that may have investment mandates that are similar, in whole and inpart, with ours. For example, Solar Capital Partners presently serves as investment adviser to Solar Capital Ltd., a publicly traded BDC, which to focuses oninvesting primarily in senior secured loans, mezzanine loans and equity securities. In addition, Michael S. Gross, our chairman and chief executive officer,Bruce Spohler, our chief operating officer, and Richard L. Peteka, our chief financial officer, serve in similar capacities for Solar Capital Ltd. Solar CapitalPartners and its affiliates may determine that an investment is appropriate for us and for one or more of those other funds. In such event, depending on theavailability of such investment and other appropriate factors, Solar Capital Partners or its affiliates may determine that we should invest side-by-side with oneor more other funds. Any such investments will be made only to the extent permitted by applicable law and interpretive positions of the SEC and its staff, andconsistent with Solar Capital Partners’ allocation procedures.In addition, we have adopted a formal code of ethics that governs the conduct of our officers and directors. Our officers and directors also remainsubject to the duties imposed by both the 1940 Act and the Maryland General Corporation Law. Item 7A.Quantitative and Qualitative Disclosure about Market RiskWe are subject to financial market risks, including changes in interest rates. During the fiscal year ended December 31, 2013, all but two of the loans inour portfolio had floating interest rates. These loans were primarily based on floating LIBOR and typically have durations of one to three months after whichthey reset to current market interest rates. Most of our loans to portfolio companies have LIBOR floors. The Company also has a revolving credit facility thatis based on floating LIBOR and commercial paper rates. Assuming no changes to our balance sheet as of December 31, 2013, a hypothetical one percentincrease in LIBOR on our floating rate assets and liabilities would decrease our earnings by approximately three cents per average share over the next twelvemonths. Assuming no changes to our balance sheet as of December 31, 2013, a hypothetical one-quarter of one percent decrease in LIBOR on our floatingrate assets and liabilities would increase our earnings by approximately one cent per average share over the next twelve months. However, we may hedgeagainst interest rate fluctuations from time-to-time by using standard hedging instruments such as futures, options and forward contracts subject to therequirements of the 1940 Act. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participatein the benefits of lower interest rates with respect to our portfolio of investments. Increase (Decrease) in LIBOR (0.25%) 1.00% Increase (Decrease) in Net Investment Income Per Share Per Year $0.01 $(0.03) 70Table of ContentsItem 8.Consolidated Financial Statements and Supplementary DataINDEX TO CONSOLIDATED FINANCIAL STATEMENTS Management’s Report on Internal Control over Financial Reporting 72 Report of Independent Registered Public Accounting Firm 73 Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting 74 Consolidated Statements of Assets & Liabilities as of December 31, 2013 and December 31, 2012 75 Consolidated Statements of Operations for the year ended December 31, 2013, 2012 and the period January 28, 2011* to December 31, 2011 76 Consolidated Statements of Changes in Net Assets for the year ended December 31, 2013, 2012 and the period January 28, 2011* to December 31,2011 77 Consolidated Statements of Cash Flows for the year ended December 31, 2013, 2012 and the period January 28, 2011* to December 31, 2011 78 Consolidated Schedules of Investments as of December 31, 2013 and December 31, 2012 79 Notes to Consolidated Financial Statements 85 *Commencement of operations 71Table of ContentsMANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTINGManagement is responsible for establishing and maintaining adequate internal control over financial reporting, and for performing an assessment of theeffectiveness of internal control over financial reporting as of December 31, 2013. Internal control over financial reporting is a process designed to providereasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes inaccordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and proceduresthat (i) pertain to assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidatedfinancial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only inaccordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timelydetection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the consolidated financial statements.Management performed an assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2013 basedupon criteria in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).Based on our assessment, management determined that the Company’s internal control over financial reporting was effective as of December 31, 2013 basedon the criteria on Internal Control – Integrated Framework issued by COSO.The effectiveness of the Company’s internal control over financial reporting as of December 31, 2013 has been audited by KPMG LLP, an independentregistered public accounting firm, as stated in their report which appears herein. 72Table of ContentsReport of Independent Registered Public Accounting FirmThe Board of Directors and ShareholdersSolar Senior Capital Ltd.:We have audited the accompanying consolidated statements of assets and liabilities, including the consolidated schedules of investments, of SolarSenior Capital Ltd. (and subsidiary) (the Company) as of December 31, 2013 and 2012, and the related consolidated statements of operations, changes in netassets and cash flows for the years ended December 31, 2013, 2012 and for the period from January 28, 2011 (commencement of operations) to December 31,2011. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on theseconsolidated financial statements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. Ourprocedures included confirmation of securities owned as of December 31, 2013, by correspondence with the custodian, portfolio companies or agents. Anaudit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financialstatement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Solar SeniorCapital Ltd. (and subsidiary) as of December 31, 2013 and 2012, and the results of its operations, the changes in its net assets and cash flows for the yearsended December 31, 2013, 2012 and for the period from January 28, 2011 (commencement of operations) to December 31, 2011, in conformity with U.S.generally accepted accounting principles.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Solar Senior CapitalLtd.’s internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control – Integrated Framework, issued bythe Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 25, 2014 expressed an unqualified opinionon the effectiveness of the Company’s internal control over financial reporting./s/ KPMG LLPNew York, New YorkFebruary 25, 2014 73Table of ContentsReport of Independent Registered Public Accounting FirmOn Internal Control Over Financial ReportingThe Board of Directors and ShareholdersSolar Senior Capital Ltd.:We have audited Solar Senior Capital Ltd.’s (the Company) internal control over financial reporting as of December 31, 2013, based on criteriaestablished in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).Management of the Company is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting, included in the Annual Report on Form 10-K, and Item 9A, Controls and Procedures–Management’s Report onInternal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based onour audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in allmaterial respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weaknessexists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performingsuch other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of consolidated financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Acompany’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonabledetail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions arerecorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and thatreceipts 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 couldhave a material effect on the consolidated financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degreeof compliance with the policies or procedures may deteriorate.In our opinion, Solar Senior Capital Ltd. maintained, in all material respects, effective internal control over financial reporting as of December 31,2013, based on criteria established in 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), the consolidatedstatements of assets and liabilities of Solar Senior Capital Ltd. (and subsidiary) as of December 31, 2013 and 2012, and the related consolidated statements ofoperations, changes in net assets and cash flows for the years ended December 31, 2013, 2012 and for the period from January 28, 2011 (commencement ofoperations) to December 31, 2011, and our report dated February 25, 2014 expressed an unqualified opinion on those consolidated financial statements./s/ KPMG LLPNew York, New YorkFebruary 25, 2014 74Table of ContentsSOLAR SENIOR CAPITAL LTD.CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES(in thousands, except share amounts) December 31, 2013 December 31, 2012 Assets Investments, at fair value: Companies less than 5% owned (cost: $227,868 and $214,075, respectively) $228,943 $212,602 Companies 5% to 25% owned (cost: $4,409 and $0, respectively) 4,409 — Companies more than 25% owned (cost: $32,839 and $0, respectively) 34,500 — Total investments (cost: $265,116 and $214,075, respectively) 267,852 212,602 Cash 2,774 2,647 Receivable for investments sold — 282 Interest receivable 1,734 1,294 Prepaid expenses and other assets 201 204 Total assets $272,561 $217,029 Liabilities Credit facility payable (see note 6 and 7) $61,400 $39,100 Dividends payable 1,355 1,116 Payable for investments purchased — 995 Management fee payable (see note 3) 703 581 Performance-based incentive fees payable (see note 3) 33 84 Interest payable 139 121 Administrative services expense payable (see note 3) 630 431 Other liabilities and accrued expenses 284 498 Total liabilities $64,544 $42,926 Net Assets Common stock, par value $0.01 per share, 200,000,000 and 200,000,000 common sharesauthorized, respectively, and 11,529,303 and 9,500,100 issued and outstanding, respectively $115 $95 Paid-in capital in excess of par (see note 2f) 212,663 177,728 Distributions in excess of net investment income (see note 2f) (2,750) (2,247) Accumulated net realized loss (see note 2f) (4,747) — Net unrealized appreciation (depreciation) 2,736 (1,473) Total net assets $208,017 $174,103 Net Asset Value Per Share $18.04 $18.33 See notes to consolidated financial statements. 75Table of ContentsSOLAR SENIOR CAPITAL LTD.CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per share amounts) Year endedDecember 31,2013 Year endedDecember 31,2012 Period January 28,2011* toDecember 31,2011 INVESTMENT INCOME: Interest and dividends: Companies less than 5% owned $18,941 $20,539 $7,890 Companies 5% to 25% owned 41 — — Companies more than 25% owned 783 — — Total investment income 19,765 20,539 7,890 EXPENSES: Management fees (see note 3) $2,575 $2,216 $944 Performance-based incentive fees (see note 3) 113 580 — Interest and other credit facility expenses (see note 7) 1,276 2,446 3,032 Administrative services expense (see note 3) 1,174 983 289 Insurance expense 161 403 341 Other general and administrative expenses 1,079 1,418 684 Total operating expenses 6,378 8,046 5,290 Net investment income $13,387 $12,493 $2,600 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on investments (companies less than 5% owned) $(4,978) $618 $(576) Net change in unrealized gain (loss) on investments 4,209 801 (2,274) Net realized and unrealized gain (loss) on investments (769) 1,419 (2,850) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROMOPERATIONS $12,618 $13,912 $(250) EARNINGS (LOSS) PER SHARE (see note 5) $1.10 $1.46 $(0.03) *Commencement of operationsSee notes to consolidated financial statements. 76Table of ContentsSOLAR SENIOR CAPITAL LTD.CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS(in thousands, except shares) Year endedDecember 31,2013 Year endedDecember 31,2012 PeriodJanuary 28,2011* toDecember 31,2011 Increase (Decrease) in net assets resulting from operations: Net investment income $13,387 $12,493 $2,600 Net realized gain (loss) (4,978) 618 (576) Net change in unrealized gain (loss) 4,209 801 (2,274) Net increase (decrease) in net assets resulting from operations 12,618 13,912 (250) Dividends and distributions to stockholders (see note 9a): (16,239) (12,255) (5,225) Capital transactions: Net proceeds from shares sold 37,200 — 190,002 Less offering costs (206) 11 (12,092) Reinvestment of dividends 541 — — Net increase in net assets resulting from capital transactions 37,535 11 177,910 Total increase in net assets 33,914 1,668 172,435 Net assets at beginning of year 174,103 172,435 — Net assets at end of year $208,017 $174,103 $172,435 Capital share activity: Shares sold 2,000,000 — 9,500,100 Shares issued from reinvestment of dividends 29,203 — — Net increase from capital share activity 2,029,203 — 9,500,100 *Commencement of operationsSee notes to consolidated financial statements. 77Table of ContentsSOLAR SENIOR CAPITAL LTD.CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands) Year endedDecember 31,2013 Year endedDecember 31,2012 Period January 28,2011* toDecember 31,2011 Cash Flows from Operating Activities: Net increase (decrease) in net assets from operations $12,618 $13,912 $(250) Adjustments to reconcile net increase in net assets from operations: Net realized (gain) loss on investments 4,978 (618) 576 Net change in unrealized (gain) loss on investments (4,209) (801) 2,274 (Increase) decrease in operating assets: Purchase of investments (202,722) (194,447) (214,906) Proceeds from disposition of investments 146,703 161,013 34,307 Deferred offering costs — (148) — Receivable for investments sold 282 4,649 (4,931) Interest and dividends receivable (440) 393 (1,687) Prepaid expenses and other assets 3 38 (94) Increase (decrease) in operating liabilities: Payable for investments purchased (995) (3,917) 4,912 Management fee payable 122 (363) 944 Performance-based incentive fees payable (51) 84 — Administrative services expense payable 199 290 141 Interest payable 18 68 53 Other liabilities and accrued expenses (214) 188 310 Net Cash Used In Operating Activities (43,708) (19,659) (178,351) Cash Flows from Financing Activities: Cash dividends paid (15,459) (11,139) (5,225) Common stock offering costs (206) 11 (12,092) Net proceeds from shares sold 37,200 — 190,002 Proceeds from borrowings 194,000 130,383 20,450 Repayments of borrowings (171,700) (99,883) (11,850) Net Cash Provided by Financing Activities 43,835 19,372 181,285 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 127 (287) 2,934 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,647 2,934 — CASH AND CASH EQUIVALENTS AT END OF YEAR $2,774 $2,647 $2,934 Supplemental disclosure of cash flow information: Cash paid for interest $1,258 $1,417 $184 Cash paid for income taxes $16 $99 $— Non-cash financing activities consist of the reinvestment of dividends of $541, $0 and $0 for the fiscal years ended December 31, 2013, 2012 and 2011,respectively. *Commencement of operationsSee notes to consolidated financial statements. 78Table of ContentsSOLAR SENIOR CAPITAL LTD.CONSOLIDATED SCHEDULE OF INVESTMENTSDecember 31, 2013(in thousands except units) Description(1) Industry Interest(2) Basis PointSpreadAboveIndex(5) Maturity Par Amount Cost FairValue Bank Debt/Senior Secured Investments —114.4% ABG Intermediate Holdings 2 LLC(4) Textiles, Apparel & Luxury Goods 6.00% L+500 6/28/2019 $10,000 $9,950 $9,950 Aderant North America, Inc.(4) Software 6.25% L+500 12/20/2018 4,963 4,921 4,963 Advantage Sales and Marketing, Inc. Professional Services 8.25% L+725 6/17/2018 8,250 8,250 8,332 ALG B.V(4)(6) Hotels, Restaurants & Leisure 7.00% L+575 2/28/2019 3,201 3,173 3,201 ALG USA Holdings, LLC(4) Hotels, Restaurants & Leisure 7.00% L+575 2/28/2019 4,243 4,205 4,243 AmeriQual Group, LLC Food Products 7.25% L+500 3/28/2016 12,193 12,102 11,950 Attachmate Corporation(4) Software 7.25% L+575 11/22/2017 10,427 10,273 10,642 Blue Coat Systems, Inc. Internet Software & Services 9.50% L+850 6/28/2020 4,500 4,457 4,590 Catapult Learning LLC(4) Education Services 7.50% L+600 4/05/2017 3,547 3,504 3,547 Confie Seguros Holding II Co.(4) Insurance 5.75% L+450 11/09/2018 11,791 11,658 11,791 CGSC of Delaware Holdings Corp. Insurance 8.25% L+700 10/16/2020 4,000 3,946 3,960 CT Technologies Intermediate Holdings Health Care Technology 9.25% L+800 10/05/2020 2,500 2,464 2,500 Engineering Solutions & Products, LLC(8) Aerospace & Defense 8.00% L+600 5/04/2018 405 405 405 Engineering Solutions & Products, LLC 2nd Lien(8) Aerospace & Defense 8.00% L+600 11/05/2018 2,637 2,637 2,637 Epic Health Services, Inc(4) Health Care Services 6.50% L+525 10/18/2018 7,000 6,933 6,930 Filtration Group Corp Industrial Conglomerates 8.25% L+725 11/21/2021 2,000 1,980 2,050 Fulton Holding Corp.(4) Specialty Retail 8.50% — 5/28/2018 15,000 15,101 15,112 Gemino Senior Secured Healthcare LLC(6)(7) Diversified Financial Services 7.75% L+750 12/31/2018 13,000 13,000 13,000 Global Tel*Link Corp Communications Equipment 9.00% L+775 11/23/2020 3,000 2,944 2,872 Hearthside Food Solutions LLC(4) Food Products 6.50% L+525 6/07/2018 9,922 9,881 9,922 Hoffmaster Group, Inc.(4) Paper & Forest Products 6.50% L+525 1/03/2018 6,263 6,224 6,263 Hoffmaster Group, Inc. 2nd Lien Paper & Forest Products 10.25% L+900 1/03/2019 3,000 2,976 2,985 Insight Pharmaceuticals LLC(4) Personal Products 6.25% L+500 8/25/2016 7,535 7,535 7,535 JHCI Acquisition, Inc.(4) Air Freight & Logistics 7.00% L+575 7/12/2019 8,791 8,670 8,791 KODA Distribution Group Inc.(4) Distributors 6.00% L+500 4/09/2018 4,969 4,957 4,969 Landslide Holdings, Inc.(4) Software 5.25% L+425 8/9/2019 4,975 4,929 4,975 Marshall Retail Group, LLC(4) Specialty Retail 8.00% L+650 10/19/2016 4,327 4,288 4,327 Miller Heiman, Inc(4) Professional Services 6.75% L+575 9/30/2019 7,000 6,932 7,000 National Vision, Inc.(4) Specialty Retail 7.00% L+575 8/02/2018 9,733 9,623 9,733 Renaissance Learning, Inc. Education Services 8.75% L+775 5/14/2021 2,000 1,970 2,024 Securus Technologies, Inc Communications Equipment 9.00% L+775 4/30/2021 10,000 9,909 9,947 Shield Finance Co. SARL(3)(4)(6) IT Services 6.50% L+525 5/10/2019 9,850 9,754 9,850 Shoes for Crews, Inc.(4) Footwear 5.50% L+425 3/27/2017 4,571 4,564 4,571 SLT Environmental, Inc.(4) Chemicals 9.50% L+800 5/27/2016 4,874 4,741 3,412 Trident USA Health Services(4) Health Care Services 6.50% L+525 7/31/2019 9,975 9,882 9,975 TriNet HR Corp. Professional Services 8.75% L+775 2/20/2021 5,000 4,903 5,050 WNA Holdings, Inc Containers & Packaging 8.50% L+725 12/07/2020 4,000 3,963 4,000 Total Bank Debt/Senior Secured Investments $237,604 $238,004 Unsecured Bank Debt/Bonds—3.4% Apollo Investment Corporation(6) Diversified Financial Services 5.75% — 1/15/2016 $3,650 $3,378 $3,883 Asurion Holdco Insurance 11.00% L+950 3/2/2019 3,000 2,928 3,098 Total Unsecured Bank Debt/Bonds $6,306 $6,981 Common Equity—11.0% Shares/Units Gemino Senior Secured Healthcare LLC(6)(7) Diversified Financial Services 19,839 $19,839 $21,500 Engineering Solutions & Products, LLC(8) Aerospace & Defense 133,668 1,367 1,367 Total Common Equity $21,206 $22,867 Total Investments(9)—128.8% $265,116 $267,852 Liabilities in Excess of Other Assets—(28.8%) (59,835) Net Assets—100.0% $208,017 See notes to consolidated financial statements. 79Table of ContentsSOLAR SENIOR CAPITAL LTD.CONSOLIDATED SCHEDULE OF INVESTMENTS (continued)December 31, 2013(in thousands) (1)We generally acquire our investments in private transactions exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”). Our investments are therefore generally subject tocertain limitations on resale, and may be deemed to be “restricted securities” under the Securities Act.(2)Floating rate debt investments typically bear interest at a rate determined by reference to either the London Interbank Offered Rate (“LIBOR” or “L”) index rate or the prime index rate (PRIME or “P”), andwhich typically reset monthly, quarterly or semi-annually. For each debt investment we have provided the current interest rate in effect as of December 31, 2013.(3)Shield Finance Co. SARL is domiciled in Luxembourg and is denominated in U.S. dollars.(4)Indicates an investment that is wholly held by Solar Senior Capital Ltd. through its wholly-owned financing subsidiary SUNS SPV LLC. Such investments are pledged as collateral under the SeniorSecured Revolving Credit Facility (see Note 7 to the consolidated financial statements) and are not generally available to the creditors, if any, of Solar Senior Capital Ltd.(5)Floating rate instruments accrue interest at a predetermined spread relative to an index, typically the LIBOR or PRIME rate. These instruments are typically subject to a LIBOR or PRIME rate floor.(6)Indicates assets that the Company believes may not represent “qualifying assets” under Section 55(a) of the Investment Company Act of 1940 (“1940 Act”), as amended.(7)Denotes investments in which we are deemed to exercise a controlling influence over the management or policies of a company, as defined in the 1940 Act, due to beneficially owning, either directly orthrough one or more controlled companies, more than 25% of the outstanding voting securities of the investment. Transactions during the fiscal year ended December 31, 2013 in these controlledinvestments are as follows: Name of Issuer Fair Value atDecember 31,2012 GrossAdditions GrossReductions Interest/DividendIncome Fair Value atDecember 31,2013 Gemino Senior Secured Healthcare Finance $— $32,839 $32,839 $— $— Gemino Senior Secured Healthcare LLC — 13,000 — 3 13,000 Gemino Senior Secured Healthcare LLC (common equity) — 19,839 — 780 21,500 $— $65,678 $32,839 $783 $34,500 (8)Denotes investments in which we are an “Affiliated Person” but not exercising a controlling influence, as defined in the 1940 Act, due to beneficially owning, either directly or through one or morecontrolled companies, more than 5% but less than 25% of the outstanding voting securities of the investment. Transactions during the year ended December 31, 2013 in these affiliated investments are asfollows: Name of Issuer Fair Value atDecember 31,2012 GrossAdditions GrossReductions Interest/DividendIncome Fair Value atDecember 31,2013 Engineering Solutions & Products, LLC $— $468 $63 $6 $405 Engineering Solutions & Products, LLC 2 Lien — 3,542 905 35 2,637 Engineering Solutions & Products, LLC (common equity) — 1,367 — — 1,367 $— $5,377 $968 $41 $4,409 (9)Aggregate net unrealized appreciation for federal income tax purposes is $826; aggregate gross unrealized appreciation and depreciation for federal tax purposes is $2,888 and $2,062, respectively, based on atax cost of $267,026.See notes to consolidated financial statements. 80ndTable of ContentsSOLAR SENIOR CAPITAL LTD.CONSOLIDATED SCHEDULE OF INVESTMENTS (continued)December 31, 2013Industry Classification Percentage of TotalInvestments (atfair value) as ofDecember 31, 2013 Diversified Financial Services 14.3% Specialty Retail 10.9% Food Products 8.2% Software 7.7% Professional Services 7.6% Insurance 7.0% Health Care Services 6.3% Communications Equipment 4.8% Textiles, Apparel & Luxury Goods 3.7% IT Services 3.7% Paper & Forest Products 3.4% Air Freight & Logistics 3.3% Personal Products 2.8% Hotels, Restaurants & Leisure 2.8% Education Services 2.1% Distributors 1.9% Internet Software & Services 1.7% Footwear 1.7% Aerospace & Defense 1.6% Containers & Packaging 1.5% Chemicals 1.3% Health Care Technology 0.9% Industrial Conglomerates 0.8% Total Investments 100.0% See notes to consolidated financial statements. 81Table of ContentsSOLAR SENIOR CAPITAL LTD.CONSOLIDATED SCHEDULE OF INVESTMENTSDecember 31, 2012(in thousands) Description(1) Industry Interest(2) Basis PointSpreadAboveIndex(5) Maturity ParAmount Cost FairValue Bank Debt/Senior SecuredInvestments—118.1% ABB/Concise Optical LLC(4) Health Care Providers &Services 6.50% L+525 10/24/2018 $4,000 $3,961 $4,000 Aderant North America, Inc. Software 7.25% P+400 12/20/2018 5,000 4,950 4,950 AmeriQual Group, LLC Food Products 6.50% L+500 3/28/2016 12,522 12,391 12,522 Amwins Group, LLC Insurance 9.25% L+800 12/6/2019 2,500 2,453 2,525 Asurion, LLC Insurance 9.00% L+750 5/24/2019 4,793 4,759 4,947 Attachmate Corporation(4) Software 7.25% L+575 11/22/2017 11,550 11,344 11,677 Bellisio Foods, Inc.(4) Food Products 7.00% L+550 12/16/2017 4,650 4,611 4,650 BJ’S Wholesale Club, Inc. Food & Staples Retailing 9.75% L+850 3/26/2020 5,000 4,951 5,150 Catapult Learning LLC(4) Education Services 7.50% L+600 4/5/2017 3,900 3,841 3,763 Citadel Plastics Holdings, Inc.(4) Chemicals, Plastics & Rubber 6.75% L+525 2/28/2018 4,814 4,772 4,814 Confie Seguros Holding II Co.(4) Insurance 6.50% L+525 11/9/2018 10,000 9,853 9,850 EIG Investors Corp. 2nd Lien Internet Software & Services 10.25% L+900 5/9/2020 5,000 4,951 5,000 Engineering Solutions & Products,LLC Aerospace & Defense 8.50% P+525 4/21/2017 9,941 9,669 5,468 Hearthside Food Solutions LLC(4) Food Products 6.50% L+525 6/7/2018 10,000 9,950 9,950 Hoffmaster Group, Inc.(4) Paper & Forest Products 6.50% L+525 1/3/2018 4,863 4,841 4,838 Hoffmaster Group, Inc. 2nd Lien Paper & Forest Products 10.25% L+900 1/3/2019 3,000 2,972 2,970 Insight Pharmaceuticals LLC(4) Personal & NondurableConsumer Products 6.25% L+500 8/26/2016 7,900 7,900 7,900 KIK Custom Products, Inc. Diversified / ConglomerateService 8.50% L+700 5/31/2014 14,725 14,504 14,725 Landslide Holdings, Inc.(4) Software 7.00% L+575 6/19/2018 4,875 4,787 4,875 Marshall Retail Group, LLC(4) Specialty Retail 8.00% L+650 10/19/2016 4,750 4,694 4,750 National Vision, Inc.(4) Specialty Retail 7.00% L+575 8/2/2018 9,925 9,787 9,925 Porex Corporation(4) Chemicals, Plastics & Rubber 6.75% L+525 3/31/2015 4,284 4,244 4,284 Renaissance Learning, Inc.(4) Education Services 5.75% L+450 11/13/2018 3,990 3,951 3,990 Shield Finance Co. SARL(3,4,6) IT Services 6.50% L+525 5/10/2019 9,950 9,817 9,950 Shoes for Crews, Inc.(4) Textiles & Leather 6.50% L+500 3/27/2017 4,803 4,793 4,803 SLT Environmental, Inc.(4) Chemicals, Plastics & Rubber 7.00% L+550 5/27/2016 9,924 9,819 9,825 Smart Balance, Inc.(4,6) Food Products 7.00% L+575 7/2/2018 3,880 3,808 3,919 Sotera Defense Solutions, Inc. Aerospace & Defense 7.50% L+600 4/22/2017 7,415 7,359 7,341 Things Remembered, Inc.(4) Specialty Retail 8.00% L+650 5/24/2018 8,978 8,814 8,888 TriNet HR Corp.(4) Professional Services 6.50% L+525 10/24/2018 10,000 9,951 9,950 Water Pik, Inc(4) Personal & NondurableConsumer Products 6.75% L+525 8/10/2017 3,425 3,398 3,425 Total Bank Debt/Senior Secured Investments $207,895 $205,624 Unsecured Bank Debt/Bonds—4.0% Apollo Investment Corporation(6) Finance 5.75% — 1/15/2016 3,650 3,262 3,778 Asurion Holdco(7) Insurance 11.00% L+950 3/2/2019 3,000 2,918 3,200 Total Unsecured Bank Debt/Bonds $6,180 $6,978 Total Investments 122.1%(8) $214,075 $212,602 Liabilities in Excess of Other Assets—(22.1%) (38,499) Net Assets—100.0% $174,103 See notes to consolidated financial statements. 82Table of ContentsSOLAR SENIOR CAPITAL LTD.CONSOLIDATED SCHEDULE OF INVESTMENTS (continued)December 31, 2012(in thousands) (1)We generally acquire our investments in private transactions exempt from registration under the Securities Act of 1933, as amended (the “SecuritiesAct”). Our investments are therefore generally subject to certain limitations on resale, and may be deemed to be “restricted securities” under theSecurities Act.(2)Variable rate debt investments typically bear interest at a rate determined by reference to either the London Interbank Offer Rate (LIBOR or “L”) indexrate or the prime index rate (PRIME or “P”), and which typically reset monthly, quarterly or semi-annually. For each debt investment we have providedthe current interest rate in effect as of December 31, 2012. As of December 31, 2012 all investments are paying cash interest.(3)Shield Finance Co. SARL is domiciled in Luxembourg and is denominated in U.S. dollars. All other investments are domiciled in the United States.(4)Indicates an investment that is wholly or partially held by Solar Senior Capital Ltd. through its wholly-owned subsidiary SUNS SPV LLC. Suchinvestments are pledged as collateral under the Senior Secured Revolving Credit Facility (see Note 7 to the consolidated financial statements) and arenot generally available to the creditors, if any, of Solar Senior Capital Ltd. The respective par amounts held through SUNS SPV LLC are: ABB/ConciseOptical Group $4,000; Attachmate Corporation $9,625; Bellisio Foods, Inc. $3,720; Catapult Learning, LLC $3,900; Citadel Plastics Holdings, Inc.$3,851; Confie Seguros Holdings II Co. $5,000; Hearthside Food Solutions, LLC $9,000; Hoffmaster Group, Inc. $3,890; Insight Pharmaceuticals LLC$5,445; Landslide Holdings, Inc. $1,950; Marshall Retail $4,750; National Vision, Inc. $9,925; Porex Corporation $4,284; Renaissance Learning, Inc.$3,990; Shield Finance Co. SARL $9,950; Shoes for Crews, Inc. $4,803; SLT Environmental, Inc. $9,924; Smart Balance, Inc. $1,940; ThingsRemembered, Inc. $ 8,978; TriNet HR Corporation $10,000; and WaterPik, Inc. $3,425. Par balances in excess of these stated amounts are held directlyby Solar Senior Capital Ltd.(5)Floating rate instruments accrue interest at a predetermined spread relative to an index, typically the LIBOR or PRIME rate. These instruments aretypically subject to a LIBOR or PRIME rate floor.(6)Indicates assets that the Company believes do not represent “qualifying assets” under Section 55(a) of the Investment Company Act of 1940, asamended. Qualifying assets must represent at least 70% of the Company’s total assets at the time of acquisition of any additional non-qualifying assets.(7)Asurion Holdco has the option to pay interest in kind at L+1025 if certain specified conditions are met.(8)Aggregate net unrealized depreciation for federal income tax purposes is $3,918; aggregate gross unrealized appreciation and depreciation for federaltax purposes is $1,309 and $5,227, respectively, based on a tax cost of $216,520. See notes to consolidated financial statements. 83Table of ContentsSOLAR SENIOR CAPITAL LTD.CONSOLIDATED SCHEDULE OF INVESTMENTS (continued)December 31, 2012(in thousands) Industry Classification Percentage of TotalInvestments (at fairvalue) as ofDecember 31, 2012 Food Products 14.5% Specialty Retail 11.1% Software 10.1% Insurance 9.7% Chemicals, Plastics & Rubber 8.9% Diversified/Conglomerate Service 6.9% Aerospace & Defense 6.0% Personal & Nondurable Consumer Products 5.3% IT Services 4.7% Professional Services 4.7% Paper & Forest Products 3.7% Education Services 3.6% Food & Staples Retailing 2.4% Internet Software & Services 2.4% Textiles & Leather 2.3% Health Care Providers & Services 1.9% Finance 1.8% Total Investments 100.0% See notes to consolidated financial statements. 84Table of ContentsSOLAR SENIOR CAPITAL LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2013(in thousands except share and per share amounts)Note 1. OrganizationSolar Senior Capital Ltd. (“Solar Senior”, the “Company”, “SUNS”, “we”, “us”, or “our”), a Maryland corporation formed on December 16, 2010, is aclosed-end, externally managed, non-diversified management investment company that has elected to be treated as a business development company(“BDC”) under the Investment Company Act of 1940 (the “1940 Act”). Furthermore, as the Company is an investment company, it continues to apply theguidance in FASB Accounting Standards Codification (“ASC”) Topic 946. In addition, for tax purposes we have elected to be treated as a regulatedinvestment company (“RIC”), under the Internal Revenue Code of 1986, as amended (“the Code”).On January 28, 2011, Solar Senior was capitalized with initial equity of $2 and commenced operations. On February 24, 2011, Solar Senior priced itsinitial public offering, selling 9.0 million shares, including the underwriters’ over-allotment, at a price of $20.00 per share. Concurrent with this offering,management purchased an additional 500,000 shares through a private placement, also at $20.00 per share.The Company’s investment objective is to seek to maximize current income consistent with the preservation of capital. We seek to achieve ourinvestment objective by investing primarily in senior secured loans, including first lien, uni-tranche and second lien debt instruments, made primarily toprivate middle-market companies whose debt is rated below investment grade, which the Company refers to collectively as “senior loans.” The Companymay also invest in debt of public companies that are thinly traded. Under normal market conditions, at least 80% of the value of the Company’s net assetswill be invested in senior loans.Note 2. Significant Accounting PoliciesThe accompanying consolidated financial statements have been prepared on the accrual basis of accounting in conformity with accounting principlesgenerally accepted in the United States of America (“GAAP”), and include the accounts of the Company and its wholly-owned subsidiary SUNS SPV LLC, aDelaware limited liability company formed in August 2011. The consolidated financial statements reflect all adjustments and reclassifications which, in theopinion of management, are necessary for the fair presentation of the results of the operations and financial condition for the years presented. All significantintercompany balances and transactions have been eliminated.The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America andpursuant to the requirements for reporting on Form 10-K and Regulation S-X, as appropriate, also requires management to make estimates and assumptionsthat affect the reported amount of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during thereported periods. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actualresults to differ materially.In the opinion of management, all adjustments, which are of normal recurring nature, considered necessary for the fair presentation of financialstatements have been included.The significant accounting policies consistently followed by the Company are:(a) Investment transactions are accounted for on the trade date;(b) The Company conducts the valuation of its assets in accordance with GAAP and the 1940 Act. The Company generally values its assets on aquarterly basis, or more frequently if required. Investments for which 85Table of ContentsSOLAR SENIOR CAPITAL LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2013(in thousands except share and per share amounts) market quotations are readily available on an exchange are valued at the closing price on the date of valuation. The Company may also obtain quotes withrespect to certain of its investments from pricing services or brokers or dealers in order to value assets. When doing so, management determines whether thequote obtained is sufficient according to GAAP to determine the fair value of the investment. If determined adequate, the Company uses the quote obtained.Debt investments with remaining maturities of 60 days or less shall each be valued at cost with interest accrued or discount amortized to the date of maturity,unless such valuation, in the judgment of Solar Capital Partners, LLC (the “Investment Adviser”), does not represent fair value, in which case suchinvestments shall be valued at fair value as determined in good faith by or under the direction of the Company’s board of directors (the “Board”).Investments for which reliable market quotations are not readily available or for which the pricing sources do not provide a valuation or methodologyor provide a valuation or methodology that, in the judgment of the Investment Adviser or the Board does not represent fair value, each shall be valued asfollows: (i) each portfolio company or investment is initially valued by the investment professionals responsible for the portfolio investment; (ii) preliminaryvaluations are discussed with senior management of the Investment Adviser; (iii) independent valuation firms engaged by, or on behalf of, the Board willconduct independent appraisals and review the Investment Adviser’s preliminary valuations and make their own independent assessment for (a) eachportfolio investment that, when taken together with all other investments in the same portfolio company, exceeds 10% of estimated total assets, plusavailable borrowings, as of the end of the most recently completed fiscal quarter, and (b) each portfolio investment that is presently in payment default;(iv) the Board will discuss the valuations and determine the fair value of each investment in our portfolio in good faith based on the input of the InvestmentAdviser and, where appropriate, the respective independent valuation firm.The recommendation of fair value generally considers the following factors among others, as relevant: applicable market yields; the nature andrealizable value of any collateral; the portfolio company’s ability to make payments; the portfolio company’s earnings and discounted cash flow; the marketsin which the issuer does business; and comparisons to publicly traded securities, among others.When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, the Company will consider the pricingindicated by the external event to corroborate the valuation. Due to the inherent uncertainty of determining the fair value of investments that do not have areadily available market value, the fair value of the investments may differ significantly from the values that would have been used had a readily availablemarket value existed for such investments, and the differences could be material. Investments of sufficient credit quality purchased within 60 days of maturityare valued at cost plus accreted discount, or minus amortized premium, which is expected to approximate fair value.Investments are valued utilizing a market approach, an income approach, or both approaches, as appropriate. The market approach uses prices andother relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). The incomeapproach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). Themeasurement is based on the value indicated by current market expectations about those future amounts. In following these approaches, the types of factorsthat we may take into account in fair value pricing our investments include, as relevant: available current market data, including relevant and applicablemarket trading and transaction comparables, applicable market yields and multiples, security covenants, call protection provisions, the nature and realizablevalue of any collateral, the portfolio company’s ability to make payments, its earnings and discounted cash flows, the markets in which the portfoliocompany does business, comparisons of financial ratios of peer companies that are public, M&A comparables, and enterprise values, among other factors.When available, broker quotations and/or quotations provided by pricing services are considered as an 86Table of ContentsSOLAR SENIOR CAPITAL LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2013(in thousands except share and per share amounts) input in the valuation process. For the fiscal year ended December 31, 2013, there has been no change to the Company’s valuation techniques and the natureof the related inputs considered in the valuation process.ASC Topic 820 classifies the inputs used to measure these fair values into the following hierarchy:Level 1: Quoted prices in active markets for identical assets or liabilities, accessible by the Company at the measurement date.Level 2: Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that arenot active, or other observable inputs other than quoted prices.Level 3: Unobservable inputs for the asset or liability.In all cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level ofinput that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entiretyrequires judgment and considers factors specific to each investment.(c) Gains or losses on investments are calculated by using the specific identification method.(d) The Company records interest, adjusted for amortization of premium and accretion of discount, on an accrual basis. Loan origination fees, originalissue discount, and market discounts are capitalized and we amortize such amounts into income using the interest method or on a straight-line basis, asapplicable. Upon the prepayment of a loan, any unamortized loan origination fees are recorded as interest income. We record prepayment premiums on loansand other investments as interest income when we receive such amounts. Capital structuring and other fees for services rendered are recorded as income whenearned.(e) The Company intends to comply with the applicable provisions of the Internal Revenue Code pertaining to regulated investment companies tomake distributions of taxable income sufficient to relieve it of substantially all Federal income taxes. The Company, at its discretion, may carry forwardtaxable income in excess of calendar year distributions and pay a 4% excise tax on this income. The Company will accrue excise tax on such estimatedexcess taxable income as appropriate.(f) Book and tax basis differences relating to stockholder dividends and distributions and other permanent book and tax differences are typicallyreclassified among the Company’s capital accounts. In addition, the character of income and gains to be distributed is determined in accordance with incometax regulations that may differ from GAAP; accordingly at December 31, 2013, $2,580 was reclassified on our balance sheet between distributions in excessof net investment income and paid-in capital in excess of par; and $231 was reclassified on our balance sheet between accumulated net realized loss anddistributions in excess of net investment income. Total earnings and net asset value are not affected.(g) Dividends and distributions to common stockholders are recorded as of the record date. The amount to be paid out as a dividend is determined bythe Board. Net realized capital gains, if any, are generally distributed or deemed distributed at least annually.(h) In accordance with Regulation S-X Article 6.03 and ASC Topic 810—Consolidation, the Company generally will not consolidate its interest in anyoperating company other than in investment company subsidiaries, certain financing subsidiaries, and controlled operating companies substantially all ofwhose business consists of providing services to the Company. 87Table of ContentsSOLAR SENIOR CAPITAL LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2013(in thousands except share and per share amounts) (i) The accounting records of the Company are maintained in U.S. dollars. Any assets and liabilities denominated in foreign currencies are translatedinto U.S. dollars based on the rate of exchange of such currencies against U.S. dollars on the date of valuation. The Company will not isolate that portion ofthe results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices ofsecurities held. Such fluctuations would be included with the net realized and unrealized gain or loss from investments. The Company’s investments inforeign securities, if any, may involve certain risks, including without limitation: foreign exchange restrictions, expropriation, taxation or other political,social or economic risks, all of which could affect the market and/or credit risk of the investment. In addition, changes in the relationship of foreigncurrencies to the U.S. dollar can significantly affect the value of these investments in terms of U.S. dollars and therefore the earnings of the Company.(j) The Company has made an irrevocable election to apply the fair value option of accounting to its senior secured revolving credit facility (the“Credit Facility”), in accordance with ASC 825-10 and uses an independent third-party valuation firm to measure its fair value.(k) The Company may record origination and other expenses related to certain debt issuances as prepaid assets. These expenses are deferred andamortized using either the effective interest method or the straight-line method over the stated life. The straight-line method may be used on revolvingfacilities and when it approximates the effective yield method.(l) The Company records expenses related to shelf filings and applicable equity offering costs as prepaid assets. These expenses are charged as areduction of capital upon utilization, in accordance with ASC 946-20-25.(m) Investments that are expected to pay regularly scheduled interest in cash are generally placed on non-accrual status when principal or interest cashpayments are past due 30 days or more and/or when it is no longer probable that principal or interest cash payments will be collected. Such non-accrualinvestments are restored to accrual status if past due principal and interest are paid in cash, and in management’s judgment, are likely to continue timelypayment of their remaining principal and interest obligations. Cash interest payments received on designated investments may be recognized as income orapplied to principal depending on management’s judgment.(n) The Company defines cash equivalents as securities that are readily convertible into known amounts of cash and so near their maturity that theypresent insignificant risk of changes in value because of changes in interest rates. Generally, only securities with a maturity of three months or less from thedate of issue would qualify, with limited exceptions. The Company deems that certain U.S. Treasury bills, repurchase agreements and other high-quality,short-term debt securities would qualify as cash equivalents.Recent Accounting PronouncementsIn June 2013, the Financial Accounting Standards Board issued Accounting Standards Update 2013-08, Financial Services – Investment Companies(Topic 946): Amendments to the Scope, Measurement, and Disclosure Requirements. The update amends the criteria that define an investmentcompany, requires additional disclosures, and seeks to clarify the measurement guidance. Public companies are required to apply ASU 2013-08prospectively for interim and annual reporting periods beginning after December 15, 2013. Accordingly, the Company has evaluated the impact of theadoption of ASU 2013-08 on its financial statements and disclosures and determined the adoption of ASU 2013-08 will not have a material effect onthe Company’s financial condition and results of operations. 88Table of ContentsSOLAR SENIOR CAPITAL LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2013(in thousands except share and per share amounts) Note 3. AgreementsSolar Senior has an Investment Advisory and Management Agreement with the Investment Adviser, under which the Investment Adviser manages theday-to-day operations of, and provides investment advisory services to, Solar Senior. For providing these services, the Investment Adviser receives a fee fromSolar Senior, consisting of two components – a base management fee and an incentive fee. The base management fee is calculated at an annual rate of 1.00%of gross assets. For services rendered under the Investment Advisory and Management Agreement, the base management fee is payable quarterly in arrears.The base management fee is calculated based on the average value of our gross assets at the end of the two most recently completed calendar quarters. Basemanagement fees for any partial month or quarter will be appropriately pro-rated.The incentive fee has two parts, as follows: one is calculated and payable quarterly in arrears based on our pre-incentive fee net investment income forthe immediately preceding calendar quarter. For this purpose, pre-incentive fee net investment income means interest income, dividend income and any otherincome (other than fees for providing managerial assistance) accrued during the calendar quarter, minus our operating expenses for the quarter (excluding theincentive fee). Pre-incentive fee net investment income includes, in the case of investments, if any, with a deferred interest feature (such as original issuediscount, debt instruments with pay-in-kind interest and zero-coupon securities), accrued income that we have not yet received in cash. Pre-incentive fee netinvestment income does not include any realized capital gains, computed net of all realized capital losses or unrealized capital depreciation. Pre-incentivefee net investment income, expressed as a rate of return on the value of our net assets at the end of the immediately preceding calendar quarter, is compared toa hurdle of 1.75% per quarter (7.00% annualized). The Company pays the Investment Adviser an incentive fee with respect to pre-incentive fee netinvestment income for each calendar quarter as follows: • no incentive fee in any calendar quarter in which our pre-incentive fee net investment income does not exceed the hurdle of 1.75%; • 50% of pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceedsthe hurdle but is less than 2.9167% in any calendar quarter (11.67% annualized); and • 20% of the amount of pre-incentive fee net investment income, if any, that exceeds 2.9167% in any calendar quarter (11.67% annualized) will bepayable to the Investment Adviser.For the fiscal years ended December 31, 2013, 2012 and for the period January 28, 2011 (commencement of operations) to December 31, 2011, theCompany recognized $2,575, $2,216 and $944, respectively, in base management fees and $113, $580 and $0, respectively, in performance-based incentivefees.The second part of the incentive fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the InvestmentAdvisory Agreement, as of the termination date) and will equal 20% of the Company’s cumulative realized capital gains less cumulative realized capitallosses, unrealized capital depreciation (unrealized depreciation on a gross investment-by-investment basis at the end of each calendar year) and all net capitalgains upon which prior performance-based capital gains incentive fee payments were previously made to the Investment Adviser. For financial statementpurposes, the second part of the incentive fee is accrued based upon 20% of cumulative net realized gains and net unrealized capital appreciation. No accrualwas required for the fiscal years ended December 31, 2013, 2012 and for the period January 28, 2011 (commencement of operations) to December 31, 2011. 89Table of ContentsSOLAR SENIOR CAPITAL LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2013(in thousands except share and per share amounts) Solar Senior has also entered into an Administration Agreement with Solar Capital Management, LLC (the “Administrator”) under which theAdministrator provides administrative services for Solar Senior. For providing these services, facilities and personnel, Solar Senior reimburses theAdministrator for Solar Senior’s allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations under theAdministration Agreement, including rent. The Administrator will also provide, on Solar Senior’s behalf, managerial assistance to those portfolio companiesto which Solar Senior is required to provide such assistance.For the fiscal years ended December 31, 2013, 2012 and for the period January 28, 2011 (commencement of operations) to December 31, 2011, theCompany recognized expenses under the Administration Agreement of $1,174, $983 and $289, respectively. No managerial assistance fees were accrued orcollected for the fiscal years ended December 31, 2013, 2012 and for the period January 28, 2011 (commencement of operations) to December 31, 2011.Note 4. Net Asset Value Per ShareAt December 31, 2013, the Company’s total net assets and net asset value per share were $208,017 and $18.04, respectively. This compares to total netassets and net asset value per share at December 31, 2012 of $174,103 and $18.33, respectively.Note 5. Earnings (Loss) Per ShareThe following table sets forth the computation of basic and diluted earnings (loss) per share, pursuant to ASC 260-10, for the years ended December 31,2013, 2012 and for the period January 28, 2011 (commencement of operations) to December 31, 2011: Year endedDecember 31,2013 Year endedDecember 31,2012 January 28,2011* toDecember 31,2011 Numerator for basic and diluted earnings (loss) per share: $12,618 $13,912 $(250) Denominator for basic and diluted weighted average shares: 11,423,958 9,500,100 8,627,696 Basic and diluted net increase (decrease) in net assets resulting fromoperations per average share: $1.10 $1.46 $(0.03) *Commencement of operationsNote 6. Fair ValueFair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between marketparticipants at the measurement date. GAAP establishes a framework for measuring fair value that includes a hierarchy used to classify the inputs used inmeasuring fair value. The hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three levels. The level in the fair valuehierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. Thelevels of the fair value hierarchy are as follows:Level 1. Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market thatthe Company has the ability to access. 90Table of ContentsSOLAR SENIOR CAPITAL LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2013(in thousands except share and per share amounts) Level 2. Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observableeither directly or indirectly for substantially the full term of the asset or liability. Level 2 inputs include the following: a)Quoted prices for similar assets or liabilities in active markets; b)Quoted prices for identical or similar assets or liabilities in non-active markets; c)Pricing models whose inputs are observable for substantially the full term of the asset or liability; and d)Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means forsubstantially the full term of the asset or liability.Level 3. Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable andsignificant to the overall fair value measurement. These inputs reflect management’s own assumptions about the assumptions a market participant would usein pricing the asset or liability.When the inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorizedis 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 includeinputs that are observable (Levels 1 and 2) and unobservable (Level 3).Therefore gains and losses for such assets and liabilities categorized within the Level 3 table below may include changes in fair value that areattributable to both observable inputs (Levels 1 and 2) and unobservable inputs (Level 3).A review of fair value hierarchy classifications is conducted on a quarterly basis. Changes in the observability of valuation inputs may result in areclassification for certain financial assets or liabilities. Reclassifications impacting Level 3 of the fair value hierarchy are reported as transfers in/out of theLevel 3 category as of the beginning of the quarter in which the reclassifications occur.The following tables present the balances of assets and liabilities measured at fair value as of December 31, 2013 and 2012:Fair Value MeasurementsAs of December 31, 2013 Level 1 Level 2 Level 3 Total Assets: Bank Debt/Senior Secured Loans $— $39,674 $198,330 $238,004 Unsecured Loans / Bonds — 6,981 — 6,981 Common Equity — — $22,867 22,867 Total Investments — 46,655 221,197 267,852 Credit Facility $— $— $61,400 $61,400 91Table of ContentsSOLAR SENIOR CAPITAL LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2013(in thousands except share and per share amounts) Fair Value MeasurementsAs of December 31, 2012 Level 1 Level 2 Level 3 Total Assets: Bank Debt/Senior Secured Loans $— $21,774 $183,850 $205,624 Unsecured Loans / Bonds — 6,978 — 6,978 Total Investments — 28,752 183,850 212,602 Credit Facility $— $— $39,100 $39,100 The following table provides a summary of the changes in fair value of Level 3 assets and liabilities for the year ended December 31, 2013, as well asthe portion of gains or losses included in income attributable to unrealized gains or losses related to those assets and liabilities still held at December 31,2013:Fair Value Measurements Using Level 3 InputsAs of December 31, 2013 Bank Debt/SeniorSecured Loans Common Equity Fair value, December 31, 2012 $183,850 $— Total gains or losses included in earnings: Net realized gain (loss) (5,034) — Net change in unrealized gain 2,615 1,661 Purchase of investment securities 147,865 21,206 Proceeds from dispositions of investment securities (121,066) — Transfers in/out of Level 3 (9,900) — Fair value, December 31, 2013 $198,330 $22,867 Unrealized gains (losses) for the period relating to those Level 3 assets that were still heldby the Company at the end of the period: Net change in unrealized gain (loss): $(814) $1,661 During the fiscal year December 31, 2013, our investment in Securus Technologies, Inc. was transferred from Level 3 to Level 2 as a quoted pricedeemed representative of fair value became available.The following table shows a reconciliation of the beginning and ending balances for fair valued liabilities measured using significant unobservableinputs (Level 3) for the year ended December 31, 2013: Credit Facility and Senior Secured Notes For the year endedDecember 31, 2013 Beginning fair value $39,100 Borrowings 194,000 Repayments (171,700) Transfers in/out of Level 3 — Ending fair value $61,400 92Table of ContentsSOLAR SENIOR CAPITAL LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2013(in thousands except share and per share amounts) The Company has made an irrevocable election to apply the fair value option of accounting to the Credit Facility, in accordance with ASC 825-10. OnDecember 31, 2013, there were borrowings of $61,400 on the Credit Facility. For the year ended December 31, 2013, the Credit Facility had no net change inunrealized (appreciation) depreciation. The Company uses an independent third-party valuation firm to measure the fair value of our Credit Facility.The following table provides a summary of the changes in fair value of Level 3 assets and liabilities for the year ended December 31, 2012, as well asthe portion of gains or losses included in income attributable to unrealized gains or losses related to those assets and liabilities still held at December 31,2012:Fair Value Measurements Using Level 3 InputsAs of December 31, 2012 Bank Debt/SeniorSecured Loans Fair value, December 31, 2011 $160,976 Total gains or losses included in earnings: Net realized gain 28 Net change in unrealized gain (loss) (812) Purchase of investment securities 167,834 Proceeds from dispositions of investment securities (144,176) Transfers in/out of Level 3 — Fair value, December 31, 2012 $183,850 Unrealized gains (losses) for the year relating to those Level 3 assets that were still held by the Company at theend of the year: Net change in unrealized gain (loss) $(652) During the year ended December 31, 2012, there were no transfers in and out of Levels 1 and 2.The following table shows a reconciliation of the beginning and ending balances for fair valued liabilities measured using significant unobservableinputs (Level 3) for the year ended December 31, 2012: Credit Facility Fair Value Fair value, December 31, 2011 $8,600 Total unrealized appreciation — Borrowings 130,383 Repayments (99,883) Transfers in/out of Level 3 — Fair value, December 31, 2012 $39,100 The Company has made an irrevocable election to apply the fair value option of accounting to the Credit Facility, in accordance with ASC 825-10. OnDecember 31, 2012, there were borrowings of $39,100 on the Credit Facility. For the year ended December 31, 2012, the Credit Facility had no net change inunrealized (appreciation) depreciation. The Company uses an independent third-party valuation firm to measure the fair value of our Credit Facility. 93Table of ContentsSOLAR SENIOR CAPITAL LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2013(in thousands except share and per share amounts) Quantitative Information about Level 3 Fair Value MeasurementsThe Company typically determines the fair value of its performing debt investments utilizing a yield analysis. In a yield analysis, a price is ascribed foreach investment based upon an assessment of current and expected market yields for similar investments and risk profiles. Additional consideration is givento current contractual interest rates, relative maturities and other key terms and risks associated with an investment. Among other factors, a significantdeterminant of risk is the amount of leverage used by the portfolio company relative to the total enterprise value of the company, and the rights and remediesof our investment within each portfolio company.Significant unobservable quantitative inputs typically used in the fair value measurement of the Company’s Level 3 assets and liabilities primarilyreflect current market yields, including indices, and readily available quotes from brokers, dealers, and pricing services as indicated by comparable assets andliabilities, as well as enterprise values and earnings before income taxes, depreciation and amortization (“EBITDA”) multiples of similar companies, andcomparable market transactions for equity securities.Quantitative information about the Company’s Level 3 asset and liability fair value measurements as of December 31, 2013 is summarized in the tablebelow: Asset orLiability Fair Value atDecember 31,2013 ValuationTechniques/Methodology Unobservable Input Range (WeightedAverage)Senior Secured / Bank Debt Asset $198,330 Yield Analysis/MarketApproach/Broker quoted Enterprisevalue Market Yields /Bid-Ask Spreads/EBITDA Multiples 5.3% –10.5%(7.2%)/6.3x –21.5x (10.7x)Common Equity Asset $22,867 Enterprise ValuePrice/Tangible Book Value YieldAnalysis/Market Approach Enterprise ValueMultiple of Tangible BVMarket Yields 6.8x-10.1x(8.8x)/0.9x-2.0x(1.2x)/0.0%-12.4% (9.0%)Credit Facility Liability $61,400 Yield Analysis/Market Approach Market Yields L+0.5% – L+5.5%(L+2.6%)Significant increases or decreases in any of the above unobservable inputs in isolation, including unobservable inputs used in deriving bid-askspreads, if applicable, would result in a significantly lower or higher fair value measurement for such assets and liabilities. 94Table of ContentsSOLAR SENIOR CAPITAL LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2013(in thousands except share and per share amounts) Quantitative information about the Company’s Level 3 asset and liability fair value measurements as of December 31, 2012 is summarized in the tablebelow: Asset orLiability Fair Value atDecember 31,2012 ValuationTechniques/Methodology Unobservable Input Range (WeightedAverage)Senior Secured / Bank Debt Asset $183,850 Yield Analysis/MarketApproach/Broker quotedEnterprise value Market Yields /Bid-Ask Spreads/EBITDA Multiples 5.8% – 10.6%(7.8%)/3.6x –7.3x(5.8x)Credit Facility Liability $39,100 Yield Analysis/MarketApproach Market Yields L+0.5% – L+5.5%(L+2.7%)Significant increases or decreases in any of the above unobservable inputs in isolation, including unobservable inputs used in deriving bid-askspreads, if applicable, would result in a significantly lower or higher fair value measurement for such assets and liabilities.Note 7. DebtSenior Secured Revolving Credit Facility – On August 26, 2011, the Company established the SUNS SPV which entered into a $200,000 seniorsecured revolving credit facility (the “Credit Facility”) with Citigroup Global Markets Inc. acting as administrative agent. The Credit Facility was scheduledto mature on August 26, 2016 and generally bore interest at a rate of LIBOR plus 2.25%. The Credit Facility has $150,000 immediately available with anadditional $50,000 available under a delayed draw feature. The Credit Facility can also be expanded up to $600,000 and is secured by all of the assets heldby the SUNS SPV. Under the terms of the Credit Facility, Solar Senior and the SUNS SPV, as applicable, have made certain customary representations andwarranties, and are required to comply with various covenants, including leverage restrictions, reporting requirements and other customary requirements forsimilar credit facilities. The Credit Facility also includes usual and customary events of default for credit facilities of this nature.On November 7, 2012, the Company amended the Credit Facility. As a result of the amendment, the stated interest rate on the Credit Facility wasreduced to LIBOR plus 2.00% from LIBOR plus 2.25%, and the Credit Facility continues to have no LIBOR floor requirement. In addition, the amendmentreduced certain non-usage fees. The amendment also provided us greater flexibility and extended the final maturity date to November 6, 2017.The Company has made an irrevocable election to apply the fair value option of accounting to the Credit Facility, in accordance with ASC 825-10.Accounting for the Credit Facility at fair value will better align the measurement methodologies of assets and liabilities, which may mitigate certain earningsvolatility. ASC 825-10 requires entities to display the fair value of the selected assets and liabilities on the face of the Consolidated Statement of Assets andLiabilities and changes in fair value of the Credit Facility are reported in the Consolidated Statement of Operations. As a result of this election,approximately $2,800 of costs related to the establishment of the original Credit Facility was expensed during the period January 28, 2011 (commencementof operations) to December 31, 2011, and approximately $1,000 was expensed during the year ended December 31, 2012 related to the amendment, ratherthan being deferred and amortized over the life of the Credit Facility.The average annualized interest cost for all borrowings for the year ended December 31, 2013 and the year ended December 31, 2012 was 2.20% and2.48%, respectively. These costs are exclusive of commitment fees and other prepaid expenses, if any, related to establishing or amending the Credit Facility.This average 95Table of ContentsSOLAR SENIOR CAPITAL LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2013(in thousands except share and per share amounts) annualized interest cost reflects the average interest cost for all outstanding borrowings. The maximum amount borrowed on the Credit Facility during theyear ended December 31, 2013 and the year ended December 31, 2012, was $84,600 and $74,500, respectively.Note 8. Financial Highlights and Senior Securities TableThe following is a schedule of financial highlights for the respective periods: Year endedDecember 31,2013 Year endedDecember 31,2012 For the periodJanuary 28,2011(a) toDecember 31,2011 Per Share Data:(b) Net asset value, beginning of year $18.33 $18.15 $— Net investment income 1.17 1.31 0.30 Net realized and unrealized gain (loss) (0.07) 0.15 (0.33) Net increase (decrease) in net assets resulting from operations 1.10 1.46 (0.03) Issuance of common stock — — 20.00 Dividends and distributions to stockholders (see note 9a) (1.42) (1.29) (0.55) Anti-dilution 0.05 — — Offering costs and other (0.02) 0.01 (1.27) Net asset value, end of period $18.04 $18.33 $18.15 Per share market value, end of period $18.22 $18.66 $15.75 Total Return(c)(d) 5.39% 27.65% (18.49)% Net assets, end of period $208,017 $174,103 $172,435 Shares outstanding, end of period 11,529,303 9,500,100 9,500,100 Ratios to average net assets: Net investment income 6.46% 7.14% 1.51% Operating expenses(d) 2.46% 3.20% 1.31% Interest and related expenses(d) 0.62% 1.40% 1.77% Total expenses(d) 3.08% 4.60% 3.08% Average debt outstanding $41,261 $41,439 $7,123 Portfolio turnover ratio 56.8% 74.5% 37.0% (a)Commencement of operations(b)Calculated using the average shares outstanding method.(c)Total return is based on the change in market price per share during the period and takes into account any dividends, if any, reinvested in accordancewith the dividend reinvestment plan.(d)Not annualized for periods less than one year.Information about our senior securities is shown in the following table as of each year ended December 31 since the Company commenced operations,unless otherwise noted. The “–” indicates information which the SEC expressly does not require to be disclosed for certain types of senior securities. Class and Year Total AmountOutstanding(1) AssetCoveragePer Unit(2) InvoluntaryLiquidatingPreferencePer Unit(3) AverageMarket ValuePer Unit(4) Revolving Credit Facility Fiscal 2013 $61,400 $4,388 $— N/A Fiscal 2012 39,100 5,453 — N/A Fiscal 2011 8,600 21,051 — N/A 96Table of ContentsSOLAR SENIOR CAPITAL LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2013(in thousands except share and per share amounts) (1)Total amount of each class of senior securities outstanding at the end of the period presented.(2)The asset coverage ratio for a class of senior securities representing indebtedness is calculated as our consolidated total assets, less all liabilities andindebtedness not represented by senior securities, divided by senior securities representing indebtedness. This asset coverage ratio is multiplied by onethousand to determine the Asset Coverage Per Unit. In order to determine the specific Asset Coverage Per Unit for each class of debt, the total AssetCoverage Per Unit was divided based on the amount outstanding at the end of the period for each.(3)The amount to which such class of senior security would be entitled upon the involuntary liquidation of the issuer in preference to any security juniorto it.(4)Not applicable, we do not have senior securities that are registered for public trading.Note 9(a). Income Tax Information and Distributions to StockholdersThe tax character of dividends for the fiscal years ended December 31, 2013, 2012 and for the period from January 28, 2011 (commencement ofoperations) through December 31, 2011 were as follows: 2013 2012 2011 Ordinary income $13,674 84.2% $11,830 96.5% $5,225 100.0% Capital gains — 0.0% 425 3.5% — 0.0% Return of capital* 2,565 15.8% — 0.0% — 0.0% Total dividends $16,239 100.0% $12,255 100.0% $5,225 100.0% *Represents $0.22 per shareAs of December 31, 2013, 2012 and 2011 the components of accumulated gain and losses on a tax basis were as follows (1): 2013 2012 2011 Undistributed ordinary income $— $1,014 $437 Undistributed long-term net capital gains — — — Total undistributed net earnings — 1,014 437 Other book/tax temporary differences (406) 867 — Post-October capital losses(2) (4,747) — (665) Net unrealized appreciation (depreciation) investments 826 (3,918) (2,274) Total taxable income (loss) $(4,327) $(2,037) $(2,502) (1)Tax information for the fiscal years ended December 31, 2013, 2012 and for the period from January 28, 2011 (commencement of operations) throughDecember 31, 2011 are/were estimates and are not final until the Company files its tax returns, typically in September each year.(2)As of December 31, 2013, we had a post-October capital loss deferral of $4,747.The Company recognizes in its consolidated financial statements the tax effect of a tax position when it is more likely than not, based on the technicalmerits, that the position will be sustained upon examination. To the best of our knowledge, we did not have any uncertain tax positions that met therecognition or measurement criteria of ASC 740-10-25 nor did we have any unrecognized tax benefits as of the periods presented herein. 97Table of ContentsSOLAR SENIOR CAPITAL LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2013(in thousands except share and per share amounts) Although we file federal and state tax returns, our major tax jurisdiction is federal. Our tax returns for each of our federal tax years since 2011 remain subjectto examination by the Internal Revenue Service and the state department of revenue.Note 9(b). Other Tax Information (unaudited)No distributions paid during the fiscal years ended December 31, 2013, 2012 or for the period January 28, 2011 (commencement of operations) toDecember 31, 2011 were eligible for qualified dividend income treatment or were eligible for the 70% dividends received deduction for corporatestockholders.Note 10. Gemino Senior Secured Healthcare LLCPursuant to a definitive agreement, dated September 30, 2013, we acquired Gemino Healthcare Finance, LLC (d/b/a Gemino Senior Secured HealthcareFinance) (“Gemino”) from affiliates of EDG Partners, D. E. Shaw AQ-SP Series 5-01, L.L.C. and other members of Gemino. Gemino is a commercial financecompany that originates, underwrites, and manages primarily secured, asset-based loans for small and mid-sized companies operating in the healthcareindustry. Our initial investment in Gemino of $32,839 was funded from our existing credit facility. We have an additional $5,000 commitment to purchaseequity in Gemino (which may be structured as debt or equity in Gemino Senior Secured Healthcare LLC), conditional upon approval of the Gemino board ofmanagers, among other conditions. The current management team of Gemino has committed to lead Gemino and co-invested in the transaction. Gemino’smanagement team has approximately 4% of the equity in Gemino.Concurrent with the closing of the transaction, Gemino entered into a new, four-year $100,000 credit facility, which is expandable to $150,000 underits accordion feature. Pro forma for this transaction and at December 31, 2013, Gemino had $83,000 outstanding on this credit facility, which is non-recourseto us.On December 31, 2013, we contributed our 32,839 units in Gemino to a newly formed entity called Gemino Senior Secured Healthcare LLC (“GeminoSenior Secured Healthcare”). In exchange for this contribution, we received 19,839 units of common equity and $13,000 in floating rate secured notes ofGemino Senior Secured Healthcare LLC bearing interest at LIBOR plus 7.50%, maturing on December 31, 2018.We expect Gemino and Gemino Senior Secured Healthcare to be treated as pass-through entities for tax purposes. Gemino Senior Secured Healthcare isexpected to distribute a substantial portion of its current cash earnings to us on a recurring basis.Gemino Senior Secured Healthcare currently manages a highly diverse portfolio of directly-originated and underwritten senior-secured commitments.As of December 31, 2013, the portfolio totaled approximately $170,559 of commitments, of which $108,559 were funded. The portfolio consisted of 34issuers with an average balance outstanding of approximately $3,193. All of the commitments in Gemino Senior Secured Healthcare’s portfolio are floating-rate, senior-secured, cash-pay loans. None of these loans were on non-accrual status as of December 31, 2013. For the year ended December 31, 2013, Geminohad net income of $202 on gross income of $12,232. These results include non-recurring costs related to the acquisition of $3,222 for the year endedDecember 31, 2013, respectively. Due to the timing of non-cash items, there may be material differences between GAAP net income and cash distributionsavailable to shareholders. 98Table of ContentsSOLAR SENIOR CAPITAL LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2013(in thousands except share and per share amounts) Note 11. Selected Quarterly Financial Data (unaudited) Quarter Ended InvestmentIncome Net InvestmentIncome (loss) Net Realized AndUnrealized Gain(Loss) on Assets Net Increase(Decrease) InNet Assets FromOperations Total PerShare Total PerShare Total PerShare Total PerShare December 31, 2013 $5,654 $0.49 $3,644 $0.32 $1,981 $0.17 $5,624 $0.49 September 30, 2013 4,915 0.43 3,288 0.29 (684) (0.06) 2,604 0.23 June 30, 2013 4,735 0.41 3,328 0.29 (1,843) (0.16) 1,485 0.13 March 31, 2013 4,461 0.40 3,127 0.28 (223) (0.02) 2,904 0.26 December 31, 2012 6,141 0.65 3,425 0.36 (2,670) (0.28) 755 0.08 September 30, 2012 4,890 0.51 3,001 0.32 806 0.08 3,807 0.40 June 30, 2012 5,599 0.59 3,441 0.36 192 0.02 3,633 0.38 March 31, 2012 3,909 0.41 2,626 0.28 3,091 0.32 5,717 0.60 December 31, 2011 3,554 0.37 2,570 0.27 1,676 0.18 4,246 0.45 September 30, 2011 2,874 0.30 (644) (0.07) (4,844) (0.51) (5,488) (0.58) June 30, 2011 1,405 0.15 794 0.08 180 0.02 974 0.10 March 31, 2011* 57 0.01 (120) (0.01) 138 0.01 18 0.00 *For the period January 28, 2011 (commencement of operations) to March 31, 2011Note 12. Commitments and ContingenciesOn November 5, 2013 we entered into a commitment to fund a revolving senior secured loan in Engineering Solutions & Products, LLC in the amountof $1,736. As of December 31, 2013, this revolving senior secured loan remained unfunded.Also as of December 31, 2013, we have an additional $5,000 commitment to purchase equity in Gemino Senior Secured Healthcare Finance,conditional upon approval of the Gemino Senior Secured Healthcare Finance board of directors, among other conditions.Note 13. Subsequent EventsThe Company has evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date the consolidated financialstatements were issued.On January 9, 2014, our board of directors declared a monthly dividend of $0.1175 per share payable on January 31, 2014 to holders of record as ofJanuary 23, 2014.On February 6, 2014, our board of directors declared a monthly dividend of $0.1175 per share payable on February 28, 2014 to holders of record as ofFebruary 20, 2014.On February 25, 2014, our board of directors declared a monthly dividend of $0.1175 per share payable on April 1, 2014 to holders of record as ofMarch 20, 2014. 99Table of ContentsItem9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNone. Item 9A.Controls and Procedures(a) Evaluation of Disclosure Controls and ProceduresAs of December 31, 2013 (the end of the period covered by this report), we, including our Chief Executive Officer and Chief Financial Officer,evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the 1934 Act). Based onthat evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedureswere effective and provided reasonable assurance that information required to be disclosed in our periodic SEC filings is recorded, processed, summarizedand reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management,including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. However, inevaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated canprovide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluatingthe cost-benefit relationship of such possible controls and procedures.(b) Management’s Report on Internal Control Over Financial ReportingManagement’s Report on Internal Control Over Financial Reporting, which appears on page 72 of this Form 10-K, is incorporated by reference herein.(c) Attestation Report of the Independent Registered Public Accounting FirmOur independent registered public accounting firm, KPMG LLP, has issued an attestation report on the Company’s internal control over financialreporting, which is set forth above under the heading “Report of Independent Registered Public Accounting Firm on Internal Control Over FinancialReporting” in Item 8.(d) Changes in Internal Controls Over Financial ReportingManagement has not identified any change in the Company’s internal control over financial reporting that occurred during the fourth fiscal quarter of2013 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. Item 9B.Other InformationNone. 100Table of ContentsPART IIIWe will file a definitive Proxy Statement for our 2014 Annual Meeting of Stockholders with the SEC, pursuant to Regulation 14A, not later than 120days after the end of our fiscal year. Accordingly, certain information required by Part III has been omitted under General Instruction G (3) to Form 10-K. Onlythose sections of our definitive Proxy Statement that specifically address the items set forth herein are incorporated by reference. Item 10.Directors, Executive Officers and Corporate GovernanceThe information required by Item 10 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2014 Annual Meeting ofStockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of our fiscal year. Item 11.Executive CompensationThe information required by Item 11 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2014 Annual Meeting ofStockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of our fiscal year. Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersThe information required by Item 12 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2014 Annual Meeting ofStockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of our fiscal year. Item 13.Certain Relationships and Related Transactions, and Director IndependenceThe information required by Item 13 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2014 Annual Meeting ofStockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of our fiscal year. Item 14.Principal Accounting Fees and ServicesThe information required by Item 14 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2014 Annual Meeting ofStockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of our fiscal year. 101Table of ContentsPART IV Item 15.Exhibits and Financial Statement Schedules(a) Documents Filed as Part of this Report Management’s Report on Internal Control over Financial Reporting 72 Report of Independent Registered Public Accounting Firm 73 Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting 74 Consolidated Statements of Assets & Liabilities as of December 31, 2013 and December 31, 2012 75 Consolidated Statements of Operations for the year ended December 31, 2013, 2012 and the period January 28, 2011* to December 31, 2011 76 Consolidated Statements of Changes in Net Assets for the year ended December 31, 2013, 2012 and the period January 28, 2011* to December 31,2011 77 Consolidated Statements of Cash Flows for the year ended December 31, 2013, 2012 and the period January 28, 2011* to December 31, 2011 78 Consolidated Schedules of Investments as of December 31, 2013 and December 31, 2012 79 Notes to Consolidated Financial Statements 85 (b) ExhibitsThe following exhibits are filed as part of this report or hereby incorporated by reference to exhibits previously filed with the SEC: ExhibitNumber Description 3.1 Articles of Amendment and Restatement(1) 3.2 Amended and Restated Bylaws(1) 4.1 Form of Common Stock Certificate(1)10.1 Dividend Reinvestment Plan(1)10.2 Investment Advisory and Management Agreement by and between Registrant and Solar Capital Partners, LLC(1)10.3 Form of Custody Agreement*10.4 Amended and Restated Administration Agreement by and between Registrant and Solar Capital Management, LLC*10.5 Form of Indemnification Agreement by and between Registrant and each of its directors(1)10.6 Trademark License Agreement by and between Registrant and Solar Capital Partners, LLC(1)10.7 Form of Share Purchase Agreement by and between Registrant and Solar Senior Capital Investors, LLC(1)10.8 Amendment No. 1 to Share Purchase Agreement by and between Registrant and Solar Senior Capital Investors, LLC(2)10.9 Form of Contribution Agreement, dated as of August 26, 2011, by and between SUNS SPV LLC, as the contributee, and Solar Senior CapitalLtd., as the contributor.(3)10.10 Agreement and First Amendment to Loan and Servicing Agreement, dated as of November 7, 2012, by and among the Registrant, as theservicer and the transferor, SUNS SPV LLC, as the borrower, each of the conduit lenders from time to time party thereto, each of the liquiditybanks from time to time party thereto, each of the lender agents from time to time party thereto, Citibank, N.A., as the administrative agentand collateral agent, and Wells Fargo Bank, N.A., as the account bank, the collateral custodian and the backup servicer(4) 102Table of Contents10.11 Form of Loan and Servicing Agreement, dated as of August 26, 2011 (as amended through November 7, 2012), by and among the Registrant, asthe servicer and the transferor, SUNS SPV LLC, as the borrower, each of the conduit lenders from time to time party thereto, each of theliquidity banks from time to time party thereto, each of the lender agents from time to time party thereto, Citibank, N.A., as the administrativeagent and collateral agent, and Wells Fargo Bank, N.A., as the account bank, the backup servicer and the collateral custodian(4)11.1 Computation of Per Share Earnings*14.1 Code of Ethics(1)14.2 Code of Business Conduct*21.1 Subsidiaries of Solar Senior Capital Ltd.*31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended.*31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended.*32.1 Certification of Chief Executive Officer pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.*32.2 Certification of Chief Financial Officer pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.* (1)Previously filed in connection with Solar Senior Capital Ltd.’s registration statement on Form N-2 (File No. 333-171330) filed on February 14, 2011.(2)Previously filed in connection with Solar Senior Capital Ltd.’s annual report on Form 10-K filed on February 22, 2012.(3)Previously filed in connection with Solar Senior Capital Ltd.’s report on Form 8-K filed on August 31, 2011.(4)Previously filed in connection with Post-Effective Amendment No. 1 to Solar Senior Capital Ltd.’s Registration Statement on Form N-2 (File No. 333-179433) on January 16, 2013.*Filed herewith.c. Consolidated Financial Statement SchedulesNo consolidated financial statement schedules are filed herewith because (1) such schedules are not required or (2) the information has been presentedin the aforementioned financial statements. 103Table of ContentsSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalfby the undersigned, thereunto duly authorized. SOLAR SENIOR CAPITAL LTD.By: /S/ MICHAEL S. GROSS Michael S. GrossChief Executive Officer, President, Chairman of the Board and DirectorPursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theregistrant and in the capacity and on the dates indicated. Date Signature TitleFebruary 25, 2014 /S/ MICHAEL S. GROSS Michael S. Gross Chief Executive Officer, President, Chairman of the Board andDirector (Principal Executive Officer)February 25, 2014 /S/ STEVEN HOCHBERG Steven Hochberg DirectorFebruary 25, 2014 /S/ DAVID S. WACHTER David S. Wachter DirectorFebruary 25, 2014 /S/ LEONARD A. POTTER Leonard A. Potter DirectorFebruary 25, 2014 /S/ BRUCE SPOHLER Bruce Spohler Chief Operating Officer and DirectorFebruary 25, 2014 /S/ RICHARD L. PETEKA Richard L. Peteka Chief Financial Officer (Principal Financial Officer) andSecretary 104Exhibit 10.3 GLOBALCUSTODIAL SERVICES AGREEMENTSOLAR CAPITAL LTDSOLAR SENIOR CAPITAL LTD  TABLE OF CONTENTS 1. DEFINITIONS AND INTERPRETATION 3 2. ESTABLISHMENT OF ACCOUNTS 4 3. SECURITIES ACCOUNT PROCEDURES 5 4. CASH ACCOUNT PROCEDURES 5 5. INSTRUCTIONS 6 6. PERFORMANCE BY THE CUSTODIAN 7 7. TAX STATUS/WITHHOLDING TAXES 8 8. USE OF THIRD PARTIES 8 9. REPRESENTATIONS 9 10. SCOPE OF RESPONSIBILITY 9 11. SUBROGATION 11 12. INDEMNITY 11 13. LIEN AND SET OFF 11 14. FEES AND EXPENSES 11 15. CITIGROUP ORGANISATION INVOLVEMENT 11 16. RECORDS AND ACCESS 12 17. INFORMATION 12 18. ADVERTISING 12 19. TERMINATION. 12 20. GOVERNING LAW AND JURISDICTION 13 21. MISCELLANEOUS 13 SIGNATURES 15 Schedules: • Fee Schedule 2 THIS GLOBAL CUSTODIAL SERVICES AGREEMENT is made on March , 2013, by and between, severally and not jointly, SOLARCAPITAL LTD and SOLAR SENIOR CAPITAL LTD, (each the “Client “) and Citibank, N.A. acting through its offices located in New York (the“Custodian”). It is understood and agreed that this document shall constitute a separate agreement between Custodian and each party listed above, as if eachparty listed had executed a separate document naming only itself as Client, and that no party listed above shall have any liability under this document for theobligations of any other party so listed, and the term “this Agreement” shall be construed accordingly. For the avoidance of doubt, there shall be no cross-liability or cross-collateralization between the Clients listed above. In the event the Global Custodial Services Agreement is terminated between any of theClients listed above and the Custodian, the equivalent agreement between the Custodian and any remaining Client shall continue in full force and effectunless and until either party hereto terminates such agreement in accordance with the terms therein.WHEREAS, the Client is a closed-end management investment company, which has elected to be treated as a business development company underthe Investment Company Act of 1940, as amended (the “1940 Act”);WHEREAS, the Client desires to retain the Custodian to act as custodian for the Client and each Fund hereafter identified;WHEREAS, the Client desires that the Client’s Securities (as defined below) and cash be held and administered by the Custodian pursuant to thisAgreement in compliance with Section 17(f) of the 1940 Act; andNOW THEREFORE, in consideration of the mutual covenants and agreements contained herein, the parties hereto agree as follows:1. DEFINITIONS AND INTERPRETATION (A)Definitions.“Authorized Person” means the Client or any person (including any individual or entity) authorized by the Client to act on its behalf in theperformance of any act, discretion or duty under this Agreement (including, for the avoidance of doubt, any officer or employee of such person) in anotice reasonably acceptable to the Custodian. The initial Authorized Persons are set forth on Schedule B attached hereto and made a part hereof (assuch Schedule B may be modified from time to time by written notice from the Client to the Custodian); and the Client hereby represents and warrantsthat the true and accurate specimen signatures of such initial Authorized Persons are set forth on Schedule B.“Cash” means all cash or cash equivalents in any currency received and held on the terms of this Agreement.“Cash Account” means the segregated account established at the Custodian to which the Custodian shall deposit and hold any cash received byit.“Citigroup Organisation” means Citigroup, Inc. and any company or other entity of which Citigroup, Inc. is directly or indirectly a shareholderor owner. For purposes of this Agreement, each branch of Citibank, N.A. shall be a separate member of the Citigroup Organisation.“Clearance System” means any clearing agency, settlement system or securities depository (including any entity that acts as a system for thecentral handling of Securities, such as the Depository Trust Company and any other clearing agency registered with the Securities and ExchangeCommission under Section 17A of the Securities Exchange Act of 1934, as amended (the “1934 Act”), which acts as a system for the central handlingof securities where all securities of any particular class or series of an issuer deposited within the system are treated as fungible and may be transferredor pledged by bookkeeping entry without physical 3 delivery of the securities,in the country where it is incorporated or organised or that acts as a transnational system for the central handling of Securities)used in connection with transactions relating to Securities and any nominee of the foregoing.“Fee Schedule” means the schedule referred to in Section 14, as annexed hereto.“Funds” means each fund listed in Appendixes for the Clients, annexed hereto as amended from time to time by mutual agreement of the parties.“Instructions” means instructions, including by facsimile (including trade confirmations) received by the Custodian in form acceptable to it,from the Client, or any person duly authorized by the Client, by any of the following means:(a) in writing signed by two (2) Authorized Persons (and delivered by hand, by mail, by overnight courier, by electronic mail or bytelecopier);(b) in tested communication;(c) in a communication utilizing access codes effected between electro mechanical or electronic devices; or(d) such other means as may be agreed upon from time to time by the Custodian and the party giving such instructions,.“Securities” means any financial asset (other than Cash) from time to time held for the Client on the terms of this Agreement.“Taxes” means all taxes, levies, imposts, charges, assessments, deductions, withholdings and related liabilities, including additions to tax,penalties and interest imposed on or in respect of (i) Securities or Cash, (ii) the transactions effected under this Agreement or (iii) the Client; providedthat “Taxes” does not include income or franchise taxes imposed on or measured by the net income of the Custodian or its agents. (B)Interpretation.References in this Agreement to schedules shall be deemed to be references to schedules, the terms of which shall be incorporated into and formpart of this Agreement.2. ESTABLISHMENT OF ACCOUNTS(A) Accounts. The Client authorises the Custodian to establish on its books, pursuant to the terms of this Agreement, (i) Securities account oraccounts ( “Securities Account”) and (ii) a “Cash Account” or accounts. The Securities Account will be a Securities Account for the receipt,safekeeping and maintenance of Securities, and the Cash Account will be a current account for Cash.(B) Acceptance of Securities and Cash. The Custodian will determine in its reasonable discretion whether to accept (i) for custody in theSecurities Account, Securities of any kind and (ii) for deposit in the Cash Account, Cash in any currency. (C)Designation of Accounts.(i) The Securities Account will be in the name of the Client or such other name as the Client may reasonably designate and will indicate thatSecurities do not belong to the Custodian and are segregated from the Custodian’s assets.(ii) The Cash Account will be in the name of the Client or such other name as the Client may reasonably designate and will be held by theCustodian as banker. The Cash Account will be held by the Custodian and subject to the due care of a professional custodian for hire. 4 (D)Segregation.(i) The Custodian will hold Securities with a subcustodian only in an account which holds exclusively assets held by the Custodian for itscustomers. The Custodian will direct each subcustodian to identify on its books that Securities are held for the account of the Custodian as custodianfor its customers. The Custodian will direct each subcustodian, to hold Securities in a Clearance System only in an account of the subcustodian whichholds exclusively assets held by the subcustodian for its customers.(ii) Any Securities deposited by the Custodian with a subcustodian will be subject only to the instructions of the Custodian, and any Securitiesheld in a Clearance System for the account of a subcustodian will be subject only to the instructions of the subcustodian.(iii) The Custodian shall require the subcustodian to agree that Securities will not be subject to any right, charge, security interest, lien or claimof any kind in favour of the subcustodian.3. SECURITIES ACCOUNT PROCEDURES(A) Credits to the Securities Account. The Custodian is not obligated to credit Securities to the Securities Account before receipt of suchSecurities by final settlement.(B) Debits to the Securities Account. If the Custodian has received Instructions that would result in the delivery of Securities exceeding creditsto the Securities Account for that Security, the Custodian may reject the Instructions or may decide which deliveries it will make (in whole or in partand in the order it selects).(C) Denomination of Securities. The Client shall bear the risk and expense associated with investing in Securities denominated in any currency.(D) Receipt of Securities. The Custodian shall hold in a separate account, and physically segregated at all times from those of any other persons,firms or corporations, pursuant to the provisions hereof, all securities received by it for or for the account of the Client. All such securities are to be heldor disposed of by Custodian for, and subject at all times to the instructions of, the Client pursuant to the terms of this Agreement. The Custodian shallhave no power or authority to assign, hypothecate, pledge or otherwise dispose of any such securities and investments, except pursuant to the directiveof the Client and only for the account of the Client.(E) Registration of Securities. Certificated securities held by the Custodian, its agents or its sub-custodian (other than bearer securities, securitiesheld in a Clearance System or Securities that are participations) shall be registered in the name of the Client or its nominee; or, at the option of theCustodian (if the Custodian determines it cannot hold such security in the name of the Client), in the name of the Custodian or in the name of anynominee of the Custodian, or in the name of its agents or its sub-custodian or their nominees; or, if directed by the Client by Proper Instruction, may bemaintained in street name. The Custodian, its agents and its sub-custodian shall not be obligated to accept Securities on behalf of the Client under theterms of this Agreement unless such Securities are in street name or other good deliverable form.4. CASH ACCOUNT PROCEDURES(A) Credits and Debits to the Cash Account. The Custodian is not obliged to make a credit or debit to the Cash Account before receipt by theCustodian of a corresponding and final payment in cleared funds. If the Custodian makes a credit or debit before such receipt, the Custodian may atany time reverse all or part of the credit or debit (including any interest thereon), make an appropriate entry to the Cash Account, and if it reasonably sodecides, require repayment of any amount corresponding to any debit.(B) Debit Balances in the Cash Account. The Custodian is not obliged to make any debit to the Cash Account which might result in or increasea debit balance. The Custodian may make any debit to the Cash 5 Account even if this results in (or increases) a debit balance. If the total amount of debits to the Cash Account at any time would otherwise result in adebit balance or exceed the immediately available funds credited to the Cash Account, the Custodian may decide which debits it will make (in wholeor in part and in the order it selects).(C) Payments. The Custodian may at any time cancel any extension of credit. The Client will transfer to the Custodian on closure of the CashAccount and otherwise on demand from the Custodian sufficient immediately available funds to cover any debit balance on the Cash Account or anyother extension of credit and any interest, fees and other amounts owed.(D) Foreign Currency Risks. The Client shall bear the risk and expense associated with Cash denominated in any currency.(E) Cash Held as Banker. Cash credited to the Cash Account is held in a demand deposit account or equivalent under applicable law. In holdingcash the Custodian is not acting as trustee or holding cash in trust or in connection with any cash transfer or transaction, including foreign exchangeeffected pursuant to this Agreement.5. INSTRUCTIONSThe Custodian is entitled to rely and act upon Instructions of any Authorized Person until the Custodian has received notice of any change fromthe Client and has had a reasonable time to note and implement such change. The Custodian is authorized to rely upon any Instructions received byany means, provided that the Custodian and the Client have agreed upon the means of transmission and the method of identification for theInstructions. In particular:(i) The Client and the Custodian will comply with security procedures designed to verify the origination of Instructions.(ii) The Custodian is not responsible for errors or omissions made by the Client or resulting from fraud or the duplication of any Instruction bythe Client, and the Custodian may act on any Instruction by reference to an account number only, even if any account name is provided.(iii) The Custodian may act on an Instruction if it reasonably believes it contains sufficient information.(iv) The Custodian may decide not to act on an Instruction where it reasonably doubts its contents, authorisation, origination or compliance withany security procedures and will promptly notify the Client of its decision.(v) If the Custodian acts on any Instruction sent manually (including facsimile or telephone), then, if the Custodian complies with the securityprocedures, the Client will be responsible for any loss the Custodian may incur in connection with that Instruction. The Client expressly acknowledgesthat the Client is aware that the use of manual forms of communication to convey Instructions increases the risk of error, security and privacy issues andfraudulent activities.(vi) Instructions are to be given in the English language.(vii) The Custodian is obligated to act on Instructions only within applicable cut-off times on banking days when the Custodian and theapplicable financial markets are open for business.(viii) In some securities markets, securities deliveries and payments therefore may not be or are not customarily made simultaneously.Accordingly, notwithstanding the Client’s Instruction to deliver Securities against payment or to pay for Securities against delivery, the Custodianmay make or accept payment for or delivery of Securities at such time and in such form and manner as is in accordance with relevant local law andpractice or with the customs prevailing in the relevant market. 6 6. PERFORMANCE BY THE CUSTODIAN(A) Custodial Duties Requiring Instructions. The Custodian shall carry out the following actions only upon receipt of and in accordance withspecific Instructions:(i) make payment for and/or receive any Securities or deliver or dispose of any Securities except as otherwise specifically provided for in thisAgreement;(ii) deal with rights, conversions, options, warrants and other similar interests or any other discretionary right in connection with Securities; and(iii) carry out any action affecting Securities or the Securities Account or Cash or the Cash Account other than those specified in Section 6(B)below, but in each instance subject to the agreement of the Custodian.(B) Non-Discretionary Custodial Duties. Absent a contrary Instruction, the Custodian shall carry out the following without further Instructions:(i) in the Client’s name or on its behalf, sign any affidavits, certificates of ownership and other certificates and documents relating to Securitieswhich may be required (i) to obtain any Securities or Cash or (ii) by any tax or regulatory authority;(ii) collect, receive, and/or credit the Securities Account or Cash Account, as appropriate, with all income, payments and distributions in respectof Securities and any capital arising out of or in connection with Securities (including all Securities received by the Custodian as a result of a stockdividend, bonus issue, share sub-division or reorganisation, capitalisation of reserves or otherwise) and take any action necessary and proper inconnection therewith;(iii) exchange interim or temporary receipts for definitive certificates, and old or overstamped certificates for new certificates;(iv) notify the Client of notices, circulars, reports and announcements which the Custodian has received, in the course of acting in the capacity ofcustodian, concerning Securities held on the Client’s behalf that require discretionary action. Neither the Custodian nor any nominee of the Custodianshall vote any of the securities held hereunder. Any shareholder voting services are separate and not part of this agreement.(v) make any payment by debiting the Cash Account or any other designated account of the Client with the Custodian as required to effect anyInstruction; and(vi) attend to all non-discretionary matters in connection with anything provided in this Section 6(B) or any Instruction (C)Reporting.(i) The Custodian shall render to the Client a monthly report of (i) all deposits to and withdrawals from the Cash Account during the month, andthe outstanding balance (as of the last day of the preceding monthly report and as of the last day of the subject month) and (ii) an itemized statement ofthe Securities held pursuant to this Agreement as of the end of each month, all transactions in the Securities during the month, as well as a list of allSecurities transactions that remain unsettled at that time, and (iii) such other matters as the parties may agree from time to time.(ii) For each Business Day, the Custodian shall render to the Client a daily report of (i) all deposits to and withdrawals from the Cash Account forsuch Business Day and the outstanding balance as of the end of such Business Day, and (ii) a report of settled trades of Securities for such BusinessDay. 7 (iii) The Custodian shall provide the Client, promptly upon request, with such reports as are reasonably available to it and as the Client mayreasonably request from time to time, concerning (i) the internal accounting controls, including procedures for safeguarding securities, which areemployed by the Custodian or any sub-custodian appointed.7. TAX STATUS/WITHHOLDING TAXES(A) Information. The Client will provide the Custodian, from time to time and in a timely manner, with information and proof (copies ororiginals) as the Custodian reasonably requests, as to the Client’s and/or the underlying beneficial owner’s tax status or residence. Information andproof may include, as appropriate, executing certificates, making representations and warranties, or providing other information or documents inrespect of Securities, as the Custodian deems necessary or proper to fulfill obligations under applicable law.(B) Payment. If any Taxes become payable with respect to any payment to be made to the Client, such Taxes will be payable by the Client andthe Custodian may withhold the Taxes from such payment. The Custodian may withhold any Cash held or received with respect to the Cash Accountand apply such Cash in satisfaction of such Taxes. If any Taxes become payable with respect to any prior payment made to the Client by theCustodian, the Custodian may withhold any Cash in satisfaction of such prior Taxes. The Client shall remain liable for any deficiency.(C) Tax Relief. In the event the Client requests that the Custodian provide tax relief services and the Custodian agrees to provide such services,the Custodian shall apply for appropriate tax relief (either by way of reduced tax rates at the time of an income payment or retrospective tax reclaims incertain markets as agreed from time to time); provided the Client provides to the Custodian such documentation and information as to it or itsunderlying beneficial owner clients as is necessary to secure such tax relief. However, in no event shall the Custodian be responsible, or liable, for anyTaxes resulting from the inability to secure tax relief, or for the failure of any Client or beneficial owner to obtain the benefit of credits, on the basis offoreign taxes withheld, against any income tax liability.8. USE OF THIRD PARTIES(A) General Authority.(i) The Custodian is hereby authorized to appoint subcustodians and administrative support providers as its delegates and to use or participate inmarket infrastructures and Clearance Systems to perform any of the duties of the Custodian under this Agreement.(ii) Subcustodians are those persons utilised by the Custodian for the safe-keeping, clearance and settlement of Securities.(iii) Administrative support providers are those persons utilised by the Custodian to perform ancillary services of a purely administrative naturesuch as couriers, messengers or other commercial transport systems.(iv) Market infrastructures are public utilities, external telecommunications facilities and other common carriers of electronic and othermessages, and external postal services. Market infrastructures are not delegates of the Custodian.(v) Securities deposited with Clearance Systems hereunder will be subject to the laws, rules, statements of principle and practices of suchClearance Systems Clearance Systems are not delegates of the Custodian. (B)Responsibility.(i) The Custodian shall act in good faith and use reasonable care in the selection and continued appointment of subcustodians andadministrative support providers, but shall otherwise have no responsibility for performance by such persons of any of the duties delegated to themunder this Agreement. 8 (ii) The Custodian may deposit or procure the deposit of Securities with any Clearance System as required by law, regulation or best marketpractice. The Custodian has no responsibility for selection or appointment of, or for performance by, any Clearance System or market infrastructure.(iii) Notwithstanding the foregoing and pursuant to Section 10, the Custodian shall be responsible for the negligence, wilful misconduct or fraudof any subcustodian or administrative support provider.(C) Shareholders Voting. The Custodian’s only obligation in regard to any matter where the Client may exercise shareholder voting rights willbe to provide shareholder voting services as specified in a separate proxy services letter between the Custodian and the Client. For the avoidance ofdoubt, neither the Custodian nor any nominee of the Custodian shall vote any of the securities held hereunder and any shareholder voting services areseparate and not part of this agreement.9. REPRESENTATIONS(A) General. The Client and the Custodian each represents at the date this Agreement is entered into and any custodial service is used orprovided that:(i) It is duly organised and in good standing in every jurisdiction where it is required so to be;(ii) It has the power and authority to sign and to perform its obligations under this Agreement;(iii) This Agreement is duly authorized and signed and is its legal, valid and binding obligation;(iv) Any consent, authorisation or instruction required in connection with its execution and performance of this Agreement has been provided byany relevant third party;(v) Any act required by any relevant governmental or other authority to be done in connection with its execution and performance of thisAgreement has been or will be done (and will be renewed if necessary); and(vi) Its performance of this Agreement will not violate or breach any applicable law, regulation, contract or other requirement.(B) Client. The Client also represents at the date this Agreement is entered into and any custodial service is used or provided that:(i) It has authority to deposit the Securities received in the Securities Account and the Cash in the Cash Account and there is no claim orencumbrance that adversely affects any delivery of Securities or payment of Cash made in accordance with this Agreement;(ii) Where it acts as an agent on behalf of any of its own customers, whether or not expressly identified to the Custodian from time to time, anysuch customers shall not be customers or indirect customers of the Custodian; and(iii) It has not relied on any oral or written representation made by the Custodian or any person on its behalf.10. SCOPE OF RESPONSIBILITY(A) Standard of Care. The Custodian shall exercise the due care of a professional custodian for hire.(B) Limitations on Losses. The Custodian will not be responsible for any loss or damage suffered by the Client unless the loss or damage resultsfrom the Custodian’s negligence, wilful misconduct or fraud or the negligence, wilful misconduct or fraud of its nominees or any branch or subsidiaryor subcustodian or administrative support provider; in the event of such negligence or wilful misconduct the liability of the Custodian in connectionwith the loss or damage will not exceed (i) the lesser of replacement of any 9 Securities or the market value of the Securities to which such loss or damage relates at the time the Client reasonably should have been aware of suchnegligence or wilful misconduct and (ii) replacement of Cash, plus (iii) compensatory interest up to that time at the rate applicable to the base currencyof the Cash Account. Under no circumstances will the Custodian be liable to the Client for consequential loss or damage, even if advised of thepossibility of such loss or damage.(C) Limitations on the Custodian’s Responsibility.(i) General. The Custodian is responsible for the performance of only those duties as are expressly set forth herein, including the performance ofany Instruction given in accordance with this Agreement. The Custodian shall have no implied duties or obligations.(ii) Sole Obligations of the Custodian. The Client understands and agrees that (i) the obligations and duties of the Custodian will be performedonly by the Custodian and are not obligations or duties of any other member of the Citigroup Organisation (including any branch or office of theCustodian) and (ii) the rights of the Client with respect to the Custodian extend only to such Custodian and, except as provided by law, do not extendto any other member of the Citigroup Organisation.(iii) No Liability for Third Parties. Except as provided in Section 8 hereof, the Custodian is not responsible for the acts, omissions, defaults orinsolvency of any third party including, but not limited to, any broker, counterparty or issuer of Securities.(iv) Performance Subject to Laws. The Client understands and agrees that the Custodian’s performance of this Agreement is subject to therelevant local laws, regulations, decrees, orders and government acts, and the rules, operating procedures and practices of any relevant stock exchange,Clearance System or market where or through which Instructions are to be carried out and to which the Custodian is subject and as exist in the countryin which any Securities or Cash are held.(v) Prevention of Performance. The Custodian will not be responsible for any failure to perform any of its obligations (nor will it be responsiblefor any unavailability of funds credited to the Cash Account) if such performance is prevented, hindered or delayed by a Force Majeure Event, in suchcase its obligations will be suspended for so long as the Force Majeure Event continues. “Force Majeure Event” means any event due to any causebeyond the reasonable control of the Custodian, such as restrictions on convertibility or transferability, requisitions, involuntary transfers,unavailability of communications system, sabotage, fire, flood, explosion, acts of God, civil commotion, strikes or industrial action of any kind, riots,insurrection, war or acts of government.(vi) Client’s Reporting Obligations. The Client shall be solely responsible for all filings, tax returns and reports on any transactions in respect ofSecurities or Cash or relating to Securities or Cash as may be required by any relevant authority, whether governmental or otherwise.(vii) Validity of Securities. The Custodian shall exercise reasonable care in receiving Securities but does not warrant or guarantee the form,authenticity, value or validity of any Security received by the Custodian. If the Custodian becomes aware of any defect in title or forgery of anySecurity, the Custodian shall promptly notify the Client.(viii) Capacity of Custodian. The Custodian is not acting under this Agreement as an investment manager, nor as an investment, legal or taxadviser to the Client, and the Custodian’s duty is solely to act as a Custodian in accordance with the terms of this Agreement.(ix) Forwarded Information. The Custodian is not responsible for the form, accuracy or content of any notice, circular, report, announcement orother material provided under Section 6(B)(iv) of this Agreement not prepared by the Custodian including the accuracy or completeness of anytranslation provided by the Custodian in regard to such forwarded communication. 10 11. SUBROGATIONTo the extent permissible by law or regulation and upon the Client’s request, the Client shall be subrogated to the rights of the Custodian withrespect to any claim for any loss, damage or claim suffered by the Client, in each case to the extent that the Custodian fails to pursue any such claim orthe Client is not made whole in respect of such loss, damage or claim. Notwithstanding any other provision hereof, in no event is the Custodianobliged to bring suit in its own name or to allow suit to be brought in its name.12. INDEMNITY(A) Indemnity to the Custodian. The Client agrees to indemnify the Custodian and hold the Custodian harmless from all losses, costs, damagesand expenses (including reasonable legal fees) and liabilities for any claims, demands or actions (each referred to as a “Loss”), incurred by theCustodian in connection with this Agreement, except any Loss resulting from the Custodian’s negligence, wilful misconduct or fraud. Under nocircumstances will the Client be liable to the Custodian for consequential loss or damage, even if advised of the possibility of such loss or damage.(B) Client’s Direct Liability. The disclosure by the Client to the Custodian that the Client has entered into this Agreement as the agent orrepresentative of another person shall not relieve the Client of any of its obligations under this Agreement.13. LIEN AND SET OFF(A) Lien. In addition to any other remedies available to the Custodian under applicable law, the Custodian shall have, and the Client herebygrants, a continuing general lien in favor of the Custodian on all Securities held by the Custodian or its agents on behalf of the Custodian to secure thepayment of fees and expenses, overdraft charges, indemnities and other similar obligations of the Client arising under this Agreement in the ordinarycourse of business until the satisfaction of such liabilities and obligations of the Client arising under this Agreement. The Custodian hereby waives anysecurity interest, lien or right to make deductions of setoff under this agreement to the extent expressly waived pursuant to any account controlagreement or other agreement in effect between the Custodian, the Client and any other party thereto.(B) Set Off. To the extent permitted by applicable law and in addition to any other remedies available to the Custodian under applicable law, theCustodian may, with prior notice to the Client, set off any payment obligation owed to it by the Client in connection with all liabilities arising underthis Agreement against any payment obligation owed by it to the Client under this Agreement that has not been promptly paid upon request by theCustodian regardless of the place of payment or currency of either obligation (and for such purpose may make any currency conversion necessary).14. FEES AND EXPENSESThe Client agrees to pay all fees, charges and obligations incurred from time to time for any services pursuant to this Agreement as determined inaccordance with the terms of the Fee Schedule, which may be changed from time to time upon written agreement by the Custodian and the Clienttogether with any other amounts payable to the Custodian under this Agreement. The Custodian may debit the Cash Account to pay overdraft chargesor interest on such with prior written notice to the Client.15. CITIGROUP ORGANISATION INVOLVEMENTThe Client agrees and understands that any member of the Citigroup Organisation can engage as principal or otherwise in any transactioneffected by the Client or by any person for its account and benefit, or by or on behalf of any counterparty or issuer. When instructed to effect anytransactions (particularly 11 foreign exchange transactions), the Custodian is entitled to effect any transaction by or with itself or any member of the Citigroup Organisation and topay or keep any fee, commissions or compensation as specified in the Client’s Instruction or, if no specification is provided, any charges, fees,commissions or similar payments generally in effect from time to time with regard to such or similar transactions.16. RECORDS AND ACCESS(A) Examination of Statements. The Client shall examine each statement sent by the Custodian and notify the Custodian in writing withinninety (90) days of the date of such statement of any discrepancy between Instructions given by the Client and the position shown on the statementand of any other errors known to the Client. Absent such notification, the Custodian’s liability for any loss or damage in regard to such discrepancy orerrors shall not accrue beyond such ninety (90) days.(B) Access to Records. The Custodian shall allow the Client and its independent public accountants, agents or regulators reasonable access tothe records of the Custodian relating to Securities or Cash as is required by the Client in connection with an examination of the books and recordspertaining to the affairs of the Client and will seek to obtain such access from each subcustodian and Clearance System.17. INFORMATIONThe Custodian will treat information related to the Client as confidential but, unless prohibited by law, the Client authorises the transfer ordisclosure of any information relating to the Client to and between the branches, subsidiaries, representative offices, affiliates and agents of theCustodian and third parties selected by any of them, wherever situated, for confidential use in connection with the provision of services to the Client(including for data processing, statistical and risk analysis purposes), and further acknowledges that any such branch, subsidiary, representative office,affiliate, agent or third party may transfer or disclose any such information as required by any law, court, regulator or legal process.The Client will treat the terms of this Agreement, including any Fee Schedule, as confidential, however, the Client may transfer or disclose anysuch information as required by any law, court, regulator or legal process.18. ADVERTISINGNeither the Client nor the Custodian shall display the name, trade mark or service mark of the other without the prior written approval of theother, nor will the Client display that of Citigroup, Inc. or any subsidiary of Citigroup, Inc. without prior written approval from Citigroup, Inc. or thesubsidiary concerned. The Client shall not advertise or promote any service provided by the Custodian without the Custodian’s prior written consent.19. TERMINATION(A) Date of Termination. Any party may terminate this Agreement in whole or as between itself and the other parties hereto by giving not lessthan sixty (60) days’ prior written notice to such other parties.(B) Effect on Property. The Custodian shall deliver the Securities and Cash as instructed by the Client. If by the termination date the Client hasnot given instructions to deliver any Securities or Cash, the Custodian will continue to safekeep such Securities and/or Cash until the Client providesinstructions to effect a free delivery of such. However, the Custodian will provide no other services as regard to any such Securities except to collectand hold any cash distributions. Notwithstanding termination of this Agreement or any Instruction, the Custodian may retain sufficient Securities orCash to close out or complete any transaction that the Custodian will be required to settle on the Client’s behalf. 12 (C) Surviving Terms. The rights and obligations contained in Sections 7, 10, 12, 13, 17, 18 and 20 of this Agreement shall survive thetermination of this Agreement.20. GOVERNING LAW AND JURISDICTION(A) Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws (and not the laws of conflicts) ofthe country which the Custodian is located and performs its obligations hereunder(B) Jurisdiction. The courts located in the county of New York, the State of New York shall have non-exclusive jurisdiction to hear any disputesarising out of or in connection with this Agreement, and the parties irrevocably submit to the jurisdiction of such courts.(C) Venue. Each party hereto waives any objection it may have at any time, to the laying of venue of any actions or proceedings brought in anycourt specified in Section 20(B) hereof, waives any claim that such actions or proceedings have been brought in an inconvenient forum and furtherwaives the right to object that such court does not have jurisdiction over such party.(D) Sovereign Immunity. The Client and the Custodian each irrevocably waives, with respect to itself and its revenues and assets, all immunityon the grounds of sovereignty or similar grounds in respect of its obligations under this Agreement.21. MISCELLANEOUS(A) Entire Agreement; Amendments. This Agreement consists exclusively of this document together with the schedules. The Custodian maynotify the Client of terms which are applicable to the provision of services in the location of a particular office and such terms shall be contained in aschedule and shall supplement this Agreement in relation to that office. In case of inconsistency with the rest of this Agreement, such terms shallprevail in relation to that office.Except as specified in this Agreement, this Agreement may only be modified by written agreement of the Client and the Custodian.(B) Severability. If any provision of this Agreement is or becomes illegal, invalid or unenforceable under any applicable law, the remainingprovisions shall remain in full force and effect (as shall that provision under any other law).(C) Waiver of Rights. No failure or delay of the Client or the Custodian in exercising any right or remedy under this Agreement shall constitute awaiver of that right. Any waiver of any right will be limited to the specific instance. The exclusion or omission of any provision or term from thisAgreement shall not be deemed to be a waiver of any right or remedy the Client or the Custodian may have under applicable law.(D) Recordings. The Client and the Custodian consent to telephonic or electronic recordings for security and quality of service purposes andagree that either may produce telephonic or electronic recordings or computer records as evidence in any proceedings brought in connection with thisAgreement.(E) Further Information. The Client agrees to execute further documents and provide materials and information as may be reasonably requestedby the Custodian to enable it to perform its duties and obligations under this Agreement.(F) Assignment. No party may assign or transfer any of its rights or obligations under this Agreement without the other’s prior written consent,which consent will not be unreasonably withheld or delayed; provided that the Custodian may make such assignment or transfer to a branch,subsidiary or affiliate if it does not materially affect the provision of services to the Client. 13 (G) Headings. Titles to Sections of this Agreement are included for convenience of reference only and shall be disregarded in construing thelanguage contained in this Agreement.(H) Counterparts. This Agreement may be executed in several counterparts, each of which shall be an original, but all of which together shallconstitute one and the same agreement.{Signatures to follow} 14 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized. CITIBANK, N.A. SOLAR CAPITAL LTD and SOLAR SENIOR CAPITAL LTD,By: By: Name: Name: Title: Title: 15Exhibit 10.4AMENDED AND RESTATEDADMINISTRATION AGREEMENTThis Agreement (“Agreement”) is made as of October 29, 2013 by and between SOLAR SENIOR CAPITAL LTD. a Maryland corporation (the“Company”), and SOLAR CAPITAL MANAGEMENT, LLC, a Delaware limited liability company (the “Administrator”).WITNESSETH:WHEREAS, the Company is a newly organized closed-end management investment fund that intends to elect to be treated as a business developmentcompany (“BDC”) under the Investment Company Act of 1940 (the “Investment Company Act”); andWHEREAS, the Company desires to retain the Administrator to provide administrative services to the Company in the manner and on the termshereinafter set forth; andWHEREAS, the Administrator is willing to provide administrative services to the Company on the terms and conditions hereafter set forth.NOW, THEREFORE, in consideration of the premises and the covenants hereinafter contained and for other good and valuable consideration, thereceipt and adequacy of which is hereby acknowledged, the Company and the Administrator hereby agree as follows: 1.Duties of the Administrator(a) Employment of Administrator. The Company hereby employs the Administrator to act as administrator of the Company, and to furnish, orarrange for others to furnish, the administrative services, personnel and facilities described below, subject to review by and the overall control of theBoard of Directors of the Company (the “Board”), for the period and on the terms and conditions set forth in this Agreement. The Administrator herebyaccepts such employment and agrees during such period to render, or arrange for the rendering of, such services and to assume the obligations hereinset forth subject to the reimbursement of costs and expenses provided for below. The Administrator and such others shall for all purposes herein bedeemed to be independent contractors and shall, unless otherwise expressly provided or authorized herein, have no authority to act for or represent theCompany in any way or otherwise be deemed agents of the Company.(b) Services. The Administrator shall perform (or oversee, or arrange for, the performance of) the administrative services necessary for theoperation of the Company. Without limiting the generality of the foregoing, the Administrator shall provide the Company with office facilities,equipment, clerical, bookkeeping and record keeping services at such facilities and such other services as the Administrator, subject to review by theBoard, shall from time to time determine to be necessary or useful to perform its obligations under this Agreement. The Administrator shall also, onbehalf of the Company, conduct relations with custodians, depositories, transfer agents, dividend disbursing agents, other stockholder servicing agents,accountants, attorneys, underwriters, brokers and dealers, corporate fiduciaries, insurers, banks and such other persons in any such other capacitydeemed to be necessary or desirable. The Administrator shall make reports to the Board of its performance of obligations hereunder and furnish adviceand recommendations with respect to such other aspects of the business and affairs of the Company as it shall determine to be desirable; provided thatnothing herein shall be construed to require the Administrator to, and the Administrator shall not, provide any advice or recommendation relating tothe securities and other assets that the Company should purchase, retain or sell or any other investment advisory services to the Company. TheAdministrator shall be responsible for the financial and other records that the 1Company is required to maintain, and under the Investment Company Act, shall prepare, print and disseminate reports to stockholders, and reports andother materials filed with the Securities and Exchange Commission (the “SEC”). The Administrator will provide on the Company’s behalf significantmanagerial assistance to those portfolio companies to which the Company is required to provide such assistance. In addition, the Administrator willassist the Company in determining and publishing the Company’s net asset value, overseeing the preparation and filing of the Company’s tax returns,and generally overseeing the payment of the Company’s expenses and the performance of administrative and professional services rendered to theCompany by others. 2.RecordsThe Administrator agrees to maintain and keep all books, accounts and other records of the Company that relate to activities performed by theAdministrator hereunder and will maintain and keep such books, accounts and records in accordance with the Investment Company Act. In compliance withthe requirements of Rule 31a-3 under the Investment Company Act, the Administrator agrees that all records which it maintains for the Company shall at alltimes remain the property of the Company, shall be readily accessible during normal business hours, and shall be promptly surrendered upon the terminationof the Agreement or otherwise on written request. The Administrator further agrees that all records which it maintains for the Company pursuant to Rule 31a-1under the Investment Company Act will be preserved for the periods prescribed by Rule 31a-2 under the Investment Company Act unless any such recordsare earlier surrendered as provided above. Records shall be surrendered in usable machine-readable form. The Administrator shall have the right to retaincopies of such records subject to observance of its confidentiality obligations under this Agreement. 3.ConfidentialityThe parties hereto agree that each shall treat confidentially the terms and conditions of this Agreement and all information provided by each party tothe other regarding its business and operations. All confidential information provided by a party hereto, including nonpublic personal information (regulatedpursuant to Regulation S-P), shall be used by any other party hereto solely for the purpose of rendering services pursuant to this Agreement and, except asmay be required in carrying out this Agreement, shall not be disclosed to any third party, without the prior consent of such providing party. The foregoingshall not be applicable to any information that is publicly available when provided or thereafter becomes publicly available other than through a breach ofthis Agreement, or that is required to be disclosed by any regulatory authority, any authority or legal counsel of the parties hereto, by judicial oradministrative process or otherwise by applicable law or regulation. 4.Compensation; Allocation of Costs and ExpensesIn full consideration of the provision of the services of the Administrator, the Company shall reimburse the Administrator for the costs and expensesincurred by the Administrator in performing its obligations and providing personnel and facilities hereunder. The Company will bear all costs and expensesthat are incurred in its operation, administration and transactions and not specifically assumed by Solar Capital Partners, LLC (the “Adviser”), pursuant tothat certain Investment Advisory Management Agreement, dated as of February 24, 2011 by and between the Company and the Adviser, as it may beamended from time to time. Costs and expenses to be borne by the Company include, but are not limited to, those relating to: organization and offering;calculating the Company’s net asset value (including the cost and expenses of any independent valuation firm and Citi Fund Services Ohio, Inc. and itsaffiliates); expenses incurred by the Adviser payable to third parties, including agents, consultants or other advisors, in monitoring financial and legal affairsfor the Company and in providing administrative services, monitoring the Company’s investments and performing due diligence on its prospective portfoliocompanies; interest payable on debt, if any, incurred to finance the Company’s investments; sales and purchases of the Company’s common stock and othersecurities; investment advisory and management fees; administration fees, if any, payable under this Agreement; fees payable to third parties, includingagents, consultants or other advisors, relating to, or associated with, evaluating and making investments; transfer agent 2and custodial fees; federal and state registration fees; all costs of registration and listing the Company’s shares on any securities exchange; federal, state andlocal taxes; independent Directors’ fees and expenses; costs of preparing and filing reports or other documents required by the Securities and ExchangeCommission; costs of any reports, proxy statements or other notices to stockholders, including printing costs; the Company’s allocable portion of the fidelitybond, directors and officers/errors and omissions liability insurance, and any other insurance premiums; direct costs and expenses of administration,including printing, mailing, long distance telephone, copying, secretarial and other staff, independent auditors and outside legal costs; and all other expensesincurred by the Company or the Administrator in connection with administering the Company’s business, including payments under this Agreement basedupon the Company’s allocable portion of the Administrator’s overhead in performing its obligations under the Administration Agreement, including rent andthe allocable portion of the cost of the Company’s chief compliance officer and chief financial officer and their respective staffs. 5.Limitation of Liability of the Administrator; IndemnificationThe Administrator (and its officers, managers, partners, agents, employees, controlling persons, members, and any other person or entity affiliated withthe Administrator, including without limitation its sole member, the Adviser, and any affiliated person to the extent that they are providing services for orotherwise acting on behalf of the Administrator, Adviser or the Company) shall not be liable to the Company for any action taken or omitted to be taken bythe Administrator in connection with the performance of any of its duties or obligations under this Agreement or otherwise as administrator for the Company,and the Company shall indemnify, defend and protect the Administrator (and its officers, managers, partners, agents, employees, controlling persons,members, and any other person or entity affiliated with the Administrator, including without limitation the Adviser, each of whom shall be deemed a thirdparty beneficiary hereof) (collectively, the “Indemnified Parties”) and hold them harmless from and against all damages, liabilities, costs and expenses(including reasonable attorneys’ fees and amounts reasonably paid in settlement) incurred by the Indemnified Parties in or by reason of any pending,threatened or completed action, suit, investigation or other proceeding (including an action or suit by or in the right of the Company or its security holders)arising out of or otherwise based upon the performance of any of the Administrator’s duties or obligations under this Agreement or otherwise as administratorfor the Company. Notwithstanding the preceding sentence of this Section 5 to the contrary, nothing contained herein shall protect or be deemed to protectthe Indemnified Parties against or entitle or be deemed to entitle the Indemnified Parties to indemnification in respect of, any liability to the Company or itssecurity holders to which the Indemnified Parties would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in theperformance of the Administrator’s duties or by reason of the reckless disregard of the Administrator’s duties and obligations under this Agreement (to theextent applicable, as the same shall be determined in accordance with the Investment Company Act and any interpretations or guidance by the SEC or itsstaff thereunder). 6.Activities of the AdministratorThe services of the Administrator to the Company are not to be deemed to be exclusive, and the Administrator and each affiliate is free to renderservices to others. It is understood that directors, officers, employees and stockholders of the Company are or may become interested in the Administrator andits affiliates, as directors, officers, members, managers, employees, partners, stockholders or otherwise, and that the Administrator and directors, officers,members, managers, employees, partners and stockholders of the Administrator and its affiliates are or may become similarly interested in the Company asstockholders or otherwise. 7.Duration and Termination of this Agreement(a) This Agreement shall become effective as of the first date above written. The provisions of Section 5 of this Agreement shall remain in fullforce and effect, and the Administrator shall remain entitled to the benefits thereof, notwithstanding any termination of this Agreement. Further,notwithstanding the 3termination or expiration of this Agreement as aforesaid, the Administrator shall be entitled to any amounts owed under Section 4 through the date oftermination or expiration and Section 5 shall continue in force and effect and apply to the Administrator and its representatives as and to the extentapplicable. This Agreement shall continue in effect for two years from the date hereof, and thereafter shall continue automatically for successive annualperiods, provided that such continuance is specifically approved at least annually by:(i) the vote of the Board, or by the vote of a majority of the outstanding voting securities of the Company; and(ii) the vote of a majority of the Company’s Directors who are not parties to this Agreement or “interested persons” (as such term is definedin Section 2(a)(19) of the Investment Company Act) of any such party, in accordance with the requirements of the Investment Company Act.(b) The Agreement may be terminated at any time, without the payment of any penalty, upon not more than 60 days’ written notice, by the voteof a majority of the outstanding voting securities of the Company, or by the vote of the Board or by the Administrator.(c) This Agreement may not be assigned by a party without the consent of the other party; provided however, that the rights and obligations ofthe Company under this Agreement shall not be deemed to be assigned to a newly-formed entity in the event of the merger of the Company into, orconveyance of all of the assets of the Company to, such newly-formed entity; provided further, however, that the sole purpose of that merger orconveyance is to effect a mere change in the Company’s legal form into another limited liability entity. The provisions of Section 5 of this Agreementshall remain in full force and effect, and the Administrator shall remain entitled to the benefits thereof, notwithstanding any termination of thisAgreement. 8.Amendments of this AgreementThis Agreement may be amended pursuant to a written instrument by mutual consent of the parties. 9.Governing LawThis Agreement shall be construed in accordance with the laws of the State of New York and the applicable provisions of the Investment Company Act.To the extent the applicable laws of the State of New York, or any of the provisions herein, conflict with the provisions of the Investment Company Act, thelatter shall control. 10.Entire AgreementThis Agreement contains the entire agreement of the parties and supersedes all prior agreements, understandings and arrangements with respect to thesubject matter hereof. 11.NoticesAny notice under this Agreement shall be given in writing, addressed and delivered or mailed, postage prepaid, to the other party at its principal office.[Remainder of Page Intentionally Left Blank] 4IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date first above written. SOLAR SENIOR CAPITAL, LTD.By: /s/ Michael S. GrossName: Michael S. GrossTitle: Chief Executive Officer and President SOLAR CAPITAL MANAGEMENT, LLCBy: /s/ Michael S. Gross Sole Member Solar Capital Partners, LLC Michael S. Gross, Managing MemberExhibit 11.1STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGSThe following information sets forth the computation of basic and diluted net increase in net assets per share resulting from operations for the yearended December 31, 2013 Numerator for increase in net assets per share – basic and diluted: $12,618 Denominator for basic weighted average shares: 11,423,958 Earnings per share – basic and diluted: $1.10 Exhibit 14.2SOLAR SENIOR CAPITAL LTD.CODE OF BUSINESSCONDUCT CODE OF BUSINESS CONDUCTTABLE OF CONTENTS Page Introduction 1 Purpose of the Code 1 Conflicts of Interest 1 Corporate Opportunities 1 Confidentiality 2 Fair Dealing 2 Protection and Proper Use of Company Assets 2 Compliance with Applicable Laws, Rules and Regulations 2 Equal Opportunity, Harassment 3 Accuracy of Company Records 3 Retaining Business Communications 3 Political Contributions 3 Media Relations 3 Intellectual Property Information 3 Internet and E-mail Policy 4 Reporting Violations and Complaint Handling 4 Sanctions for Code Violations 5 Application/Waivers 5 Appendices Code Acknowledgment A-1 iiCODE OF BUSINESS CONDUCTIntroductionEthics are important to Solar Senior Capital Ltd. (“Solar Senior”, “our”, “us”, or “we”) and to its management. Solar Senior is committed to the highestethical standards and to conducting its business with the highest level of integrity.All officers, directors and employees of Solar Senior, its investment adviser, Solar Capital Partners, LLC (the “investment adviser”) and itsadministrator, Solar Capital Management, LLC (the “administrator”) are responsible for maintaining this level of integrity and for complying with thepolicies contained in this Code. If you have a question or concern about what is proper conduct for you or anyone else, please raise these concerns with anymember of Solar Senior’s management, or follow the procedures outlined in applicable sections of this Code.Purpose of the CodeThis Code is intended to: • help you recognize ethical issues and take the appropriate steps to resolve these issues; • deter ethical violations; • assist you in reporting any unethical or illegal conduct; and • reaffirm and promote our commitment to a corporate culture that values honesty and accountability.All employees, as a condition of employment or continued employment, will acknowledge in writing that they have received a copy of this Code, readit, and understand that the Code contains our expectations regarding their conduct.Conflicts of InterestYou must avoid any conflict, or the appearance of a conflict, between your personal interests and our interests. A conflict exists when your personalinterest in any way interferes with our interests, or when you take any action or have any interest that may make it difficult for you to perform your jobobjectively and effectively. For example, a conflict of interest probably exists if: • you cause us, the investment adviser or the administrator to enter into business relationships with you or a member of your family, or invest incompanies affiliated with you or a member of your family; • you use any nonpublic information about us, the investment adviser, the administrator, our customers or our other business partners for yourpersonal gain, or the gain of a member of your family; or • you use or communicate confidential information obtained in the course of your work for your or another’s personal benefit.Corporate OpportunitiesEach of us has a duty to advance the legitimate interests of Solar Senior when the opportunity to do so presents itself. Therefore, you may not: • take for yourself personally opportunities, including investment opportunities, discovered through the use of your position with us, theinvestment adviser or the administrator, or through the use of either’s property or information; • use our, the investment adviser’s or the administrator’s property, information, or position for your personal gain or the gain of a family member;or 1 • compete, or prepare to compete, with us, the investment adviser or the administrator.ConfidentialityYou must not disclose confidential information regarding us, the investment adviser, the administrator, our affiliates, our lenders, our clients, or ourother business partners, unless disclosure is authorized or required by law. Confidential information includes all non-public information that might beharmful to, or useful to the competitors of, Solar Senior, our affiliates, our lenders, our clients, or our other business partners.Fair DealingYou must endeavor to deal fairly with our customers, suppliers and business partners, or any other companies or individuals with whom we do businessor come into contact with, including fellow employees and our competitors. You must not take unfair advantage of these or other parties by means of: • manipulation; • concealment; • abuse of privileged information; • misrepresentation of material facts; or • any other unfair-dealing practice.Protection and Proper Use of Company AssetsOur assets are to be used only for legitimate business purposes. You should protect our assets and ensure that they are used efficiently.Incidental personal use of telephones, fax machines, copy machines, personal computers and similar equipment is generally allowed if there is nosignificant added cost to us, it does not interfere with your work duties, and is not related to an illegal activity or to any outside business.Compliance with Applicable Laws, Rules and RegulationsEach of us has a duty to comply with all laws, rules and regulations that apply to our business. Highlighted below are some of the key complianceguidelines that must be followed. • Insider trading. It is against the law to buy or sell securities using material information that is not available to the public. Individuals who givethis “inside” information to others may be liable to the same extent as the individuals who trade while in possession of such information. Youmust not trade in our securities, or the securities of our affiliates, our lenders, our clients, or our other business partners while in the possession of“inside” information. • “Whistleblower” protections. It is against the law to discharge, demote, suspend, threaten, harass, or discriminate in any manner against anemployee who provides information or otherwise assists in investigations or proceedings relating to violations of federal securities laws or otherfederal laws prohibiting fraud against shareholders. You must not discriminate in any way against an employee who engages in these“whistleblower” activities. • Investment Company Act requirements. A separate code of ethics has been established to comply with the Investment Company Act of 1940and is applicable to those persons designated in such code. • Document retention. You must adhere to appropriate procedures governing the retention and destruction of records consistent with applicablelaws, regulations and our policies. You may not destroy, alter or falsify any document that may be relevant to a threatened or pending lawsuit orgovernmental investigation. 2Please talk to any member of senior management if you have any questions about how to comply with the above regulations and other laws, rules andregulations.Equal Opportunity, HarassmentWe are committed to providing equal opportunity in all of our employment practices including selection, hiring, promotion, transfer, andcompensation of all qualified applicants and employees without regard to race, color, sex or gender, religion, age, national origin, handicap, disability,citizenship status, or any other status protected by law. With this in mind, there are certain behaviors that will not be tolerated. These include harassment,violence, intimidation, and discrimination of any kind involving race, color, religion, gender, age, national origin, disability, or marital status.Accuracy of Company RecordsWe require honest and accurate recording and reporting of information in order to make responsible business decisions. This includes such data asquality, safety, and personnel records, as well as financial records.All financial books, records and accounts must accurately reflect transactions and events, and conform both to required accounting principles and toour system of internal controls. No false or artificial entries may be made.Retaining Business CommunicationsThe law requires us to maintain certain types of corporate records, usually for specified periods of time. Failure to retain those records for thoseminimum periods could subject us to penalties and fines, cause the loss of rights, obstruct justice, place us in contempt of court, or seriously disadvantage usin litigation.From time to time we establish retention or destruction policies in order to ensure legal compliance. We expect you to fully comply with any publishedrecords retention or destruction policies, provided that you should note the following exception: If you believe, or we inform you, that our records arerelevant to any litigation or governmental action, or any potential litigation or action, then you must preserve those records until we determine the recordsare no longer needed. This exception supersedes any previously or subsequently established destruction policies for those records. If you believe that thisexception may apply, or have any questions regarding the possible applicability of that exception, please contact our Chief Compliance Officer.Political ContributionsNo funds of Solar Senior may be given directly to political candidates. You may, however, engage in political activity with your own resources on yourown time.Media RelationsWe must speak with a unified voice in all dealings with the press and other media. As a result, our Chief Executive Officer and Chief Operating Officerare the only contacts for media seeking information about Solar Senior. Any requests from the media must be referred to either our Chief Executive Officer orChief Operating Officer.Intellectual Property InformationInformation generated in our business is a valuable asset. Protecting this information plays an important role in our growth and ability to compete.Such information includes business and research plans; objectives and strategies; trade secrets; unpublished financial information; salary and benefits data;lender and other business partner lists. Employees who have access to our intellectual property information are obligated to safeguard it from unauthorizedaccess and: 3 • Not disclose this information to persons outside of Solar Senior; • Not use this information for personal benefit or the benefit of persons outside of Solar Senior; and • Not share this information with other employees except on a legitimate “need to know” basis.Internet and E-Mail PolicyWe provide an e-mail system and Internet access to certain of our employees to help them do their work. You may use the e-mail system and theInternet only for legitimate business purposes in the course of your duties. Incidental and occasional personal use is permitted, but never for personal gain orany improper use. Further, you are prohibited from discussing or posting information regarding Solar Senior in any external electronic forum, includingInternet chat rooms or electronic bulletin boards.Reporting Violations and Complaint HandlingYou are responsible for compliance with the rules, standards and principles described in this Code. In addition, you should be alert to possibleviolations of the Code by Solar Senior’s, the investment adviser’s or the administrator’s employees, officers and directors, and you are expected to report aviolation promptly. Normally, reports should be made to one’s immediate supervisor. Under some circumstances, it may be impractical or you may feeluncomfortable raising a matter with your supervisor. In those instances, you are encouraged to contact our Chief Compliance Officer who will investigate andreport the matter to our Chief Executive Officer and/or Board of Directors, as the circumstance dictates. You will also be expected to cooperate in aninvestigation of a violation.Anyone who has a concern about our conduct, the conduct of an officer of Solar Senior, its investment adviser or its administrator or our accounting,internal accounting controls or auditing matters, may communicate that concern to the Audit Committee of the Board of Directors by direct communicationwith our Chief Compliance Officer or by email or in writing. All reported concerns shall be forwarded to the Audit Committee and will be simultaneouslyaddressed by our Chief Compliance Officer in the same way that other concerns are addressed by us. The status of all outstanding concerns forwarded to theAudit Committee will be reported on a quarterly basis by our Chief Compliance Officer. The Audit Committee may direct that certain matters be presented tothe full board and may also direct special treatment, including the retention of outside advisors or counsel, for any concern reported to it.All reports will be investigated and whenever possible, requests for confidentiality shall be honored. And, while anonymous reports will be accepted,please understand that anonymity may hinder or impede the investigation of a report. All cases of questionable activity or improper actions will be reviewedfor appropriate action, discipline or corrective actions. Whenever possible, we will keep confidential the identity of employees, officers or directors who areaccused of violations, unless or until it has been determined that a violation has occurred.There will be no reprisal, retaliation or adverse action taken against any employee who, in good faith, reports or assists in the investigation of, aviolation or suspected violation, or who makes an inquiry about the appropriateness of an anticipated or actual course of action.For reporting concerns about Solar Senior’s, its investment adviser’s or its administrator’s conduct, the conduct of an officer of Solar Senior, itsinvestment adviser or its administrator, or about Solar Senior’s, its investment adviser’s or its administrator’s accounting, internal accounting controlsor auditing matters, you may use the following means of communication: ADDRESS: SOLAR SENIOR CAPITAL LTD. 500 Park Avenue, 3 Floor New York, NY 10022 4rdIn the case of a confidential, anonymous submission, employees should set forth their concerns in writing and forward them in a sealed envelope to theChairperson of the Audit Committee, in care of our Chief Compliance Officer, such envelope to be labeled with a legend such as: “To be opened by the AuditCommittee only.”Sanctions for Code ViolationsAll violations of the Code will result in appropriate corrective action, up to and including dismissal. If the violation involves potentially criminalactivity, the individual or individuals in question will be reported, as warranted, to the appropriate authorities.Application/WaiversAll the directors, officers and employees of Solar Senior, its investment adviser and its administrator are subject to this Code.Insofar as other policies or procedures of Solar Senior, its investment adviser or its administrator govern or purport to govern the behavior or activitiesof all persons who are subject to this Code, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code.Any amendment or waiver of the Code for an executive officer or member of our Board of Directors must be made by our Board of Directors anddisclosed on a Form 8-K filed with the Securities and Exchange Commission within four business days following such amendment or waiver. 5APPENDIX ASolar Senior Capital Ltd.Acknowledgment RegardingCode of Business Conduct This acknowledgment is to be signed and returned to our Chief Compliance Officer and will be retained as part of your permanent personnel file.I have received a copy of Solar Senior Capital Ltd.’s Code of Business Conduct, read it, and understand that the Code contains the expectations ofSolar Senior Capital Ltd. regarding employee conduct. I agree to observe the policies and procedures contained in the Code of Business Conduct and havebeen advised that, if I have any questions or concerns relating to such policies or procedures, I understand that I have an obligation to report to the AuditCommittee, the Chief Compliance Officer or other such designated officer, any suspected violations of the Code of which I am aware. I also understand thatthe Code is issued for informational purposes and that it is not intended to create, nor does it represent, a contract of employment. Employee’s Name (Printed) Employee’s Signature Date The failure to read and/or sign this acknowledgment in no way relieves you of your responsibility to comply with Solar Senior Capital Ltd.’s Code ofBusiness Conduct. A-1Exhibit 21.1The following list sets forth each of our consolidated subsidiaries, the state or country under whose laws the subsidiary is organized, and the percentage ofvoting securities or membership interests owned by us in such subsidiary:SUNS SPV LLC (Delaware) – 100%The subsidiary listed above is consolidated for financial reporting purposes.Exhibit 31.1Certification Pursuant to Section 302Certification of Chief Executive OfficerI, Michael S. Gross, Chief Executive Officer of Solar Senior Capital Ltd., certify that:1. I have reviewed this annual report on Form 10-K of Solar Senior Capital Ltd.;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 thestatements 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 financial statements, and other financial information included in this report, fairly present in all material respects thefinancial 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 inExchange 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 theregistrant and have:a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure 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 oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes 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 theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materiallyaffect, the registrant’s internal control over financial reporting; and5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe 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 reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; andb) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting.Date: February 25, 2014 /S/ MICHAEL S. GROSS Michael S. GrossChief Executive OfficerExhibit 31.2Certification Pursuant to Section 302Certification of Chief Financial OfficerI, Richard L. Peteka, Chief Financial Officer of Solar Senior Capital Ltd., certify that:1. I have reviewed this annual report on Form 10-K of Solar Senior Capital Ltd.;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 thestatements 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 financial statements, and other financial information included in this report, fairly present in all material respects thefinancial 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 inExchange 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 theregistrant and have:a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure 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 oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes 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 theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materiallyaffect, the registrant’s internal control over financial reporting; and5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe 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 reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; andb) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting.Date: February 25, 2014 /S/ RICHARD L. PETEKA Richard L. PetekaChief Financial OfficerExhibit 32.1Certification Pursuant to Section 906Certification of Chief Executive OfficerPursuant toSection 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)In connection with the Annual Report on Form 10-K for the fiscal year ended December 31, 2013 (the “Report”) of Solar Senior Capital Ltd. (the“Registrant”), as filed with the Securities and Exchange Commission on the date hereof, I, Michael S. Gross, the Chief Executive Officer of the Registrant,hereby certify, to the best of my knowledge, that:(1) The Report fully complies with the requirements of Section 13(a) or 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 theRegistrant. /S/ MICHAEL S. GROSS Name: Michael S. GrossDate: February 25, 2014Exhibit 32.2Certification Pursuant to Section 906Certification of Chief Financial OfficerPursuant toSection 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)In connection with the Annual Report on Form 10-K for the fiscal year ended December 31, 2013 (the “Report”) of Solar Senior Capital Ltd. (the“Registrant”), as filed with the Securities and Exchange Commission on the date hereof, I, Richard L. Peteka, the Chief Financial Officer of the Registrant,hereby certify, to the best of my knowledge, that:(1) The Report fully complies with the requirements of Section 13(a) or 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 theRegistrant. /S/ RICHARD L. PETEKA Name: Richard L. PetekaDate: February 25, 2014

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