Solar Senior Capital Ltd.
Annual Report 2016

Plain-text annual report

Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549 FORM 10-K ☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE FISCAL YEAR ENDED DECEMBER 31, 2016OR ☐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 ☒Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90days. Yes ☒ No ☐Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post suchfiles). 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 the best of Registrant’sknowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of“large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☒Non-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 ☒The aggregate market value of common stock held by non-affiliates of the Registrant on June 30, 2016 based on the closing price on that date of $16.11 on the NASDAQGlobal Select Market was approximately $171.6 million. For the purposes of calculating this amount only, all directors and executive officers of the Registrant have been treated asaffiliates. There were 16,026,420 shares of the Registrant’s common stock outstanding as of February 22, 2017.Portions of the registrant’s Proxy Statement for its 2017 Annual Meeting of Stockholders to be filed not later than 120 days after the end of the fiscal year covered by thisAnnual 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, 2016TABLE OF CONTENTS Page PART I Item 1. Business 1 Item 1A. Risk Factors 24 Item 1B. Unresolved Staff Comments 52 Item 2. Properties 52 Item 3. Legal Proceedings 52 Item 4. Mine Safety Disclosures 52 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 53 Item 6. Selected Financial Data 57 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 58 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 77 Item 8. Financial Statements and Supplementary Data 78 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 115 Item 9A. Controls and Procedures 115 Item 9B. Other Information 115 PART III Item 10. Directors, Executive Officers and Corporate Governance 116 Item 11. Executive Compensation 116 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 116 Item 13. Certain Relationships and Related Transactions, and Director Independence 116 Item 14. Principal Accounting Fees and Services 116 PART IV Item 15. Exhibits, Financial Statement Schedules 117 Signatures 119 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 regulated 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 the Financial Accounting Standard Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946. In addition, for taxpurposes we have elected to be treated as a regulated investment 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, raisingapproximately $168 million in net proceeds. Concurrent with this offering, Solar Senior Capital Investors LLC, an entity controlled by Michael S. Gross, ourChairman and Chief Executive Officer, and Bruce Spohler, our Chief Operating Officer, purchased an additional 500,000 shares of our common stock througha private placement transaction exempt from registration under the Securities Act of 1933, as amended, or the Securities Act (the “Concurrent PrivatePlacement”), raising another $10 million.On August 26, 2011, we established a $200 million senior secured revolving credit facility (the “Credit Facility”) with Citigroup Global Markets Inc.acting as administrative agent. In connection with the Credit Facility, our wholly-owned subsidiary, SUNS SPV LLC (the “SPV”) was formed. The CreditFacility, as amended, currently has an aggregate of $175 million of commitments available. It can also be expanded up to $600 million. The stated interestrate on the Credit Facility is LIBOR plus 2.00% with no LIBOR floor requirement and the current final maturity date is June 30, 2020. The Credit Facility issecured by all of the assets held by the SPV. Under the terms of the Credit Facility, Solar Senior Capital and the SPV, as applicable, have made certaincustomary representations and warranties, and are required to comply with various covenants, including leverage restrictions, reporting requirements andother customary requirements for similar credit facilities. The Credit Facility also includes usual and customary events of default for credit facilities of thisnature. The Credit Facility was amended on November 7, 2012, June 30, 2014 and May 29, 2015 to extend maturities and add greater investment flexibility,among other changes.We invest primarily in privately held U.S. middle-market companies, where we believe the supply of primary capital is limited and the investmentopportunities are most attractive. We define “middle market” to refer to companies with annual revenues between $50 million and $1 billion. Our investmentobjective is to seek to maximize current income consistent with the preservation of capital. We seek to achieve our investment objective by directly andindirectly investing in senior loans, including first lien, unitranche, and second lien debt instruments, made to private middle-market companies whose debtis rated below investment grade, which we refer to collectively as “senior loans.” We may also invest in debt of public companies that are thinly traded or inequity securities. Under normal market conditions, at least 80% of the value of our net assets (including the amount of any borrowings for investmentpurposes) will be invested in senior loans. Senior loans typically pay interest at rates which are determined periodically on the basis of a floating baselending rate, primarily LIBOR, plus a premium. 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 entities which operate in various industries and geographical regions. Senior loans typically are rated below investmentgrade. 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 investment grade. In addition, some of our debt investments are not scheduled to fully amortize over their statedterms, which could cause us to suffer losses if the respective issuer of such debt investment is unable to refinance or repay their remaining indebtedness atmaturity. While the Company does not typically seek to invest in traditional equity securities as part of its investment objective, the Company mayoccasionally acquire some equity securities in connection with senior loan investments and in certain other unique circumstances, such as the Company’sequity investments in Gemino Healthcare Finance, LLC (“Gemino”) and First Lien Loan Program (“FLLP”). 1Table of ContentsWe invest in senior loans made primarily to private, leveraged middle-market companies with approximately $20 million to $100 million of earningsbefore income taxes, depreciation and amortization (“EBITDA”). Our business model is focused primarily on the direct origination of investments throughportfolio companies or their financial sponsors. Our direct investments in individual securities generally range between $5 million and $30 million each,although we expect that this investment size will vary with the size of our capital base and/or strategic initiatives. In addition, we may invest a portion of ourportfolio in other types of investments, which we refer to as opportunistic investments, which are not our primary focus but are intended to enhance ouroverall returns. These opportunistic investments may include, but are not limited to, 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 loans issued by non-U.S. issuers, subject to compliance with our regulatory obligations as a BDC under the 1940 Act. Our investmentactivities are managed by Solar Capital Partners, LLC (“Solar Capital Partners” or the “Investment Adviser”) and supervised by our board of directors, amajority of whom are non-interested, as such term is defined in the 1940 Act. Solar Capital Management, LLC (“Solar Capital Management”) provides theadministrative services necessary for us to operate.As of December 31, 2016, our investment portfolio totaled $365.5 million and our net asset value was $269.1 million. Our portfolio was comprised ofdebt and equity investments in 51 portfolio companies with our portfolio of income producing investments having a weighted average annualized yield on afair value and cost basis of approximately 7.8% and 7.7%, respectively. Portfolio yield does not represent an actual investment return to stockholders.During our fiscal year ended December 31, 2016, we invested approximately $162.8 million across 30 portfolio companies through a combination ofprimary and secondary market purchases. Investments sold or prepaid during the fiscal year ended December 31, 2016 totaled $111.9 million.Solar Capital PartnersSolar Capital Partners, our investment adviser, is controlled and led by Michael S. Gross, our Chairman and Chief Executive Officer, and BruceSpohler, our Chief Operating Officer. They are supported by a team of dedicated investment professionals. Solar Capital Partners’ investment team hasextensive experience in leveraged lending and private equity, as well as significant contacts with financial sponsors.In addition, Solar Capital Partners serves as investment adviser to Solar Capital Ltd. (or “Solar Capital”), a publicly traded BDC that invests in thesenior debt securities, including unitranche loans, mezzanine loans and equity securities of leveraged middle market companies similar to those we target forinvestment. Through December 31, 2016, the investment team led by Messrs. Gross and Spohler has invested approximately $6.0 billion in more than 265different portfolio companies for both Solar Capital and Solar Senior, collectively which investments involved an aggregate of more than 165 differentfinancial sponsors. As of February 22, 2017, Mr. Gross and Mr. Spohler beneficially owned, either directly or indirectly, approximately 5.2% and 3.2%,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. 2Table of ContentsInvestmentsSolar Senior seeks to create a diverse portfolio of senior loans by investing approximately $5 million to $30 million of capital, on average, in theindividual securities of leveraged companies, including middle-market companies. We expect that this investment size will vary proportionately with thesize of our capital base and/or for strategic initiatives. We may also invest in debt of public companies that are thinly traded. Under normal marketconditions, at least 80% of the value of our net assets (including the amount of any borrowings for investment purposes) will be invested in senior 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 industries and geographical regions. Senior loans typically are rated below investment grade. Securities rated below investmentgrade are often referred to as “leveraged loans,” “high yield” or “junk” securities, and may be considered “high risk” compared to debt instruments that arerated investment grade. Senior secured loans, however are generally less risky than subordinated debt, bearing lower leverage and higher recovery statistics.In addition, many of our debt investments are not scheduled to fully amortize over their stated terms, which could cause us to suffer losses if the respectiveissuer of such debt investment is unable to refinance or repay their remaining indebtedness at maturity.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 loans issued by non-U.S. issuers, subject to compliance with our regulatory obligations as a BDC under the 1940 Act.We currently borrow funds under the 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 or partially owned subsidiary and contribute a pool of loans to the subsidiary. This could include the sale of interests in the subsidiary on anon-recourse basis to purchasers who we would expect to be willing to accept a lower interest rate to invest in investment grade loan pools, and we wouldretain a portion of the equity in the securitized pool of loans.Moreover, we may acquire investments in the secondary market and, in analyzing such investments, we expect to employ the same or similar analyticalprocess as 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 3Table of Contentsof reasons, we may not seek to establish a perfect correlation between such hedging instruments and the portfolio holdings being hedged. Any such imperfectcorrelation may prevent us from achieving the intended hedge and expose us to risk of loss. In addition, it may not be possible to hedge fully or perfectlyagainst currency fluctuations affecting the value of securities denominated in non-U.S. currencies because the value of those securities is likely to fluctuate asa result of factors not entirely related to currency fluctuations.Our principal focus is to provide senior secured loans, including first lien, unitranche 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. The following is a representative list of the industries in which we may invest. • Aerospace & Defense • Health Care Facilities• Air Freight & Logistics • Health Care Providers & Services• Asset Management • Health Care Technology• Automobiles • Hotels, Restaurants & Leisure• Automotive Retail • Industrial Conglomerates• Beverages • Insurance• Building Products • Internet Software & Services• Capital Markets • IT Services• Chemicals • Leisure Equipment & Products• Commercial Services & Supplies • Machinery• Communications Equipment • Media• Construction & Engineering • Multiline Retail• Consumer Finance • Paper & Forest Products• Containers & Packaging • Personal Products• Distributors • Pharmaceuticals• Diversified Consumer Services • Professional Services• Diversified Financial Services • Real Estate Management & Development• 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 • Wireless Telecommunications ServicesWe may 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 alsoparticipate in negotiated co-investment transactions with certain affiliates, each of whose investment adviser is Solar Capital Partners, or an investmentadviser controlling, controlled by or under common control with Solar Capital Partners, in a manner consistent with our investment objective, positions,policies, strategies and restrictions as well as regulatory requirements and other pertinent factors, and pursuant to the conditions of the exemptive orderobtained from the Securities and Exchange Commission (“SEC”) on July 28, 2014.At December 31, 2016, our portfolio consisted of 51 portfolio companies and was invested 79.7% in senior secured loans and 20.3% in common equity(of which 9.7% is Gemino Healthcare Finance, LLC and 10.6% is First Lien Loan Program LLC), in each case, measured at fair value. We expect that ourportfolio will continue to include senior secured loans.While our primary investment objective is to maximize current income through direct and indirect investments in U.S. senior secured loans, and wemay also invest a portion of the portfolio in opportunistic investments, including foreign securities. 4Table of ContentsListed 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, 2016 and 2015:TOP TEN PORTFOLIO COMPANIES AND INDUSTRIES AS OF DECEMBER 31, 2016 Portfolio Company % of TotalAssets First Lien Loan Program LLC 7.4% Gemino Healthcare Finance LLC. 6.8% Polycom, Inc. 2.8% ABB/Con-Cise Optical Group LLC 2.3% Material Handling Services, LLC (TFS). 2.1% Confie Seguros Holding II Co. 1.9% Securus Technologies, Inc. 1.9% GenMark Diagnostics, Inc. 1.9% Falmouth Group Holdings Corp. (AMPAC) 1.8% Alera Group Intermediate Holdings, Inc. 1.6% Industry % of TotalAssets Health Care Providers & Services 11.8% Communications Equipment 8.4% Asset Management 8.2% Diversified Financial Services 7.7% Professional Services 6.0% Insurance 5.9% Software 3.3% Health Care Equipment & Supplies 2.3% Food Products 2.2% Air Freight & Logistics 2.1% TOP TEN PORTFOLIO COMPANIES AND INDUSTRIES AS OF DECEMBER 31, 2015 Portfolio Company % of TotalAssets Gemino Healthcare Finance LLC 9.4% First Lien Loan Program LLC. 7.6% Material Handling Services, LLC (TFS) 3.1% Confie Seguros Holding II Co. 2.8% LegalZoom.com, Inc.. 2.7% Athletico Management, LLC and Accelerated Holdings, LLC 2.6% RCPSI Corporation (Pet Supermarket) 2.6% Metamorph US 3, LLC (Metalogix) 2.5% Hostway Corporation 2.4% Trident USA Health Services 2.4% 5Table of ContentsIndustry % of TotalAssets Diversified Financial Services 11.7% Asset Management 8.8% Insurance 8.0% Health Care Services 7.9% Professional Services 6.1% Internet Software & Services 5.1% Software 5.1% Food Products 4.5% Communications Equipment 4.2% Health Care Facilities 3.8% Listed below is the geographic breakdown of the portfolio based on fair value as of December 31, 2016, 2015 and 2014: Geographic Region % of Portfolioat December 31, 2016 % of Portfolioat December 31, 2015 % of Portfolioat December 31, 2014 United States 100.0% 100.0% 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. 6Table of ContentsExit 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.We 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.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 (generally sponsors with equity funds of $800 million to $3 billion). We favor such sponsors because they typically: • buy larger companies with strong business franchises; • 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 more senior investment professionals, who are responsible for day-to-day interaction withfinancial sponsors. We take a proactive approach, provide quick feedback, deliver on commitments, and are constructive throughout the life cycle of aninvestment.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. 7Table of ContentsOur 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.Upon 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 8Table of Contentsbasis, often with a floor on the LIBOR rate. We generally seek to obtain security interests in the assets of our portfolio companies that serve as collateral insupport of the repayment of these loans. This collateral may take the form of first or second priority 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. To preserve an acceptable return on investment, we seek tostructure these loans with prepayment premiums.In the case of our senior secured loan investments, we seek to tailor the terms of the investment to the facts and circumstances of the transaction and theprospective portfolio company, negotiating a structure that protects our rights and manages our risk while creating incentives for the portfolio company toachieve its business plan and improve its profitability. For example, in addition to seeking a senior position in the capital structure of our portfoliocompanies, we may be able to limit the downside potential of our investments by: • requiring a total return on our investments (including both interest and potential capital appreciation) that compensates us for credit risk; • incorporating “put” rights and call protection into the investment structure; and • negotiating covenants in connection with our investments that afford our portfolio companies as much flexibility in managing their businessesas possible, consistent with preservation of our capital. Such restrictions may include affirmative and negative covenants, default penalties, lienprotection, change of control provisions and board rights, including either observation or participation rights.Our investments may include equity features, such as warrants or options to buy a minority interest in the portfolio company. Any warrants we receivewith our debt securities generally require only a nominal cost to exercise, and thus, as a portfolio company appreciates in value, we may achieve additionalinvestment return from this equity interest. In addition, we may from time to time make direct equity investments in portfolio companies.We generally seek to hold most of our investments to maturity or repayment, but believe we have the ability to sell our investments earlier, including ifa liquidity event takes place such as the sale or recapitalization of a portfolio company.Ongoing 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. 9Table of ContentsIn 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 31,2016, 2015 and 2014, the weighted average investment rating on the fair market value of our portfolio was 2. In connection with our valuation process, SolarCapital Partners reviews these investment ratings on a quarterly basis.Valuation ProceduresWe conduct the valuation of our assets, pursuant to which our net asset value is determined, at all times consistent with accounting principles generallyaccepted in the United States of America (“GAAP”), and the 1940 Act. Our valuation 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. The Company may also obtain quotes with respect to certain of its investments from pricing services or brokers or dealers in order to valueassets. When doing so, management determines whether the quote obtained is sufficient according to GAAP to determine the fair value of the investment. Ifdetermined adequate, the Company uses the quote obtained. Debt investments with maturities of 60 days or less shall each be valued at cost plus accreteddiscount, or minus amortized premium, which is expected to approximate fair value, unless such valuation, in the judgment of the Investment Adviser, doesnot represent fair value, in which case such investments shall be valued at fair value as determined in good faith by or under the direction of the Company’sboard 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. 10Table of ContentsThe 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 are valued utilizing a market approach, an income approach, or both approaches, as appropriate. However, in accordance with ASC820-10, certain investments that qualify as investment companies in accordance with ASC 946, may be valued using net asset value as a practical expedientfor fair value. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets orliabilities (including a business). The income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a singlepresent amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts. In following theseapproaches, the types of factors that we may take into account in fair value pricing our investments include, as relevant: available current market data,including relevant and applicable market trading and transaction comparables, applicable market yields and multiples, security covenants, call protectionprovisions, the nature and realizable value of any collateral, the portfolio company’s ability to make payments, its earnings and discounted cash flows, themarkets in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, M&A comparables, and enterprisevalues, among other factors. When available, broker quotations and/or quotations provided by pricing services are considered as an input in the valuationprocess. Escrow receivables, if any, included in the receivables for investments sold in the Consolidated Statements of Assets and Liabilities are reviewedquarterly and the value of the receivable is adjusted as necessary. For the fiscal year ended December 31, 2016, there has been no change to the Company’svaluation techniques and the nature of the related inputs considered in the valuation process.Accounting 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. The exercise of judgment is based in part on our knowledge of the asset class and ourprior experience.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. 11Table of ContentsCompetitionOur 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 an overall reduction in the amount of debt capital available onaverage since the downturn in the credit markets, which began in mid-2007, and that this has resulted in a somewhat less competitive environment formaking new investments. While many middle-market companies were previously able to raise senior debt financing through traditional large financialinstitutions, we believe this approach to financing is more difficult as implementation of U.S. and international financial reforms, such as Basel 3, limits thecapacity of large financial institutions to hold non-investment grade leveraged loans on their balance sheets. We believe that many of these financialinstitutions have de-emphasized their service and product offerings to middle-market companies in particular.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 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 senior investment professionals of our investment adviser enable us to learn about, and compete effectively for, financing opportunities withattractive leveraged 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 andboard member, are managing members and senior investment professionals of, and have financial and controlling interests in, Solar Capital Partners. Inaddition, Mr. Peteka, our Chief Financial Officer, Treasurer and Corporate Secretary serves as the Chief Financial Officer for Solar Capital Partners. GuyTalarico, our Chief Compliance Officer, is the Chief Executive Officer of Alaric Compliance Services, LLC, and performs his functions as our ChiefCompliance Officer under the terms of an agreement between Solar Capital Management and Alaric Compliance Services, LLC. Solar Capital Managementhas 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. Based upon its needs, Solar Capital Partners may hire additionalinvestment professionals. In addition, we will reimburse Solar Capital Management for the allocable portion of overhead and other expenses incurred by it inperforming its obligations under the Administration Agreement, including rent and the allocable portion of the cost of the Company’s chief complianceofficer and chief financial officer and their respective staffs.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 Securities Exchange Act of 1934 (the “1934 Act”), our Chief Executive Officer and Chief Financial Officer mustcertify the accuracy of the consolidated financial statements contained in our periodic reports; 12Table of Contents • 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 of 2002 requires us to review our current policies and procedures to determine whether we comply with the Sarbanes-OxleyAct of 2002 and the regulations promulgated thereunder. We will continue to monitor our compliance with all regulations that are adopted under theSarbanes-Oxley Act of 2002 and will take actions necessary to ensure that we are in compliance therewith.Business Development Company RegulationsA 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 them. A BDC may use capital provided by public stockholders and from other sourcesto make long-term, private investments in businesses. A BDC provides stockholders the ability to retain the liquidity of a publicly traded stock while sharingin the possible benefits, if any, of investing in primarily privately owned 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 theSEC.We are generally not able to issue and sell our common stock at a price below net asset value per share without annual shareholder approval. We may,however, sell our common stock, or warrants, options or rights to acquire our common stock, at a price below the then-current net asset value of our commonstock if our board of directors determines that such sale is in our best interests and the best interests of our stockholders, and our stockholders approve suchsale. At our Annual Meeting of Stockholders on June 7, 2016, our stockholders approved a proposal authorizing us to sell up to 25% of our common stock ata price below our then-current asset value per share, subject to the approval by our board of directors for the offering. This authorization expires on 13Table of Contentsthe earlier of June 7, 2017 and the date of our 2017 Annual Meeting of Stockholders, which is expected to be held in May 2017. 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 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(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$2.0 million. (2)Securities of any eligible portfolio company which we control, which, as defined by the 1940 Act, is presumed to exist where a BDC beneficiallyowns more than 25% of the outstanding voting securities of the portfolio company. (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. 14Table of Contents (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 BDC, deferred organization and operating expenses, and other noninvestment assets necessary and appropriate to its operations as a BDC,including notes of indebtedness of directors, officers, employees, and general partners held by a BDC as payment for securities of such companyissued in connection with an executive compensation plan described 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 1934 Act, and shall be determined no less frequently than annually.Significant Managerial Assistance to Portfolio CompaniesAs a BDC, we offer, and must provide upon request, significant managerial assistance to our portfolio companies. This assistance could involve, amongother things, monitoring the operations of our portfolio companies, participating in board and management meetings, consulting with and advising officersof portfolio companies and providing other organizational and financial guidance. We may also receive fees for these services. Solar Capital Managementprovides such managerial assistance, if any, 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 agreements, providedthat such repurchase agreements are fully collateralized by cash or securities issued by the U.S. government or its agencies. A repurchase agreement involvesthe purchase by an investor, such as us, of a specified security and the simultaneous agreement by the seller to repurchase it at an agreed-upon future date andat a price which is greater than the purchase price by an amount that reflects an agreed-upon interest rate. There is no percentage restriction on the proportionof our assets that may be invested in such repurchase agreements. However, if more than 25% of our total assets constitute repurchase agreements from asingle counterparty, we would not meet the diversification tests in order to qualify as a RIC for U.S. federal income tax purposes. Thus, we do not intend toenter into repurchase agreements with a single counterparty in excess of this limit. Our investment adviser will monitor the creditworthiness of thecounterparties 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 15Table of Contentsprocedures for personal investments and restricts certain transactions by our personnel. Our codes of ethics generally do not permit investments by ouremployees in securities that may be purchased or held by us. You may read and copy these codes of ethics at the SEC’s Public Reference Room inWashington, D.C. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1 (800) SEC-0330. In addition, eachcode of ethics is available on the EDGAR Database on the SEC’s Internet site at http://www.sec.gov. You may also obtain copies of the codes of ethics, afterpaying a duplicating fee, by electronic request at the following Email address: publicinfo@sec.gov, or by writing the SEC’s Public Reference Section, 100 FStreet, 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.Our 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 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 proxy vote;and (ii) employees involved in the decision making process or vote administration are prohibited from revealing how we intend to vote on a proposal in orderto 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 16Table of Contentsnon-public personal information about our stockholders (or former stockholders) to anyone, except as permitted by law or as is necessary in order to servicestockholder 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 U.S. federal income taxes on any ordinary income or capital gains that we distribute to our stockholders as dividends. Tocontinue to qualify as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements (as described below). Inaddition, to qualify for RIC tax treatment we must distribute to our stockholders, for each taxable year, at least 90% of our “investment company taxableincome,” which generally is our ordinary income plus the excess of our realized net short-term capital gains over our realized net long-term capital losses (the“Annual Distribution Requirement”). If we qualify as a RIC and satisfy the Annual Distribution Requirement, then we will not be subject to U.S. federalincome tax on the portion of our investment company taxable income and net capital gain (i.e., realized net long-term capital gains in excess of realized netshort-term capital losses) we distribute (or are deemed to distribute) to stockholders. We will be subject to U.S. federal income tax at the regular corporaterates on any income or capital gain not distributed (or deemed not distributed) to our stockholders.We will be subject to a 4% nondeductible U.S. federal excise tax on certain undistributed income unless we distribute in a timely manner an amount atleast equal 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 U.S. federal income tax, in preceding years (the“Excise Tax Avoidance Requirement”).In order to qualify as a RIC for U.S. 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. 17Table of ContentsWe 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 U.S. federal 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 gain 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 in the stock purchased under the warrant will equal the sum of the amount paid for the warrantplus the strike price paid on the exercise of the warrant.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 ofnon-corporate stockholders (and thus eligible for a reduced tax rate) to the extent of our current and accumulated earnings and profits. Subject to certainlimitations under the Code, corporate shareholders would be eligible for the dividends received deduction. Distributions in excess of our current andaccumulated earnings and profits would be treated first as a return of capital to the extent of the stockholder’s tax basis, and any remaining distributionswould be treated as a capital gain. To re-qualify as a RIC in a subsequent taxable year, we would be required to satisfy the RIC qualification requirements forthat year and dispose of any earnings and profits from any year in which we failed to qualify as a RIC. Subject to a limited exception applicable to RICs thatqualified as such under Subchapter M of the Code for at least one year prior to disqualification and that re-qualify as a RIC no later than the second yearfollowing the non-qualifying year, we could be subject to tax on any unrealized net built-in gains in the assets held by us during the period in which wefailed to qualify as a RIC that are recognized within the subsequent 5 years, unless we made a special election to pay corporate-level U.S. federal income taxon such built-in gain at the time of our requalification as a RIC. 18Table of ContentsInvestment Advisory FeesPursuant to an investment advisory and management agreement (the “Advisory Agreement”), we have agreed to pay Solar Capital Partners a fee forinvestment 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 Advisory Agreement, the basemanagement 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 twomost recently completed calendar quarters. Base management fees for any partial month or quarter will be appropriately pro-rated. For purposes of computingthe base management fee, gross assets exclude temporary assets acquired at the end of each fiscal quarter for purposes of preserving investment flexibility inthe next fiscal quarter. Temporary assets include, but are not limited to, U.S. treasury bills, other short-term U.S. government or government agency securities,repurchase agreements or cash borrowings.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 anddistributions paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-incentive fee net investment income includes, in thecase of investments with a deferred interest feature (such as original issue discount, debt instruments with pay in kind interest and zero coupon securities),accrued income that we have not yet received in cash. Pre-incentive fee net investment income does not include any realized capital gains, computed net ofall realized capital losses or unrealized capital appreciation or depreciation. Pre-incentive fee net investment income, expressed as a rate of return on thevalue of our 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 netinvestment income 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% basemanagement fee. We pay Solar Capital Partners an incentive fee with respect to our pre-incentive fee net investment income in each calendar quarter asfollows: • 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). 19Table of ContentsThe following is a graphical representation of the calculation of the income-related portion of the incentive fee:Quarterly Incentive Fee Based on Net Investment IncomePre-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. You should be aware that a rise in the general level of interestrates can be expected to lead to higher interest rates applicable to our debt investments. Accordingly, an increase in interest rates would make it easier for usto meet or exceed the incentive fee hurdle rate and may result in a substantial increase of the amount of incentive fees payable to our investment adviser withrespect 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 AdvisoryAgreement, as of the termination date), and equals 20% of our realized capital gains, if any, on a cumulative basis from inception through the end of eachcalendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of anypreviously paid capital gain incentive fees with respect to each of the investments in our portfolio.Examples 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% 20Table of ContentsHurdle 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)) = 2.25%Incentive fee = 50% × pre-incentive fee net investment income, subject to the “catch-up” (4)= 50% × (2.25% – 1.75%)= 0.25%Alternative 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. 21Table of ContentsExample 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 millionThe 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$25 million 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$25 million • 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(1)$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) 22Table of Contents • 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.Payment 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 based upon our allocable portion of overhead and other expenses incurred by Solar Capital Management inperforming its obligations under the Administration Agreement, including rent and the allocable portion of the cost of the Company’s chiefcompliance officer and chief financial officer and their respective staffs. 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 at1-800-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. Item 1A.Risk FactorsBefore you invest in our securities, you should be aware of various risks, including those described below. You should carefully consider these riskfactors, together with all of the other information included in this annual report on Form 10-K, before you decide whether to make an investment in oursecurities. The risks set out below are not the only risks we face. If any of the following events occur, our business, financial condition and results ofoperations could be materially adversely affected. In such case, our net asset value and the trading price of our common stock could decline or the value ofour debt securities may 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 have, which could allow them to consider a wider variety of investments and establishmore relationships and offer better pricing and more a flexible structure than we are able to do. Furthermore, many of our potential competitors are not subjectto the regulatory restrictions that the 1940 Act imposes on us as a BDC. If we are unable to source attractive investments, we may hold a greater percentage ofour assets in cash and cash equivalents than anticipated, which could impact potential returns on our portfolio. We cannot assure you that the competitivepressures 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, wemay not be able to take advantage of attractive investment opportunities from time to time, and we can offer no assurance that we will be able to identify andmake investments that are consistent with our investment objective.Participants in our industry compete on several factors, including price, flexibility in transaction structure, customer service, reputation, marketknowledge and speed in decision-making. We do not seek to compete primarily based on the interest rates we offer, and we believe that some of ourcompetitors may make loans with interest rates that may be comparable to or lower than the rates we may offer. We may lose investment opportunities if wedo not match our competitors’ pricing, terms and structure. However, if we match our competitors’ pricing, terms and structure, we may experience decreasednet interest income and increased risk of credit loss. 24Table of ContentsOur investments are very risky and highly speculative.We invest primarily in senior secured loans, including first lien and second lien debt instruments, made to middle-market companies whose debt israted below investment grade. We may also invest in debt of public companies that are thinly traded or equity securities. Securities rated below investmentgrade are often referred to as “leveraged loans,” “high yield” or “junk” securities, and may be considered “high risk” compared to debt instruments that arerated investment grade.Senior Secured Loans. When we make a senior secured term loan investment in a portfolio company, we generally take a security interest in theavailable assets of the portfolio company, including the equity interests of its subsidiaries, which we expect to help mitigate the risk that we will not berepaid. However, there is a risk that the collateral securing our loans may decrease in value over time, may be difficult to sell in a timely manner, may bedifficult to appraise and may fluctuate in value based upon the success of the business and market conditions, including as a result of the inability of theportfolio company to raise additional capital, and, in some circumstances, our lien could be subordinated to claims of other creditors. In addition,deterioration in a portfolio company’s financial condition and prospects, including its inability to raise additional capital, may be accompanied bydeterioration in the value of the collateral for the loan. Consequently, the fact that a loan is secured does not guarantee that we will receive principal andinterest payments according to the loan’s terms, or at all, or that we will be able to collect on the loan should we be forced to enforce our remedies.Equity Investments. When we invest in senior secured loans, we may acquire common equity securities as well. In addition, we may invest directly inthe equity securities of portfolio companies. Our goal is ultimately to exit such equity interests and realize gains upon our disposition of such interests.However, the equity interests we receive may not appreciate in value and, in fact, may decline in value. Accordingly, we may not be able to realize gains fromour equity interests, and any gains that we do realize on the disposition of any equity interests may not be sufficient to offset any other losses we experience.In 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 ability to meet our investment objectives.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 25Table of Contentslegal and other restrictions on resale or whose securities are and will be less liquid than are publicly-traded securities. Investments purchased by us that areliquid at the time of purchase may subsequently become illiquid due to events relating to the issuer of the investments, market events, economic conditionsor investor perceptions. 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 BDC and as aRIC, we may have to dispose of investments if we do not satisfy one or more of the applicable criteria under the respective regulatory frameworks. Domesticand foreign markets are complex and interrelated, so that events in one sector of the world markets or economy, or in one geographical region, can reverberateand have materially negative consequences for other markets, economic or regional sectors in a manner that may not be foreseen and which may negativelyimpact the liquidity of our investments and materially harm our business. In addition, we may face other restrictions on our ability to liquidate an investmentin a portfolio company to the extent that we have material 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.Our 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 not be as liquid as the secondary market for more highly rated securities. In addition, many of ourdebt investments are not scheduled to fully amortize over their stated terms, which could cause us to suffer losses if the respective issuer of such debtinvestment is unable to refinance or repay their remaining indebtedness at maturity. 26Table of ContentsPrice declines and illiquidity in the corporate debt markets have adversely affected, 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. Depending on market conditions, we could incur substantial losses infuture periods, which could further reduce our net asset value and have a material adverse impact on our business, financial condition and results ofoperations.Global economic, political and market conditions may adversely affect our business, results of operations and financial condition, including ourrevenue growth and profitability.The current worldwide financial market situation, as well as various social and political tensions in the United States and around the world, maycontribute to increased market volatility, may have long-term effects on the U.S. and worldwide financial markets, and may cause economic uncertainties ordeterioration in the United States and worldwide. The U.S. and global capital markets experienced extreme volatility and disruption during the economicdownturn that began in mid-2007, and the U.S. economy was in a recession for several consecutive calendar quarters during the same period. In 2010, afinancial crisis emerged in Europe, triggered by high budget deficits and rising direct and contingent sovereign debt, which created concerns about theability of certain nations to continue to service their sovereign debt obligations. Risks resulting from such debt crisis, including any austerity measures takenin exchange for bailout of certain nations, and any future debt crisis in Europe or any similar crisis elsewhere could have a detrimental impact on the globaleconomic recovery, sovereign and non-sovereign debt in certain countries and the financial condition of financial institutions generally. In June 2016, theUnited Kingdom held a referendum in which voters approved an exit from the European Union (“Brexit”), and, accordingly, on February 1, 2017, the U.K.Parliament voted in favor of allowing the U.K. government to begin the formal process of Brexit. Brexit created political and economic uncertainty andinstability in the global markets (including currency and credit markets), and especially in the United Kingdom and the European Union, and this uncertaintyand instability may last indefinitely. There is continued concern about national-level support for the Euro and the accompanying coordination of fiscal andwage policy among European Economic and Monetary Union member countries. In addition, the fiscal and monetary policies of foreign nations, such asRussia and China, may have a severe impact on the worldwide and U.S. financial markets.As a result of the 2016 U.S. election, the Republican Party currently controls both the executive and legislative branches of government, whichincreases the likelihood that legislation may be adopted that could significantly affect the regulation of U.S. financial markets. Areas subject to potentialchange, amendment or repeal include the Dodd-Frank Act and the authority of the Federal Reserve and the Financial Stability Oversight Council. The UnitedStates may also potentially withdraw from or renegotiate various trade agreements and take other actions that would change current trade policies of theUnited States. We cannot predict which, if any, of these actions will be taken or, if taken, their effect on the financial stability of the United States. Suchactions could have a significant adverse effect on our business, financial condition and results of operations. We cannot predict the effects of these or similarevents in the future on the U.S. economy and securities markets or on our investments. We monitor developments and seek to manage our investments in amanner consistent with achieving our investment objective, but there can be no assurance that we will be successful in doing so. 27Table of ContentsVolatility or a prolonged disruption in the credit markets could materially damage our business.We are required to record our assets at fair value, as determined in good faith by our board of directors, in accordance with our valuation policy. As aresult, volatility in the capital markets may have a material adverse effect on our valuations and our net asset value, even if we hold investments to maturity.Volatility or dislocation in the capital markets may depress our stock price below our net asset value per share and create a challenging environment in whichto raise equity and debt capital. These conditions could continue for a prolonged period of time or worsen in the future. While these conditions persist, weand other companies in the financial services sector may have to access, if available, alternative markets for debt and equity capital. Equity capital may bedifficult 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 commonstock at a price less than net asset value without first obtaining approval for such issuance from our stockholders and our independent directors. At our 2016Annual Stockholders Meeting, our stockholders approved our ability to sell or otherwise issue shares of our common stock, not exceeding 25% of our thenoutstanding common stock immediately prior to each such offering, at a price or prices below the then current net asset value per share, in each case subjectto the approval of our board of directors and compliance with the conditions set forth in the proxy statement pertaining thereto, during a period beginning onJune 7, 2016 and expiring on the earlier of the one-year anniversary of the date of the 2016 Annual Stockholders Meeting and the date of our 2017 AnnualStockholders Meeting, which is expected to be held in May 2017. However, notwithstanding such stockholder approval, since our initial public offering onFebruary 24, 2011, we have not sold any shares of our common stock in an offering that resulted in proceeds to us of less than our then current net asset valueper share. Any offering of our common stock that requires stockholder approval must occur, if at all, within one year after receiving such stockholderapproval. In addition, our ability to incur indebtedness (including by issuing preferred stock) is limited by applicable regulations such that our assetcoverage, 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, ifat all, may be at a higher cost and on less favorable terms and conditions in the future. Any inability to raise capital could have a negative effect on ourbusiness, financial condition and results of operations. Additionally, our ability to incur indebtedness is limited by the asset coverage ratio for a BDC, asdefined under the 1940 Act. Declining portfolio values negatively impact our ability to borrow additional funds because our net asset value is reduced forpurposes of the asset coverage ratio. If the fair value of our assets declines substantially, we may fail to maintain the asset coverage ratio stipulated by the1940 Act, which could, in turn, cause us to lose our status as a BDC and materially impair our business operations. A lengthy disruption in the credit marketscould also materially decrease demand for our investments.The significant disruption in the capital markets experienced in the past has had, and may in the future have, a negative effect on the valuations of ourinvestments and on the potential for liquidity events involving our investments. The debt capital that may be available to us in the future may be at a highercost and have less favorable terms and conditions than those currently in effect. If our financing costs increase and we have no increase in interest income,then our net investment income will decrease. A prolonged inability to raise capital may require us to reduce the volume of investments we originate andcould have a material adverse impact on our business, financial condition and results of operations. This may also increase the probability that otherstructural risks negatively impact us. These situations may arise due to circumstances that we may be unable to control, such as a lengthy disruption in thecredit markets, a severe decline in the value of the U.S. dollar, a sharp economic downturn or recession or an operational problem that affects third parties orus, and could materially damage our business, financial condition and 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 28Table of Contentscredit generally, and financial, business and other factors, many of which are beyond our control. The worsening of current economic and capital marketconditions 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 relating to the LIBOR calculation process may adversely affect the value of our portfolio of the LIBOR-indexed, floating-rate debtsecurities.In the recent past, concerns have been publicized that some of the member banks surveyed by the British Bankers’ Association (“BBA”) in connectionwith the calculation of LIBOR across a range of maturities and currencies may have been under-reporting or otherwise manipulating the inter-bank lendingrate applicable 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 the ability of our portfolio companies to repay loans and harm our operating results.Many of our portfolio companies may be susceptible to economic slowdowns or recessions and may be unable to repay our loans during these periods.Therefore, our non-performing assets may increase and the value of our portfolio may decrease during these periods as we are required to record the values ofour investments. Adverse economic conditions also may decrease the value of collateral securing some of our loans and the value of our equity investmentsat fair value. Economic slowdowns or recessions could lead to financial losses in our portfolio and a decrease in revenues, net income and assets. Unfavorableeconomic conditions also could increase our funding costs, limit our access 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 result in our receipt of a reduced level of interest income from our portfolio companies and/orlosses or charge offs related to our investments, and, in turn, may adversely affect distributable income and have a material adverse effect on our results ofoperations.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 holdings and subordinate all or a portion of our claim to that of other creditors. 29Table of ContentsThese 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 further 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.The 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, concerns of economic slowdown in China and other emerging markets and signs of deteriorating sovereign debtconditions in Europe could lead to disruption and instability in the global financial markets. The significant debt in the United States and Europeancountries is expected to hinder growth in those countries for the foreseeable future. In the future, the U.S. government may not be able to meet its debtpayments unless the federal debt ceiling is raised. The federal debt limit has been suspended since November 2, 2015, but the limit is set to be reinstated onMarch 15, 2017. If legislation increasing the debt ceiling is not enacted, as needed, and the debt ceiling is reached, the U.S. federal government may stop ordelay making payments on its obligations, which could negatively impact the U.S. economy and our portfolio companies. Multiple factors relating to theinternational operations of some of our portfolio companies and to particular countries in which they operate could negatively impact their business,financial condition and results of operations. 30Table of ContentsSome of the products of our portfolio companies are developed, manufactured, assembled, tested or marketed outside the United States. 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.Our 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 companies. As a result, we are subject to the risk that a portfolio company in which we do not have a controlling interest may makebusiness decisions with which we disagree, and that the management and/or stockholders of such portfolio company may take risks or otherwise act in waysthat are adverse to our interests. Due to the lack of liquidity of the investments that we typically hold in our portfolio companies, we may not be able todispose of our investments in the event we disagree with the actions of a portfolio company and may therefore suffer a decrease in the value of ourinvestments.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 prepaid prior to maturity. When this occurs, we may reduceour borrowings outstanding or reinvest these proceeds in temporary investments, pending their future investment in new portfolio companies. Thesetemporary investments, if any, will typically have substantially lower yields than the debt investment being prepaid and we could experience significantdelays in reinvesting these amounts. Any future investment in a new portfolio company may also be at lower yields than the debt investment that wasprepaid. As a result, our results of operations could be materially adversely affected if one or more of our portfolio companies elect to prepay amounts owedto us. Additionally, prepayments could negatively impact our return on equity, which could result in a decline in the market price of our common stock. 31Table of ContentsWe 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 distributions,could adversely affect our results of operation and financial condition and cause the loss of all or part of your investment.Our 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. We have made direct equity investments or received warrants in connection with loans. Payments on one ormore of our loans, particularly a loan to a client in which we may also hold an equity interest, may be subject to claims of equitable subordination. If we weredeemed to have the ability to control or otherwise exercise influence over the business and affairs of one or more of our portfolio companies resulting ineconomic hardship to other creditors of that company, this control or influence may constitute grounds for equitable subordination and a court may treat oneor more of our loans as if it were unsecured or common equity in the portfolio company. In that case, if the portfolio company were to liquidate, we would beentitled to repayment of our loan on a pro-rata basis with other unsecured debt or, 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 common equity only after all of its obligations relating to its debt and preferredsecurities 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 are unable to uncover all material information about these companies, we may not make a fully informed investment decision, and we may lose moneyon our investments. Also, smaller 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 second lien, as well as unsecured debt instruments issued by our portfolio companies. If weinvest in second lien, or unsecured debt instruments, our portfolio companies typically may be permitted to incur other debt that ranks equally with, or seniorto, such debt instruments. By their terms, such debt instruments may provide that the holders are entitled to receive payment of interest or principal on orbefore the dates on which we are entitled to receive payments in respect of the debt 32Table of Contentssecurities in which we invest. Also, in the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a portfolio company, holders of debtinstruments ranking senior to our investment in that portfolio company would typically be entitled to receive payment in full before we receive anydistribution in respect of our investment. In such case, after repaying such senior creditors, such portfolio company may not have any remaining assets to usefor repaying its obligation to us. In the case of debt ranking equally with debt securities in which we invest, we would have to share on an equal basis anydistributions with other creditors holding such debt in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy of the relevantportfolio company. Any such limitations on the ability of our portfolio companies to make principal or interest payments to us, if at all, may reduce our netasset value and have a negative material adverse 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. companies. These risks include changes in exchange control regulations, political and socialinstability, expropriation, imposition of foreign taxes, less liquid markets and less available information than is generally the case in the United States, highertransaction costs, less government supervision of exchanges, brokers and issuers, less developed bankruptcy laws, difficulty in enforcing contractualobligations, lack of uniform accounting and auditing standards and greater price volatility.Although most of our investments will be U.S. dollar-denominated, any investments denominated in a foreign currency will be subject to the risk 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.The success of our hedging transactions will depend on our ability to correctly predict movements in currencies and interest rates. Therefore, while wemay enter into such transactions to seek to reduce currency exchange rate and interest rate risks, unanticipated changes in currency exchange rates or interestrates may result in poorer overall investment performance than if we had not engaged in any such hedging transactions. In addition, the degree of correlationbetween price movements of the instruments used in a hedging strategy and price movements in the portfolio positions being hedged may vary. Moreover,for a variety of reasons, we may not seek to establish a perfect correlation between such hedging instruments and the portfolio holdings being hedged. Anysuch imperfect correlation may prevent us from achieving the intended hedge and expose us to risk of loss. In addition, it may not be possible to hedge fullyor perfectly against currency fluctuations affecting the value of securities denominated in non-U.S. currencies because the value of those securities is likely tofluctuate 33Table of Contentsas a result of factors not related to currency fluctuations. To the extent we engage in hedging transactions, we also face the risk that counterparties to thederivative instruments we hold may default, which may expose us to unexpected losses from positions where we believed that our risk had been appropriatelyhedged.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 our senior investment professionals held senior positions at a number of investment firms, their track record and achievements arenot necessarily indicative of future results that will be achieved by our investment adviser. In their roles at such other firms, our senior investmentprofessionals were part of investment teams, and they were not solely responsible for generating investment ideas. In addition, such investment teams arrivedat 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 BDCs may trade at a market price that is less than the net asset value that is attributable to those shares. The possibility that our shares ofcommon stock will trade at a substantial discount from net asset value over the long term is separate and distinct from the risk that our net asset value willdecrease. We cannot predict whether shares of our common stock will trade above, at or below our net asset value. If our common stock trades below its netasset value, we will generally not be able to issue additional shares or sell our common stock at its market price without first obtaining the approval for suchissuance from our stockholders and our independent directors. At our 2016 Annual Stockholders Meeting, our stockholders approved our ability to sell orotherwise issue shares of our common stock, not exceeding 25% of our then outstanding common stock immediately prior to each such offering, at a price orprices 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 June 7, 2016 and expiring on the earlier of the one-year anniversary of the dateof the 2016 Annual Stockholders Meeting and the date of our 2017 Annual Stockholders Meeting, which is expected to be held in May 2017. 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 or lowerthan the price you pay, depending on many factors, some of which are beyond our control and may not be directly related to our operating performance.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; • exclusion of our common stock from certain market indices, such as the Russell 2000 Financial Services Index, which could reduce the ability ofcertain investment funds to own our common stock and put short-term selling pressure on our common stock; • 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; 34Table of Contents • 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; • changes in the prevailing interest rates; • loss of a major funding source; or • general economic conditions and trends and other external factors.Our business and operation could be negatively affected if we become subject to any securities litigation or shareholder activism, which could cause usto incur significant expense, hinder execution of investment strategy and impact our stock price.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. Shareholder activism, which could take many forms or arise in a variety of situations, has been increasing in the BDC space recently. While weare currently not subject to any securities litigation or shareholder activism, due to the potential volatility of our stock price and for a variety of other reasons,we may in the future become the target of securities litigation or shareholder activism in the future. Securities litigation and shareholder activism, includingpotential proxy contests, could result in substantial costs and divert management’s and our board of directors’ attention and resources from our business.Additionally, such securities litigation and shareholder activism could give rise to perceived uncertainties as to our future, adversely affect our relationshipswith service providers and make it more difficult to attract and retain qualified personnel. Also, we may be required to incur significant legal fees and otherexpenses related to any securities litigation and activist shareholder matters. Further, our stock price could be subject to significant fluctuation or otherwisebe adversely affected by the events, risks and uncertainties of any securities litigation and shareholder activism.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 test applicable to us as a BDC, we may be limited in our ability to make distributions. To the extent we make distributions tostockholders which include a return of capital, that portion of the distribution essentially constitutes a return of the stockholders’ investment. Although suchreturn of capital may not be taxable, such distributions may increase an investor’s tax liability for capital gains upon the future sale of our common stock.As a RIC, if we do not distribute a certain percentage of our income annually, we may suffer adverse tax consequences, including possibly losing theU.S. federal income tax benefits allowable to RICs. We cannot assure you that you will receive distributions at a particular level or at all.We may choose to pay distributions in our own common stock, in which case our stockholders may be required to pay U.S. federal income taxes inexcess of the cash distributions they receive.We may distribute taxable distributions 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 distributions. 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 35Table of Contentswould receive a pro rata share of the total cash to be distributed and would receive the remainder of their distribution in shares of stock. If we decide to makeany distributions consistent with these rulings that are payable in part in our stock, taxable stockholders receiving such distributions will be required toinclude the full amount of the distribution (whether received in cash, our stock, or a combination thereof) as ordinary income (or as long-term capital gain tothe extent such distribution is properly reported as a capital gain distribution) to the extent of our current and accumulated earnings and profits for U.S.federal income tax purposes. As a result, a U.S. stockholder may be required to pay tax with respect to such distributions in excess of any cash received. If aU.S. stockholder sells the stock it receives as a distribution in order to pay this tax, the sales proceeds may be less than the amount included in income withrespect to the distribution, depending on the market price of our stock at the time of the sale. Furthermore, with respect to non-U.S. stockholders, we may berequired to withhold U.S. tax with respect to such distributions, including in respect of all or a portion of such distribution 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 distributions, 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 originally issued to Solar Senior Capital Investors LLC in the Concurrent Private Placement pursuant to the exemptionfrom registration 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, suchshares became 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.We may be unable to invest the net proceeds raised from any offerings on acceptable terms or allocate net proceeds from any offering of our securitiesin ways with which you may not agree.We cannot assure you that we will be able to find enough appropriate investments that meet our investment criteria or that any investment we completeusing the proceeds from any securities offering will produce a sufficient return. Until we identify new investment opportunities, we intend to either invest thenet proceeds of future offerings in cash equivalents, U.S. Government securities and other high-quality debt investments that mature in one year or less or usethe net proceeds from such offerings to reduce then-outstanding obligations.We have significant flexibility in investing the net proceeds of any offering of our securities and may use the net proceeds from an offering in wayswith which you may not agree or for purposes other than those contemplated at the time of the offering.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 2016 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 June 7, 2016 and expiring on the earlier of the one-year anniversary of the date of the 2016 Annual StockholdersMeeting and the date of our 2017 Annual Stockholders Meeting, which is expected to be held in May 2017. 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. To the extent we receive the necessary approval, any decision to sell shares of our common stock below its then currentnet asset value per share would be subject to the determination by our board of directors that such issuance or sale is in our and our stockholders’ bestinterests.If we were to sell shares of our common stock below its then current net asset value per share, such sales would result in an immediate dilution to thenet asset value per share of our common stock. This dilution would occur as a result of the sale of shares at a price below the then current net asset value pershare of our common stock and a proportionately greater decrease in the stockholders’ interest in our earnings and assets and their voting interest in us thanthe increase in our assets resulting from such sale. Because the number of shares of common stock that could be so issued and the timing of any issuance isnot 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 $1,000 of net asset value.Similarly, all distributions declared in cash payable to stockholders that are participants in our distribution reinvestment plan are generallyautomatically reinvested in shares of our common stock. As a result, stockholders that do not participate in the dividend reinvestment plan may experiencedilution over time. Stockholders who do not elect to receive distributions in shares of common stock may experience accretion to the net asset value of theirshares if our shares are trading at a premium and dilution if our shares are trading at a discount. The level of accretion or discount would depend on variousfactors, including the proportion of our stockholders who participate in the plan, the level of premium or discount at which our shares are trading and theamount of the distribution payable to a stockholder.If we issue preferred stock, the net asset value and market value of our common stock may become more volatile.We cannot assure you that the issuance of preferred stock would result in a higher yield or return to the holders of the common stock. The issuance ofpreferred stock would likely cause the net asset value and market value of the common stock to become more volatile. If the distribution rate on the preferredstock were to approach the net rate of return on our investment portfolio, the benefit of leverage to the holders of the common stock would be reduced. If thedistribution rate on the preferred stock were to exceed the net rate of return on our portfolio, the leverage would result in a lower rate of return to the holdersof common stock than if we had not issued preferred stock. Any decline in the net asset value of our investments would be borne entirely by the holders ofcommon stock. Therefore, if the market value of our portfolio were to decline, the leverage would result in a greater decrease in net asset value to the holdersof common stock than if we were not leveraged through the issuance of preferred stock. This greater net asset value decrease would also tend to cause agreater decline in the market price for the common stock. We might be in danger of failing to maintain the required asset coverage of the preferred stock or oflosing our ratings on the preferred stock or, in an extreme case, our current investment income might not be sufficient to meet the distribution requirementson the preferred stock. In order 37Table of Contentsto counteract such an event, we might need to liquidate investments in order to fund a redemption of some or all of the preferred stock. In addition, we wouldpay (and the holders of common stock would bear) all costs and expenses relating to the issuance and ongoing maintenance of the preferred stock, includinghigher advisory fees if our total return exceeds the distribution rate on the preferred stock. Holders of preferred stock may have different interests than holdersof common stock and may at times have disproportionate influence over our affairs.Holders of any preferred stock we might issue would have the right to elect members of the board of directors and class voting rights on certain matters.Holders of any preferred stock we might issue, voting separately as a single class, would have the right to elect two members of the board of directors atall times and in the event distributions become two full years in arrears would have the right to elect a majority of the directors until such arrearage iscompletely eliminated. In addition, preferred stockholders have class voting rights on certain matters, including changes in fundamental investmentrestrictions and conversion to open-end status, and accordingly can veto any such changes. Restrictions imposed on the declarations and payment ofdistributions to the holders of our common stock and preferred stock, both by the 1940 Act and by requirements imposed by rating agencies or the terms ofour credit facilities, might impair our ability to maintain our qualification as a RIC for federal income tax purposes. While we would intend to redeem ourpreferred stock to the extent necessary to enable us to distribute our income as required to maintain our qualification as a RIC, there can be no assurance thatsuch actions could be effected in time to meet the tax requirements.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 distributions 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 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 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 similar way as our borrowings.Preferred stock, which is another form of leverage, has the same risks to our common stockholders as borrowings because the distributions on anypreferred stock we issue must be cumulative. Payment of such distributions and repayment of the liquidation preference of such preferred stock must takepreference over any distributions or other payments to our common stockholders, and preferred stockholders are not subject to any of our expenses or lossesand are not entitled to participate in any income or appreciation in excess of their stated preference. 38Table of ContentsRisks 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 the managing partners 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 diligence, skill,network of business contacts and continued service of 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 relationshipwith us. The loss of Mr. Gross or Mr. Spohler, or any of the other senior investment professionals who serve on Solar Capital Partners’ investment team, couldhave a material adverse effect on our ability to achieve our investment objective as well as on our financial condition and results of operations. In addition,we can offer no assurance that Solar Capital Partners 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 conflicts of interest in allocating their time. We expect that Messrs. Gross and Spohler willdedicate a significant portion of their time to the activities of Solar Senior Capital; however, they may be engaged in other business activities which coulddivert their time and attention in the future. Specifically each of Messrs. 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 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. If our investment adviser is unable to source investment opportunities, we may hold a greater percentage of our assets in cash and cashequivalents than anticipated, which could impact potential returns on our portfolio.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 our seniorsecured credit facility (the “Credit Facility”). Any such failure could result in an event of default and all of our debt being declared immediately due andpayable and would affect our ability to issue senior securities, including borrowings, and pay distributions, which could materially impair our businessoperations. Our liquidity could be impaired further by an inability to access the capital markets or to draw on the Credit Facility. For example, we cannot becertain that we will be able to renew the Credit Facility as it matures or to consummate new borrowing facilities to provide capital for normal operations, 39Table of Contentsincluding new originations. Reflecting concern about the stability of the financial markets, many lenders and institutional investors have reduced or ceasedproviding funding to borrowers. This market turmoil and tightening of credit have led to increased market volatility and widespread reduction of businessactivity 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 Solar Capital Partners’ ability to manage our future growth effectively by identifying,investing in and monitoring companies that meet our investment criteria.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. Accomplishing this result on a cost-effective basis is largely a function of Solar Capital Partners’ structuring of theinvestment process, its ability to provide competent, attentive and efficient services to us and its ability to access financing for us on acceptable terms. Theinvestment team of Solar Capital Partners has substantial responsibilities under the Advisory Agreement, and they may also be called upon to providemanagerial assistance to our portfolio companies as the principals of our administrator. In addition, the members of Solar Capital Partners’ investment teamhave similar responsibilities with respect to the management of Solar Capital’s investment portfolio. Such demands on their time may distract them or slowour rate of investment. In order to grow, we and Solar Capital Partners will need to retain, train, supervise and manage new investment professionals. However,we can offer no assurance that any such investment professionals will contribute effectively to the work of the investment adviser. Any failure to manage ourfuture growth 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 tax treatment as a RIC. As a result, any such cash earnings may not be available to fundinvestment originations. We expect to borrow from financial institutions and issue additional debt and equity securities. If we fail to obtain funds from suchsources 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 our securities. Inaddition, 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 borrowings and preferredstock.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 40Table of Contentsinvestments that mature in one year or less. Furthermore, any failure to comply with the requirements imposed on BDCs by the 1940 Act could cause the SECto bring an enforcement action against us and/or expose us to claims of private litigants. In addition, upon approval of a majority of our stockholders, we mayelect to withdraw our status as a BDC. If we decide to withdraw our election, or if we otherwise fail to qualify, or maintain our qualification, as a BDC, we maybe subject to the substantially greater regulation under the 1940 Act as a closed-end investment company. Compliance with such regulations wouldsignificantly decrease our operating flexibility, and could have a material adverse effect on our business, financial condition and results of operations.Regulations governing our operation as a BDC affect our ability to raise, and the way in which we 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 time when such sales may bedisadvantageous. Also, any amounts that we use to service our indebtedness would not be available for distributions to our common stockholders.Furthermore, as a result of issuing senior securities, we would also be exposed to typical risks associated with leverage, including an increased risk of loss.As of December 31, 2016, we had $98.3 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 generally vote together with common stockholders but would have separatevoting rights on certain matters and might have other rights, preferences, or privileges more favorable than those of our common stockholders, and theissuance of preferred stock could have the effect of delaying, deferring or preventing a transaction or a change of control that might involve a premium pricefor holders of our common stock or otherwise be in your best interest.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. 41Table of ContentsAt our 2016 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 June 6, 2016 and expiring on the earlier of the one-year anniversary of the date of the 2016 Annual Stockholders Meeting and the dateof our 2017 Annual Stockholders Meeting, which is expected to be held in May 2017. 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 credit ratings may not reflect all risks of an investment in our debt securities.Our credit ratings are an assessment by third parties of our ability to pay our obligations. Consequently, real or anticipated changes in our credit ratingswill generally affect the market value of our debt securities. Our credit ratings, however, may not reflect the potential impact of risks related to marketconditions generally or other factors discussed above on the market value of or trading market for the publicly issued debt securities.Our stockholders may experience dilution in their ownership percentage if they do not participate in our dividend reinvestment plan.All distributions declared in cash payable to stockholders that are participants in our dividend reinvestment plan are generally automaticallyreinvested in shares of our common stock. In the event we issue new shares in connection with our dividend reinvestment plan, our stockholders that do notelect to receive distributions in shares of common stock may experience dilution in their ownership percentage over time as a result of such issuance.We may borrow money, which would magnify the potential for loss on amounts invested and may increase the risk of investing in us.We borrow money as part of our business plan. Borrowings, also known as leverage, magnify the potential for loss on amounts invested and, therefore,increase the risks associated with investing in our securities. As of December 31, 2016, we had $98.3 million outstanding under the Credit Facility. We mayborrow from and issue senior debt securities to banks, insurance companies and other lenders in the future. Lenders of these senior securities, including theCredit Facility, will have fixed dollar claims on our assets that are superior to the claims of our common stockholders, and we would expect such lenders toseek recovery against our assets in the event of a default. If the value of our assets decreases, leveraging would cause net asset value to decline more sharplythan it otherwise would have had we not leveraged. Similarly, any decrease in our income would cause net income to decline more sharply than it would havehad we not borrowed. Such a decline could also negatively affect our ability to make distribution payments on our common stock. Leverage is generallyconsidered a speculative investment technique. Our ability to service any debt that we incur will depend largely on our financial performance and will besubject to prevailing economic conditions and competitive pressures. Moreover, as the management fee payable to our investment adviser, Solar CapitalPartners, will be payable based on our gross assets, including those assets acquired through the use of leverage, Solar Capital Partners will have a financialincentive to incur leverage which may not be consistent with our stockholders’ interests. In addition, our common stockholders will bear the burden of anyincrease in our expenses as a result of 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 restrictive covenants, including maintaining an asset coverage ratio of at least 200% at any time. Failure to maintain 42Table of Contentscompliance with these covenants could result in an event of default and all of our debt being declared immediately due and payable. If this ratio declinesbelow 200%, we may not 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 isdisadvantageous to do so, which could have a material adverse effect on our operations, and we may not be able to make distributions. The amount ofleverage that we employ will depend on our investment adviser’s and our board of directors’ assessment of market and other factors at the time of anyproposed borrowing. We cannot assure 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 common stock assuming various annual returnson our total assets, net of interest expense. The calculations in the table below are hypothetical and actual returns may be higher or lower than thoseappearing in the table below. Assumed total return(net of interest expense) (10)% (5)% 0% 5% 10% Corresponding return to stockholder(1) (20.3)% (10.6)% (0.9)% 8.8% 18.4% (1)Assumes $522.0 million in total assets and $98.3 million in total debt outstanding, which reflects our total assets and total debt outstanding as ofDecember 31, 2016, and a cost of funds of 2.59%. Excludes non-leverage related expenses.In order for us to cover our annual interest payments on our outstanding indebtedness at December 31, 2016, we must achieve annual returns on ourDecember 31, 2016 total assets of at least 0.5%It 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.Our current lenders have, and any future lender or lenders may have, fixed dollar claims on our assets that are senior to the claims of our stockholdersand, thus, will have a preference over our stockholders with respect to our assets in the collateral pool. The Credit Facility and borrowings also subject us tovarious financial and operating covenants, including, but not limited to, maintaining certain financial ratios and minimum tangible net worth amounts.Future credit facilities and borrowings will likely subject us to similar or additional covenants. In addition, we may grant a security interest in our assets inconnection 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 43Table of Contentswhose loans we finance through the Credit Facility. This could reduce our revenues and, by delaying any cash payment allowed to us under our CreditFacility until the 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.Pending legislation may allow us to incur additional leverage.As a BDC, under the 1940 Act generally we are not permitted to incur indebtedness unless immediately after such borrowing we have an asset coveragefor total borrowings of at least 200% (i.e., the amount of debt may not exceed 50% of the value of our total assets or we may borrow an amount equal to 100%of net assets). Legislation introduced in the U.S. House of Representatives, if passed, would modify this section of the 1940 Act and increase the amount ofdebt that BDCs may incur by modifying the asset coverage percentage from 200% to 150%. As a result, we may be able to incur additional indebtedness inthe future and therefore your risk of an investment in us may increase.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.Our 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 will be uncertainty as to the value of our portfolio investments, which may impact our net asset value.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 44Table of Contentsvalue these securities and the Credit Facility on a quarterly basis in accordance with our valuation policy, which is at all times consistent with U.S. generallyaccepted accounting principles (“GAAP”). Our board of directors utilizes the services of third-party valuation firms to aid it in determining the fair value ofcertain securities and the Credit Facility. The board of directors discusses valuations and determines the fair value in good faith based on the input of ourinvestment adviser and the respective third-party valuation firms. The factors that may be considered in fair value pricing our investments include the natureand realizable value of any collateral, the portfolio company’s ability to make payments and its earnings, the markets in which the portfolio company doesbusiness, comparisons to publicly traded companies, discounted cash flow and other relevant factors. Because such valuations, and particularly valuations ofprivate securities and private companies, are inherently uncertain, may fluctuate over short periods of time and may be based on estimates, our determinationsof fair value may differ materially from the values that would have been used if a ready market for these securities existed. Our net asset value could beadversely affected if our determinations regarding the fair value of our investments were materially higher than the values that we ultimately realize upon thedisposal of such securities.Our equity ownership in a portfolio company may represent a control investment. Our ability to exit an investment in a timely manner because we are ina control position or have access to inside information in the portfolio company could result in a realized loss on the investment.If we obtain a control investment in a portfolio company our ability to divest ourselves from a debt or equity investment could be restricted due toilliquidity in a private stock, limited trading volume on a public company’s stock, inside information on a company’s performance, insider blackout periods,or other factors that could prohibit us from disposing of the investment as we would if it were not a control investment. Additionally, we may choose not totake certain actions to protect a debt investment in a control investment portfolio company. As a result, we could experience a decrease in the value of ourportfolio company holdings and potentially incur a realized loss on the investment.There are significant potential conflicts of interest, including Solar Capital Partners’ management of Solar Capital, which could impact our investmentreturns, and an investment in Solar Senior Capital is not an investment in Solar Capital Ltd.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. For example, Solar Capital Partners presently serves as theinvestment adviser to Solar Capital, a publicly-traded BDC. In addition, Michael S. Gross, our Chairman, Chief Executive Officer and President, BruceSpohler, our Chief Operating Officer and board member, and Richard Peteka, our Chief Financial Officer, serve in similar capacities for Solar Capital Ltd.Accordingly, they may have obligations to investors in those entities, the fulfillment of which obligations might not be in the best interests of us or ourstockholders. In addition, we note that any affiliated investment vehicle formed in the future and managed by our investment adviser or its affiliates may,notwithstanding different stated investment objectives, have overlapping investment objectives with our own and, accordingly, may invest in asset classessimilar to those targeted by us. As a result, Solar Capital Partners may face conflicts in allocating investment opportunities between us and 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 notbe given the opportunity to participate in investments made by investment funds managed by our investment adviser or an investment manager affiliatedwith our investment adviser. In any such case, when Solar Capital Partners identifies an investment, it will be forced to choose which investment fund shouldmake the investment.As a BDC, we were substantially limited in our ability to co-invest in privately negotiated transactions with affiliated funds until we obtained anexemptive order from the SEC on July 28, 2014 (the “Exemptive Order”). The Exemptive Order permits us to participate in negotiated co-investmenttransactions with certain affiliates, each of whose investment adviser is Solar Capital Partners, or an investment adviser controlling, controlled by or undercommon control with Solar Capital Partners, in a manner consistent with our investment objective, 45Table of Contentspositions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors, and pursuant to the conditions to the ExemptiveOrder. If we are unable to rely on the Exemptive Order for a particular opportunity, such opportunity will be allocated first to the entity whose investmentstrategy is the most consistent with the opportunity being allocated, and second, if the terms of the opportunity are consistent with more than one entity’sinvestment strategy, on an alternating basis. On January 13, 2017, the Company, Solar Capital Ltd., and Solar Capital Partners filed an exemptive applicationfor a co-investment order that would supersede the Exemptive Order and extend the relief granted in the Exemptive Order such that it no longer applies tocertain affiliates only if their respective investment adviser is Solar Capital Partners, but also applies to certain affiliates whose investment adviser is aninvestment adviser that controls, is controlled by or is under common control with Solar Capital Partners and is registered as an investment adviser under theInvestment Advisers Act of 1940, as amended. The Exemptive Order will remain in effect unless and until the revised application is approved by the SEC.The terms and conditions of the revised application are substantially similar to the Exemptive Order. Although our investment professionals will endeavor toallocate investment opportunities in a fair and equitable manner, we and our common stockholders could be adversely affected to the extent investmentopportunities are allocated among us and other investment vehicles managed or sponsored by, or affiliated with, our executive officers, directors andmembers of our investment adviser.Solar Capital Partners and certain investment advisory affiliates may determine that an investment is appropriate for us and for one or more of thoseother funds. In such event, depending on the availability of such investment and other appropriate factors, Solar Capital Partners or its affiliates maydetermine that we should invest side-by-side with one or more other funds. Any such investments will be made only to the extent permitted by applicable lawand interpretive positions of the SEC and its staff, and consistent with Solar Capital Partners’ allocation procedures. Related party transactions may occurbetween Solar Senior Capital and Gemino Healthcare Finance, LLC, between Solar Senior Capital and First Lien Loan Program LLC and between SolarSenior Capital and FLLP 2015-1, LLC. These transactions may occur in the normal course of business. No administrative fees are paid to Solar CapitalPartners by either Gemino Healthcare Finance, LLC or First Lien Loan Program LLC.In the ordinary course of our investing activities, we pay management and incentive fees to Solar Capital Partners and reimburse Solar Capital Partnersfor certain expenses it incurs. As a result, investors in our common stock will invest on a “gross” basis and receive distributions on a “net” basis afterexpenses, resulting in a lower rate of return than an investor might achieve through direct investments. Accordingly, there may be times when themanagement team of Solar 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 anon-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 solong as Solar Capital Partners or one of its affiliates remains our investment adviser. In addition, we pay Solar Capital Management, an affiliate of SolarCapital Partners, our allocable portion of overhead and other expenses incurred by Solar Capital Management in performing its obligations under theAdministration Agreement, including rent, the fees and expenses associated with performing compliance functions, and our allocable portion of thecompensation of our chief financial officer and any administrative support staff. These arrangements create conflicts of interest that our board of directorsmust monitor.Our ability to enter into transactions involving derivatives and financial commitment transactions may be limited.The SEC has proposed a new rule under the 1940 Act that would govern the use of derivatives (defined to include any swap, security-based swap,futures contract, forward contract, option or any similar instrument) as well as financial commitment transactions (defined to include reverse repurchaseagreements, short sale borrowings and any firm or standby commitment agreement or similar agreement) by BDCs. Under the proposed 46Table of Contentsrule, a BDC would be required to comply with one of two alternative portfolio limitations and manage the risks associated with derivatives transactions andfinancial commitment transactions by segregating certain assets. Furthermore, a BDC that engages in more than a limited amount of derivatives transactionsor that uses complex derivatives would be required to establish a formalized derivatives risk management program. If the SEC adopts this rule in the formproposed, our ability to enter into transactions involving such instruments may be hindered, which could have an adverse effect on our business, financialcondition and results of operations.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 ourpre-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 theperformance threshold. Our pre-incentive fee net investment income for incentive compensation purposes excludes realized and unrealized capital losses ordepreciation that 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 thatquarter. Thus, we may be required to pay Solar Capital Partners incentive compensation for a fiscal quarter even if there is a decline in the value of ourportfolio or we incur a net 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, our 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, our 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 stockholders. 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 distribution 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. 47Table of ContentsWe may become subject to corporate-level U.S. federal income tax if we are unable to qualify and maintain our qualification as a regulated investmentcompany under 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 maintain RIC tax treatment under the Code, we must meet the following annual distribution, income source and assetdiversification 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 are 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 U.S.federal income tax. • The income source requirement will be satisfied if we obtain at least 90% of our income for each year from certain passive investments, includinginterest, dividends, gains from the sale of stock or securities or similar sources. • The asset diversification requirement will be satisfied if we meet certain asset diversification requirements at the end of each quarter of 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 become subject to corporate income tax, the resulting corporate taxes could substantiallyreduce our net assets, the amount of income available for distribution and the amount of our distributions. Such a failure would have a material adverse effecton us, the net asset value of our common stock and the total return, if any, obtainable from your investment in our common stock. Any net operating lossesthat 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 excess of net realizedshort-term capital losses) that we are otherwise required to distribute, and we cannot pass such net operating losses through to our stockholders. 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 or capital 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 GAAP and tax requirements, we include in income certain amounts that we have not received in cash, such as contractual PIKinterest, 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 ourloans, in some instances, certain loans may also include any of the following: end-of-term payments, exit fees, balloon payment fees or prepayment fees. Theincreases in loan balances as a result of contractual PIK arrangements are included in income for the period in which such PIK interest was accrued, which isoften in advance of receiving cash payment, and are separately identified on our statements of cash flows. We also may be required to include in incomecertain 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 U.S. federal income tax benefits applicable to RICs. 48Table of ContentsBecause these warrants generally will not produce distributable cash for us at the same time as we are required to make distributions in respect of the relatedoriginal issue discount, we would need to obtain cash from other sources or to pay a portion of our distributions using 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 distributionrequirement in excess of current cash interest received. Since in certain cases we may recognize income before or without receiving cash representing suchincome, we may have difficulty meeting the RIC tax requirement to distribute at least 90% of our net ordinary income and realized net short-term capitalgains in excess of realized net long-term capital losses, if any. Under such circumstances, we may have to sell some of our investments at times we would notconsider advantageous, raise additional debt or equity capital or reduce new investment originations to meet these distribution requirements. If we are unableto obtain cash from other sources and are otherwise unable to satisfy such distribution requirements, we may fail to qualify for the U.S. federal income taxbenefits allowable to RICs and, thus, become subject to a corporate-level U.S. federal income tax on all our income.The higher yields and interest rates on PIK securities reflects the payment deferral and increased credit risk associated with such instruments and thatsuch investments may represent a significantly higher credit risk than coupon loans. PIK securities may have unreliable valuations because their continuingaccruals require continuing judgments about the collectability of the deferred payments and the value of any associated collateral. PIK interest has the effectof generating investment income and increasing the incentive fees payable at a compounding rate. In addition, the deferral of PIK interest also increases theloan-to-value ratio at a compounding rate. PIK securities create the risk that incentive fees will be paid to the Adviser based on non-cash accruals thatultimately may not be realized, but the Adviser will be under no obligation to reimburse the Company for these fees.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 preferences, conversion or other rights, voting powers, restrictions, limitations as to other distributions,qualifications and terms or conditions of redemption for each class or series. Thus, the board of directors could authorize the issuance of shares of preferredstock with terms and conditions which could have the effect of delaying, deferring or preventing a transaction or a change in control that might involve apremium price for holders of our common stock or otherwise be in their best interest. The cost of any such reclassification would be borne by our existingcommon 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, the 1940 Actprovides that holders of preferred stock are entitled to vote separately from holders of common stock to elect two preferred stock directors. The issuance ofshares of preferred stock convertible into shares of common stock might also reduce the net income and net asset value per share of our common stock uponconversion, provided, that we will only be permitted to issue such convertible preferred stock to the extent we comply with the requirements of Section 61 ofthe 1940 Act, including obtaining common stockholder approval. These effects, among others, could have an adverse effect on your investment in ourcommon 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 49Table of Contentssubject to the Maryland Business Combination Act, subject to any applicable requirements of the 1940 Act. Our board of directors has adopted a resolutionexempting from the Maryland Business Combination Act any business combination between us and any other person, subject to prior approval of suchbusiness combination by our board, including approval by a majority of our disinterested directors. If the resolution exempting business combinations isrepealed or our board of directors does not approve a business combination, the Maryland Business Combination Act may discourage third parties fromtrying to acquire control of us and increase the difficulty of consummating such an offer. Our bylaws exempt from the Maryland Control Share AcquisitionAct acquisitions of our stock by any person. If we amend our bylaws to repeal the exemption from the Maryland Control Share Acquisition Act, the MarylandControl Share Acquisition Act also may make it more difficult for a third party to obtain control of us and increase the difficulty of consummating such atransaction. However, we will amend our bylaws to be subject to the Maryland Control Share Acquisition Act only if our board of directors determines that itwould be in 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 notconflict with the 1940 Act. The SEC staff has issued informal guidance setting forth its position that certain provisions of the Maryland Control ShareAcquisition Act would, if implemented, 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 and , to amend our charter without stockholder approval to increase ordecrease the 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 or prevent a transaction or a change in control that might otherwise be in the best interests of our stockholders.The foregoing provisions are expected to discourage certain coercive takeover practices and inadequate takeover bids and to encourage personsseeking to acquire control of us to negotiate first with our board of directors. However, these provisions may deprive a stockholder of the opportunity to sellsuch stockholder’s shares at a premium to a potential acquirer. We believe that the benefits of these provisions outweigh the potential disadvantages ofdiscouraging any such acquisition proposals because, among other things, the negotiation of such proposals may improve their terms. Our board of directorshas considered both the positive and negative effects of the foregoing provisions and determined that they are in the best interest of our stockholders.The failure in cyber security systems, as well as the occurrence of events unanticipated in our disaster recovery systems and management continuityplanning could impair our ability to conduct business effectively.The occurrence of a disaster such as a cyber attack, a natural catastrophe, an industrial accident, a terrorist attack or war, events unanticipated in ourdisaster recovery systems, or a support failure from external providers, could have an adverse effect on our ability to conduct business and on our results ofoperations and financial condition, particularly if those events affect our computer-based data processing, transmission, storage, and retrieval systems ordestroy data. If a significant number of our managers were unavailable in the event of a disaster, our ability to effectively conduct our business could beseverely compromised.Our business relies on secure information technology systems. We depend heavily upon computer systems to perform necessary business functions.These systems are subject to potential attacks, including through adverse events that threaten the confidentiality, integrity or availability of our informationresources (i.e. cyber attacks). Despite our implementation of a variety of security measures, our computer systems could be subject to cyber attacks andunauthorized access, such as physical and electronic break-ins or unauthorized tampering. Like other companies, we may experience threats to our data andsystems, including malware and computer virus attacks, unauthorized access, system failures and disruptions. If one or more of these events occurs, it couldpotentially jeopardize the confidential, proprietary and other information processed and stored in, and transmitted 50Table of Contentsthrough, our computer systems and networks, or otherwise cause interruptions or malfunctions in our operations, which could result in damage to ourreputation, financial losses, litigation, increased costs, regulatory penalties and/or customer dissatisfaction or loss.We can be highly dependent on information systems and systems failures could significantly disrupt our business, which may, in turn, negatively affectthe market price of our common stock and our ability to pay distributions.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; • 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 distributions 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. Our efforts to comply with these existing requirements, or any revised or amended requirements, haveresulted in, and are likely to continue to result in, an increase in expenses and a diversion of management’s time from other business activities.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 BDCs, RICs or non-depository commercial lenderscould significantly affect our operations and our cost of doing business. We are subject to federal, state and local laws and regulations and are subject tojudicial and administrative decisions that affect our operations, including our loan originations, maximum interest rates, fees 51Table of Contentsand 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.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 Advisory Agreement, to resign at any time upon 60 days’ written notice, whether we have found areplacement or not. If our investment adviser resigns, we may not be able to find a new investment adviser or hire internal management with similar expertiseand ability to provide the same or equivalent services on acceptable terms within 60 days, or at all. If we are unable to do so quickly, our operations are likelyto experience a disruption, our financial condition, business and results of operations as well as our ability to pay distributions are likely to be adverselyaffected and the market price of our shares may decline. In addition, the coordination of our internal management and investment activities is likely to sufferif we are unable to identify and reach an agreement with a single institution or group of executives having the expertise possessed by our investment adviserand its affiliates. Even if we are able to retain comparable management, whether internal or external, the integration of such management and their lack offamiliarity with our investment objective may result in additional costs and time delays that may adversely affect our financial condition, business andresults of operations. Item 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 and our subsidiaries are not currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatenedagainst us or our subsidiaries. From time to time, we and our subsidiaries may be a party to certain legal proceedings in the ordinary course of business,including proceedings relating to the enforcement of our rights under contracts with our portfolio companies. While the outcome of these legal proceedingscannot be predicted with certainty, we do not expect that these proceedings will have a material effect upon our financial condition or results of operations. Item 4.Mine Safety DisclosuresNot applicable. 52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 2016 Price Range Premium or(Discount) of HighClosing Sale Priceto NAV(2) Premium or(Discount) ofLow ClosingSale Price toNAV(2) DeclaredDistributions(3) NAV(1) High Low Fourth Quarter $16.80 $16.75 $15.16 (0.3)% (9.8)% $0.3525 Third Quarter 16.78 16.99 15.99 1.3 (4.7) 0.3525 Second Quarter 16.76 16.28 14.31 (2.9) (14.6) 0.3525 First Quarter 16.70 15.20 13.04 (9.0) (21.9) 0.3525 Fiscal 2015 Fourth Quarter $16.33 $15.97 $14.62 (2.2)% (10.5)% $0.3525 Third Quarter 17.06 16.11 14.22 (5.6) (16.6) 0.3525 Second Quarter 17.55 16.68 15.36 (5.0) (12.5) 0.3525 First Quarter 17.65 16.53 14.93 (6.3) (15.4) 0.3525 (1)NAV per share is determined as of the last day in the relevant quarter and therefore may not reflect the NAV per share on the date of the high and lowclosing 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 distributions 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 16, 2017 was $17.25 per share. As of February 16, 2017, we had 5 shareholdersof record.DISTRIBUTIONSTax characteristics of all distributions will be reported to shareholders on Form 1099 after the end of the calendar year. Future quarterly distributions, ifany, will be determined by our Board. We expect that our distributions to stockholders will generally be from accumulated net investment income, from netrealized capital gains or non-taxable return of capital, 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. 53Table of ContentsWe maintain an “opt out” dividend reinvestment plan for our common stockholders. As a result, if we declare a distribution, then stockholders’ cashdistributions will be automatically reinvested in additional shares of our common stock, unless they specifically “opt out” of the dividend reinvestment planso as to receive cash distributions.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 distributions 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 distributions to stockholders, income from origination, structuring, closing 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 distributions at a particular level.All distributions 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 distributions 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 distribution payable to a stockholder. 54Table of ContentsThe following table reflects the cash distributions per share on our common stock for the two most recent fiscal years and the current fiscal year to date: Date Declared Record Date Payment Date Amount Fiscal 2017 February 22, 2017 March 23, 2017 April 4, 2017 $0.1175 February 7, 2017 February 23, 2017 March 1, 2017 0.1175 January 5, 2017 January 19, 2017 February 1, 2017 0.1175 YTD Total (2017) $0.3525 Fiscal 2016 December 8, 2016 December 22, 2016 January 4, 2017 $0.1175 November 2, 2016 November 23, 2016 December 1, 2016 0.1175 October 5, 2016 October 20, 2016 November 1, 2016 0.1175 September 12, 2016 September 22, 2016 October 4, 2016 0.1175 August 2, 2016 August 18, 2016 September 1, 2016 0.1175 July 7, 2016 July 21, 2016 August 2, 2016 0.1175 June 7, 2016 June 23, 2016 July 1, 2016 0.1175 May 3, 2016 May 19, 2016 June 2, 2016 0.1175 April 7, 2016 April 21, 2016 May 3, 2016 0.1175 February 24, 2016 March 24, 2016 April 1, 2016 0.1175 February 4, 2016 February 18, 2016 March 2, 2016 0.1175 January 7, 2016 January 21, 2016 February 2, 2016 0.1175 Total (2016) $1.41 Fiscal 2015 December 2, 2015 December 17, 2015 January 5, 2016 $0.1175 November 3, 2015 November 19, 2015 December 1, 2015 0.1175 October 7, 2015 October 22, 2015 November 3, 2015 0.1175 September 9, 2015 September 24, 2015 October 1, 2015 0.1175 August 4, 2015 August 20, 2015 September 1, 2015 0.1175 July 8, 2015 July 23, 2015 July 31, 2015 0.1175 June 9, 2015 June 25, 2015 July 1, 2015 0.1175 May 5, 2015 May 21, 2015 June 2, 2015 0.1175 April 9, 2015 April 23, 2015 May 1, 2015 0.1175 February 25, 2015 March 19, 2015 April 2, 2015 0.1175 February 3, 2015 February 19, 2015 February 27, 2015 0.1175 January 8, 2015 January 22, 2015 January 30, 2015 0.1175 Total (2015) $1.41 Recent Sales of Unregistered SecuritiesNone.Issuer Purchases of Equity SecuritiesNone. 55Table of ContentsSTOCK PERFORMANCE GRAPHThis graph compares the cumulative total return on our common stock with that of the Standard & Poor’s BDC Index, Standard & Poor’s 500 StockIndex and the Russell 2000 Financial Services Index, for the period from December 31, 2011 through December 31, 2016. The graph assumes that a personinvested $10,000 in each of the following: our common stock (SUNS), the S&P BDC Index, the S&P 500 Index, and the Russell 2000 Financial ServicesIndex. The graph measures total stockholder return, which takes into account both changes in stock price and dividends. It assumes that dividends paid areinvested in additional shares of the same class of equity securities at the frequency with which dividends are paid of such securities during the applicablefiscal year. The graph and other information furnished under this Part II Item 5 of this Form 10-K shall not be deemed to be “soliciting material” or to be “filed”with the SEC or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the 1934 Act. The stock price performance included in the abovegraph is not necessarily indicative of future stock price performance. 56Table of ContentsItem 6.Selected Financial DataThe selected financial and other data below should be read in conjunction with our “Management’s Discussion and Analysis of Financial Conditionand Results of Operations” and the consolidated financial statements and notes thereto. Financial information is presented for the fiscal years endedDecember 31, 2016, 2015, 2014, 2013 and 2012. Financial information has been derived from our consolidated financial statements that were audited byKPMG LLP (“KPMG”), an independent registered public accounting firm. ($ in thousands, except per share data) Year endedDecember 31,2016 Year endedDecember 31,2015 Year endedDecember 31,2014 Year endedDecember 31,2013 Year endedDecember 31,2012 Income statement data: Total investment income $27,196 $25,446 $22,104 $19,765 $20,539 Net expenses $8,880 $10,073 $8,290 $6,378 $8,046 Net investment income $18,316 $15,373 $13,814 $13,387 $12,493 Net realized gain (loss) $81 $18 $(638) $(4,978) $618 Net change in unrealized gain (loss). $5,855 $(14,344) $(1,486) $4,209 $801 Net increase in net assets resulting from operations $24,252 $1,047 $11,690 $12,618 $13,912 Per share data: Net investment income(3) $1.42 $1.33 $1.20 $1.17 $1.32 Net realized and unrealized gain (loss)(3) $0.50 $(1.24) $(0.18) $(0.07) $0.15 Dividends and distributions declared $1.41 $1.41 $1.41 $1.41 $1.29 As ofDecember 31,2016 As ofDecember 31,2015 As ofDecember 31,2014 As ofDecember 31,2013 As ofDecember 31,2012 Balance sheet data: Total investment portfolio $365,534 $306,518 $340,466 $267,852 $212,602 Cash and cash equivalents $151,828 $53,067 $42,471 $2,774 $2,647 Total assets $521,989 $362,577 $384,797 $272,561 $217,029 Debt $98,300 $116,200 $143,200 $61,400 $39,100 Net assets $269,145 $188,304 $203,519 $208,017 $174,103 Per share data: Net asset value per share $16.80 $16.33 $17.65 $18.04 $18.33 Other data (unaudited): Weighted average annualized yield on income producinginvestments(4): On fair value(1) 7.8% 7.9% 7.0% 7.5% 7.8% On cost(2) 7.7% 7.4% 7.1% 7.8% 7.7% Total return(5) 20.7% 8.9% (10.5%) 5.4% 27.7% Number of portfolio companies at period end 51 45 43 36 31 (1)Throughout this document, the weighted average yield on income producing investments is computed as the (a) annual stated interest on accruing loans and debt securities plusthe annual amortization of loan origination fees, original issue discount, and market discount on accruing loans and debt securities divided by (b) total income producinginvestments at fair value. The weighted average yield is computed as of the balance sheet date and excludes assets on non-accrual status or on a cost recovery basis as of suchdate.(2)For this calculation, the weighted average yield on income producing investments is computed as the (a) annual stated interest on accruing loans and debt securities plus theannual amortization of loan origination fees, original issue discount, and market discount on accruing loans and debt securities divided by (b) total income producinginvestments at cost. The weighted average yield is computed as of the balance sheet date and excludes assets on non-accrual status or on a cost recovery basis as of such date.(3)The per-share calculations are based on weighted average shares of 12,869,937, 11,533,315, 11,532,985, 11,423,958 and 9,500,100 for the years ended December 31, 2016,2015, 2014, 2013 and 2012, respectively.(4)The weighted average annualized yield on income producing investments does not represent a return to stockholders.(5)Total return is based on the change in market price per share during the year and takes into account dividends, if any, reinvested in accordance with the dividend reinvestmentplan. Total return does not include a sales load. 57Table of ContentsItem 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 Form8-K.OverviewSolar Senior Capital Ltd. (“Solar Senior”, the “Company”, “we” or “our”), a Maryland corporation formed in December 2010, is a closed-end,externally managed, non-diversified management investment company that has elected to be regulated as a business development company (“BDC”) underthe Investment Company Act of 1940, as amended (the “1940 Act”). Furthermore, as the Company is an investment company, it continues to apply theguidance in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946. In addition, for tax purposes, theCompany has elected to be regulated as a regulated investment 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, selling 9.0 million shares, including the underwriters’ over-allotment, raisingapproximately $168 million in net proceeds. Concurrent with this offering, 58Table of ContentsSolar Senior Capital Investors LLC, an entity controlled by Michael S. Gross, our Chairman and Chief Executive Officer, and Bruce Spohler, our ChiefOperating Officer, purchased an additional 500,000 shares through a concurrent private placement, raising another $10 million.On August 26, 2011, we established a $200 million senior secured revolving credit facility (the “Credit Facility”) with Citigroup Global Markets Inc.acting as administrative agent. In connection with the Credit Facility, our wholly-owned subsidiary, SUNS SPV LLC (the “SPV”) was formed. The CreditFacility, as amended, currently has an aggregate of $175 million of commitments available. It can also be expanded up to $600 million. The stated interestrate on the Credit Facility is LIBOR plus 2.00% with no LIBOR floor requirement and the current final maturity date is June 30, 2020. The Credit Facility issecured by all of the assets held by the SPV. Under the terms of the Credit Facility, Solar Senior Capital and the SPV, as applicable, have made certaincustomary representations and warranties, and are required to comply with various covenants, including leverage restrictions, reporting requirements andother customary requirements for similar credit facilities. The Credit Facility also includes usual and customary events of default for credit facilities of thisnature. The Credit Facility was amended on November 7, 2012, June 30, 2014 and May 29, 2015 to extend maturities and add greater investment flexibility,among other changes.We invest primarily in privately held U.S. middle-market companies, where we believe the supply of primary capital is limited and the investmentopportunities are most attractive. We define “middle market” to refer to companies with annual revenues between $50 million and $1 billion. Our investmentobjective is to seek to maximize current income consistent with the preservation of capital. We seek to achieve our investment objective by directly andindirectly investing in senior loans, including first lien, unitranche, and second lien debt instruments, made to private middle-market companies whose debtis rated below investment grade, which we refer to collectively as “senior loans.” We may also invest in debt of public companies that are thinly traded or inequity securities. Under normal market conditions, at least 80% of the value of our net assets (including the amount of any borrowings for investmentpurposes) will be invested in senior loans. Senior loans typically pay interest at rates which are determined periodically on the basis of a floating baselending rate, primarily LIBOR, plus a premium. 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 entities which operate in various industries and geographical regions. Senior loans typically are rated below investmentgrade. 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 investment grade. In addition, some of our debt investments are not scheduled to fully amortize over their statedterms, which could cause us to suffer losses if the respective issuer of such debt investment is unable to refinance or repay their remaining indebtedness atmaturity. While the Company does not typically seek to invest in traditional equity securities as part of its investment objective, the Company mayoccasionally acquire some equity securities in connection with senior loan investments and in certain other unique circumstances, such as the Company’sequity investments in Gemino Healthcare Finance, LLC (“Gemino”) and First Lien Loan Program (“FLLP”).We invest in senior loans made primarily to private, leveraged middle-market companies with approximately $20 million to $100 million of earningsbefore income taxes, depreciation and amortization (“EBITDA”). Our business model is focused primarily on the direct origination of investments throughportfolio companies or their financial sponsors. Our direct investments in individual securities 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 and/or strategic initiatives. In addition, we may investa portion of our portfolio in other types of investments, which we refer to as opportunistic investments, which are not our primary focus but are intended toenhance our overall returns. These opportunistic investments may include, but are not limited to, direct investments in public companies that are not thinlytraded and securities of leveraged companies located in select countries outside of the United States. We may invest up to 30% of our total assets in suchopportunistic investments, including loans issued by non-U.S. issuers, subject to compliance with our regulatory obligations as a BDC under the 1940 Act.Our investment activities are managed by Solar Capital Partners, LLC (“Solar Capital Partners” or “Investment Adviser”) and supervised by our board ofdirectors, a majority of whom 59Table of Contentsare non-interested, as such term is defined in the 1940 Act. Solar Capital Management, LLC (“Solar Capital Management” or “Administrator”) provides theadministrative services necessary for us to operate.As of December 31, 2016, the Investment Adviser has invested approximately $6.0 billion in more than 265 different portfolio companies since 2006.Over the same period, the Investment Adviser completed transactions with more than 165 different financial sponsors.Recent DevelopmentsOn January 5, 2017, our board of directors declared a monthly dividend of $0.1175 per share payable on February 1, 2017 to holders of record as ofJanuary 19, 2017.On January 10, 2017, total commitments to our Credit Facility increased to $200 million from $175 million by utilizing the accordion feature.On February 7, 2017, our board of directors declared a monthly dividend of $0.1175 per share payable on March 1, 2017 to holders of record as ofFebruary 23, 2017.On February 22, 2017, the Company and Solar Capital formed Solar Life Science Program LLC (“LSJV”) with an affiliate of DeerfieldManagement. The Company is committing $75 million to LSJV.On February 22, 2017, our board of directors declared a monthly dividend of $0.1175 per share payable on April 4, 2017 to holders of record as ofMarch 23, 2017.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 and dividend income from the securities we hold and capital gains, if any, on investmentsecurities that we may sell. Our debt investments generally have a stated term of three to seven years and typically bear interest at a floating rate usuallydetermined on the basis of a benchmark London interbank offered rate (“LIBOR”), commercial paper rate, or the prime rate. Interest on our debt investmentsis generally payable quarterly but may be monthly or semi-annually. In addition, our investments may provide payment-in-kind (“PIK”) interest. Suchamounts of accrued PIK interest are added to the cost of the investment on the respective capitalization dates and generally become due at maturity of theinvestment or upon the investment being called by the issuer. We may also generate revenue in the form of commitment, origination, structuring fees, fees forproviding managerial assistance and, if applicable, consulting fees, etc. 60Table of ContentsExpensesAll 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.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. 61Table of ContentsPortfolio and Investment ActivityDuring our fiscal year ended December 31, 2016, we invested $162.8 million across 30 portfolio companies through a combination of primary andsecondary market purchases. This compares to investing $114.2 million in 20 portfolio companies for the previous fiscal year ended December 31, 2015.Investments sold or prepaid during the fiscal year ended December 31, 2016 totaled $111.9 million versus $135.3 million for the fiscal year endedDecember 31, 2015.At December 31, 2016, our portfolio consisted of 51 portfolio companies and was invested 79.7% in senior secured loans and 20.3% in common equity(of which 9.7% is Gemino Healthcare Finance, LLC and 10.6% is First Lien Loan Program LLC) measured at fair value versus 45 portfolio companiesinvested 78.7% in senior secured loans, 1.1% in unsecured loans and 20.2% in common equity/equity interests (of which 11.1% is Gemino HealthcareFinance, LLC and 9.1% is First Lien Loan Program LLC) at December 31, 2015.The weighted average annualized yields on our income producing portfolio of investments were 7.8% and 7.9%, respectively, at December 31, 2016and December 31, 2015 measured at fair value, and 7.7% and 7.4%, respectively for the same periods, measured at amortized cost. Porfolio yield does notrepresent an actual investment return to shareholders.At December 31, 2016, 96.8% or $353.6 million of our income producing investment portfolio* was floating rate and 3.2% or $11.8 million was fixedrate, measured at fair value. At December 31, 2015, 98.8% or $302.8 million of our income producing investment portfolio* was floating rate and 1.2% or$3.7 million was fixed rate, measured at fair value.Since the initial public offering of Solar Senior on February 24, 2011 and through December 31, 2016, invested capital totaled approximately$1.1 billion in 118 portfolio companies. Over the same period, Solar Senior completed transactions with more than 70 different financial sponsors.Gemino Healthcare Finance, LLCWe acquired Gemino Healthcare Finance, LLC (d/b/a Gemino Senior Secured Healthcare Finance) (“Gemino”) on September 30, 2013. Gemino is acommercial finance company that originates, underwrites, and manages primarily secured, asset-based loans for small and mid-sized companies operating inthe healthcare industry. Our initial investment in Gemino was $32.8 million. The management team of Gemino co-invested in the transaction and continuesto lead Gemino.Concurrent with the closing of the transaction, Gemino entered into a new, four-year, non-recourse, $100.0 million credit facility with non-affiliates,which was expandable to $150.0 million under its accordion feature. Effective March 31, 2014, the credit facility was expanded to $105.0 million and againon June 27, 2014 to $110.0 million. On May 27, 2016, Gemino entered into a new $125.0 million credit facility which replaced the previously existingfacility. The new facility has similar terms as compared to the previous facility and includes an accordion feature increase to $200.0 million and has amaturity date of May 27, 2020.On December 31, 2013, we contributed our 32,839 units in Gemino to Gemino Senior Secured Healthcare LLC (“Gemino Senior Secured Healthcare”).In exchange for this contribution, we received 19,839 units of equity interests and $13.0 million in floating rate secured notes of Gemino Senior SecuredHealthcare bearing interest at LIBOR plus 7.50%, maturing on December 31, 2018. However, our financial statements, including our schedule of investments,reflected our investments in Gemino Senior Secured Healthcare on a consolidated basis. On October 28, 2016, Gemino Senior Secured Healthcare wasdissolved. As of December 31, 2016, Gemino’s management team and Solar Senior own approximately 6% and 94% of the equity in Gemino, respectively. * We have included First Lien Loan Program LLC and Gemino Healthcare Finance, LLC as 100% floating rate within our income producing investmentportfolio. 62Table of ContentsGemino currently manages a highly diverse portfolio of directly-originated and underwritten senior-secured commitments. As of December 31, 2016,the portfolio totaled approximately $186.4 million of commitments, of which $114.4 million were funded, on total assets of $118.5 million. As ofDecember 31, 2015, the portfolio totaled approximately $188.3 million of commitments, of which $130.6 million were funded, on total assets of$133.7 million. At December 31, 2016, the portfolio consisted of 35 issuers with an average balance of approximately $3.3 million versus 36 issuers with anaverage balance of approximately $3.6 million at December 31, 2015. All of the commitments in Gemino’s portfolio are floating-rate, senior-secured,cash-pay loans. Gemino’s credit facility, which is non-recourse to us, had approximately $83.0 million and $98.5 million of borrowings outstanding atDecember 31, 2016 and December 31, 2015, respectively. For the years ended December 31, 2016, 2015 and 2014, Gemino had net income of $4.6 million,$3.9 million and $3.0 million, respectively, on gross income of $13.3 million, $12.4 million and $10.9 million, respectively. Due to timing and non-cashitems, there may be material differences between GAAP net income and cash available for distributions. As of December 31, 2016, and based upon ourexpectations for Gemino’s portfolio performance, we believe that Gemino will be able to maintain its dividend payments to the Company. Gemino’sconsolidated financial statements for the fiscal years ended December 31, 2016 and December 31, 2015 are attached as an exhibit to this annual report onForm 10-K.First Lien Loan Program LLCOn September 10, 2014, the Company entered into a limited liability company agreement to create a First Lien Loan Program (“FLLP”) with VoyaInvestment Management LLC (“Voya”). Voya acts as the investment advisor for several wholly-owned insurance subsidiaries of Voya Financial, Inc. (NYSE:VOYA). The joint venture vehicle, structured as an unconsolidated Delaware limited liability company, is expected to invest primarily in senior securedfloating rate term loans to middle market companies predominantly owned by private equity sponsors or entrepreneurs. Solar Senior and Voya havecommitted to provide $50.75 million and $7.25 million, respectively, of capital to the joint venture. All portfolio decisions and generally all other decisionsin respect of the FLLP must be approved by an investment committee of the FLLP consisting of representatives of the Company and Voya (with approvalfrom a representative of each required). On February 13, 2015, FLLP commenced operations. On February 13, 2015, FLLP as transferor and FLLP 2015-1,LLC, a newly formed wholly owned subsidiary of FLLP, as borrower entered into a $75.0 million senior secured revolving credit facility (the “FLLPFacility”) with Wells Fargo Securities, LLC acting as administrative agent. Solar Senior Capital Ltd. acts as servicer under the FLLP Facility. The FLLPFacility was scheduled to mature on February 13, 2020. The FLLP Facility generally bears interest at a rate of LIBOR plus a range of 2.25%-2.50%. FLLP andFLLP 2015-1, LLC, as applicable, have made certain customary representations and warranties, and are required to comply with various covenants, includingleverage restrictions, reporting requirements and other customary requirements for similar credit facilities. The FLLP Facility also includes usual andcustomary events of default for credit facilities of this nature. On August 15, 2016, the FLLP Facility was amended, expanding commitments to$100.0 million and extending the maturity date to August 16, 2021. There were $75.9 million of borrowings outstanding as of December 31, 2016. As ofDecember 31, 2016 and December 31, 2015, Solar Senior and Voya contributed combined equity capital in the amount of $47.1 million and $33.8 million,respectively. Of the $47.1 million of contributed equity capital at December 31, 2016, the Company contributed $29.6 million in the form of investments and$11.6 million in the form of cash and Voya contributed $5.9 million in the form of cash. As of December 31, 2016, Solar Senior and Voya’s remainingcommitments totaled $9.6 million and $1.4 million, respectively. The Company, along with Voya, controls the funding of FLLP and FLLP may not call theunfunded commitments without approval of both the Company and Voya.As of December 31, 2016 and December 31, 2015, FLLP had total assets of $122.2 million and $76.8 million, respectively. For the same periods,FLLP’s portfolio consisted of first lien floating rate senior secured loans to 25 and 15 different borrowers, respectively. For the year ended December 31,2016, FLLP invested $66.7 million across 16 portfolio companies. For the period from February 13, 2015 through December 31, 2015, FLLP invested$76.3 million across 15 portfolio companies. Investments prepaid totaled 63Table of Contents$24.2 million for the year ended December 31, 2016 and $1.0 million for the period from February 13, 2015 through December 31, 2015. At December 31,2016 and 2015, the weighted average yield of FLLP’s portfolio was 6.6% and 6.5%, respectively, measured at fair value and 6.5% and 6.2%, respectively,measured at cost. FLLP’s consolidated financial statements for the fiscal year ended December 31, 2016 are attached as an exhibit to this annual report onForm 10-K.FLLP Portfolio as of December 31, 2016 (in thousands) Description Industry SpreadAboveIndex(1) LIBORFloor InterestRate(2) MaturityDate ParAmount Cost FairValue(3) 1A Smart Start LLC Electronic Equipment,Instruments & Components L+475 1.00% 5.75% 2/21/22 $7,920 $7,855 $7,920 Alera Group Intermediate Holdings, Inc.(4) Insurance L+550 1.00% 6.50% 12/30/22 3,456 3,422 3,422 Anesthesia Consulting & Management, LP(4) Health Care Providers & Services L+500 1.00% 6.00% 10/31/22 5,000 4,951 4,950 Capstone Logistics Acquisition, Inc.(4) Professional Services L+450 1.00% 5.50% 10/7/21 5,361 5,320 5,308 CIBT Holdings, Inc.(4) Professional Services L+525 1.00% 6.25% 6/28/22 2,620 2,596 2,594 Confie Seguros Holding II Co.(4) Insurance L+475 1.00% 5.75% 4/19/22 5,500 5,447 5,537 DB Datacenter Holdings, Inc.(4) IT Services L+475 1.00% 5.75% 7/13/21 5,500 5,450 5,417 Empower Payments Acquisition, Inc.(RevSpring)(4) Professional Services L+550 1.00% 6.50% 11/30/23 4,625 4,533 4,532 Falmouth Group Holdings Corp. (AMPAC)(4) Chemicals L+675 1.00% 7.75% 12/14/21 5,486 5,486 5,486 Kellermeyer Bergensons Services, LLC(KBS)(4) Commercial Services & Supplies L+500 1.00% 6.00% 10/29/21 2,438 2,419 2,389 MedRisk, LLC Health Care Providers & Services L+525 1.00% 6.25% 3/1/23 3,970 3,934 3,970 Metamorph US 3, LLC (Metalogix)(4) Software L+650 1.00% 7.50% 12/1/20 4,000 3,928 2,860 Ministry Brands, LLC(4) Software L+500 1.00% 6.00% 12/2/22 2,746 2,719 2,719 Pearl Merger Sub, LLC (PetVet)(4) Health Care Facilities L+475 1.00% 5.75% 12/17/20 5,390 5,313 5,329 Pet Holdings ULC & Pet Supermarket, Inc. Specialty Retail L+550 1.00% 6.50% 7/5/22 4,538 4,474 4,481 PSP Group, LLC (Pet Supplies Plus)(4) Specialty Retail L+475 1.00% 5.75% 4/6/21 5,353 5,315 5,327 QBS Holding Company, Inc. (Quorum)(4) Software L+475 1.00% 5.75% 8/7/21 3,430 3,404 3,293 Salient Partners, L.P.(4) Asset Management L+850 1.00% 9.50% 6/9/21 5,154 5,073 5,025 Sarnova HC, LLC Trading Companies and Distributors L+475 1.00% 5.75% 1/28/22 4,963 4,919 4,962 Suburban Broadband, LLC (Jab Wireless,Inc.)(4) Wireless Telecommunication Services L+450 1.00% 5.50% 3/26/19 8,168 8,060 8,086 Telular Corporation Wireless Telecommunication Services L+425 1.25% 5.50% 6/24/19 5,063 5,047 5,051 The Hilb Group, LLC & Gencorp InsuranceGroup, Inc.(4) Insurance L+500 1.00% 6.00% 6/24/21 3,814 3,747 3,776 Tronair Parent Inc. Aerospace & Defense L+475 1.00% 5.75% 9/8/23 4,988 4,939 4,963 VT Buyer Acquisition Corp. (Veritext)(4) Professional Services L+500 1.00% 6.00% 1/29/22 4,481 4,443 4,459 Wirb-Copernicus Group, Inc. Business Services L+500 1.00% 6.00% 8/12/22 5,486 5,434 5,431 $118,228 $117,287 (1)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 orPRIME rate floor.(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 primeindex rate (PRIME or “P”), and which typically reset monthly, quarterly or semi-annually. For each debt investment we have provided the current interest rate in effect as ofDecember 31, 2016. 64Table of Contents(3)Represents the fair value in accordance with ASC Topic 820. The determination of such fair value is not included in the Board’s valuation process described elsewhere herein.(4)The Company also holds this security on its Consolidated Statements of Assets and Liabilities.FLLP Portfolio as of December 31, 2015 (in thousands) Description Industry InterestRate(1) MaturityDate ParAmount Cost FairValue(2) 1A Smart Start LLC Electronic Equipment, Instruments &Components 5.75% 2/21/22 $8,000 $7,924 $7,880 Athletico Management, LLC and Accelerated Holdings,LLC(3) Health Care Facilities 6.25% 12/2/20 4,724 4,682 4,653 Capstone Logistics Acquisition, Inc.(3) Professional Services 5.50% 10/7/21 5,436 5,387 5,395 Castle Management Borrower LLC (Highgate Hotels)(3) Real Estate Management & Development 5.50% 9/18/20 3,950 3,916 3,812 Confie Seguros Holding II Co.(3) Insurance 5.75% 11/9/18 5,458 5,454 5,390 Innovative Xcessories & Services, LLC(3) Automotive Retail 5.25% 2/21/20 2,500 2,500 2,462 Kellermeyer Bergensons Services, LLC (KBS)(3) Commercial Services & Supplies 6.00% 10/29/21 2,475 2,453 2,364 Metamorph US 3, LLC (Metalogix)(3) Software 6.50% 12/1/20 4,875 4,768 4,485 Pearl Merger Sub, LLC (PetVet)(3) Health Care Facilities 5.50% 12/17/20 5,445 5,350 5,336 PSP Group, LLC (Pet Supplies Plus)(3) Specialty Retail 5.75% 4/6/21 5,459 5,411 5,350 QBS Holding Company, Inc. (Quorum)(3) Software 5.75% 8/7/21 3,465 3,434 3,361 RCPSI Corporation (Pet Supermarket)(3) Specialty Retail 6.75% 4/16/21 5,473 5,423 5,363 Salient Partners, L.P.(3) Asset Management 7.50% 6/9/21 5,418 5,317 5,228 Suburban Broadband, LLC (Jab Wireless, Inc.)(4) Wireless Telecommunication Services 5.50% 3/26/19 8,229 8,076 8,065 Telular Corporation Wireless Telecommunication Services 5.50% 6/24/19 5,354 5,330 5,274 $75,425 $74,418 (1)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”), and which typically reset monthly, quarterly or semi-annually. For each debt investment we haveprovided the current interest rate in effect as of December 31, 2015.(2)Represents the fair value in accordance with ASC Topic 820. The determination of such fair value is not included in the Board’s valuation processdescribed elsewhere herein.(3)The Company also holds a portion of this position on its Consolidated Statements of Assets and Liabilities. 65Table of ContentsBelow is certain summarized financial information for FLLP as of December 31, 2016 and December 31, 2015 and for the year ended December 31,2016 and the period from February 13, 2015 (commencement of operations) through December 31, 2015: December 31,2016 December 31,2015 Selected Balance Sheet Information for FLLP (in thousands): Investments at fair value (cost $118,228 and $75,425, respectively) $117,287 $74,418 Cash and other assets 4,938 2,370 Total assets $122,225 $76,788 Debt outstanding $75,941 $43,998 Distributions payable 981 742 Interest payable and other credit facility related expenses 708 400 Accrued expenses and other payables 241 113 Total liabilities $77,871 $45,253 Members’ equity $44,354 $31,535 Total liabilities and members’ equity $122,225 $76,788 Year ended December 31,2016 For the PeriodFebruary 13, 2015(commencement ofoperations) throughDecember 31, 2015 Selected Income Statement Information for FLLP (in thousands): Interest income $6,344 $3,115 Service fees* $66 $32 Interest and other credit facility expenses** 3,076 2,227 Other general and administrative expenses 178 142 Total expenses 3,320 2,401 Net investment income $3,024 $714 Realized gain on investments 59 — Net change in unrealized gain (loss) on investments 65 (1,007) Net realized and unrealized gain (loss) on investments 124 (1,007) Net income (loss) $3,148 $(293) *Service fees are included within the Company’s Consolidated Statements of Operations as other income.**FLLP made an irrevocable election to apply the fair value option of accounting to the FLLP Facility, in accordance with ASC 825-10. As such, allexpenses related to the establishment of and amendments to the FLLP Facility were expensed during the periods shown. For the year endedDecember 31, 2016 and the period February 13, 2015 through December 31, 2015, these amounts totaled $836 and $1,316, respectively.Critical Accounting PoliciesThe preparation of consolidated financial statements and related disclosures in conformity with 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. Within the context of these critical accounting policies and disclosed subsequent events herein, we are notcurrently aware of any other reasonably likely events or circumstances that would result in materially different amounts being reported. 66Table of ContentsValuation 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. The Company may also obtain quotes with respect to certain of its investments from pricing services or brokers or dealers in order to valueassets. When doing so, management determines whether the quote obtained is sufficient according to GAAP to determine the fair value of the investment. Ifdetermined adequate, the Company uses the quote obtained. Debt investments with maturities of 60 days or less shall each be valued at cost plus accreteddiscount, or minus amortized premium, which is expected to approximate fair value, unless such valuation, in the judgment of the Investment Adviser, doesnot represent fair value, in which case such investments shall be valued at fair value as determined in good faith by or under the direction of the Company’sboard 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 are valued utilizing a market approach, an income approach, or both approaches, as appropriate. However, in accordance with ASC820-10, certain investments that qualify as investment companies in accordance with ASC 946, may be valued using net asset value as a practical expedientfor fair value. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets orliabilities (including a business). The income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a singlepresent amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts. In following theseapproaches, the types of factors that we may take into account in fair value pricing our investments include, as relevant: available current market data,including relevant and applicable market trading and transaction comparables, applicable market yields and multiples, security covenants, call protectionprovisions, the nature and realizable value of any collateral, the portfolio company’s ability to make payments, its earnings and discounted cash flows, themarkets in which the portfolio company does business, comparisons of financial ratios 67Table of Contentsof peer companies that are public, M&A comparables, and enterprise values, among other factors. When available, broker quotations and/or quotationsprovided by pricing services are considered as an input in the valuation process. Escrow receivables, if any, included in the receivables for investments soldin the Consolidated Statements of Assets and Liabilities are reviewed quarterly and the value of the receivable is adjusted as necessary. For the fiscal yearended December 31, 2016, there has been no change to the Company’s valuation techniques and the nature of the related inputs considered in the valuationprocess.Accounting 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. The exercise of judgment is based in part on our knowledge of the asset class and ourprior experience.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 better aligns the measurement methodologies of assets and liabilities, which may mitigate certainearnings volatility.Revenue RecognitionThe Company records dividend income and interest, adjusted for amortization of premium and accretion of discount, on an accrual basis. Investmentsthat are expected to pay regularly scheduled interest and/or dividends in cash are generally placed on non-accrual status when principal or interest/dividendcash payments are past due 30 days or more and/or when it is no longer probable that principal or interest/dividend cash payments will be collected. Suchnon-accrual investments are restored to accrual status if past due principal and interest or dividends are paid in cash, and in management’s judgment, arelikely to continue timely payment of their remaining interest or dividend obligations. Interest or dividend cash payments received on investments may berecognized as income or applied to principal depending upon management’s judgment. Some of our investments may have contractual PIK interest ordividends. PIK interest and dividends computed at the contractual rate are accrued into income and reflected as receivable up to the capitalization date. PIKinvestments 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. On these payment dates, the Companycapitalizes the accrued interest or dividends receivable (reflecting such amounts as the basis in the additional securities received). PIK generally becomes dueat the maturity of the investment or upon the investment being called by the issuer. At the point the Company believes PIK is not expected to be realized, thePIK investment will be placed on non-accrual status. When a PIK 68Table of Contentsinvestment is placed on non-accrual status, the accrued, uncapitalized interest or dividends is reversed from the related receivable through interest ordividend income, respectively. The Company does not reverse previously capitalized PIK interest or dividends. Upon capitalization, PIK is subject to the fairvalue estimates associated with their related investments. PIK investments on non-accrual status are restored to accrual status if the Company again believesthat PIK is expected to be realized. Loan origination fees, original issue discount, and market discounts are capitalized and amortized into income using theinterest method or straight-line, as applicable. Upon the prepayment of a loan, any unamortized loan origination fees are recorded as interest income. Werecord prepayment premiums on loans and other investments as interest income when we receive such amounts. Capital structuring fees are recorded as otherincome when earned.The typically higher yields and interest rates on PIK securities, to the extent we invested, reflects the payment deferral and increased credit riskassociated with such instruments and that such investments may represent a significantly higher credit risk than coupon loans. PIK securities may haveunreliable valuations because their continuing accruals require continuing judgments about the collectability of the deferred payments and the value of anyassociated collateral. PIK interest has the effect of generating investment income and increasing the incentive fees payable at a compounding rate. Inaddition, the deferral of PIK interest also increases the loan-to-value ratio at a compounding rate. PIK securities create the risk that incentive fees will be paidto the Investment Adviser based on non-cash accruals that ultimately may not be realized, but the Investment Adviser will be under no obligation toreimburse the Company for these fees. For the fiscal years ended December 31, 2016, 2015 and 2014, capitalized PIK income totaled $0.0 million,$0.1 million and $0.1 million, respectively.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. Gains or losses on investments are calculated by using thespecific identification method.Income TaxesSolar Senior Capital, a U.S. corporation, has elected to be treated as a RIC under Subchapter M of the Code. In order to qualify for taxation as a RIC, theCompany is required, among other things, to timely distribute to its stockholders at least 90% of investment company taxable income, as defined by theCode, 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 of currentyear distributions into the next tax year and pay a 4% excise tax on such income, as required. To the extent that the Company determines that its estimatedcurrent year annual taxable income will be in excess of estimated current year distributions, the Company accrues an estimated excise tax, if any, onestimated excess taxable income.Recent Accounting PronouncementsIn February 2015, the FASB issued Accounting Standards Update (“ASU”) 2015-02, Consolidation (Topic 810)—Amendments to the ConsolidationAnalysis. The update changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities.Public companies are required to apply ASU 2015-02 for interim and annual reporting periods beginning after December 15, 2015. Accordingly, theCompany has evaluated the impact of ASU 2015-02 on its consolidated financial statements and determined that the adoption of ASU 2015-02 has not had amaterial impact on our consolidated financial statements. 69Table of ContentsIn April 2015, the FASB issued ASU 2015-03, Interest—Imputation of Interest (Subtopic 835-30)—Simplifying the Presentation of Debt IssuanceCosts. The update requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from thecarrying amount of that debt liability, consistent with debt discounts. Public companies are required to apply ASU 2015-03 retrospectively for interim andannual reporting periods beginning after December 15, 2015. Accordingly, the Company has evaluated the impact of ASU 2015-03 on its consolidatedfinancial statements and determined that the adoption of ASU 2015-03 has not had a material impact on our consolidated financial statements.In May 2015, the FASB issued ASU 2015-07, Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or ItsEquivalent). The update eliminates the requirement to categorize investments in the fair value hierarchy if their fair value is measured at net asset value(NAV) per share (or its equivalent) using the practical expedient in the FASB’s fair value measurement guidance. Public companies are required to apply ASU2015-07 retrospectively for interim and annual reporting periods beginning after December 15, 2015. Accordingly, the Company has evaluated the impact ofASU 2015-07 on its consolidated financial statements and determined that the adoption of ASU 2015-07 has not had a material impact on our consolidatedfinancial statements.In November 2016, FASB issued ASU 2016-18, Statement of Cash Flows, which will amend FASB ASC 230. The amendments in this Update requirethat a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cashor restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cashequivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this Updateapply to all entities that have restricted cash or restricted cash equivalents and are required to present a statement of cash flows under Topic 230. For publicbusiness entities, the amendments are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Earlyadoption is permitted, including adoption in an interim period. The Company is evaluating the impact of ASU 2016-18 on its consolidated financialstatements and disclosures.In December 2016, the FASB issued ASU 2016-19, Technical Corrections and Improvements. As part of this guidance, ASU 2016-19 amends FASBASC 820 to clarify the difference between a valuation approach and a valuation technique. The amendment also requires an entity to disclose when there hasbeen a change in either or both a valuation approach and/or a valuation technique. ASU 2016-19 is effective on a prospective basis for financial statementsissued for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016 on a prospective basis. The Company is evaluatingthe impact of ASU 2016-19 on its consolidated financial statements and disclosures.RESULTS OF OPERATIONSResults comparisons are for the fiscal years ended December 31, 2016, December 31, 2015 and December 31, 2014.Investment IncomeFor the fiscal years ended December 31, 2016, 2015 and 2014, gross investment income totaled $27.2 million, $25.4 million and $22.1 million,respectively. The increase in gross investment income from fiscal year 2015 to fiscal year 2016 is primarily due to growth of the income producinginvestment portfolio, including the continued growth of the FLLP portfolio. The increase in gross investment income from fiscal year 2014 to fiscal year2015 is primarily due to the launch and subsequent growth of the FLLP portfolio. 70Table of ContentsExpensesNet expenses totaled $8.9 million, $10.1 million and $8.3 million, respectively, for the fiscal years ended December 31, 2016, 2015 and 2014, of which$2.9 million, $3.5 million and $3.1 million, respectively, were net base management fees and net performance-based incentive fees and $3.3 million,$4.2 million and $3.1 million, respectively, were interest and other credit facility expenses. Over the same periods, $0.8 million, $0.0 million and$0.0 million of base management fees were waived and $1.2 million, $0.7 million and $0.2 million of performance-based incentive fees were waived.Administrative services, insurance and other general and administrative expenses totaled $2.7 million, $2.4 million and $2.1 million, respectively, for thefiscal years ended December 31, 2016, 2015 and 2014. Expenses generally consist of management fees, performance-based incentive fees, administrativeservices expenses, insurance, legal expenses, directors’ expenses, audit and tax expenses, transfer agent fees and expenses, and other general andadministrative expenses. The decrease in net expenses for the year ended December 31, 2016 was primarily due to the waiver of base management fees as wellas reduced interest costs from both lower average borrowing year over year and the lack of Credit Facility amendment costs in 2016. The increase in netexpenses for the year ended December 31, 2015 was primarily due to higher interest costs, which included $0.8 million in expenses due to the Credit Facilityamendment in May 2015, and higher management fees on a larger average portfolio over the course of the year as compared to the average portfolio size in2014.Net Investment IncomeThe Company’s net investment income totaled $18.3 million or $1.42 per average share, $15.4 million or $1.33 per average share and $13.8 million or$1.20 per average share, for the fiscal years ended December 31, 2016, 2015 and 2014, respectively.Net Realized Gain (Loss)The Company had investment sales and prepayments totaling approximately $111.9 million, $135.3 million and $143.1 million, respectively, for thefiscal years ended December 31, 2016, 2015 and 2014. Net realized gain (loss) for the fiscal years ended December 31, 2016, 2015 and 2014 totaled$0.1 million, $0.02 million and ($0.6) million, respectively. Net realized gain for the fiscal year ended December 31, 2016 was primarily related to selectsales of a few portfolio investments. Net realized gain for the fiscal year ended December 31, 2015 was related to modest sales of certain portfolioinvestments. Net realized loss for the fiscal year ended December 31, 2014 was primarily related to the sale of our investment in SLT Environmental.Net Change in Unrealized Gain (Loss)For the fiscal years ended December 31, 2016, 2015 and 2014, the net change in unrealized gain (loss) on the Company’s assets and liabilities totaled$5.9 million, ($14.3) million and ($1.5) million, respectively. Net unrealized gain for the fiscal year ended December 31, 2016 was primarily due toappreciation in the value of our investments in Securus Technologies, Inc., Gemino Healthcare Finance LLC and Global Tel*Link Corporation, amongothers. Partially offsetting the unrealized gains was depreciation in our investments in TwentyEighty, Inc., Metamorph US 3, LLC and EngineeringSolutions & Products, LLC, among others. Net unrealized loss for the fiscal year ended December 31, 2015 was primarily due to technical market conditionsand market uncertainty related to our investments in Securus Technologies, Inc. and Global Tel*Link Corporation. Net unrealized depreciation for fiscal2014 was primarily due to a slight decline in market and fundamental conditions of certain investments.Net Increase in Net Assets From OperationsFor the fiscal years ended December 31, 2016, 2015 and 2014, the Company had a net increase in net assets resulting from operations of $24.3 million,$1.0 million and $11.7 million, respectively. For the fiscal years ended December 31, 2016, 2015 and 2014, earnings per average share were $1.88, $0.09 and$1.01, respectively. 71Table of ContentsLIQUIDITY 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, 2016, the Company had $98.3 million in borrowingsoutstanding on its Credit Facility and $76.7 million of unused capacity, subject to borrowing base limits.In September 2016, the Company closed a follow-on public equity offering of 4.5 million shares of common stock at $16.76 per share raisingapproximately $75.0 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 currently expect that our liquidity needs will be met with cash flows from operations, borrowings under our Credit Facility, including its accordionfeature, as well as from other available financing activities.Cash EquivalentsWe deem certain U.S. Treasury bills, repurchase agreements and other high-quality, short-term debt securities as cash equivalents. The Company makespurchases that are consistent with its purpose of making investments in securities described in paragraphs 1 through 3 of Section 55(a) of the 1940 Act. Fromtime to time, including at or near the end of each fiscal quarter, we consider using various temporary investment strategies for our business. One strategyincludes taking proactive steps by utilizing cash equivalents as temporary assets with the objective of enhancing our investment flexibility pursuant toSection 55 of the 1940 Act. More specifically, from time-to-time we may purchase U.S. Treasury bills or other high-quality, short-term debt securities at ornear the end of the quarter and typically close out the position on a net cash basis subsequent to quarter end. We may also utilize repurchase agreements orother balance sheet transactions, including drawing down on our credit facilities, as deemed appropriate. The amount of these transactions or such drawn cashfor this purpose is excluded from total assets for purposes of computing the asset base upon which the management fee is determined. We held approximately$140 million in cash equivalents as of December 31, 2016.DebtSenior Secured Revolving Credit Facility—On August 26, 2011, the Company established the SPV which entered into the Credit Facility withCitigroup Global Markets Inc. acting as administrative agent. The Credit Facility, as amended, currently has an aggregate of $175 million of commitmentsavailable. It can also be expanded up to $600 million. The stated interest rate on the Credit Facility is LIBOR plus 2.00% with no LIBOR floor requirementand the current final maturity date is June 30, 2020. The Credit Facility is secured by all of the assets held by the SPV. Under the terms of the Credit Facility,Solar Senior Capital and the 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. The Credit Facility was amended on November 7, 2012, June 30, 2014 andMay 29, 2015 to add extend maturities and add greater investment flexibility, among other changes. At December 31, 2016, the Company was in compliancewith all financial and operational covenants required by the Credit Facility. 72Table of ContentsContractual Obligations Payments due by Period as of December 31, 2016(dollars in millions) Total Less than1 year 1-3 years 3-5 years More than5 years Senior Secured Revolving Credit Facility(1) $98.3 $— $— $98.3 $— (1)At December 31, 2016, $76.7 million of capacity remained unused.Information about our senior securities is shown in the following table (in thousands) as of each year ended December 31 since the Companycommenced operations, unless otherwise noted. The “—” indicates information which the SEC expressly does not require to be disclosed for certain types ofsenior securities. Class and Year Total AmountOutstanding(1) AssetCoveragePer Unit(2) InvoluntaryLiquidatingPreferencePer Unit(3) AverageMarket ValuePer Unit(4) Revolving Credit Facility Fiscal 2016 $98,300 $3,738 $— N/A Fiscal 2015 116,200 2,621 $— N/A Fiscal 2014 143,200 2,421 — N/A 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. As of December 31, 2016, asset coverage was373.8%.(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 Advisory Agreement, pursuant to which Solar Capital Partners,LLC has agreed to serve as our investment adviser, and the Administration Agreement, pursuant to which Solar Capital Management, LLC has agreed tofurnish us with the facilities and administrative services necessary to conduct our day-to-day operations and provide on our behalf managerial assistance tothose portfolio companies to which we are required to provide such assistance. Payments under the Advisory Agreement are equal to (1) a percentage of thevalue of our average gross assets and (2) a two-part incentive fee. Payments under the Administration Agreement are equal to an amount based uponour allocable portion of the Administrator’s overhead in performing its obligations under the Administration Agreement, including rent, technology systems,insurance and our allocable portion of the costs of our chief financial officer and chief compliance officer and their respective staffs. Either party mayterminate each of the Advisory Agreement and Administration Agreement without penalty upon 60 days’ written notice to the other. See note 3 to ourConsolidated Financial Statements.On September 10, 2014, FLLP entered into a servicing agreement with the Company. FLLP engaged and retained the Company to provide certainadministrative services relating to the facilities, supplies and necessary ongoing overhead support services for the operation of FLLP’s ongoing businessaffairs in exchange for a fee. Either party may terminate this agreement upon 30 days’ written notice to the other. 73Table of ContentsOff-Balance Sheet ArrangementsThe Company had unfunded debt and equity commitments to delayed draw and revolving loans as well as to Gemino Healthcare Finance, LLC. Thetotal amount of these unfunded commitments as of December 31, 2016 and December 31, 2015 is $13.1 million and $6.7 million, respectively, comprised ofthe following: (in millions) December 31,2016 December 31,2015 Gemino Healthcare Finance, LLC $5.0 $5.0 Alera Group Intermediate Holdings, Inc. 3.9 — Engineering Solutions & Products, LLC 1.7 1.7 Ministry Brands, LLC 1.5 — VT Buyer Acquisition Corp. (Veritext) 0.5 — CIBT Holdings, Inc. 0.5 — Total Commitments* $13.1 $6.7 *The Company controls the funding of the Gemino Healthcare Finance, LLC commitment and may cancel it at its discretion (also see First Lien LoanProgram LLC section in Item 7).As of December 31, 2016 and December 31, 2015, the Company had sufficient cash available and/or liquid securities available to fund itscommitments as well as the commitment to FLLP disclosed earlier.In the normal course of its business, we invest or trade in various financial instruments and may enter into various investment activities withoff-balance sheet risk, which may include forward foreign currency contracts. Generally, these financial instruments represent future commitments to purchaseor sell other financial instruments at specific terms at future dates. These financial instruments contain varying degrees of off-balance sheet risk wherebychanges in the market value or our satisfaction of the obligations may exceed the amount recognized in our Consolidated Statements of Assets andLiabilities. 74Table of ContentsDistributionsThe following table reflects the cash distributions per share on our common stock for the two most recent fiscal years and the current fiscal year to date: Date Declared Record Date Payment Date Amount Fiscal 2017 February 22, 2017 March 23, 2017 April 4, 2017 $0.1175 February 7, 2017 February 23, 2017 March 1, 2017 0.1175 January 5, 2017 January 19, 2017 February 1, 2017 0.1175 YTD Total (2017) $0.3525 Fiscal 2016 December 8, 2016 December 22, 2016 January 4, 2017 $0.1175 November 2, 2016 November 23, 2016 December 1, 2016 0.1175 October 5, 2016 October 20, 2016 November 1, 2016 0.1175 September 12, 2016 September 22, 2016 October 4, 2016 0.1175 August 2, 2016 August 18, 2016 September 1, 2016 0.1175 July 7, 2016 July 21, 2016 August 2, 2016 0.1175 June 7, 2016 June 23, 2016 July 1, 2016 0.1175 May 3, 2016 May 19, 2016 June 2, 2016 0.1175 April 7, 2016 April 21, 2016 May 3, 2016 0.1175 February 24, 2016 March 24, 2016 April 1, 2016 0.1175 February 4, 2016 February 18, 2016 March 2, 2016 0.1175 January 7, 2016 January 21, 2016 February 2, 2016 0.1175 Total (2016) $1.41 Fiscal 2015 December 2, 2015 December 17, 2015 January 5, 2016 $0.1175 November 3, 2015 November 19, 2015 December 1, 2015 0.1175 October 7, 2015 October 22, 2015 November 3, 2015 0.1175 September 9, 2015 September 24, 2015 October 1, 2015 0.1175 August 4, 2015 August 20, 2015 September 1, 2015 0.1175 July 8, 2015 July 23, 2015 July 31, 2015 0.1175 June 9, 2015 June 25, 2015 July 1, 2015 0.1175 May 5, 2015 May 21, 2015 June 2, 2015 0.1175 April 9, 2015 April 23, 2015 May 1, 2015 0.1175 February 25, 2015 March 19, 2015 April 2, 2015 0.1175 February 3, 2015 February 19, 2015 February 27, 2015 0.1175 January 8, 2015 January 22, 2015 January 30, 2015 0.1175 Total (2015) $1.41 Tax characteristics of all distributions will be reported to shareholders on Form 1099 after the end of the calendar year. Future distributions, if any, willbe determined by our Board. We expect that our distributions to stockholders will generally be from accumulated net investment income, from net realizedcapital gains or non-taxable return of capital, 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. 75Table of ContentsWe maintain an “opt out” dividend reinvestment plan for our common stockholders. As a result, if we declare a distribution, then stockholders’ cashdistributions will be automatically reinvested in additional shares of our common stock, unless they specifically “opt out” of the dividend reinvestment planso as to receive cash distributions.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 distributions 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 GAAP and tax regulations, we include in income certain amountsthat we have not yet received in cash, such as contractual payment-in-kind interest, which represents contractual interest added to the loan balance thatbecomes due at the end of the loan term, or the accrual of original issue or market discount. Since we may recognize income before or without receiving cashrepresenting such income, we may have difficulty meeting the requirement to distribute at least 90% of our investment company taxable income to obtain taxbenefits as a regulated investment company.With respect to the distributions to stockholders, income from origination, structuring, closing 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 the Advisory Agreement with Solar Capital Partners. Mr. Gross, our Chairman and Chief Executive Officer and Mr. Spohler,our Chief Operating Officer and board member, are managing members and senior investment professionals of, and have financial andcontrolling interests in, the Investment Adviser. In addition, Mr. Peteka, our Chief Financial Officer, Treasurer and Corporate Secretary serves asthe Chief Financial Officer for Solar Capital Partners. • The Administrator provides us with the office facilities and administrative services necessary to conduct day-to-day operations pursuant to ourAdministration Agreement. We reimburse the Administrator for the allocable portion of overhead and other expenses incurred by it in performingits obligations under the Administration Agreement, including rent, the fees and expenses associated with performing compliance functions, andthe compensation of our chief compliance officer, our chief financial officer and any administrative support staff. • We have entered into a license agreement with the Investment Adviser, pursuant to which the Investment Adviser has granted us a non-exclusive,royalty-free license to use the name “Solar Capital.”The Investment Adviser may also manage other funds in the future that may have investment mandates that are similar, in whole and in part, with ours.For example, the Investment Adviser presently serves as investment adviser to Solar Capital Ltd., a publicly traded BDC, which focuses on investing in seniorsecured loans, including unitranche 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. TheInvestment Adviser and certain investment advisory affiliates may determine that an investment is appropriate for us and for one or more of those other funds.In such event, depending on the availability of such investment and other appropriate factors, the Investment Adviser or its affiliates may determine that weshould invest side-by-side with one or more other funds. Any such investments will be made only to the extent permitted by applicable law and interpretivepositions of the SEC and its staff, and consistent with the Investment Adviser’s allocation procedures. 76Table of ContentsRelated party transactions may occur between Solar Senior Capital Ltd. and Gemino Healthcare Finance, LLC, between Solar Senior Capital Ltd. andFirst Lien Loan Program LLC and between Solar Senior Capital Ltd. and FLLP 2015-1, LLC. These transactions may occur in the normal course of business.No administrative fees are paid to Solar Capital Partners by either Gemino Healthcare Finance, LLC or First Lien Loan Program LLC.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 Disclosures About Market RiskWe are subject to financial market risks, including changes in interest rates. During the fiscal year ended December 31, 2016, most of the investmentsin our portfolio had floating interest rates. Our loans are 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, 2016 and no new defaults by portfoliocompanies, a hypothetical one-quarter of one percent decrease in LIBOR on our floating rate assets and liabilities would increase our net investment incomeper average share by approximately one cent per average share over the next twelve months. Assuming no changes to our balance sheet as of December 31,2016 and no new defaults by portfolio companies, a hypothetical one percent increase in LIBOR on our floating rate assets and liabilities would increase ournet investment income per average share by approximately six cents per average share over the next twelve months. However, we may hedge against interestrate fluctuations from time-to-time by using standard hedging instruments such as futures, options and forward contracts subject to the requirements of the1940 Act. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in any benefits ofcertain changes in 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 $0.06 77Table of ContentsItem 8.Financial Statements and Supplementary DataINDEX TO CONSOLIDATED FINANCIAL STATEMENTS Management’s Report on Internal Control over Financial Reporting 79 Report of Independent Registered Public Accounting Firm 80 Report of Independent Registered Public Accounting Firm On Internal Control Over Financial Reporting 81 Consolidated Statements of Assets & Liabilities as of December 31, 2016 and December 31, 2015 82 Consolidated Statements of Operations for the years ended December 31, 2016, 2015 and 2014 83 Consolidated Statements of Changes in Net Assets for the years ended December 31, 2016, 2015 and 2014 84 Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015 and 2014 85 Consolidated Schedule of Investments as of December 31, 2016 and December 31, 2015 86 Notes to Consolidated Financial Statements 92 78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, 2016. Internal control over financial reporting is a process designed to providereasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain toassets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statementsin accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance withauthorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorizedacquisition, 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, 2016 basedupon criteria in Internal Control – Integrated Framework (2013) 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 31,2016 based on the criteria on Internal Control – Integrated Framework (2013) issued by COSO.The effectiveness of the Company’s internal control over financial reporting as of December 31, 2016 has been audited by KPMG LLP, an independentregistered public accounting firm, as stated in their report which appears herein. 79Table of ContentsReport of Independent Registered Public Accounting FirmThe Board of Directors and StockholdersSolar Senior Capital Ltd.:We have audited the accompanying consolidated statements of assets and liabilities, including the consolidated schedule of investments, of SolarSenior Capital Ltd. (and subsidiaries) (the “Company”) as of December 31, 2016 and 2015, and the related consolidated statements of operations, changes innet assets, and cash flows for each of the years in the three-year period ended December 31, 2016. These consolidated financial statements are theresponsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated 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 financial statements are free of material misstatement. An auditincludes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation ofsecurities owned as of December 31, 2016 and 2015, by correspondence with the custodian, portfolio companies or agents. An audit also includes assessingthe accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believethat 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 subsidiaries) as of December 31, 2016 and 2015, and the results of their operations, changes in their net assets and cash flows for each of theyears in the three-year period ended December 31, 2016, 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, 2016, based on criteria established in Internal Control – Integrated Framework(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 22, 2017 expressed anunqualified opinion on the effectiveness of the Company’s internal control over financial reporting./s/ KPMG LLPNew York, New YorkFebruary 22, 2017 80Table of ContentsReport of Independent Registered Public Accounting FirmOn Internal Control Over Financial ReportingThe Board of Directors and StockholdersSolar Senior Capital Ltd.:We have audited Solar Senior Capital Ltd.’s (the Company) internal control over financial reporting as of December 31, 2016, based on criteriaestablished in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).Solar Senior Capital Ltd.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of theeffectiveness of internal control over financial reporting, included in the accompanying management’s report on internal control over financial reporting. Ourresponsibility is to express an opinion on the Company’s internal control over financial reporting based on our 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 financial statements for external purposes in accordance with generally accepted accounting principles. A company’sinternal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded asnecessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of thecompany are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assuranceregarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on thefinancial 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 31,2016, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of theTreadway Commission (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, including consolidated schedule of investments of Solar Senior Capital Ltd. (and subsidiaries) as of December 31, 2016and 2015, and the related consolidated statements of operations, changes in net assets and cash flows for each of the years in the three-year period endedDecember 31, 2016 and our report dated February 22, 2017 expressed an unqualified opinion on those consolidated financial statements./s/ KPMG LLPNew York, New YorkFebruary 22, 2017 81Table of ContentsSOLAR SENIOR CAPITAL LTD.CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES(in thousands, except share amounts) December 31,2016 December 31,2015 Assets Investments at fair value: Companies less than 5% owned (cost: $295,037 and $253,373, respectively) $289,399 $242,502 Companies 5% to 25% owned (cost: $3,710 and $3,816, respectively) 1,825 2,423 Companies more than 25% owned (cost: $74,026 and $62,423, respectively) 74,310 61,593 Total investments (cost: $372,773 and $319,612, respectively) 365,534 306,518 Cash 11,876 3,070 Cash equivalents (cost: $139,952 and $49,997, respectively) 139,952 49,997 Receivable for investments sold 1,450 45 Dividends receivable 1,422 526 Interest receivable 1,482 2,040 Prepaid expenses and other assets 273 381 Total assets $521,989 $362,577 Liabilities Credit facility payable (see notes 6 and 7) $98,300 $116,200 Payable for investments and cash equivalents purchased 151,312 54,897 Distributions payable 1,883 1,355 Management fee payable (see note 3) 104 831 Interest payable (see note 7) 241 262 Administrative services expense payable (see note 3) 621 534 Other liabilities and accrued expenses 383 194 Total liabilities $252,844 $174,273 Commitments and contingencies (see notes 12 and 13) Net Assets Common stock, par value $0.01 per share, 200,000,000 and 200,000,000 common shares authorized, respectively, and16,025,011 and 11,533,315 issued and outstanding, respectively $160 $115 Paid-in capital in excess of par (see note 2f) 287,515 211,486 Distributions in excess of net investment income (see note 2f) (5,342) (5,185) Accumulated net realized loss (see note 2f) (5,949) (5,018) Net unrealized depreciation (7,239) (13,094) Total net assets $269,145 $188,304 Net Asset Value Per Share $16.80 $16.33 See notes to consolidated financial statements. 82Table of ContentsSOLAR SENIOR CAPITAL LTD.CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except share amounts) Year ended December 31, 2016 2015 2014 INVESTMENT INCOME: Interest: Companies less than 5% owned $19,728 $19,732 $18,550 Companies 5% to 25% owned 201 214 221 Dividends: Companies more than 25% owned 7,077 5,272 3,277 Other income: Companies less than 5% owned 125 196 56 Companies more than 25% owned 65 32 — Total investment income 27,196 25,446 22,104 EXPENSES: Management fees (see note 3) $3,385 $3,458 $2,875 Performance-based incentive fees (see note 3) 1,560 740 440 Interest and other credit facility expenses (see note 7) 3,281 4,201 3,140 Administrative services expense (see note 3) 1,245 1,130 1,069 Other general and administrative expenses 1,411 1,284 993 Total expenses 10,882 10,813 8,517 Management fees waived (see note 3) (797) — — Performance-based incentive fees waived (see note 3) (1,205) (740) (227) Net expenses 8,880 10,073 8,290 Net investment income $18,316 $15,373 $13,814 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND CASH EQUIVALENTS: Net realized gain (loss) on investments and cash equivalents (companies less than 5% owned) $81 $18 $(638) Net change in unrealized gain (loss) on investments and cash equivalents 5,855 (14,344) (1,486) Net realized and unrealized gain (loss) on investments and cash equivalents 5,936 (14,326) (2,124) NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $24,252 $1,047 $11,690 EARNINGS PER SHARE (see note 5) $1.88 $0.09 $1.01 See notes to consolidated financial statements. 83Table of ContentsSOLAR SENIOR CAPITAL LTD.CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS(in thousands, except share amounts) Year ended December 31, 2016 2015 2014 Increase in net assets resulting from operations: Net investment income $18,316 $15,373 $13,814 Net realized gain (loss) 81 18 (638) Net change in unrealized gain (loss) 5,855 (14,344) (1,486) Net increase in net assets resulting from operations 24,252 1,047 11,690 Distributions to stockholders (see note 9a): From net investment income (18,316) (16,262) (14,842) From other sources — — (1,419)† Net distributions to stockholders (18,316) (16,262) (16,261) Capital transactions: Net proceeds from shares sold 75,255 — — Less common stock offering costs (376) — — Reinvestment of distributions 26 — 73 Net increase in net assets resulting from capital transactions 74,905 — 73 Total increase (decrease) in net assets 80,841 (15,215) (4,498) Net assets at beginning of year 188,304 203,519 208,017 Net assets at end of year(1) $269,145 $188,304 $203,519 Capital share activity: Common stock sold 4,490,152 — — Common stock issued from reinvestment of distributions 1,544 — 4,012 Net increase from capital share activity 4,491,696 — 4,012 †Represents tax return of capital.(1)Includes undistributed (overdistributed) net investment income of ($5,342), ($5,185) and ($3,529), respectively.See notes to consolidated financial statements. 84Table of ContentsSOLAR SENIOR CAPITAL LTD.CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands) Year ended December 31, 2016 2015 2014 Cash Flows from Operating Activities: Net increase in net assets from operations $24,252 $1,047 $11,690 Adjustments to reconcile net increase in net assets from operations to net cash provided by (used in)operating activities: Net realized (gain) loss on investments and cash equivalents (81) (18) 638 Net change in unrealized (gain) loss on investments and cash equivalents (5,855) 14,344 1,486 (Increase) decrease in operating assets: Purchase of investments (176,924) (85,282) (216,729) Proceeds from disposition of investments 123,844 105,003 142,106 Capitalization of payment-in-kind interest — (99) (115) Receivable for investments sold (1,405) (45) — Interest receivable 558 (1,011) 307 Dividends receivable (896) (84) (44) Prepaid expenses and other assets 108 8 (188) Increase (decrease) in operating liabilities: Payable for investments and cash equivalents purchased 96,415 19,897 35,000 Management fee payable (727) 33 95 Performance-based incentive fees payable — — (33) Administrative services expense payable 87 90 (186) Interest payable (21) (15) 138 Other liabilities and accrued expenses 189 (10) (80) Net Cash Provided by (Used in) Operating Activities 59,544 53,858 (25,915) Cash Flows from Financing Activities: Net proceeds from shares sold 75,255 — — Common stock offering costs (376) — — Cash distributions paid (17,762) (16,262) (16,188) Proceeds from borrowings 136,800 47,700 206,100 Repayments of borrowings (154,700) (74,700) (124,300) Net Cash Provided by (Used in) Financing Activities 39,217 (43,262) 65,612 NET INCREASE IN CASH AND CASH EQUIVALENTS 98,761 10,596 39,697 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 53,067 42,471 2,774 CASH AND CASH EQUIVALENTS AT END OF YEAR $151,828 $53,067 $42,471 Supplemental disclosure of cash flow information: Cash paid for interest $3,302 $4,216 $3,002 Non-cash financing activities consist of the reinvestment of dividends of $26, $0 and $73 for the fiscal years ended December 31, 2016, 2015 and 2014,respectively. Additionally, during the fiscal year ended December 31, 2015, $29,584 of investments were transferred from the Company to First Lien LoanProgram LLC (see note 13).See notes to consolidated financial statements. 85Table of ContentsSOLAR SENIOR CAPITAL LTD.CONSOLIDATED SCHEDULE OF INVESTMENTSDecember 31, 2016(in thousands, except share/unit amounts) Description Industry SpreadaboveIndex(3) Libor Floor Interest Rate(1) AcquisitionDate MaturityDate ParAmount Cost FairValue Bank Debt/Senior Secured Loans—108.2% ABB/Con-Cise Optical Group LLC(2) Health Care Equipment &Supplies L+500 1.00% 6.00% 6/14/2016 6/15/2023 $11,970 $11,920 $12,135 Advantage Sales and Marketing, Inc Professional Services L+650 1.00% 7.50% 2/14/2013 7/25/2022 8,000 7,955 7,835 Aegis Toxicology Sciences Corporation Health Care Providers & Services L+850 1.00% 9.50% 2/20/2014 8/24/2021 4,000 3,958 3,740 Alera Group Intermediate Holdings, Inc.(2) Insurance L+550 1.00% 6.50% 11/28/2016 12/30/2022 8,640 8,554 8,554 ALG B.V. (Apple Leisure)(2)(4) Hotels, Restaurants & Leisure L+575 1.25% 7.00% 2/28/2013 2/28/2019 2,692 2,681 2,692 ALG USA Holdings, LLC (Apple Leisure)(2) Hotels, Restaurants & Leisure L+575 1.25% 7.00% 2/28/2013 2/28/2019 3,568 3,553 3,568 American Seafoods Group LLC(2) Food Products L+500 1.00% 6.00% 8/10/2015 8/19/2021 4,817 4,798 4,781 American Teleconferencing Services, Ltd.(PGI)(2) Communications Equipment L+650 1.00% 7.50% 5/5/2016 12/8/2021 8,662 7,871 8,423 Anesthesia Consulting & Management, LP(2) Health Care Providers & Services L+500 1.00% 6.00% 10/20/2016 10/31/2022 5,000 4,951 4,950 Asurion, LLC Insurance L+750 1.00% 8.50% 2/27/2014 3/3/2021 840 785 855 Capstone Logistics Acqusition, Inc.(2) Professional Services L+450 1.00% 5.50% 10/3/2014 10/7/2021 8,278 8,218 8,196 CIBT Holdings, Inc.(2) Professional Services L+525 1.00% 6.25% 6/28/2016 6/28/2022 2,620 2,596 2,594 Confie Seguros Holding II Co.(2) Insurance L+475 1.00% 5.75% 10/13/2016 4/19/2022 10,000 9,903 10,067 ConvergeOne Holdings Corp.(2) Communications Equipment L+538 1.00% 6.38% 6/16/2014 6/17/2020 4,830 4,800 4,806 CT Technologies Intermediate Holdings(2) Health Care Technology L+425 1.00% 5.25% 12/1/2014 12/1/2021 3,393 3,377 3,253 DB Datacenter Holdings, Inc.(2) IT Services L+475 1.00% 5.75% 12/28/2016 7/13/2021 5,000 4,925 4,925 Empower Payments Acquisition, Inc.(2) Professional Services L+550 1.00% 6.50% 11/28/2016 11/30/2023 4,625 4,533 4,532 Engineering Solutions & Products, LLC(6) Aerospace & Defense L+600 2.00% 8.00% 11/5/2013 11/5/2018 2,343 2,343 1,757 Epic Health Services, Inc.(2) Health Care Providers & Services L+475 1.00% 5.75% 2/20/2015 2/17/2021 4,798 4,770 4,798 Falmouth Group Holdings Corp. (AMPAC) (2) Chemicals L+675 1.00% 7.75% 12/15/2016 12/14/2021 9,476 9,476 9,476 GenMark Diagnostics, Inc(2)(4) Health Care Providers & Services — — 6.90% 4/22/2016 1/12/2019 9,643 9,538 9,739 Global Tel*Link Corporation(2) Communications Equipment L+375 1.25% 5.00% 11/6/2015 5/23/2020 3,426 3,083 3,418 Global Tel*Link Corporation Communications Equipment L+775 1.25% 9.00% 5/21/2013 11/23/2020 3,000 2,964 2,921 HC Group Holdings III, Inc. (Walgreens)(2) Health Care Providers & Services L+500 1.00% 6.00% 3/25/2015 4/7/2022 4,938 4,918 4,765 Hostway Corporation(2) Internet Software & Services L+475 1.25% 8.00% 6/27/2014 12/13/2019 8,776 8,753 8,162 Kellermeyer Bergensons Services, LLC (KBS)(2) Commercial Services & Supplies L+500 1.00% 6.00% 10/31/2014 10/29/2021 4,875 4,840 4,778 Lumeris Solutions Company, LLC(2) Health Care Technology — — 9.42% 4/22/2016 12/27/2017 2,074 2,115 2,095 Material Handling Services, LLC (TFS)(2) Air Freight & Logistics L+500 1.00% 6.00% 3/3/2014 3/26/2020 11,056 10,991 10,946 Mediware Information Systems, Inc.(2) Health Care Technology L+475 1.00% 5.75% 9/26/2016 9/28/2023 4,988 4,939 4,988 Metamorph US 3, LLC (Metalogix)(2) Software L+650 1.00% 7.50% 12/1/2014 12/1/2020 8,000 7,860 5,720 Ministry Brands, LLC(2) Software L+500 1.00% 6.00% 11/21/2016 12/2/2022 5,493 5,438 5,438 MYI Acquiror Corp. (McLarens Young)(2) Insurance L+450 1.25% 5.75% 5/21/2014 5/28/2019 3,356 3,339 3,298 MYI Acquiror Ltd. (McLarens Young)(2)(4) Insurance L+450 1.25% 5.75% 5/21/2014 5/28/2019 4,282 4,260 4,208 nThrive, Inc. (Precyse)(2) Health Care Providers & Services L+550 1.00% 6.50% 4/19/2016 10/20/2022 5,977 5,901 6,067 Pearl Merger Sub LLC (PetVet)(2) Health Care Facilities L+475 1.00% 5.75% 1/29/2015 12/17/2020 4,410 4,347 4,360 Polycom, Inc.(2) Communications Equipment L+650 1.00% 7.50% 9/29/2016 9/27/2023 14,506 13,940 14,434 PPT Management Holdings, LLC(2) Health Care Providers & Services L+600 1.00% 7.00% 12/15/2016 12/16/2022 8,000 7,920 7,920 PSP Group, LLC (Pet Supplies Plus)(2)(7) Specialty Retail L+475 1.00% 5.75% 4/2/2015 4/6/2021 487 483 484 QBS Holding Company, Inc. (Quorum)(2) Software L+475 1.00% 5.75% 8/1/2014 8/7/2021 6,370 6,325 6,115 Richelieu Foods, Inc.(2) Food Products L+475 1.00% 5.75% 11/21/2014 5/21/2020 6,510 6,446 6,510 Salient Partners, L.P.(2) Asset Management L+850 1.00% 9.50% 6/10/2015 6/9/2021 4,217 4,150 4,111 Securus Technologies, Inc Communications Equipment L+775 1.25% 9.00% 4/17/2013 4/30/2021 10,000 9,946 9,759 SHO Holding I Corporation (Shoes for Crews)(2) Footwear L+500 1.00% 6.00% 11/20/2015 10/27/2022 5,940 5,890 5,940 Strategic Partners Acquisition Corp.(2) Textiles, Apparel & LuxuryGoods L+525 1.00% 6.25% 6/24/2016 6/30/2023 1,995 1,976 2,015 Stratose Intermediate Holdings II, LLC(2) Health Care Services L+500 1.00% 6.00% 1/25/2016 1/26/2022 4,950 4,907 4,962 Suburban Broadband, LLC (Jab Wireless, Inc.)(2) Wireless TelecommunicationsServices L+450 1.00% 5.50% 11/29/2016 3/26/2019 5,000 4,952 4,950 The Edelman Financial Center, LLC(2) Diversified Financial Services L+550 1.00% 6.50% 12/16/2015 12/18/2022 4,950 4,862 4,950 The Hilb Group, LLC & Gencorp Insurance Group, Inc.(2) Insurance L+500 1.00% 6.00% 3/16/2016 6/24/2021 3,814 3,747 3,776 Trident USA Health Services(2) Health Care Providers & Services L+575 1.25% 7.00% 7/29/2013 7/31/2019 8,793 8,755 8,001 TwentyEighty, Inc. (fka Miller Heiman)(2)* Professional Services L+600 1.00% 7.00% 9/30/2013 9/30/2019 6,991 6,950 3,495 U.S. Acute Care Solutions, LLC(2) Health Care Providers & Services L+500 1.00% 6.00% 12/22/2016 5/15/2021 6,500 6,435 6,435 VT Buyer Acquisition Corp. (Veritext)(2) Professional Services L+500 1.00% 6.00% 1/29/2016 1/29/2022 4,481 4,443 4,459 Total Bank Debt/Senior Secured Loans $297,380 $291,156 Common Equity/Equity Interests—27.6% Shares/Units Engineering Solutions & Products, LLC(6)(8)† Aerospace & Defense 11/5/2013 133,668 $1,367 $68 First Lien Loan Program LLC(4)(5) Asset Management 2/13/2015 — 41,187 38,810 Gemino Healthcare Finance, LLC(4)(5) Diversified Financial Services 9/30/2013 32,839 32,839 35,500 Total Common Equity/Equity Interests $75,393 $74,378 Total Investments(9)—135.8% $372,773 $365,534 Cash Equivalents—52.0% Par Amount U.S. Treasury Bill Government 12/29/2016 2/2/2017 140,000 $139,952 $139,952 Total Investments & Cash Equivalents—187.8% $512,725 $505,486 Liabilities in Excess of Other Assets—(87.8%) (236,341) Net Assets—100.0% $269,145 See notes to consolidated financial statements. 86Table of ContentsSOLAR SENIOR CAPITAL LTD.CONSOLIDATED SCHEDULE OF INVESTMENTS (continued)December 31, 2016(in thousands) (1)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”), and whichtypically reset monthly, quarterly or semi-annually. For each debt investment we have provided the current interest rate in effect as of December 31, 2016.(2)Indicates an investment that is wholly or partially 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 creditors, if any, of Solar Senior Capital Ltd. The respective par amount for the investment thatis partially held through SUNS SPV LLC is $4,821 for Genmark Diagnostics, Inc. The par balance in excess of this stated amount is held directly by Solar Senior Capital Ltd.(3)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.(4)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. If we fail to invest a sufficient portion of ourassets in qualifying assets, we could be prevented from making follow-on investments in existing portfolio companies or could be required to dispose of investments at inappropriate times in order to comply with the1940 Act. As of December 31, 2016, on a fair value basis, non-qualifying assets in the portfolio represented 17.4% of the total assets of the Company.(5)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 or through one ormore controlled companies, more than 25% of the outstanding voting securities of the investment. Transactions during the year ended December 31, 2016 in these controlled investments are as follows: Name of Issuer Fair Value atDecember 31,2015 GrossAdditions GrossReductions Realized Gain(Loss) Dividend/OtherIncome Fair Value atDecember 31,2016 First Lien Loan Program LLC $27,593 $11,603 $— $— $3,264 $38,810 Gemino Healthcare Finance, LLC 34,000 — — — 3,878 35,500 $61,593 $11,603 $— $— $7,142 $74,310 (6)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 more controlledcompanies, more than 5% but less than 25% of the outstanding voting securities of the investment. Transactions during the year ended December 31, 2016 in these affiliated investments are as follows: Name of Issuer Fair Value atDecember 31,2015 GrossAdditions GrossReductions Realized Gain(Loss) InterestIncome Fair Value atDecember 31,2016 Engineering Solutions & Products, LLC (1st lien) $106 $376 $482 $— $11 $— Engineering Solutions & Products, LLC (2nd lien) 2,249 — — — 190 1,757 Engineering Solutions & Products, LLC (equity interests) 68 — — — — 68 $2,423 $376 $482 $— $201 $1,825 (7)PSP Group, LLC, PSP Service Newco, Inc., PSP Subco, LLC, PSP Stores, LLC, and PSP Distribution, LLC are co-borrowers.(8)Our equity investment in Engineering Solutions & Products, LLC is held through ESP SSC Corp., a taxable consolidated subsidiary.(9)Aggregate net unrealized depreciation for federal income tax purposes is $10,676; aggregate gross unrealized appreciation and depreciation for federal tax purposes is $3,649 and $14,325, respectively, based on a taxcost of $376,210.*Investment is on non-accrual status.†Non-income producing security.See notes to consolidated financial statements. 87Table of ContentsSOLAR SENIOR CAPITAL LTD.CONSOLIDATED SCHEDULE OF INVESTMENTS (continued)December 31, 2016 Industry Classification Percentage of TotalInvestments (atfair value) as ofDecember 31, 2016 Health Care Providers & Services 16.8% Communications Equipment 12.0% Asset Management 11.7% Diversified Financial Services 11.1% Professional Services 8.5% Insurance 8.4% Software 4.7% Health Care Equipment & Supplies 3.3% Food Products 3.1% Air Freight & Logistics 3.0% Health Care Technology 2.8% Chemicals 2.6% Internet Software & Services 2.2% Hotels, Restaurants & Leisure 1.7% Footwear 1.6% Wireless Telecommunications Services 1.4% IT Services 1.4% Commercial Services & Supplies 1.3% Health Care Facilities 1.2% Textile, Apparel & Luxury Goods 0.6% Aerospace & Defense 0.5% Specialty Retail 0.1% Total Investments 100.0% See notes to consolidated financial statements. 88Table of ContentsSOLAR SENIOR CAPITAL LTD.CONSOLIDATED SCHEDULE OF INVESTMENTSDecember 31, 2015(in thousands, except share/unit amounts) Description Industry SpreadaboveIndex(3) LiborFloor Interest Rate(1) Acquisition Date MaturityDate ParAmount Cost FairValue Bank Debt/Senior Secured Loans—128.1% Acrisure, LLC(2) Insurance L+550 1.00% 6.50% 5/14/2015 5/19/2022 $4,975 $4,929 $4,782 Advantage Sales and Marketing, Inc Professional Services L+650 1.00% 7.50% 2/14/2013 7/25/2022 8,000 7,948 7,217 Aegis Toxicology Sciences Corporation Health Care Services L+850 1.00% 9.50% 2/20/2014 8/24/2021 4,000 3,951 3,600 ALG B.V. (Apple Leisure)(2)(4) Hotels, Restaurants & Leisure L+575 1.25% 7.00% 2/28/2013 2/28/2019 2,708 2,692 2,681 ALG USA Holdings, LLC (AppleLeisure)(2) Hotels, Restaurants & Leisure L+575 1.25% 7.00% 2/28/2013 2/28/2019 3,589 3,568 3,553 American Seafoods Group LLC(2) Food Products L+500 1.00% 6.00% 8/10/2015 8/19/2021 4,988 4,964 4,888 Aperture Group, LLC (Trade Monster)(2) Capital Markets L+625 1.00% 7.25% 9/2/2014 8/29/2019 3,950 3,935 3,911 Asurion, LLC Insurance L+750 1.00% 8.50% 2/27/2014 3/3/2021 3,300 3,206 2,840 Athletico Management, LLC and Accelerated Holdings,LLC(2) Health Care Facilities L+550 0.75% 6.25% 12/1/2014 12/2/2020 9,448 9,368 9,306 Blue Ribbon, LLC (Pabst)(2) Beverages L+450 1.00% 5.50% 11/5/2014 11/13/2021 1,367 1,356 1,367 Capstone Logistics Acqusition, Inc.(2) Professional Services L+450 1.00% 5.50% 10/3/2014 10/7/2021 8,394 8,322 8,331 Castle Management Borrower LLC (Highgate Hotels)(2) Real Estate Management & Development L+450 1.00% 5.50% 10/10/2014 9/18/2020 7,900 7,835 7,624 CGSC of Delaware Holdings Corp. (Cooper Gay) Insurance L+700 1.25% 8.25% 4/5/2013 10/16/2020 4,000 3,962 3,600 Confie Seguros Holding II Co.(2) Insurance L+450 1.25% 5.75% 11/9/2012 11/9/2018 10,255 10,196 10,127 ConvergeOne Holdings Corp.(2) Communications Equipment L+500 1.00% 6.00% 6/16/2014 6/17/2020 6,895 6,841 6,809 CT Technologies Intermediate Holdings(2) Health Care Technology L+425 1.00% 5.25% 12/1/2014 12/1/2021 7,438 7,383 7,205 Engineering Solutions & Products, LLC(6) Aerospace & Defense L+600 2.00% 8.00% 11/5/2013 5/4/2018 106 106 106 Engineering Solutions & Products, LLC(6) Aerospace & Defense L+600 2.00% 8.00% 11/5/2013 11/5/2018 2,343 2,343 2,249 Epic Health Services, Inc.(2) Health Care Services L+475 1.00% 5.75% 2/20/2015 2/17/2021 4,818 4,783 4,721 Filtration Group Corp. Industrial Conglomerates L+725 1.00% 8.25% 11/15/2013 11/21/2021 524 519 511 Global Tel*Link Corporation Communications Equipment L+375 1.25% 5.00% 11/6/2015 5/23/2020 1,089 850 801 Global Tel*Link Corporation Communications Equipment L+775 1.25% 9.00% 5/21/2013 11/23/2020 3,000 2,956 2,115 HC Group Holdings III, Inc. (Walgreens)(2) Health Care Services L+500 1.00% 6.00% 3/25/2015 4/7/2022 4,988 4,964 4,969 Hostway Corporation(2) Internet Software & Services L+475 1.25% 6.00% 6/27/2014 12/13/2019 9,276 9,244 8,720 Innovative Xcessories & Services, LLC(2) Automotive Retail L+425 1.00% 5.25% 8/21/2014 2/21/2020 4,625 4,589 4,556 Kellermeyer Bergensons Services, LLC (KBS)(2) Commercial Services & Supplies L+500 1.00% 6.00% 10/31/2014 10/29/2021 4,950 4,907 4,727 Landslide Holdings, Inc Software L+725 1.00% 8.25% 2/25/2014 2/25/2021 3,310 3,306 3,111 LegalZoom.com, Inc.(2) Internet Software & Services L+700 1.00% 8.00% 5/13/2015 5/13/2020 9,925 9,725 9,677 Material Handling Services, LLC (TFS) (2) Air Freight & Logistics L+475 1.00% 5.75% 3/3/2014 3/26/2020 11,416 11,329 11,244 Metamorph US 3, LLC (Metalogix)(2) Software L+550 1.00% 6.50% 12/1/2014 12/1/2020 9,750 9,543 8,970 MYI Acquiror Corp. (McLarens Young)(2) Insurance L+450 1.25% 5.75% 5/21/2014 5/28/2019 3,456 3,432 3,387 MYI Acquiror Ltd. (McLarens Young)(2)(4) Insurance L+450 1.25% 5.75% 5/21/2014 5/28/2019 4,338 4,307 4,251 Pearl Merger Sub LLC (PetVet) (2) Health Care Facilities L+450 1.00% 5.50% 1/29/2015 12/17/2020 4,455 4,378 4,366 PSP Group, LLC (Pet Supplies Plus)(2)(7) Specialty Retail L+475 1.00% 5.75% 4/2/2015 4/6/2021 496 492 486 QBS Holding Company, Inc. (Quorum)(2) Software L+475 1.00% 5.75% 8/1/2014 8/7/2021 6,435 6,381 6,242 RCPSI Corporation (Pet Supermarket)(2) Specialty Retail L+575 1.00% 6.75% 4/22/2015 4/16/2021 9,453 9,367 9,263 Richelieu Foods, Inc.(2) Food Products L+475 1.00% 5.75% 11/21/2014 5/21/2020 6,720 6,637 6,552 Salient Partners, L.P.(2) Asset Management L+650 1.00% 7.50% 6/10/2015 6/9/2021 4,433 4,350 4,277 Securus Technologies, Inc Communications Equipment L+775 1.25% 9.00% 4/17/2013 4/30/2021 10,000 9,934 5,660 SHO Holding I Corporation (Shoes for Crews)(2) Footwear L+500 1.00% 6.00% 11/20/2015 10/27/2022 6,000 5,941 5,940 Skinnypop Popcorn, LLC(2) Food Products L+450 1.00% 5.50% 7/17/2014 7/17/2019 4,752 4,717 4,705 Stratose Intermediate Holdings II, LLC(2) Health Care Services L+450 1.00% 5.50% 6/2/2015 6/30/2021 6,965 6,900 6,965 The Edelman Financial Center, LLC(2) Diversified Financial Services L+550 1.00% 6.50% 12/16/2015 12/18/2022 5,000 4,900 4,900 Trident USA Health Services(2) Health Care Services L+525 1.25% 6.50% 7/29/2013 7/31/2019 8,893 8,839 8,537 TwentyEighty, Inc. (fka Miller Heiman)(2) Professional Services L+575 1.00% 6.75% 9/30/2013 9/30/2019 7,131 7,081 6,454 Varsity Brands Holdings Co., Inc.(2) Diversified Consumer Services L+400 1.00% 5.00% 12/10/2014 12/11/2021 4,941 4,902 4,904 Total Bank Debt/Senior Secured Loans $252,178 $241,207 Unsecured Notes—1.9% Apollo Investment Corporation(4) Diversified Financial Services — — 5.75% 11/10/2011 1/15/2016 $3,650 $3,644 $3,650 Common Equity/Equity Interests—32.8% Shares/Units Engineering Solutions & Products, LLC(6)(8)† Aerospace & Defense 11/5/2013 133,668 $1,367 $68 First Lien Loan Program LLC(4)(5) Asset Management 2/13/2015 — 29,584 27,593 Gemino Healthcare Finance, LLC(4)(5)(9) Diversified Financial Services 9/30/2013 32,839 32,839 34,000 Total Common Equity/Equity Interests $63,790 $61,661 Total Investments(10)—162.8% $319,612 $306,518 Cash Equivalents—26.5% Par Amount U.S. Treasury Bill Government 12/28/2015 1/21/2016 50,000 $49,997 $49,997 Total Investments & Cash Equivalents —189.3% $369,609 $356,515 Liabilities in Excess of Other Assets—(89.3%) (168,211) Net Assets—100.0% $188,304 See notes to consolidated financial statements. 89Table of ContentsSOLAR SENIOR CAPITAL LTD.CONSOLIDATED SCHEDULE OF INVESTMENTS (continued)December 31, 2015(in thousands) (1)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 primeindex rate (PRIME or “P”), and which typically reset monthly, quarterly or semi-annually. For each debt investment we have provided the current interest rate in effect as ofDecember 31, 2015.(2)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 ascollateral under the Senior Secured Revolving Credit Facility (see Note 7 to the consolidated financial statements) and are not generally available to creditors, if any, of SolarSenior Capital Ltd.(3)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 orPRIME rate floor.(4)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. If wefail to invest a sufficient portion of our assets in qualifying assets, we could be prevented from making follow-on investments in existing portfolio companies or could be requiredto dispose of investments at inappropriate times in order to comply with the 1940 Act. As of December 31, 2015, on a fair value basis, non-qualifying assets in the portfoliorepresented 19.9% of the total assets of the Company.(5)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 beneficiallyowning, either directly or through one or more controlled companies, more than 25% of the outstanding voting securities of the investment. Transactions during the year endedDecember 31, 2015 in these controlled investments are as follows: Name of Issuer Fair Value atDecember 31,2014 GrossAdditions GrossReductions Realized Gain(Loss) Dividend/OtherIncome Fair Value atDecember 31,2015 First Lien Loan Program LLC $— $29,584 $— $— $1,794 $27,593 Gemino Healthcare Finance, LLC 34,421 — — — 3,510 34,000 $34,421 $29,584 $— $— $5,304 $61,593 (6)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, 2015 in these affiliated investments are asfollows: Name of Issuer Fair Value atDecember 31,2014 GrossAdditions GrossReductions Realized Gain(Loss) InterestIncome Fair Value atDecember 31,2015 Engineering Solutions & Products, LLC(1st lien) $324 $— $218 $— $24 $106 Engineering Solutions & Products, LLC(2nd lien) 2,343 — — — 190 2,249 Engineering Solutions & Products, LLC(equity interests) 956 — — — — 68 $3,623 $— $218 $— $214 $2,423 (7)PSP Group, LLC, PSP Service Newco, Inc., PSP Subco, LLC, PSP Stores, LLC, and PSP Distribution, LLC are co-borrowers.(8)Our equity investment in Engineering Solutions & Products, LLC is held through ESP SSC Corp., a taxable subsidiary.(9)Investment represents the operating company after consolidation of the holding company Gemino Senior Secured Healthcare LLC.(10)Aggregate net unrealized depreciation for federal income tax purposes is $15,316; aggregate gross unrealized appreciation and depreciation for federal tax purposes is $1,172and $16,488, respectively, based on a tax cost of $321,834.†Non-income producing security.See notes to consolidated financial statements. 90Table of ContentsSOLAR SENIOR CAPITAL LTD.CONSOLIDATED SCHEDULE OF INVESTMENTS (continued)December 31, 2015Industry Classification Percentage of TotalInvestments (atfair value) as ofDecember 31, 2015 Diversified Financial Services 13.9% Asset Management 10.4% Insurance 9.5% Health Care Services 9.3% Professional Services 7.2% Internet Software & Services 6.0% Software 6.0% Food Products 5.3% Communications Equipment 5.0% Health Care Facilities 4.5% Air Freight & Logistics 3.7% Specialty Retail 3.2% Real Estate Management & Development 2.5% Health Care Technology 2.3% Hotels, Restaurants & Leisure 2.0% Footwear 1.9% Diversified Consumer Services 1.6% Commercial Services & Supplies 1.5% Automotive Retail 1.5% Capital Markets 1.3% Aerospace & Defense 0.8% Beverages 0.4% Industrial Conglomerates 0.2% Total Investments 100.0% See notes to consolidated financial statements. 91Table of ContentsSOLAR SENIOR CAPITAL LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2016(in thousands, except 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 regulated 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 the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946. In addition, for tax purposes, wehave elected to be treated as a regulated investment 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, raising approximately $168,000 of net proceeds. Concurrentwith this offering, our senior management team purchased an additional 500,000 shares through a private placement, raising another $10,000.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 directly or indirectly in senior secured loans, including first lien and second lien debt instruments, made primarily toleveraged private middle-market companies whose debt is rated below investment grade, which the Company refers to collectively as “senior loans.” Fromtime to time, we may also invest in public companies that are thinly traded. Under normal market conditions, at least 80% of the value of the Company’s netassets (including the amount of any borrowings for investment purposes) will 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 subsidiaries. The consolidatedfinancial statements reflect all adjustments and reclassifications which, in the opinion of management, are necessary for the fair presentation of the results ofthe operations and financial condition for the periods presented. All significant intercompany balances and transactions have been eliminated. Certain priorperiod amounts may have been reclassified to conform to current period presentation.The preparation of consolidated financial statements in conformity with GAAP and pursuant to the requirements for reporting on Form 10-K andRegulation S-X, as appropriate, also requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at thedate of the financial statements and the reported amounts of income and expenses during the reported periods. Changes in the economic environment,financial markets and any other parameters used in determining these estimates could cause actual results to differ materially.In the opinion of management, all adjustments which are of a 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; 92Table of ContentsSOLAR SENIOR CAPITAL LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)December 31, 2016(in thousands, except share amounts) (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 market quotations are readily available on an exchange are valued at theclosing price on the date of valuation. The Company may also obtain quotes with respect to certain of its investments from pricing services orbrokers or dealers in order to value assets. When doing so, management determines whether the quote obtained is sufficient according to GAAPto determine the fair value of the investment. If determined adequate, the Company uses the quote obtained. Debt investments with maturities of60 days or less shall each be valued at cost plus accreted discount, or minus amortized premium, which is expected to approximate fair value,unless such valuation, in the judgment of Solar Capital Partners, LLC (the “Investment Adviser”), does not represent fair value, in which casesuch 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 ormethodology or provide a valuation or methodology that, in the judgment of the Investment Adviser or the Board does not represent fair value,shall be valued as follows: (i) each portfolio company or investment is initially valued by the investment professionals responsible for theportfolio investment; (ii) preliminary valuations are discussed with senior management of the Investment Adviser; (iii) independent valuationfirms engaged by, or on behalf of, the Board will conduct independent appraisals and review the Investment Adviser’s preliminary valuationsand make their own independent assessment for (a) each portfolio investment that, when taken together with all other investments in the sameportfolio company, exceeds 10% of estimated total assets, plus available 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 ofeach investment in our portfolio in good faith based on the input of the Investment Adviser and, where appropriate, the respective independentvaluation 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 cashflow; the markets in 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 donot have a readily available market value, the fair value of the investments may differ significantly from the values that would have been usedhad a readily available market value existed for such investments, and the differences could be material.Investments are valued utilizing a market approach, an income approach, or both approaches, as appropriate. However, in accordance with ASC820-10, certain investments that qualify as investment companies in accordance with ASC 946, may be valued using net asset value as apractical expedient for fair value. The market approach uses prices and other relevant information generated by market transactions involvingidentical or comparable assets or liabilities (including a business). The income approach uses valuation techniques to convert future amounts(for example, cash flows or earnings) to a single present amount (discounted). The measurement is based on the value indicated by current marketexpectations about those future amounts. In following these approaches, the types of factors 93Table of ContentsSOLAR SENIOR CAPITAL LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)December 31, 2016(in thousands, except share amounts) that we may take into account in fair value pricing our investments include, as relevant: available current market data, including relevant andapplicable market trading and transaction comparables, applicable market yields and multiples, security covenants, call protection provisions,the nature and realizable value of any collateral, the portfolio company’s ability to make payments, its earnings and discounted cash flows, themarkets in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, M&A comparables, andenterprise values, among other factors. When available, broker quotations and/or quotations provided by pricing services are considered as aninput in the valuation process. Escrow receivables, if any, included in the receivables for investments sold in the Consolidated Statements ofAssets and Liabilities are reviewed quarterly and the value of the receivable is adjusted as necessary. For the fiscal year ended December 31,2016, there has been no change to the Company’s valuation techniques and the nature of 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 thatare not 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 lowestlevel of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair valuemeasurement in its entirety requires judgment and considers factors specific to each investment. The exercise of judgment is based in part on ourknowledge of the asset class and our prior experience. (c)Gains or losses on investments are calculated by using the specific identification method. (d)The Company records dividend income and interest, adjusted for amortization of premium and accretion of discount, on an accrual basis. Loanorigination fees, original issue discount, and market discounts are capitalized and we amortize such amounts into income using the effectiveinterest method or on a straight-line basis, as applicable. Upon the prepayment of a loan, any unamortized loan origination fees are recorded asinterest income. We record call premiums on loans repaid as interest income when we receive such amounts. Capital structuring fees, amendmentfees, consent fees, and any other non-recurring fee income as well as management fee and other fee income for services rendered, if any, arerecorded as other income when earned. (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 U.S. federal income taxes. The Company, at its discretion, maycarry forward taxable income in excess of calendar year distributions and pay a 4% excise tax on this income. The Company will accrue excisetax on such estimated excess taxable income as appropriate. 94Table of ContentsSOLAR SENIOR CAPITAL LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)December 31, 2016(in thousands, except share amounts) (f)Book and tax basis differences relating to stockholder distributions and other permanent book and tax differences are typically reclassifiedamong 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, 2016, $1,169 was reclassified on our balance sheet betweenaccumulated net realized loss and paid-in capital in excess of par and $157 was reclassified on our balance sheet between distributions in excessof net investment income and accumulated net realized loss. Total earnings and net asset value are not affected. (g)Distributions to common stockholders are recorded as of the record date. The amount to be paid out as a distribution is determined by the Board.Net realized capital gains, if any, are generally distributed or deemed distributed at least annually. (h)In accordance with Regulation S-X and ASC Topic 810—Consolidation, the Company consolidates its interest in investment companysubsidiaries, financing subsidiaries and certain wholly-owned holding companies that serve to facilitate investment in portfolio companies. Inaddition, the Company may also consolidate any controlled operating companies substantially all of whose business consists of providingservices to the Company. (i)The accounting records of the Company are maintained in U.S. dollars. Any assets and liabilities denominated in foreign currencies aretranslated into U.S. dollars based on the rate of exchange of such currencies against the U.S. dollar on the date of valuation. The Company willnot isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arisingfrom changes in market prices of securities held. Such fluctuations would be included with the net unrealized gain or loss from investments. TheCompany’s investments in foreign 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. Inaddition, changes in the relationship of foreign currencies to the U.S. dollar can significantly affect the value of these investments in terms ofU.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. The Company uses an independent third-party valuation firm to assist in measuring its fairvalue. (k)In accordance with ASC 835-30, the Company records origination and other expenses related to certain debt issuances, if any, as a directdeduction from the carrying amount of the debt liability. These expenses are deferred and amortized using either the effective interest method orthe straight-line method over the stated life. The straight-line method may be used on revolving facilities and when it approximates the effectiveyield method. (l)The Company records expenses related to shelf registration statements and applicable equity offering costs as prepaid assets. These expenses aretypically charged as a reduction of capital upon utilization, in accordance with ASC 946-20-25. Certain subsequent costs are expensed per theAICPA Audit & Accounting Guide for Investment Companies. (m)Investments that are expected to pay regularly scheduled interest in cash are generally placed on non-accrual status when principal or interestcash payments are past due 30 days or more and/or when 95Table of ContentsSOLAR SENIOR CAPITAL LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)December 31, 2016(in thousands, except share amounts) it is no longer probable that principal or interest cash payments will be collected. Such non-accrual investments are restored to accrual status ifpast due principal and interest are paid in cash, and in management’s judgment, are likely to continue timely payment of their remainingprincipal and interest obligations. Cash interest payments received on such investments may be recognized as income or applied to principaldepending 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 orless would qualify, with limited exceptions. The Company believes that certain U.S. Treasury bills, repurchase agreements and other high-quality, short-term debt securities would qualify as cash equivalents.Recent Accounting PronouncementsIn February 2015, the FASB issued Accounting Standards Update (“ASU”) 2015-02, Consolidation (Topic 810)–Amendments to theConsolidation Analysis. The update changes the analysis that a reporting entity must perform to determine whether it should consolidate certaintypes of legal entities. Public companies are required to apply ASU 2015-02 for interim and annual reporting periods beginning afterDecember 15, 2015. Accordingly, the Company has evaluated the impact of ASU 2015-02 on its consolidated financial statements anddetermined that the adoption of ASU 2015-02 has not had a material impact on our consolidated financial statements.In April 2015, the FASB issued ASU 2015-03, Interest–Imputation of Interest (Subtopic 835-30)—Simplifying the Presentation of Debt IssuanceCosts. The update requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deductionfrom the carrying amount of that debt liability, consistent with debt discounts. Public companies are required to apply ASU 2015-03retrospectively for interim and annual reporting periods beginning after December 15, 2015. Accordingly, the Company has evaluated theimpact of ASU 2015-03 on its consolidated financial statements and determined that the adoption of ASU 2015-03 has not had a material impacton our consolidated financial statements.In May 2015, the FASB issued ASU 2015-07, Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or ItsEquivalent). The update eliminates the requirement to categorize investments in the fair value hierarchy if their fair value is measured at net assetvalue (NAV) per share (or its equivalent) using the practical expedient in the FASB’s fair value measurement guidance. Public companies arerequired to apply ASU 2015-07 retrospectively for interim and annual reporting periods beginning after December 15, 2015. Accordingly, theCompany has evaluated the impact of ASU 2015-07 on its consolidated financial statements and determined that the adoption of ASU 2015-07has not had a material impact on our consolidated financial statements.In November 2016, FASB issued ASU 2016-18, Statement of Cash Flows, which will amend FASB ASC 230. The amendments in this Updaterequire that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generallydescribed as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cashequivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amountsshown on the statement of cash flows. The amendments in this Update apply to all entities that have restricted cash or restricted cash equivalents 96Table of ContentsSOLAR SENIOR CAPITAL LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)December 31, 2016(in thousands, except share amounts) and are required to present a statement of cash flows under Topic 230. For public business entities, the amendments are effective for fiscal yearsbeginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interimperiod. The Company is evaluating the impact of ASU 2016-18 on its consolidated financial statements and disclosures.In December 2016, the FASB issued ASU 2016-19, Technical Corrections and Improvements. As part of this guidance, ASU 2016-19 amendsFASB ASC 820 to clarify the difference between a valuation approach and a valuation technique. The amendment also requires an entity todisclose when there has been a change in either or both a valuation approach and/or a valuation technique. ASU 2016-19 is effective on aprospective basis for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016on a prospective basis. The Company is evaluating the impact of ASU 2016-19 on its consolidated financial statements and disclosures.Note 3. AgreementsSolar Senior has an Advisory Agreement with the Investment Adviser, under which the Investment Adviser manages the day-to-day operations of, andprovides investment advisory services to, Solar Senior. For providing these services, the Investment Adviser receives a fee from Solar Senior, consisting oftwo 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 servicesrendered under the Advisory Agreement, the base management fee is payable quarterly in arrears. The base management fee is calculated based on theaverage value of our gross assets at the end of the two most recently completed calendar quarters. Base management fees for any partial month or quarter willbe appropriately pro-rated. For purposes of computing the base management fee, gross assets exclude temporary assets acquired at the end of each fiscalquarter for purposes of preserving investment flexibility in the next fiscal quarter. Temporary assets include, but are not limited to, U.S. treasury bills, othershort-term U.S. government or government agency securities, repurchase agreements or cash borrowings.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 for theimmediately 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 or losses or unrealized capital appreciation or depreciation. Pre-incentive fee net investmentincome, expressed as a rate of return on the value of our net assets at the end of the immediately preceding calendar quarter, is compared to a hurdle of1.75% per quarter (7.00% annualized). The Company pays the Investment Adviser an incentive fee with respect to pre-incentive fee net investment incomefor 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. 97Table of ContentsSOLAR SENIOR CAPITAL LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)December 31, 2016(in thousands, except share amounts) 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, 2016, 2015 and 2014.For the fiscal years ended December 31, 2016, 2015 and 2014, the Company recognized $3,385, $3,458 and $2,875, respectively, in gross basemanagement fees and $1,560, $740 and $440, respectively, in gross performance-based incentive fees. For the fiscal years ended December 31, 2016, 2015and 2014, $797, $0 and $0, respectively, of such base management fees were waived. For the fiscal years ended December 31, 2016, 2015 and 2014, $1,205,$740 and $227, respectively, of such performance-based incentive fees were waived. For the quarterly periods ended September 30, 2016 to June 30, 2017(the “Waiver Period”), the Investment Adviser has agreed to voluntarily waive a portion or all of the incentive fees, and to the extent necessary a portion orall of the base management fees, that the Investment Adviser would otherwise be entitled to receive pursuant to our investment advisory and managementagreement with the Investment Adviser to the extent required in order for the Company to earn net investment income (exclusive of costs related to theexpansion, extension and/or amendments of our credit facilities), as determined in accordance with GAAP, sufficient to maintain the Company’s current levelof distributions. A portion or all of the voluntary fee waivers made during the Waiver Period are made at the Investment Adviser’s discretion and are subjectto recapture by the Investment Adviser and reimbursement by the Company through June 30, 2018 to the extent GAAP net investment income equals orexceeds the current level of distributions. The amount to be waived or recaptured will be determined after the end of each quarter during the Waiver Period,with such amounts being accrued on a quarterly basis. The voluntary fee waiver for the fiscal year ended December 31, 2016 was made at the InvestmentAdviser’s discretion and was subject to recapture by the Investment Adviser and reimbursement by the Company if net investment income during and/or forfiscal 2016 equaled or exceeded distributions declared in fiscal 2016. For fiscal 2016, there were no fees recaptured by the Investment Adviser. The voluntaryfee waiver for the fiscal year ended December 31, 2015 was made at the Investment Adviser’s discretion and was not subject to recapture by the InvestmentAdviser or reimbursement by the Company.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, 2016, 2015 and 2014, the Company recognized expenses under the Administration Agreement of $1,245,$1,130 and $1,069, respectively. No managerial assistance fees were accrued or collected for the fiscal years ended December 31, 2016, 2015 and 2014. 98Table of ContentsSOLAR SENIOR CAPITAL LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)December 31, 2016(in thousands, except share amounts) Note 4. Net Asset Value Per ShareAt December 31, 2016, the Company’s total net assets and net asset value per share were $269,145 and $16.80, respectively. This compares to total netassets and net asset value per share at December 31, 2015 of $188,304 and $16.33, respectively.Note 5. Earnings Per ShareThe following table sets forth the computation of basic and diluted net increase in net assets per share resulting from operations, pursuant to ASC 260-10, forthe years ended December 31, 2016, 2015 and 2014: Year endedDecember 31,2016 Year endedDecember 31,2015 Year endedDecember 31,2014 Earnings per share (basic & diluted) Numerator—net increase in net assets resulting from operations: $24,252 $1,047 $11,690 Denominator—weighted average shares: 12,869,937 11,533,315 11,532,985 Earnings per share: $1.88 $0.09 $1.01 Note 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.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 and, if applicable, an independent third-party valuation firm’s ownassumptions about the assumptions a market participant would use in pricing the asset or liability. 99Table of ContentsSOLAR SENIOR CAPITAL LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)December 31, 2016(in thousands, except share amounts) 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).Gains and losses for assets and liabilities categorized within the Level 3 table below may include changes in fair value that are attributable to bothobservable 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. Such reclassifications are reported as transfers in/out of the appropriate category as of the end of thequarter in which the reclassifications occur.The following tables present the balances of assets and liabilities measured at fair value on a recurring basis, as of December 31, 2016 andDecember 31, 2015:Fair Value MeasurementsAs of December 31, 2016 Level 1 Level 2 Level 3 Measuredat NetAssetValue* Total Assets: Bank Debt/Senior Secured Loans $— $40,888 $250,268 $— $291,156 Common Equity/Equity Interests — — 35,568 38,810 74,378 Total Investments $— $40,888 $285,836 $38,810 $365,534 Liabilities: Credit Facility $— $— $98,300 $— $98,300 *In accordance with ASC 820-10, certain investments that are measured using the net asset value per share (or its equivalent) as a practical expedient forfair value have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of thefair value hierarchy to the amounts presented in the Consolidated Statements of Assets and Liabilities. 100Table of ContentsSOLAR SENIOR CAPITAL LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)December 31, 2016(in thousands, except share amounts) Fair Value MeasurementsAs of December 31, 2015 Level 1 Level 2 Level 3 Measuredat NetAssetValue* Total Assets: Bank Debt/Senior Secured Loans $— $42,371 $198,836 $— $241,207 Unsecured Notes — — 3,650 — 3,650 Common Equity/Equity Interests — — 34,068 27,593 61,661 Total Investments $— $42,371 $236,554 $27,593 $306,518 Liabilities: Credit Facility $— $— $116,200 $— $116,200 *In accordance with ASC 820-10, certain investments that are measured using the net asset value per share (or its equivalent) as a practical expedient forfair value have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of thefair value hierarchy to the amounts presented in the Consolidated Statements of Assets and Liabilities.The following table provides a summary of the changes in fair value of Level 3 assets and liabilities for the year ended December 31, 2016, 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 31,2016:Fair Value Measurements Using Level 3 Inputs Bank Debt/SeniorSecured Loans UnsecuredNotes CommonEquity/EquityInterests Fair value, December 31, 2015 $198,836 $3,650 $34,068 Total gains or losses included in earnings: Net realized gain (loss) 6 — — Net change in unrealized gain (loss) (1,812) (6) 1,500 Purchase of investment securities 136,331 — — Proceeds from dispositions of investment securities (83,093) (3,644) — Transfers in/out of Level 3 — — — Fair value, December 31, 2016 $250,268 $— $35,568 Unrealized gains (losses) for the period relating to those Level 3 assetsthat were still held by the Company at the end of the period: Net change in unrealized gain (loss): $(2,857) $— $1,500 During the year ended December 31, 2016, there were no transfers in and out of Levels 1 and 2. 101Table of ContentsSOLAR SENIOR CAPITAL LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)December 31, 2016(in thousands, except share amounts) 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, 2016: Beginning fair value at December 31, 2015 $116,200 Borrowings 136,800 Repayments (154,700) Transfers in/out of Level 3 — Ending fair value at December 31, 2016 $98,300 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, 2016, there were borrowings of $98,300 on the Credit Facility. For the year ended December 31, 2016, the Credit Facility had no net change inunrealized (appreciation) depreciation. The Company used an independent third-party valuation firm to assist in measuring the fair value of the CreditFacility.The following table provides a summary of the changes in fair value of Level 3 assets and liabilities for the year ended December 31, 2015, 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 31,2015:Fair Value Measurements Using Level 3 Inputs Bank Debt/SeniorSecured Loans UnsecuredNotes CommonEquity/EquityInterests Fair value, December 31, 2014 $251,823 $— $35,377 Total gains or losses included in earnings: Net realized gain (loss) 39 — — Net change in unrealized gain (loss) (4,272) — (1,309) Purchase of investment securities 70,682 — — Proceeds from dispositions of investment securities (114,486) — — Transfers in/out of Level 3 (4,950) 3,650 — Fair value, December 31, 2015 $198,836 $3,650 $34,068 Unrealized gains (losses) for the period relating to those Level 3 assets thatwere still held by the Company at the end of the period: Net change in unrealized gain (loss): $(4,400) $(228) $(1,309) During the fiscal year ended December 31, 2015, our investment in CT Technologies Intermediate Holdings was transferred from Level 3 to Level 2.The transfer was a result of changes in the quantity and quality of information used as valuation inputs by the Investment Adviser. Our investment in ApolloInvestment Corporation was transferred from Level 2 to Level 3 during the fiscal year ended December 31, 2015 as the quote was deemed to be notrepresentative of fair value given the impending maturity. There were no other transfers between levels. 102Table of ContentsSOLAR SENIOR CAPITAL LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)December 31, 2016(in thousands, except share amounts) 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, 2015: Beginning fair value at December 31, 2014 $143,200 Borrowings 47,700 Repayments (74,700) Transfers in/out of Level 3 — Ending fair value at December 31, 2015 $116,200 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, 2015, there were borrowings of $116,200 on the Credit Facility. For the year ended December 31, 2015, the Credit Facility had no net changein unrealized (appreciation) depreciation. The Company used an independent third-party valuation firm to assist in measuring the fair value of the CreditFacility.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, returns on equity and earnings before income taxes, depreciation and amortization (“EBITDA”) multiples of similarcompanies, and comparable market transactions for equity securities.Quantitative information about the Company’s Level 3 asset and liability fair value measurements as of December 31, 2016 is summarized in the tablebelow: Asset orLiability Fair Value atDecember 31,2016 Principal ValuationTechnique/Methodology UnobservableInput Range (WeightedAverage)Bank Debt / Senior Secured Loans Asset $250,268 Yield Analysis Market Yield 5.7% – 37.3% (8.0%)Common Equity/Equity Interests Asset $$6835,500 Enterprise ValueEnterprise Value EBITDA MultipleReturn on Equity 9.3x –27.0x (27.0x)3.0% – 21.7% (15.0%)Credit Facility Liability $98,300 Yield Analysis Market Yield L+1.4% – L+4.8%(L+2.0%)Significant increases or decreases in any of the above unobservable inputs in isolation, including unobservable inputs used in deriving bid-askspreads, if applicable, would result in a significantly lower or higher fair value measurement for such assets and liabilities. 103Table of ContentsSOLAR SENIOR CAPITAL LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)December 31, 2016(in thousands, except share amounts) Quantitative information about the Company’s Level 3 asset and liability fair value measurements as of December 31, 2015 is summarized in the tablebelow: Asset orLiability Fair Value atDecember 31,2015 Principal ValuationTechnique/Methodology Unobservable Input Range (WeightedAverage)Bank Debt / Senior Secured Loans /Unsecured Notes Asset $202,486 Yield Analysis Market Yield 5.6% – 12.0% (7.2%)Common Equity/Equity Interests Asset $$6834,000 Enterprise ValueEnterprise Value EBITDA MultipleReturn on Equity 9.1x – 16.9x (16.9x)7.0% –13.3% (13.3%)Credit Facility Liability $116,200 Yield Analysis Market Yield L+0.5% – L+4.8%(L+2.0%)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 SPV which entered into the Credit Facility withCitigroup Global Markets Inc. acting as administrative agent. The Credit Facility, as amended, currently has an aggregate of $175,000 of commitmentsavailable. It can also be expanded up to $600,000. The stated interest rate on the Credit Facility is LIBOR plus 2.00% with no LIBOR floor requirement andthe current final maturity date is June 30, 2020. The Credit Facility is secured by all of the assets held by the SPV. Under the terms of the Credit Facility, SolarSenior Capital and the SPV, as applicable, have made certain customary representations and warranties, and are required to comply with various covenants,including leverage restrictions, reporting requirements and other customary requirements for similar credit facilities. The Credit Facility also includes usualand customary events of default for credit facilities of this nature. The Credit Facility was amended on November 7, 2012, June 30, 2014 and May 29, 2015 toadd extend maturities and add greater investment flexibility, among other changes.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. Webelieve accounting for the Credit Facility at fair value better aligns the measurement methodologies of assets and liabilities, which may mitigate certainearnings volatility. ASC 825-10 requires entities to display the fair value of the selected assets and liabilities on the face of the Consolidated Statements ofAssets and Liabilities and changes in fair value of the Credit Facility are reported in the Consolidated Statements of Operations.The average annualized interest cost for all borrowings for the year ended December 31, 2016 and the year ended December 31, 2015 was 2.59% and2.25%, respectively. These costs are exclusive of other credit facility expenses such as unused fees and fees paid to the back-up servicer, if any. During theyears ended December 31, 2016 and 2015, the Company expensed $0 and $829, respectively, in conjunction with amendments to the Credit Facility. Themaximum amount borrowed on the Credit Facility during the year ended December 31, 2016 and the year ended December 31, 2015, was $141,600 and$148,600, respectively. 104Table of ContentsSOLAR SENIOR CAPITAL LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)December 31, 2016(in thousands, except share amounts) Note 8. Financial Highlights and Senior Securities TableThe following is a schedule of financial highlights for the respective years: Year endedDecember 31,2016 Year endedDecember 31,2015 Year endedDecember 31,2014 Year endedDecember 31,2013 Year endedDecember 31,2012 Per Share Data:(a) Net asset value, beginning of year $16.33 $17.65 $18.04 $18.33 $18.15 Net investment income 1.42 1.33 1.20 1.17 1.31 Net realized and unrealized gain (loss) 0.50 (1.24) (0.18) (0.07) 0.15 Net increase (decrease) in net assets resulting from operations 1.92 0.09 1.02 1.10 1.46 Distributions to stockholders (see note 9a): From net investment income (1.42) (1.41) (1.29) (1.20) (1.24) From net realized gains — — — — (0.05) From other sources — — (0.12)** (0.22)** — Anti-dilution — — — 0.05 — Offering costs and other (0.03) — — (0.02) 0.01 Net asset value, end of year $16.80 $16.33 $17.65 $18.04 $18.33 Per share market value, end of year $16.44 $14.90 $14.97 $18.22 $18.66 Total Return(b) 20.70% 8.90% (10.47%) 5.39% 27.65% Net assets, end of year $269,145 $188,304 $203,519 $208,017 $174,103 Shares outstanding, end of year 16,025,011 11,533,315 11,533,315 11,529,303 9,500,100 Ratios to average net assets: Net investment income 8.68% 7.63% 6.69% 6.46% 7.14% Operating expenses 2.65%* 2.92%* 2.50%* 2.46% 3.20% Interest and other credit facility expenses*** 1.56% 2.08% 1.52% 0.62% 1.40% Total expenses 4.21%* 5.00%* 4.02%* 3.08% 4.60% Average debt outstanding $109,938 $136,900 $72,132 $41,261 $41,439 Portfolio turnover ratio 38.4% 34.0% 47.5% 56.8% 74.5% (a)Calculated using the average shares outstanding method.(b)Total return is based on the change in market price per share during the year and takes into account any dividends, if any, reinvested in accordance with the dividendreinvestment plan. Total return does not include a sales load.*The ratio of operating expenses to average net assets and the ratio of total expenses to average net assets is shown net of a voluntary incentive fee waiver (see note 3). For theyear ended December 31, 2016, the ratios of operating expenses to average net assets and total expenses to average net assets would be 3.60% and 5.15%, respectively,without the voluntary management and incentive fee waivers. For the year ended December 31, 2015, the ratios of operating expenses to average net assets and total expensesto average net assets would be 3.29% and 5.37%, respectively, without the voluntary incentive fee waiver. For the year ended December 31, 2014, the ratios of operatingexpenses to average net assets and total expenses to average net assets would be 2.61% and 4.13%, respectively, without the voluntary incentive fee waiver.**Represents tax return of capital.***Ratios shown without the non-recurring costs associated with the amendments of the Credit Facility would be 1.56%, 1.67%, 1.05%, 0.62% and 0.85%, respectively for theyears shown. 105Table of ContentsSOLAR SENIOR CAPITAL LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)December 31, 2016(in thousands, except share amounts) 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 2016 $98,300 $3,738 $— N/A Fiscal 2015 116,200 2,621 — N/A Fiscal 2014 143,200 2,421 — N/A 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 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. As of December 31, 2016, asset coverage was373.8%.(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 distributions for the fiscal years ended December 31, 2016, 2015 and 2014 were as follows: 2016 2015 2014 Ordinary income $18,316 100.0% $16,262 100.0% $14,842 91.3% Capital gains — 0.0% — 0.0% — 0.0% Return of capital — 0.0% — 0.0% 1,419 8.7% Total distributions $18,316 100.0% $16,262 100.0% $16,261 100.0% 106Table of ContentsSOLAR SENIOR CAPITAL LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)December 31, 2016(in thousands, except share amounts) As of December 31, 2016, 2015 and 2014 the components of accumulated gain and losses on a tax basis were as follows (1): 2016 2015 2014 Undistributed ordinary income $1,595 $— $— Undistributed long-term net capital gains — — — Total undistributed net earnings 1,595 — — Other book/tax temporary differences 1,084 1,412 (781) Post-October capital losses — — — Capital loss carryforward (6,026) (6,187) (5,766) Net unrealized appreciation (depreciation) investments (10,676) (15,316) (1,497) Total taxable income (loss) $(14,023) $(20,091) $(8,044) (1)Tax information for the fiscal years ended December 31, 2016, 2015 and 2014 are/were estimates and are not final until the Company files its taxreturns, typically in September each year.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. Although we filefederal and state tax returns, our major tax jurisdiction is federal. Our tax returns for each of our federal tax years since 2013 remain subject to examination bythe Internal Revenue Service and the state department of revenue. The capital loss carryforwards shown above do not expire. $161, $2,879 and $0 of thecapital loss carryforwards were utilized during the fiscal years ended December 31, 2016, 2015 and 2014, respectively.Note 9(b). Other Tax Information (unaudited)No distributions paid during the fiscal years ended December 31, 2016, 2015 or 2014 were eligible for qualified dividend income treatment or wereeligible for the 70% dividends received deduction for corporate stockholders. For the fiscal years ended December 31, 2016, 2015, and 2014, 99.34%,99.09% and 100%, respectively, of each of the distributions paid during the year represent interest-related dividends. For the fiscal years ended December 31,2016, 2015 and 2014, none of the distributions represent short-term capital gains dividends.Note 10. Gemino Healthcare Finance, LLCWe acquired Gemino Healthcare Finance, LLC (d/b/a Gemino Senior Secured Healthcare Finance) (“Gemino”) on September 30, 2013. Gemino is acommercial finance company that originates, underwrites, and manages primarily secured, asset-based loans for small and mid-sized companies operating inthe healthcare industry. Our initial investment in Gemino was $32,839. The management team of Gemino co-invested in the transaction and continues to leadGemino.Concurrent with the closing of the transaction, Gemino entered into a new, four-year, non-recourse, $100,000 credit facility with non-affiliates, whichwas expandable to $150,000 under its accordion feature. 107Table of ContentsSOLAR SENIOR CAPITAL LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)December 31, 2016(in thousands, except share amounts) Effective March 31, 2014, the credit facility was expanded to $105,000 and again on June 27, 2014 to $110,000. On May 27, 2016, Gemino entered into anew $125,000 credit facility which replaced the previously existing facility. The new facility has similar terms as compared to the previous facility andincludes an accordion feature increase to $200,000 and has a maturity date of May 27, 2020.On December 31, 2013, we contributed our 32,839 units in Gemino to Gemino Senior Secured Healthcare LLC (“Gemino Senior Secured Healthcare”).In exchange for this contribution, we received 19,839 units of equity interests and $13,000 in floating rate secured notes of Gemino Senior SecuredHealthcare bearing interest at LIBOR plus 7.50%, maturing on December 31, 2018. However, our financial statements, including our schedule of investments,reflected our investments in Gemino Senior Secured Healthcare on a consolidated basis. On October 28, 2016, Gemino Senior Secured Healthcare wasdissolved. Gemino’s management team and Solar Senior own approximately 6% and 94% of the equity in Gemino, respectively.Gemino currently manages a highly diverse portfolio of directly-originated and underwritten senior-secured commitments. As of December 31, 2016,the portfolio totaled approximately $186,360 of commitments, of which $114,386 were funded, on total assets of $118,490. As of December 31, 2015, theportfolio totaled approximately $188,254 of commitments, of which $130,618 were funded, on total assets of $133,678. At December 31, 2016, the portfolioconsisted of 35 issuers with an average balance of approximately $3,268 versus 36 issuers with an average balance of approximately $3,628 at December 31,2015. All of the commitments in Gemino’s portfolio are floating-rate, senior-secured, cash-pay loans. Gemino’s credit facility, which is non-recourse to us,had approximately $83,000 and $98,500 of borrowings outstanding at December 31, 2016 and December 31, 2015, respectively. For the years endedDecember 31, 2016, 2015 and 2014, Gemino had net income of $4,562, $3,881 and $2,990, respectively, on gross income of $13,274, $12,374 and $10,906,respectively. Due to timing and non-cash items, there may be material differences between GAAP net income and cash available for distributions. 108Table of ContentsSOLAR SENIOR CAPITAL LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)December 31, 2016(in thousands, except share and per share amounts) Note 11. Selected Quarterly Financial Data (unaudited) Quarter Ended InvestmentIncome Net InvestmentIncome Net Realized AndUnrealized Gain(Loss) on Assets Net Increase(Decrease)InNet Assets FromOperations Total PerShare Total PerShare Total PerShare Total PerShare December 31, 2016 $7,164 $0.45 $5,649 $0.35 $346 $0.02 $5,995 $0.37 September 30, 2016 7,001 0.57 4,536 0.37 633 0.05 5,169 0.42 June 30, 2016 6,681 0.58 4,066 0.35 608 0.06 4,674 0.41 March 31, 2016 6,349 0.55 4,065 0.35 4,349 0.38 8,414 0.73 December 31, 2015 $6,128 $0.53 $4,066 $0.35 $(8,507) $(0.74) $(4,441) $(0.39) September 30, 2015 6,520 0.57 4,085 0.35 (5,580) (0.48) (1,495) (0.13) June 30, 2015 6,655 0.58 3,346 0.29 (450) (0.04) 2,896 0.25 March 31, 2015 6,143 0.53 3,876 0.34 210 0.02 4,086 0.35 Note 12. Commitments and ContingenciesThe Company had unfunded debt and equity commitments to delayed draw and revolving loans, as well as to Gemino. The total amount of theseunfunded commitments as of December 31, 2016 and December 31, 2015 is $13,073 and $6,736, respectively, comprised of the following: December 31,2016 December 31,2015 Gemino Healthcare Finance, LLC $5,000 $5,000 Alera Group Intermediate Holdings, Inc 3,860 — Engineering Solutions & Products, LLC 1,736 1,736 Ministry Brands, LLC 1,507 — VT Buyer Acquisition Corp. (Veritext) 486 — CIBT Holdings, Inc 484 — Total Commitments* $13,073 $6,736 *The Company controls the funding of the Gemino Healthcare Finance, LLC commitment and may cancel it at its discretion.As of December 31, 2016 and December 31, 2015, the Company had sufficient cash available and/or liquid securities available to fund itscommitments as well as the commitment to FLLP disclosed in Note 13.Note 13. First Lien Loan Program LLCOn September 10, 2014, the Company entered into a limited liability company agreement to create a First Lien Loan Program (“FLLP”) with VoyaInvestment Management LLC (“Voya”). Voya acts as the investment advisor for several wholly-owned insurance subsidiaries of Voya Financial, Inc. (NYSE:VOYA). The joint venture vehicle, structured as an unconsolidated Delaware limited liability company, is expected to invest primarily in senior securedfloating rate term loans to middle market companies predominantly owned by private equity sponsors or entrepreneurs. Solar Senior and Voya havecommitted to provide $50,750 and $7,250, 109Table of ContentsSOLAR SENIOR CAPITAL LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)December 31, 2016(in thousands, except share and per share amounts) respectively, of capital to the joint venture. All portfolio decisions and generally all other decisions in respect of the FLLP must be approved by aninvestment committee of the FLLP consisting of representatives of the Company and Voya (with approval from a representative of each required). OnFebruary 13, 2015, FLLP commenced operations. On February 13, 2015, FLLP as transferor and FLLP 2015-1, LLC, a newly formed wholly owned subsidiaryof FLLP, as borrower entered into a $75,000 senior secured revolving credit facility (the “FLLP Facility”) with Wells Fargo Securities, LLC acting asadministrative agent. Solar Senior Capital Ltd. acts as servicer under the FLLP Facility. The FLLP Facility was scheduled to mature on February 13,2020. The FLLP Facility generally bears interest at a rate of LIBOR plus a range of 2.25%-2.50%. FLLP and FLLP 2015-1, LLC, as applicable, have madecertain customary representations and warranties, and are required to comply with various covenants, including leverage restrictions, reporting requirementsand other customary requirements for similar credit facilities. The FLLP Facility also includes usual and customary events of default for credit facilities of thisnature. On August 15, 2016, the FLLP Facility was amended, expanding commitments to $100,000 and extending the maturity date to August 16, 2021.There were $75,941 of borrowings outstanding as of December 31, 2016. As of December 31, 2016 and December 31, 2015, Solar Senior and Voyacontributed combined equity capital in the amount of $47,071 and $33,810, respectively. Of the $47,071 of contributed equity capital at December 31, 2016,the Company contributed $29,584 in the form of investments and $11,603 in the form of cash and Voya contributed $5,884 in the form of cash. As ofDecember 31, 2016, Solar Senior and Voya’s remaining commitments totaled $9,563 and $1,366, respectively. The Company, along with Voya, controls thefunding of FLLP and FLLP may not call the unfunded commitments without approval of both the Company and Voya.As of December 31, 2016 and December 31, 2015, FLLP had total assets of $122,225 and $76,788, respectively. For the same periods, FLLP’s portfolioconsisted of first lien floating rate senior secured loans to 25 and 15 different borrowers, respectively. For the year ended December 31, 2016, FLLP invested$66,664 across 16 portfolio companies. For the period from February 13, 2015 through December 31, 2015, FLLP invested $76,291 across 15 portfoliocompanies. Investments prepaid totaled $24,200 for the year ended December 31, 2016 and $968 for the period from February 13, 2015 throughDecember 31, 2015. At December 31, 2016 and 2015, the weighted average yield of FLLP’s portfolio was 6.6% and 6.5%, respectively, measured at fair valueand 6.5% and 6.2%, respectively, measured at cost. 110Table of ContentsSOLAR SENIOR CAPITAL LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)December 31, 2016(in thousands, except share and per share amounts) FLLP Portfolio as of December 31, 2016 Description Industry SpreadAboveIndex(1) LIBORFloor InterestRate(2) MaturityDate ParAmount Cost FairValue(3) 1A Smart Start LLC Electronic Equipment,Instruments & Components L+475 1.00% 5.75% 2/21/22 $7,920 $7,855 $7,920 Alera Group Intermediate Holdings, Inc.(4) Insurance L+550 1.00% 6.50% 12/30/22 3,456 3,422 3,422 Anesthesia Consulting & Management, LP(4) Health Care Providers & Services L+500 1.00% 6.00% 10/31/22 5,000 4,951 4,950 Capstone Logistics Acquisition, Inc.(4) Professional Services L+450 1.00% 5.50% 10/7/21 5,361 5,320 5,308 CIBT Holdings, Inc.(4) Professional Services L+525 1.00% 6.25% 6/28/22 2,620 2,596 2,594 Confie Seguros Holding II Co.(4) Insurance L+475 1.00% 5.75% 4/19/22 5,500 5,447 5,537 DB Datacenter Holdings, Inc.(4) IT Services L+475 1.00% 5.75% 7/13/21 5,500 5,450 5,417 Empower Payments Acquisition, Inc. (RevSpring)(4) Professional Services L+550 1.00% 6.50% 11/30/23 4,625 4,533 4,532 Falmouth Group Holdings Corp. (AMPAC)(4) Chemicals L+675 1.00% 7.75% 12/14/21 5,486 5,486 5,486 Kellermeyer Bergensons Services, LLC (KBS)(4) Commercial Services & Supplies L+500 1.00% 6.00% 10/29/21 2,438 2,419 2,389 MedRisk, LLC Health Care Providers & Services L+525 1.00% 6.25% 3/1/23 3,970 3,934 3,970 Metamorph US 3, LLC (Metalogix)(4) Software L+650 1.00% 7.50% 12/1/20 4,000 3,928 2,860 Ministry Brands, LLC(4) Software L+500 1.00% 6.00% 12/2/22 2,746 2,719 2,719 Pearl Merger Sub, LLC (PetVet)(4) Health Care Facilities L+475 1.00% 5.75% 12/17/20 5,390 5,313 5,329 Pet Holdings ULC & Pet Supermarket, Inc. Specialty Retail L+550 1.00% 6.50% 7/5/22 4,538 4,474 4,481 PSP Group, LLC (Pet Supplies Plus)(4) Specialty Retail L+475 1.00% 5.75% 4/6/21 5,353 5,315 5,327 QBS Holding Company, Inc. (Quorum)(4) Software L+475 1.00% 5.75% 8/7/21 3,430 3,404 3,293 Salient Partners, L.P.(4) Asset Management L+850 1.00% 9.50% 6/9/21 5,154 5,073 5,025 Sarnova HC, LLC Trading Companies andDistributors L+475 1.00% 5.75% 1/28/22 4,963 4,919 4,962 Suburban Broadband, LLC (Jab Wireless, Inc.)(4) Wireless TelecommunicationServices L+450 1.00% 5.50% 3/26/19 8,168 8,060 8,086 Telular Corporation Wireless TelecommunicationServices L+425 1.25% 5.50% 6/24/19 5,063 5,047 5,051 The Hilb Group, LLC & Gencorp Insurance Group, Inc.(4) Insurance L+500 1.00% 6.00% 6/24/21 3,814 3,747 3,776 Tronair Parent Inc. Aerospace & Defense L+475 1.00% 5.75% 9/8/23 4,988 4,939 4,963 VT Buyer Acquisition Corp. (Veritext)(4) Professional Services L+500 1.00% 6.00% 1/29/22 4,481 4,443 4,459 Wirb-Copernicus Group, Inc. Business Services L+500 1.00% 6.00% 8/12/22 5,486 5,434 5,431 $118,228 $117,287 (1)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 orPRIME rate floor. 111Table of ContentsSOLAR SENIOR CAPITAL LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)December 31, 2016(in thousands, except share and per share amounts) (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 primeindex rate (PRIME or “P”), and which typically reset monthly, quarterly or semi-annually. For each debt investment we have provided the current interest rate in effect as ofDecember 31, 2016.(3)Represents the fair value in accordance with ASC Topic 820. The determination of such fair value is not included in the Board’s valuation process described elsewhere herein.(4)The Company also holds this security on its Consolidated Statements of Assets and Liabilities.FLLP Portfolio as of December 31, 2015 Description Industry InterestRate(1) MaturityDate ParAmount Cost FairValue(2) 1A Smart Start LLC Electronic Equipment, Instruments &Components 5.75% 2/21/22 $8,000 $7,924 $7,880 Athletico Management, LLC and AcceleratedHoldings, LLC(3) Health Care Facilities 6.25% 12/2/20 4,724 4,682 4,653 Capstone Logistics Acquisition, Inc.(3) Professional Services 5.50% 10/7/21 5,436 5,387 5,395 Castle Management Borrower LLC (HighgateHotels)(3) Real Estate Management & Development 5.50% 9/18/20 3,950 3,916 3,812 Confie Seguros Holding II Co.(3) Insurance 5.75% 11/9/18 5,458 5,454 5,390 Innovative Xcessories & Services, LLC(3) Automotive Retail 5.25% 2/21/20 2,500 2,500 2,462 Kellermeyer Bergensons Services, LLC (KBS)(3) Commercial Services & Supplies 6.00% 10/29/21 2,475 2,453 2,364 Metamorph US 3, LLC (Metalogix)(3) Software 6.50% 12/1/20 4,875 4,768 4,485 Pearl Merger Sub, LLC (PetVet)(3) Health Care Facilities 5.50% 12/17/20 5,445 5,350 5,336 PSP Group, LLC (Pet Supplies Plus)(3) Specialty Retail 5.75% 4/6/21 5,459 5,411 5,350 QBS Holding Company, Inc. (Quorum)(3) Software 5.75% 8/7/21 3,465 3,434 3,361 RCPSI Corporation (Pet Supermarket)(3) Specialty Retail 6.75% 4/16/21 5,473 5,423 5,363 Salient Partners, L.P.(3) Asset Management 7.50% 6/9/21 5,418 5,317 5,228 Suburban Broadband, LLC (Jab Wireless, Inc.)(4) Wireless Telecommunication Services 5.50% 3/26/19 8,229 8,076 8,065 Telular Corporation Wireless Telecommunication Services 5.50% 6/24/19 5,354 5,330 5,274 $75,425 $74,418 (1)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”), and which typically reset monthly, quarterly or semi-annually. For each debt investment we haveprovided the current interest rate in effect as of December 31, 2015. 112Table of ContentsSOLAR SENIOR CAPITAL LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)December 31, 2016(in thousands, except share and per share amounts) (2)Represents the fair value in accordance with ASC Topic 820. The determination of such fair value is not included in the Board’s valuation processdescribed elsewhere herein.(3)The Company also holds a portion of this position on its Consolidated Statements of Assets and Liabilities.Below is certain summarized financial information for FLLP as of December 31, 2016 and December 31, 2015 and for the year ended December 31,2016 and the period from February 13, 2015 (commencement of operations) through December 31, 2015: December 31,2016 December 31,2015 Selected Balance Sheet Information for FLLP: Investments at fair value (cost $118,228 and $75,425, respectively) $117,287 $74,418 Cash and other assets. 4,938 2,370 Total assets $122,225 $76,788 Debt outstanding $75,941 $43,998 Distributions payable 981 742 Interest payable and other credit facility related expenses 708 400 Accrued expenses and other payables 241 113 Total liabilities $77,871 $45,253 Members’ equity $44,354 $31,535 Total liabilities and members’ equity $122,225 $76,788 Year ended December 31,2016 For the PeriodFebruary 13, 2015(commencement ofoperations) throughDecember 31, 2015 Selected Income Statement Information for FLLP: Interest income $6,344 $3,115 Service fees* $66 $32 Interest and other credit facility expenses** 3,076 2,227 Other general and administrative expenses 178 142 Total expenses 3,320 2,401 Net investment income $3,024 $714 Realized gain on investments 59 — Net change in unrealized gain (loss) on investments 65 (1,007) Net realized and unrealized gain (loss) on investments 124 (1,007) Net income (loss) $3,148 $(293) *Service fees are included within the Company’s Consolidated Statements of Operations as other income.**FLLP made an irrevocable election to apply the fair value option of accounting to the FLLP Facility, in accordance with ASC 825-10. As such, allexpenses related to the establishment of and amendments to the FLLP Facility were expensed during the periods shown. For the year endedDecember 31, 2016 and the period February 13, 2015 through December 31, 2015, these amounts totaled $836 and $1,316, respectively. 113Table of ContentsSOLAR SENIOR CAPITAL LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)December 31, 2016(in thousands, except share and per share amounts) Note 14. 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 7, 2017, our board of directors declared a monthly dividend of $0.1175 per share payable on February 2, 2017 to holders of record as ofJanuary 21, 2017.On January 10, 2017, total commitments to our Credit Facility increased to $200,000 from $175,000 by utilizing the accordion feature.On February 7, 2017, our board of directors declared a monthly dividend of $0.1175 per share payable on March 1, 2017 to holders of record as ofFebruary 23, 2017.On February 22, 2017, the Company and Solar Capital formed Solar Life Science Program LLC (“LSJV”) with an affiliate of Deerfield Management.The Company is committing $75,000 to LSJV.On February 22, 2017, our board of directors declared a monthly dividend of $0.1175 per share payable on April 4, 2017 to holders of record as ofMarch 23, 2017. 114Table of ContentsItem 9.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, 2016 (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 in Item 8 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 of2016 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. Item 9B.Other InformationNone. 115Table of ContentsPART IIIWe will file a definitive Proxy Statement for our 2017 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 2017 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 2017 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 2017 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 2017 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 2017 Annual Meeting ofStockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of our fiscal year. 116Table of ContentsPART IV Item 15.Exhibits, Financial Statement Schedulesa. Documents Filed as Part of this ReportThe following reports and consolidated financial statements are set forth in Item 8: Management’s Report on Internal Control over Financial Reporting 79 Report of Independent Registered Public Accounting Firm 80 Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting 81 Consolidated Statements of Assets & Liabilities as of December 31, 2016 and December 31, 2015 82 Consolidated Statements of Operations for the years ended December 31, 2016, 2015 and 2014 83 Consolidated Statements of Changes in Net Assets for the years ended December 31, 2016, 2015 and 2014 84 Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015 and 2014 85 Consolidated Schedules of Investments as of December 31, 2016 and December 31, 2015 86 Notes to Consolidated Financial Statements 92 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 First Amended and Restated Investment Advisory and Management Agreement by and between Registrant and Solar Capital Partners, LLC(7)10.3 Form of Custody Agreement(4)10.4 Amended and Restated Administration Agreement by and between Registrant and Solar Capital Management, LLC(4)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 Form of 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 Form of Loan and Servicing Agreement, dated as of August 26, 2011 (as amended through May 29, 2015), 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(5) 117Table of Contents10.11 Fourth Amendment to the Loan and Servicing Agreement, dated as of May 29, 2015 by and among the Registrant, as the transferor and theservicer, SUNS SPV LLC, as the borrower, Citibank, N.A., as the administrative agent and collateral agent, each of the conduit lenders fromtime to time party thereto, each of the lender agents from time to time party thereto, each of the liquidity banks from time to time partythereto, each of the institutional lenders from time to time party thereto, and Wells Fargo Bank, N.A., as the account bank, the collateralcustodian and the backup servicer(5)10.12 Form of Limited Liability Company Agreement, dated as of September 10, 2014, by and among the Registrant, Voya Retirement Insuranceand Annuity Company, ReliaStar Life Insurance Company, and Voya Insurance and Annuity Company, by and through Voya InvestmentManagement LLC, as agent and investment manager(6)11.1 Computation of Per Share Earnings*14.1 Code of Ethics*14.2 Code of Business Conduct(4)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.*99.1 Gemino Healthcare Finance, LLC and Subsidiary Consolidated Financial Statements year ended December 31, 2016*99.2 First Lien Loan Program LLC Consolidated Financial Statements year ended December 31, 2016* (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 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 Solar Senior Capital Ltd.’s report on Form 10-K filed on February 25, 2014.(5)Previously filed in connection with Solar Senior Capital Ltd.’s report on Form 10-Q filed on August 4, 2015.(6)Previously filed in connection with Solar Senior Capital Ltd.’s report on Form 10-Q filed on November 4, 2014.(7)Previously filed in connection with Solar Senior Capital Ltd.’s report on Form 10-Q filed on August 2, 2016.*Filed herewith.c. Consolidated Financial Statement SchedulesSeparate Financial Statements of Subsidiaries Not Consolidated:Consolidated Financial Statements for Gemino Healthcare Finance, LLC and Subsidiary year ended December 31, 2016 and December 31, 2015 areattached as Exhibit 99.1 hereto. Consolidated Financial Statements for First Lien Loan Program LLC year ended December 31, 2016 and December 31, 2015are attached as Exhibit 99.1 hereto. 118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 andDirectorDate: February 22, 2017Pursuant 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 22, 2017 /S/ MICHAEL S. GROSSMichael S. Gross Chief Executive Officer, President, Chairman of the Board andDirector (Principal Executive Officer)February 22, 2017 /S/ STEVEN HOCHBERGSteven Hochberg DirectorFebruary 22, 2017 /S/ DAVID S. WACHTERDavid S. Wachter DirectorFebruary 22, 2017 /S/ LEONARD A. POTTERLeonard A. Potter DirectorFebruary 22, 2017 /S/ BRUCE SPOHLERBruce Spohler Chief Operating Officer and DirectorFebruary 22, 2017 /S/ RICHARD L. PETEKARichard L. Peteka Chief Financial Officer (Principal Financial Officer) andSecretary 119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, 2016: Numerator for increase in net assets per share – basic and diluted: $24,252 Denominator for basic weighted average shares: 12,869,937 Earnings per share – basic and diluted: $1.88 Exhibit 14.1CODE OF ETHICS I.INTRODUCTIONSolar Capital Partners, LLC (the “Adviser”) seeks to foster and maintain a reputation for honesty, integrity and professionalism. That reputation is avital business asset. The confidence and trust placed in Adviser are highly valued and must be protected. Adviser has adopted this Code of Ethics (the“Code”) in accordance with Rules 204A-1 under the Investment Advisers Act of 1940 and Rule 17j-l under the Investment Company Act of 1940, asamended. The Code includes Adviser’s policy with respect to personal investment and trading and its insider trading policy and procedures. Solar CapitalLtd. and Solar Senior Capital Ltd. (collectively referred to as, the “BDC” or the “Fund”) have similarly and jointly adopted this Code of Ethics. Thus, thisCode of Ethics is applicable to all employees of the Adviser and the Fund (collectively “Solar Capital”). II.DEFINITIONSA. Access Person. The term “Access Person” means (i) any Supervised Person who (1) has access to nonpublic information regarding a Client’spurchase or sale of securities; (2) has access to nonpublic information regarding the portfolio holdings of any Reportable Fund; and/or (3) is involved inmaking securities recommendations to Clients or who has access to such recommendations that are nonpublic and (ii) all of the directors, officers, employees,members or partners of Solar Capital. By way of example, Access Persons include portfolio management personnel and service representatives whocommunicate investment advice to Clients. Administrative, technical, and clerical personnel may also be Access Persons if their functions or duties providethem with access to nonpublic information.B. Advisers Act. The term “Advisers Act” means the Investment Advisers Act of 1940, as amended.C. Automatic Investment Plan. An “Automatic Investment Plan” is a program in which regular periodic purchases or withdrawals are madeautomatically in or from investment accounts according to a predetermined schedule and allocation. An Automatic Investment Plan includes a dividendreinvestment plan.D. Beneficial Ownership. You will be considered to have “Beneficial Ownership” in a Security if: (i) you have a Pecuniary Interest in the Security;(ii) you have voting power with respect to the Security, meaning the power to vote or direct the voting of the Security; or (iii) you have the power to dispose,or direct the disposition of, the Security. If you have any question about whether an interest in a Security or an account constitutes Beneficial Ownership ofthat Security, you should contact a Compliance Officer.E. Chief Compliance Officer. The “Chief Compliance Officer” is the Access Person designated respectively by Adviser and BDC for each entityrespectively as such, as identified in Solar Capital’s Compliance Policies and Procedures Manual.F. Client. The term “Client” means any investment entity or account advised or managed or subadvised by Adviser, including any pooled investmentvehicle advised or subadvised by Adviser.G. Commission. The term “Commission” means the United States Securities and Exchange Commission.H. Compliance Officer. The term “Compliance Officer” shall mean an Access Person deemed by Solar Capital to be sufficiently experienced toperform senior-level compliance functions, and shall include the Chief Compliance Officer.I. Exchange Act. The term “Exchange Act” means the Securities Exchange Act of 1934, as amended.J. Federal Securities Laws. The term “Federal Securities Laws” means the Securities Act, the Exchange Act, the Sarbanes-Oxley Act of 2002, theInvestment Company Act, the Advisers Act, Title V of the Gramm- A-1Leach-Bliley Act, any rules adopted by the Commission under any of these statutes, the Bank Secrecy Act as it applies to funds and investment advisers, andany rules adopted under the Bank Secrecy Act by the Commission or the Department of the Treasury.K. Immediate Family. The term “Immediate Family” includes a Supervised Person’s child, stepchild, grandchild, parent, stepparent, grandparent,spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, and includes any adoptive relationship.L. Index Securities. The term “Index Securities” means exchange-traded funds and derivatives based on broad-based indices.M. Initial Public Offering. The term “Initial Public Offering” means an offering of securities registered under the Securities Act, the issuer of which,immediately before the registration, was not subject to the reporting requirements of Sections 13 or 15(d) of the Exchange Act.N. Investment Company Act. The term “Investment Company Act” means the Investment Company Act of 1940, as amended.O. Non-Reportable Securities. The term “Non-Reportable Securities” means: (i) direct obligations of the U.S. Government; (ii) bankers’ acceptances,bank certificates of deposit, commercial paper and high quality short-term debt instruments (defined as any instrument that has a maturity at issuance of lessthan 366 days and that is rated in one of the two highest rating categories by a Nationally Recognized Statistical Rating Organization), including repurchaseagreements; (iii) shares issued by money market funds; (iv) shares issued by open-end funds registered under the Investment Company Act, other thanReportable Funds; and (v) shares issued by unit investment trusts that are invested exclusively in one or more open-end funds, none of which are ReportableFunds.P. Pecuniary Interest. You will be considered to have a “Pecuniary Interest” in a Security if you, directly or indirectly, through any contract,arrangement, understanding, relationship or otherwise, have the opportunity, directly or indirectly, to profit or share in any profit derived from a transactionin the Security. The term “Pecuniary Interest” is construed very broadly. The following examples illustrate this principle: (i) ordinarily, you will be deemed tohave a “Pecuniary Interest” in all Securities owned by members of your Immediate Family who share the same household with you; (ii) if you are a generalpartner of a general or limited partnership, you will be deemed to have a “Pecuniary Interest” in all Securities held by the partnership; (iii) if you are ashareholder of a corporation or similar business entity, you will be deemed to have a “Pecuniary Interest” in all Securities held by the corporation if you are acontrolling shareholder or have or share investment control over the corporation’s investment portfolio; (iv) if you have the right to acquire equity Securitiesthrough the exercise or conversion of a derivative Security, you will be deemed to have a Pecuniary Interest in the Securities, whether or not your right ispresently exercisable; (v) if you are the sole member or a manager of a limited liability company, you will be deemed to have a Pecuniary Interest in theSecurities held by the limited liability company; and (vi) ordinarily, if you are a trustee or beneficiary of a trust, where either you or members of yourImmediate Family have a vested interest in the principal or income of the trust, you will be deemed to have a Pecuniary Interest in all Securities held by thattrust. If you have any question about whether an interest in a Security or an account constitutes a Pecuniary Interest, you should contact the ChiefCompliance Officer.Q. Reportable Fund. The term “Reportable Fund” means (i) any fund for which Adviser serves as investment adviser; or (ii) any fund whose investmentadviser or principal underwriter controls Adviser, is controlled by Adviser, or is under common control with Adviser. As used in this definition, the termcontrol has the same meaning as it does in Section 2(a)(9) of the Investment Company Act.R. Reportable Security. The term “Reportable Security” includes all Securities (including Index Securities) other than Non-Reportable Securities. A-2S. Restricted List. The “Restricted List” is a list maintained by the Chief Compliance Officer and will include the name of any company, whether ornot a client of Adviser, as to which one or more individuals at Adviser has a fiduciary relationship or may have material information which has not beenpublicly disclosed. No Supervised Person may trade in Securities on the Restricted List, whether for his own account or for the account of a Client.T. Securities Act. The term “Securities Act” means the Securities Act of 1933, as amended.U. Security. The term “Security” has the same meaning as it has in section 202(a)(18) of the Advisers Act. For purposes of this Code, the following areSecurities:Any note, stock, treasury stock, security future, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharingagreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate,certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option or privilege on anysecurity (including a certificate of deposit) or on any group or index of securities (including any interest therein or based on the value thereof), or anyput, call, straddle, option or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest orinstrument commonly known as a security, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of,or warrant or right to subscribe to or purchase, any security.The following are not Securities:Commodities, futures and options traded on a commodities exchange, including currency futures, except that (i) options on any group or index ofSecurities and (ii) futures on any group or narrow-based index of Securities are Securities.You should note that “Security” includes a right to acquire a Security, as well as an interest in a collective investment vehicle (such as a limitedpartnership or limited liability company).V. Supervised Person. The term “Supervised Person” means (i) any partner, member, officer or director of Solar Capital, or other person occupying asimilar status or performing similar function; (ii) any employee of Solar Capital; (iii) any U.S. consultant who has been contracted by Solar Capital for morethan ninety (90) days; and (iv) any other person who provides advice on behalf of Solar Capital and is subject to Solar Capital’s supervision and control. III.PERSONAL INVESTMENT AND TRADING POLICY A.General StatementSolar Capital is committed to maintaining the highest standard of business conduct.Solar Capital and its Supervised Persons must not act or behave in any manner or engage in any activity that (1) involves or creates even the suspicionor appearance of the misuse of material, nonpublic information by Solar Capital or any Supervised Person or (2) gives rise to, or appears to give rise to, anybreach of fiduciary duty owed to any Client or investor.In addition, the Federal Securities Laws require that investment advisers maintain a record of every transaction in any Security, with certain exceptions,as described below, in which any Access Person acquires or disposes of Beneficial Ownership where the Security is or was held in an account over which theAccess Person has direct or indirect influence or control. Given the current size of its operations, Solar Capital has chosen to require reporting of transactions,as well as pre-approval of certain transactions, for all Supervised Persons, rather than only Access Persons.Solar Capital has developed the following policies and procedures relating to personal trading in Securities and the reporting of such personal tradingin Securities in order to ensure that each Supervised Person satisfies the requirements of this Code. A-3 B.Requirements of this Code 1.Duty to Comply with Applicable Laws.All Supervised Persons are required to comply with the Federal Securities Laws, the fiduciary duty owed by Adviser to its Clients, as applicable, andthis Code. 2.Duty to Report Violations.Each Supervised Person is required by law to promptly notify the Chief Compliance Officer or designee in the event he or she knows or has reason tobelieve that he or she or any other Supervised Person has violated any provision of this Code. If a Supervised Person knows or has reason to believe that theChief Compliance Officer has violated any provision of this Code, the Supervised Person must promptly notify the Chief Financial Officer and is not requiredto notify the Chief Compliance Officer.Solar Capital is committed to fostering a culture of compliance. Solar Capital therefore urges you to contact the Chief Compliance Officer or designeeif you have any questions regarding compliance. You will not be penalized and your status at Solar Capital will not be jeopardized by communicating withthe Chief Compliance Officer. Reports of violations or a suspected violations also may be submitted anonymously to the Chief Compliance Officer ordesignee. Any retaliatory action taken against any person who in good faith reports a violation or a suspected violation of this Code is itself a violation ofthis Code and cause for appropriate corrective action, including dismissal. 3.Duty to Provide Copy of the Code of Ethics and Related Certification.Solar Capital will provide all Supervised Persons with a copy of this Code and all subsequent amendments. By law, all Supervised Persons must in turnprovide written acknowledgement to the Chief Compliance Officer or designee of their initial receipt and review of this Code, their annual review of thisCode and their receipt and review of any subsequent amendments to this Code. C.Restrictions on Supervised Persons Trading in Securities 1.General Statement.No Supervised Person may engage in a transaction in a Security, which includes an interest in a collective investment vehicle, that is also the subject ofa transaction by a Client if the Supervised Person’s transaction would disadvantage or appear to disadvantage the Client or if the Supervised Person wouldprofit from or appear to profit from the transaction, whether or not at the expense of the Client. The following specific restrictions apply to all trading activityby Supervised Persons:(a) No Supervised Person may engage in any purchases of a Reportable Security other than an Index Security. Any transaction in an IndexSecurity will be permitted only in compliance with the reporting requirements of this Code. Sales of Reportable Securities other than Index Securities will bepermitted only in compliance with the reporting and preclearance requirements of this Code.(b) Any transaction in a Security in anticipation of an order from or on behalf of a Client, also known as “front running,” is prohibited.(c) Any transaction in a Security included on the Restricted List of issuers maintained by Solar Capital is prohibited. The Restricted List ismaintained by the Chief Compliance Officer and his or her designees. The Chief Compliance Officer or such other Compliance Officer as may be designatedshall be responsible for: (i) determining whether any security identified by a Supervised Person should be included on the Restricted List; (ii) determiningwhen securities should be removed from the Restricted List; and (iii) ensuring that securities are added to and removed from the Restricted List, asappropriate. The Restricted List shall be reviewed by the Chief Compliance Officer or designee at least quarterly. A-4(d) Any transaction in a Security which the Supervised Person knows or has reason to believe is being purchased or sold, or is being consideredfor purchase or sale, by or on behalf of a Client is prohibited until the Client’s transaction has been completed or consideration of the transaction isabandoned. A Security is “being considered for purchase or sale” the earlier of when a recommendation to purchase or sell has been made and communicatedor the Security is placed on Adviser’s research project lists and, with respect to the person making the recommendation, when the person seriously considersmaking such a recommendation.(e) Any transaction in a Security during the period which begins three days before and ends three days after any Client has traded in that Securityis prohibited, unless approved by a Compliance Officer.(f) Any transaction in a Security on the same day in which any Client has a pending or actual transaction is prohibited, unless approved by aCompliance Officer.(g) Personal account trading must be done on the Supervised Person’s own time without placing undue burden on Solar Capital’s time.(h) No trades should be undertaken which are beyond the financial resources of the Supervised Person.(i) Except in extraordinary circumstances, no transaction will be permitted if the Securities purchased are expected to have less than a thirty-dayholding period or if they are seen as presently or potentially part of a Client strategy.(j) There is a presumption that a Supervised Person can exert some measure of influence or control over accounts held by members of suchperson’s Immediate Family sharing the same household. Therefore, transactions by immediate family sharing the same household are subject to the policiesherein. A Supervised Person may rebut this presumption by presenting convincing evidence, in writing, to the Chief Compliance Officer and request anexemption to the policies herein. All exemptions must be approved by the Chief Compliance Officer, in writing.2. All Sales of Reportable Securities, other than (i) Exempt Transactions described below in Section 4 or (ii) sales of Index Securities, must bepre-cleared by the Compliance Office under Section 5(b) below.3. Use of Broker-Dealers and Brokerage Accounts.(a) You may not engage, and you may not permit any other person or entity to engage, in any purchase or sale of publicly traded ReportableSecurities of which you have, or by reason of the transaction will acquire, Beneficial Ownership, except through a registered broker-dealer or registeredinvestment advisor.(b) You must provide written notice to a Compliance Officer of your opening of an account with a bank, advisor or broker through which youhave the ability to purchase or sell Securities promptly after opening the account, and in any event before the first order for the purchase or sale of a Securityis placed in the account. A Compliance Officer will then ask you to complete and sign a written notice to the broker or bank, (the forms of which are attachedas Appendix IV and Appendix V hereto) which discloses your affiliation with Adviser and request that copies of trade confirmations and statements be sent tothe Chief Compliance Officer. A Compliance Officer will execute this notice on behalf of Solar Capital and transmit it to the broker.4. The following are Exempt Transactions that do not require preclearance by a Compliance Officer:(a) Any transaction in Securities in an account over which a Supervised Person does not have any direct or indirect influence or control (such as afully discretionary managed account through a registered investment advisor).(b) Purchases of Securities under Automatic Investment Plans (such as an employee sponsored 401K).(c) Purchases of Securities by exercise of rights issued to the holders of a class of Securities pro rata, to the extent they are issued with respect toSecurities for which a Supervised Person has Beneficial Ownership. A-5(d) Acquisitions or dispositions of Securities as the result of a stock dividend, stock split, reverse stock split, merger, consolidation, spin-off orother similar corporate distribution or reorganization applicable to all holders of a class of Securities for which a Supervised Person has Beneficial Ownership.(e) Such other classes of transactions as may be exempted from time to time by the Chief Compliance Officer based upon a determination that thetransactions are unlikely to violate Rule 204A-1 under the Advisers Act.(f) Such other specific transactions as may be exempted from time to time by the Chief Compliance Officer.5. Preclearance and Verification Procedures.The following procedures shall govern all sales of Securities in which a Supervised Person has Beneficial Ownership (“Supervised Person Sales”) andwhich are subject to preclearance by a Compliance Officer.(a) Supervised Person Sales Subject to Preclearance.A Supervised Person Sale may be disapproved if it is determined by the Chief Compliance Officer or designee that the Supervised Personis unfairly benefiting from, or that the transaction is in conflict with, or appears to be in conflict with, any Client Transaction (as defined below) any of theabove-described trading restrictions, or this Code. “Client Transactions” include transactions for any Client or any other account managed or advised by anySupervised Person for a fee.The determination that a Supervised Person may unfairly benefit from, or that a Supervised Person Sale may conflict with or appears to bein conflict with, a Client Transaction will be subjective and individualized, and may include questions about the timely and adequate dissemination ofinformation, availability of bids and offers, and other factors deemed pertinent for that transaction or series of transactions. It is possible that a disapproval ofa Supervised Person Sale could be costly to a Supervised Person or members of a Supervised Person’s family; therefore, each Supervised Person should takegreat care to adhere to Solar Capital’s trading restrictions and avoid conflicts of interest or the appearance of conflicts of interest.Any disapproval of a Supervised Person Sale shall be in writing. A Supervised Person may appeal any such disapproval by written noticeto the Chief Financial Officer within two business days after receipt of notice of disapproval. The appeal must be resolved promptly by the Chief FinancialOfficer.(b) Procedures for Preclearance of Supervised Person Sales.(i) Supervised Person Sales through Brokers or Banks. Supervised Person Sales through brokers or banks are not permitted exceptthrough an account for which the Supervised Person has provided written notice to Adviser, and completed and signed a notice to the broker or bank to besent by Adviser, in accordance with Section III.C.3(b).To seek approval of a Supervised Person Sale, the Supervised Person must submit a request, to the Compliance Officer prior to executingeach transaction through the broker or bank. The Compliance Officer will notify a Supervised Person within two business days of any conflict and will advisewhether the Supervised Person Sale has been cleared.(ii) Other Transactions. All other Supervised Person Sales must be cleared in writing by the Compliance Officer prior to the SupervisedPerson’s entering into the transaction. If a Supervised Person wishes to engage in such a transaction, he or she must submit a request to the ComplianceOfficer. The Compliance Officer will notify the Supervised Person within five business days of any conflict and will advise whether the Supervised PersonSale has been cleared. A-6IV.REPORTING A.Reports About Securities Holdings and TransactionsSupervised Persons must submit to the Chief Compliance Officer or designee periodic written reports about their Securities holdings, transactions, andaccounts, and the Securities of other persons if the Supervised Person has Beneficial Ownership of such Securities and the accounts of other persons if theSupervised Person has direct or indirect influence or control over such accounts. The obligation to submit these reports and the content of these reports aregoverned by the Federal Securities Laws. The reports are intended to identify conflicts of interest that could arise when a Supervised Person invests in aSecurity or holds accounts that permit these investments, and to promote compliance with this Code. Adviser is sensitive to privacy concerns and will try notto disclose your reports to anyone unnecessarily. Report forms are attached.Failure to file a timely, accurate, and complete report is a serious breach of Commission rules and this Code. If a Supervised Person is late infiling a report, or files a report that is misleading or incomplete, the Supervised Person may face sanctions including identification by name to the ChiefCompliance Officer, withholding of salary or bonuses, or termination of employment.1. Initial Disclosure Reports: Within ten days after you become a Supervised Person, you must submit to the Chief Compliance Officer ordesignee a securities accounts report (a form of which is attached as Appendix II thereto) and private investments report (a form of which is attached asAppendix VI thereto) based on information that is current as of a date not more than 45 days prior to the date you become a Supervised Person.(a) The Initial Report of Securities Accounts contains the following:(i) The name/title and type of Security, and, as applicable, the exchange ticker symbol or CUSIP number, the number of equity shares andprincipal amount of each Reportable Security for which you had Beneficial Ownership. You may provide this information by referring to attached copies ofbroker transaction confirmations or account statements from the applicable recordkeepers that contain the information.(ii) The name and address of any broker, dealer, or bank or other institution (such as a general partner of a limited partnership, or transferagent of a company) that maintained any account holding any Securities for which you have Beneficial Ownership, and the account numbers and names ofthe persons for whom the accounts are held.(iii) An executed statement (and a letter or other evidence) pursuant to which you have instructed each broker, dealer, bank, or otherinstitution to provide duplicate account statements and confirmations of all Securities transactions, unless Adviser indicates that the information is otherwiseavailable to it. The form of this statement is attached as Appendix IV (for personal accounts) and Appendix V (for related accounts) hereto.(iv) The date you submitted the report.(b) The Initial Report of Private Investments contains the following:(i) A description of all private investments for which you have a Beneficial Ownership, the principal amount of those privateinvestments, the approximate dates of acquisition, and whether the private investments involve or are associated with companies that have publicly tradeddebt or equity.(ii) The date you submitted the report.2. Quarterly Transaction Report: Unless, as noted below, the Chief Compliance Officer already receives trade confirmations or accountstatements for all of your transactions in Reportable Securities, within 30 A-7days after the end of each calendar quarter, you, as a Supervised Person, must submit to the Chief Compliance Officer or designee a transaction report, a formof which is attached as Appendix III hereto, that contains:(a) With respect to any transaction during the quarter in any Reportable Security in which you had, or as a result of the transaction acquired,Beneficial Ownership of the Reportable Security:(i) The date of the transaction, the name/title and as applicable, the exchange ticker symbol or CUSIP number, interest rate and maturitydate, the number of equity shares of, or the principal amount of debt represented by, and principal amount of each Reportable Security involved;(ii) The nature of the transaction, i.e., purchase, sale or other type of acquisition or disposition;(iii) The price at which the transaction in the Reportable Security was effected;(iv) The name of the broker, dealer, bank, or other institution with or through which the transaction was effected.(b) The name and address of any broker, dealer, bank, or other institution, such as a general partner of a limited partnership, or transfer agent of acompany, that maintained any account in which any Securities were held during the quarter of which you have Beneficial Ownership, the account numbersand names of the persons for whom the accounts were held, and the date when each account was established.(c) An executed statement, and a letter or other evidence, pursuant to which you have instructed each broker, dealer, bank, or other institutionthat has established a new account over which you have direct or indirect influence or control during the past quarter to provide duplicate account statementsand confirmations of all Securities transactions to Solar Capital, unless Solar Capital indicates that the information is otherwise available to it. The form ofthis statement is attached as Appendix IV and Appendix V hereto.(d) The date that you submitted the report.***You need not submit a quarterly transaction report to the Chief Compliance Officer or designee if it would duplicate information contained in tradeconfirmations or account statements already received by the Chief Compliance Officer or designee, provided that those trade confirmations orstatements are received not later than 30 days after the close of the calendar quarter in which the transaction takes place. ***3. Annual Employee Certification: You must, no later than February 15 of each year, submit to the Chief Compliance Officer or designee anAnnual Employee Certification, that is current as of a date no earlier than December 31 of the prior calendar year (the “Annual Report Date”) and thatcontains:(a) The name and address of any broker, dealer, investment advisor or bank or other institution, such as a general partner of a limited partnership,or transfer agent of a company, that maintained any account holding any Securities for which you have Beneficial Ownership on the Annual Report Date, theaccount numbers and names of the persons for whom the accounts are held, and the date when each account was established; this information may beprovided through copies of statements of each such account.(b) A description of any private investments for which you have a Beneficial Ownership on the Annual Report Date, the principal amount of theinvestment, the approximate date of the acquisition, and whether the private investment involves or is associated with a company that has publicly trade debtor equity.(c) The date that you submitted the report.Exception to requirement to list transactions or holdings subject to IV.2 and IV.3(a) above: You are not required to submit (i) holdings or transactionsreports for any account over which you had no direct or indirect A-8influence or control (such as a fully discretionary managed account through a registered investment advisor) or (ii) transaction reports with respect totransactions effected pursuant to an Automatic Investment Plan, unless requested by Solar Capital. You must still identify the existence of the account inyour list of accounts. Transactions that override pre-set schedules or allocations of an automatic investment plan or trades that are directed by you in a fullydiscretionary managed account, however, must be included in a quarterly transaction report.In order to take advantage of part (i) of the exception (accounts over which you had no direct or indirect influence or control), Access Persons must provide; • Information about a trustee or third–party manager’s relationship to the access person (i.e., independent professional versus friend or relative;unaffiliated versus affiliated firm); • periodic certifications regarding the access persons’ influence or control over trusts or accounts (or obtain the certification from the third partymanager or trustee when requested); • when requested, reports on holdings and/or transactions made in the trust or discretionary account to identify transactions that would have beenprohibited pursuant to the adviser’s code of ethics, absent reliance on the reporting exemption.4. Please ask the Chief Compliance Officer if you have questions about the above-described disclosure and transaction reporting requirements. B.Review of Reports and Other DocumentsThe Chief Compliance Officer or a designee of the Chief Compliance Officer will review each report submitted by Supervised Persons, and eachaccount statement or confirmation from institutions that maintain their accounts, as promptly as practicable. In any event all Initial Disclosure Reports will bereviewed within 20 business days of receipt, and the review of all timely-submitted Quarterly Transaction Reports will be completed by the end of the quarterin which received. As part of his or her review, the Chief Compliance Officer or his or her designee will confirm that all necessary pre-approvals have beenobtained. To ensure adequate scrutiny, documents concerning a member of the Compliance Office will be reviewed by a different member of the ComplianceOffice, or if there is only one member of the Compliance Office, by the Chief Financial Officer.A report documenting the above review and any exceptions noted will be prepared by the Chief Compliance Officer and circulated to Solar Capital’sManagement Committee within 60 days of the end of the quarter in which the reports were received.Review of submitted holding and transaction reports will include not only an assessment of whether the Supervised Person followed all requiredprocedures of this Code, such as preclearance, but may also: compare the personal trading to any restricted lists; assess whether the Supervised Person istrading for his or her own account in the same securities he or she is trading for Clients, and, if so, whether the Clients are receiving terms as favorable as theSupervised Person receives; periodically analyze the Supervised Person’s trading for patterns that may indicate abuse, including market timing; investigateany substantial disparities between the quality of performance the Supervised Person achieves for his or her own account and that he or she achieves forClients; and investigate any substantial disparities between the percentage of trades that are profitable when the Supervised Person trades for his or her ownaccount and the percentage that are profitable when he or she places trades for Clients. V.POLICY ON GIFTSGifts. A Supervised Person is prohibited from improperly using his or her position to obtain an item of value from any person or company that does businesswith Solar Capital. Supervised Persons must report to the Compliance Officer receipt of any gift greater than $300 in value from any person or company thatdoes business A-9with Solar. Unsolicited business entertainment, including meals or tickets to cultural and sporting events do not need to be reported if: a) they are not sofrequent or of such high value as to raise a question of impropriety and b) the person providing the entertainment is present at the event.Regardless of dollar value, Supervised Persons may not give a gift or provide entertainment that is inappropriate under the circumstances, or inconsistentwith applicable law or regulations, to persons associated with securities or financial organizations, exchanges, member firms, commodity firms, news media,or Clients. Persons must obtain clearance from the CEO or COO and the CCO prior giving any gift greater than $300 in value to any person or company thatdoes business with Solar.Supervised Persons should not give or receive gifts or entertainment that would be embarrassing to themselves or to Solar Capital if made public. VI.COMPLIANCE A.Certificate of ReceiptSupervised Persons are required to acknowledge receipt of the Compliance Manual and, therefore, your copy of this Code and that you have read andunderstood the Compliance Manual. A form for this purpose is attached to this Code as Appendix I. B.Annual Certificate of ComplianceSupervised Persons are required to certify upon becoming a Supervised Person or the effective date of this Code, whichever occurs later, and annuallythereafter, that you have read and understand this Code and recognize that you are subject to this Code. Each annual certificate will also state that you havecomplied with all of the requirements of this Code during the prior year. C.Remedial ActionsIf you violate this Code, including filing a late, inaccurate or incomplete holdings or transaction report, you will be subject to remedial actions,which may include, but are not limited to, any one or more of the following: (1) a warning; (2) disgorgement of profits; (3) imposition of a fine, whichmay be substantial; (4) demotion, which may be substantial; (5) suspension of employment, with or without pay; (6) termination of employment; or(7) referral to civil or governmental authorities for possible civil or criminal prosecution. If you are normally eligible for a discretionary bonus, anyviolation of the Code may also reduce or eliminate the discretionary portion of your bonus. VII.RETENTION OF RECORDSThe Chief Compliance Officer will maintain, for a period of five years unless specified in further detail below, the records listed below. The records willbe maintained at the Firm’s principal place of business for at least two years and in an easily accessible, but secured, place for the entire five years.A. A record of the names of persons who are currently, or within the past five years were, Access Persons of Adviser.B. The Annual Certificate of Compliance signed by all persons subject to this Code acknowledging receipt of copies of the Code and acknowledgingthey are subject to it and will comply with its terms. All Annual Certificates of each Supervised Person must be kept for five years after the individual ceasesto be a Supervised Person.C. A copy of each Code that has been in effect at any time during the five-year period. A-10D. A copy of each report made by a Supervised Person pursuant to this Code, including any broker trade confirmations or account statements that weresubmitted in lieu of the persons’ quarterly transaction reports.E. A record of all known violations of the Code and of any actions taken as a result thereof, regardless of when the violations were committed.F. A record of any decision, and the reasons supporting the decision, to approve the acquisition of securities by Supervised Persons, for at least fiveyears after the end of the fiscal year in which the approval is granted.G. A record of all reports made by the Chief Compliance Officer related to this Code. VIII.NOTICES.For purposes of this Code, all notices, reports, requests for clearance, questions, contacts, or other communications to the Chief Compliance Officer orthe Chief Financial Officer will be considered delivered if given to the Chief Compliance Officer or the Chief Financial Officer, respectively. IX.REVIEW.This Code will be reviewed by the Chief Compliance Officer on an annual basis to ensure that it is meeting its objectives, is functioning fairly andeffectively, and is not unduly burdensome to Adviser or Supervised Persons. Supervised Persons are encouraged to contact the Chief Compliance Officer withany comments, questions or suggestions regarding implementation or improvement of the Code. A-11Appendix ISOLAR CAPITALACKNOWLEDGMENT AND CERTIFICATIONSOLAR SENIOR CAPITALCOMPLIANCE POLICIES AND PROCEDURES MANUALI hereby certify to Solar Capital that:(1) I have received and reviewed Solar Capital’s Compliance Policies and Procedures Manual (the “Compliance Manual”);(2) To the extent I had questions regarding any policy or procedure contained in the Compliance Manual, I received satisfactory answers to thosequestions from appropriate Solar Capital personnel;(3) I fully understand the policies and procedures contained in the Compliance Manual;(4) I understand and acknowledge that I am subject to the Compliance Manual;(5) I will comply with the policies and procedures contained in the Compliance Manual at all times during my association with Solar Capital, andagree that the Compliance Manual may, under certain circumstances, continue to apply to me subsequent to the termination of my association with SolarCapital.(6) I understand and acknowledge that if I violate any provision of the Compliance Manual, I will be subject to remedial actions, which may include,but are not limited to, any one or more of the following: (a) a warning; (b) disgorgement of profits; (c) imposition of a fine, which may be substantial;(d) demotion, which may be substantial; (e) suspension of employment, with or without pay; (f) termination of employment; or (g) referral to civil orgovernmental authorities for possible civil or criminal prosecution. I further understand that, to the extent I would otherwise be eligible for a discretionarybonus, if I violate the Compliance Manual this may reduce or eliminate the discretionary portion of my bonus. Date: Signature Print Name I-1Appendix IISOLAR CAPITALINITIAL REPORT OF SECURITIES ACCOUNTSIn accordance with Solar Capital’s policies and procedures, please indicate whether you maintain securities accounts over which you have influence orcontrol and/or in which any securities are held for which you have Beneficial Ownership1 (“Securities Accounts”). Securities Accounts include accounts ofany kind held at a broker, bank, investment advisor, or money manager. ☐I do maintain Securities Accounts. ☐I do not maintain Securities Accounts.If you indicated above that you do maintain Securities Accounts, please (1) complete the Personal Trading Account and/or Related Trading Accountletters of direction (enclosed), (2) provide the information in the following table (use additional paper if necessary), and (3) attach a copy of the most recentaccount statement listing holdings for each account identified below: Account Name Broker/InstitutionName Account Number Broker/Institution’sAddress Is this account managed by a3rd party (such as aninvestment advisor) on afully discretionary basis inwhich you do not direct anytransactions? (Yes/No) I certify that this form is accurate and complete, and I have attached statements (if any) for all of my Securities Accounts. Signature Date Print Name 1 You will be considered to have “Beneficial Ownership” in a Security if: (i) you have a Pecuniary Interest in the Security; (ii) you have voting power withrespect to the Security, meaning the power to vote or direct the voting of the Security; or (iii) you have the power to dispose, or direct the disposition of,the Security. You will be considered to have a “Pecuniary Interest” in a security if you, directly or indirectly, through any contract, arrangement,understanding, relationship or otherwise, have the opportunity, directly or indirectly, to profit or share in any profit derived from a transaction in thesecurity. The term “Pecuniary Interest” is construed very broadly. The following examples illustrate this principle: (i) ordinarily, you will be deemed tohave a “Pecuniary Interest” in all Securities owned by members of your Immediate Family who share the same household with you; (ii) if you are a generalpartner of a general or limited partnership, you will be deemed to have a “Pecuniary Interest” in all Securities held by the partnership; (iii) if you are ashareholder of a corporation or similar business entity, you will be deemed to have a “Pecuniary Interest” in all Securities held by the corporation if youare a controlling shareholder or have or share investment control over the corporation’s investment portfolio; (iv) if you have the right to acquire equitySecurities through the exercise or conversion of a derivative Security, you will be deemed to have a Pecuniary Interest in the Securities, whether or notyour right is presently exercisable; (v) if you are the sole member or a manager of a limited liability company, you will be deemed to have a PecuniaryInterest in the Securities held by the limited liability company; and (vi) ordinarily, if you are a trustee or beneficiary of a trust, where either you ormembers of your Immediate Family have a vested interest in the principal or income of the trust, you will be deemed to have a Pecuniary Interest in allSecurities held by that trust. II-1Appendix IIISOLAR CAPITALQUARTERLY BROKERAGE ACCOUNTAND NON-BROKER TRANSACTION REPORTNotes:1. Capitalized terms not defined in this report are defined in the Code of Ethics of Solar Capital (the “Code”).2. You must cause each broker-dealer that maintains an account over which you have influence or control and holds Securities for which you have BeneficialOwnership to provide to the Chief Compliance Officer, on a timely basis, duplicate copies of confirmations of all transactions in the account and duplicatestatements for the account and you must report to the Chief Compliance Officer, within 30 days of the end of each calendar quarter, all transactions effectedwithout the use of a registered broker-dealer in Securities, other than transactions in Non-Reportable Securities.The undersigned has requested that you receive duplicate statements and confirmations on his or her behalf from the following brokers: Name Broker Account Number Date Date AccountOpened The following are Securities transactions that have not been reported and/or executed through a broker-dealer, i.e. during the previous calendar quarter. Date Buy/Sell Security Name Amount Price Broker/Issuer By signing this document, I am certifying that I have caused duplicate confirmations and duplicate statements to be sent to the Chief Compliance Officer ofSolar Capital for every brokerage account that trades in Securities. Date Signature III-11.Transactions required to be reported. You should report every transaction in which you acquired or disposed of any Security in which you had aPecuniary Interest during the calendar quarter. The term “beneficial ownership” is the subject of a long history of opinions and releases issued by theSecurities and Exchange Commission and generally means that you would receive the benefits of owning a Security. The term includes, but is notlimited to the following cases and any other examples in the Code: (A)Where the Security is held for your benefit by others, such as brokers, custodians, banks and pledgees; (B)Where the Security is held for the benefit of members of your Immediate Family sharing the same household; (C)Where Securities are held by a corporation, partnership, limited liability company, investment club or other entity in which you have an equityinterest if you are a controlling equityholder or you have or share investment control over the Securities held by the entity; (D)Where Securities are held in a trust for which you are a trustee and under which either you or any member of your Immediate Family have avested interest in the principal or income; and (E)Where Securities are held in a trust for which you are the settlor, unless the consent of all of the beneficiaries is required in order for you torevoke the trust.Notwithstanding the foregoing, the following transactions are not required to be reported: (A)Transactions in Securities which are direct obligations of the United States; (B)Transactions effected in any account over which you have no direct or indirect influence or control; or (C)Shares of registered open-end investment companies. 2.Security Name. State the name of the issuer and the class of the Security, e.g., common stock, preferred stock or designated issue of debt securities,including the interest rate, principal amount and maturity date, if applicable. In the case of the acquisition or disposition of a futures contract, put, calloption or other right, referred to as “options,” state the title of the Security subject to the option and the expiration date of the option. 3.Futures Transactions. Please remember that duplicates of all Confirmations, Purchase and Sale Reports, and month-end Statements must be sent toAdviser by your broker. Please double check to be sure this occurs if you report a future transaction. 4.Transaction Date. In the case of a market transaction, state the trade date, not the settlement date. 5.Nature of Transaction (Buy or Sale). State the character of the transaction, e.g., purchase or sale of Security, purchase or sale of option, or exercise ofoption. 6.Amount of Security Involved (No. of Shares). State the number of shares of stock, the face amount of debt Securities or other units of other Securities.For options, state the amount of Securities subject to the option. If your ownership interest was through a spouse, relative or other natural person orthrough a partnership, trust, other entity, state the entire amount of Securities involved in the transaction. In such cases, you may also indicate, if youwish, the extent of your interest in the transaction. 7.Purchase or Sale Price. State the purchase or sale price per share or other unit, exclusive of brokerage commissions or other costs of execution. In thecase of an option, state the price at which it is currently exercisable. No price need be reported for transactions not involving cash. 8.Broker, Dealer or Bank Effecting Transaction. State the name of the broker, dealer or bank with or through whom the transaction was effected. 9.Signature. Sign the form in the space provided. 10.Filing of Report. This report should be filed NO LATER THAN 30 CALENDAR DAYS following the end of each calendar quarter. III-2Appendix IVSOLAR CAPITALPERSONAL TRADING ACCOUNTLETTER OF DIRECTIONTo Whom This May Concern:I, (print name), currently maintain an investment account with your institution, and hereby request that duplicate tradeconfirmations and monthly account statements be disseminated to my employer, Solar Capital, at the following address:Attn: Chief Compliance OfficerSolar Capital500 Park Avenue, 5th FloorNew York, NY 10022If you should have any questions, please do not hesitate to contact me. Thank you for your cooperation. Sincerely,NAME: DATE: PHONE: IV-1Appendix VSOLAR CAPITALRELATED TRADING ACCOUNTLETTER OF DIRECTIONTo Whom This May Concern:I, (print your name), currently maintain an investment account with your institution. Due to my relationship with (print employee’s name), who is an employee of Solar Capital, I hereby request that duplicate trade confirmations andmonthly account statements be disseminated to the following address:Attn: Chief Compliance OfficerSolar Capital500 Park Avenue, 5th FloorNew York, NY 10022If you should have any questions, please do not hesitate to contact me. Thank you for your cooperation. Sincerely,NAME: DATE: PHONE: V-1Appendix VISOLAR CAPITALINITIAL REPORT OF PRIVATE INVESTMENTSIn accordance with Solar Capital policies and procedures, please indicate whether you maintain private investments over which you have influence orcontrol and in which any private investments are held for which you have a Beneficial Ownership.1 The term private investment is typically defined as anintangible investment and is very broadly construed by Solar Capital. Examples of private investments may include equity in a business or company, a loanto a business or company, an investment in a hedge fund or limited partnership, or securities held in your home or in a safe deposit box. Examples ofinvestments that generally are not considered private investments are your primary residence, vacation home, automobiles, artwork, jewelry, antiques, stamps,and coins. ☐I do maintain private investments. ☐I do not maintain private investments.If you indicated above that you do maintain private investments, please provide the information in the following table (use additional paper ifnecessary): Description of Private Investment Value of PrivateInvestment ApproximateAcquisition Date Does the private investment involve acompany that has publicly traded debt orequity? (Yes/No) I certify that this form and any attachments are accurate and complete and constitute all of my private investments. Signature Date Print Name 1 You will be considered to have “Beneficial Ownership” in an investment if: (i) you have a Pecuniary Interest in the investment; (ii) you have voting powerwith respect to the investment, meaning the power to vote or direct the voting of the investment; or (iii) you have the power to dispose, or direct thedisposition of, the investment. You will be considered to have a “Pecuniary Interest” in an investment if you, directly or indirectly, through any contract,arrangement, understanding, relationship or otherwise, have the opportunity, directly or indirectly, to profit or share in any profit derived from atransaction in the investment. The term “Pecuniary Interest” is construed very broadly. The following examples illustrate this principle: (i) ordinarily, youwill be deemed to have a “Pecuniary Interest” in all investments owned by members of your Immediate Family who share the same household with you;(ii) if you are a general partner of a general or limited partnership, you will be deemed to have a “Pecuniary Interest” in all investments held by thepartnership; (iii) if you are a shareholder of a corporation or similar business entity, you will be deemed to have a “Pecuniary Interest” in all investmentsheld by the corporation if you are a controlling shareholder or have or share investment control over the corporation’s investment portfolio; (iv) if youhave the right to acquire equity security through the exercise or conversion of a derivative investment, you will be deemed to have a Pecuniary Interest inthe investment, whether or not your right is presently exercisable; (v) if you are the sole member or a manager of a limited liability company, you will bedeemed to have a Pecuniary Interest in the investments held by the limited liability company; and (vi) ordinarily, if you are a trustee or beneficiary of atrust, where either you or members of your Immediate Family have a vested interest in the principal or income of the trust, you will be deemed to have aPecuniary Interest in all investments held by that trust. VI-1Appendix VIISOLAR CAPITALINITIAL REPORT OF OUTSIDE BUSINESS ACTIVITIESIn accordance with Solar Capital policies and procedures, please indicate whether you engage in any outside business activities. Outside businessactivities include, but are not limited to, serving as owner, partner, trustee, officer, director, finder, referrer, or employee of another business organization forcompensation, or any activity for compensation outside my usual responsibilities at Solar Capital.1 ☐I do engage in outside business activities ☐I do not engage in any outside business activitiesIf you indicated above that you do engage in outside business activities, please complete the following table (use additional paper ifnecessary): Name of BusinessEntity Summary of Outside Business Activity Summary of Compensation Is the Business EntityRelated to a PubliclyTraded Company?(Yes/No) I certify that this form and any attachments are accurate and complete and constitute all of my outside business activities. Signature Date Print Name 1 Compensation includes salaries, director’s fees, referral fees, stock options, finder’s fees, and anything of present or future value. VI-2INSIDER TRADING POLICIES AND PROCEDURES I.BACKGROUNDAll personal securities trades are subject to these Insider Trading Policies and Procedures. However, compliance with the trading restrictions imposedby these procedures by no means assures full compliance with the prohibition on trading while in the possession of inside information, as defined in theseprocedures.Insider trading — trading Securities while in possession of material, nonpublic information or improperly communicating such information to others— may expose a person to stringent penalties. Criminal sanctions may include a fine of up to $1,000,000 and/or ten years’ imprisonment. The Commissionmay recover the profits gained, or losses avoided, through insider trading, obtain a penalty of up to three times the illicit gain or avoided loss, and/or issue anorder permanently barring any person engaging in insider trading from the securities industry. In addition, investors may sue seeking to recover damages forinsider trading violations.These Insider Trading Policies and Procedures are drafted broadly and will be applied and interpreted in a similar manner. Regardless of whether afederal inquiry occurs, Solar Capital views seriously any violation of these Insider Trading Policies and Procedures. Any violation constitutes grounds fordisciplinary sanctions, including dismissal and/or referral to civil or governmental authorities for possible civil or criminal prosecution.The law of insider trading is complex; a Supervised Person legitimately may be uncertain about the application of these Insider Trading Policies andProcedures in a particular circumstance. A question could forestall disciplinary action or complex legal problems. Supervised Persons should direct anyquestions relating to these Insider Trading Policies and Procedures to a Compliance Officer. A Supervised Person must also notify a Compliance Officerimmediately if he or she knows or has reason to believe that a violation of these Insider Trading Policies and Procedures has occurred or is about to occur. II.STATEMENT OF FIRM POLICYA. At all times, the interests of Solar Capital’s Clients must prevail over the individual’s interest.B. Buying or selling Securities in the public markets on the basis of material, nonpublic information is prohibited. Similarly, buying and sellingsecurities in a private transaction on the basis of material, nonpublic information is prohibited, except in the limited circumstance in which the information isobtained in connection with a private transaction with an issuer of securities, in which case the private transaction itself is permitted. A prohibited transactionwould include purchasing or selling (i) for a Supervised Person’s own account or one in which the Supervised Person has direct or indirect influence orcontrol, (ii) for a Client’s account, or (iii) for Adviser’s inventory account. If any Supervised Person is uncertain as to whether information is “material” or“nonpublic,” he or she should consult the Chief Compliance Officer.C. Disclosing material, nonpublic information to inappropriate personnel, whether or not for consideration, i.e., “tipping,” is prohibited. Material,nonpublic information must be disseminated on a “need to know basis” only to appropriate personnel. This would include any confidential discussionsbetween the issuer and personnel of Adviser. The Chief Compliance Officer should be consulted should a question arise as to who is privy to material,nonpublic information.D. Assisting anyone transacting business on the basis of material, nonpublic information through a third party is prohibited.E. In view of the Gabelli & Co./GAMCO Investments, Inc. SEC proceeding, it is clear that when a portfolio manager is in a position, due to his officialduties at an issuer, to have access to inside information on a relatively continuous basis, self-reporting procedures are not adequate to detect and preventinsider trading. Accordingly, neither Adviser nor an Adviser employee may trade in any securities issued by any company of which any VI-3Adviser employee is an employee or insider. All Supervised Persons must report to the Chief Compliance Officer or designee any affiliation or businessrelationship they may have with any issuer (a form of which is attached as Appendix VII thereto.)F. Supervised Persons should understand that if Solar Capital becomes aware of material, nonpublic information about the issuer of the underlyingsecurities, even if the particular Supervised Person in question does not himself or herself have such knowledge, or enters into certain transactions for clients,Solar Capital will not bear any losses resulting in personal accounts through the implementation of these Insider Trading Policies and Procedures.G. It is Solar’s policy that Supervised Persons may purchase or sell Solar securities only during the “window period” that generally begins on thesecond business day after Solar publicly releases quarterly or annual financial results and extends until the 15th day of the last calendar month of the quarterin which the results are announced (or such shorter time that may be designated by the Chief Executive Officer of the BDC (“CEO”)or the Chief OperationsOfficer of the BDC (“COO”) and the CCO). However, the ability of a Supervised Person to engage in transactions in Solar securities during window periods isnot automatic or absolute. Circumstances may prevent or delay the opening of the window period or cause the window period to be shortened. Further, notrades may be made even during a window period by an individual who possesses material, nonpublic information, other than in accordance with apreviously approved Trading Plan.Notwithstanding the foregoing, Supervised Persons may also purchase or sell Solar securities pursuant to a Trading Plan. As used herein, the term“Trading Plan” shall mean a pre-arranged trading plan adopted in accordance with and meeting all of the requirements of Rule 10b5-1(c) under the SecuritiesExchange Act of 1934, as amended, that has been approved by Solar’s Chief Compliance Officer. A Trading Plan may only be entered into, modified orterminated (i) prior to expiration by Supervised Persons at a time they would otherwise be permitted to purchase or sell Solar securities, and (ii) with the priorapproval of Solar’s Chief Compliance Officer. Each Supervised Person shall be responsible for ensuring compliance with the requirements of Rule 10b5-1(c)with respect to any Trading Plan they may enter into, modify or terminate prior to expiration, notwithstanding the prior approval thereof by Solar’s ChiefCompliance Officer.In addition, the Adviser may, subject to regulatory restrictions, award Restricted Stock Units (“RSUs”) representing discretionary bonuses as part of anemployee deferred compensation plan (the “award”) during a closed window period provided that (1) the Adviser, the CEO and the COO are not in possessionof material non-public information (“MNPI”); (2) the award does not require a purchase of Solar securities on the open market but instead represents a transferor potential transfer of Solar securities then held by the Adviser; and (3) the CCO approves the award in advance. To the extent an award representsnon-discretionary compensation, the RSUs may only be awarded in open window periods at a time when the Adviser, the CEO and the COO are not inpossession of MNPI.H. The following reviews principles important to these Insider Trading Policies and Procedures: 1.What is “Material” Information?Information is “material” when there is a substantial likelihood that a reasonable investor would consider it important in making his or her investmentdecisions. Generally, information is material if its disclosure will have a substantial effect on the price of a company’s Securities. No simple “bright line” testexists to determine whether information is material; assessments of materiality involve highly fact-specific inquiries. However, if the information you havereceived is or could be a factor in your trading decision, you must assume that the information is material. Supervised Persons should direct any questionsregarding the materiality of information to the Chief Compliance Officer or designee.Material information often relates to a company’s results and operations, including, for example, dividend changes, earnings results, changes inpreviously released earnings estimates, significant merger or acquisition VI-4proposals or agreements, major litigation, liquidation problems, and extraordinary management developments. Material information may also relate to themarket for a Security. Information about a significant order to purchase or sell Securities, in some contexts, may be deemed material; similarly, prepublicationinformation regarding reports in the financial press may also be deemed material. 2.What is “Nonpublic” Information?Information is “nonpublic” until it has been disseminated broadly to investors in the marketplace. Tangible evidence of this dissemination is the bestindication that the information is public. For example, information is public after it has become available to the general public through a public filing withthe Commission or some other government agency, or available to the Dow Jones “tape” or The Wall Street Journal or some other general circulationpublication, and after sufficient time has passed so that the information has been disseminated widely. If you believe that you have information concerningan issuer which gives you an advantage over other investors, the information is, in all likelihood, non-public. I.Identifying Inside Information.Before executing any trade for oneself or others, including Clients, a Supervised Person must determine whether he or she has access to material,nonpublic information. If a Supervised Person believes he or she might have access to material, nonpublic information, he or she should:5. Immediately alert the Chief Compliance Officer or designee, so that the applicable Security is placed on the Restricted List.6. Not purchase or sell the Securities on his or her behalf or for others, including Clients (except in the limited circumstance in which theinformation is obtained in connection with a private transaction with an issuer of securities, in which case the private transaction itself is permitted).7. Not communicate the information inside or outside of Adviser, other than to the Chief Compliance Officer or designee (or, in the limitedcircumstance of a private transaction with an issuer of securities, to Supervised Persons within Adviser involved in the transaction with a need to know theinformation).The Chief Compliance Officer will review the issue, determine whether the information is material and nonpublic, and, if so, what action Advisershould take. J.Contacts With Public Companies; Tender Offers.Contacts with public companies may represent part of Adviser’s research efforts and Adviser may make investment decisions on the basis of itsconclusions formed through these contacts and analysis of publicly available information. Difficult legal issues may arise, however, when a SupervisedPerson, in the course of these contacts, becomes aware of material, nonpublic information. For example, a company’s Chief Financial Officer couldprematurely disclose quarterly results, or an investor relations representative could make a selective disclosure of adverse news to certain investors. In thesesituations, Adviser must make a judgment about its further conduct. To protect oneself, Clients, and Adviser, a Supervised Person should immediately contactthe Chief Compliance Officer if he or she believes he or she may have received material, nonpublic information.Tender offers represent a particular concern in the law of insider trading for two reasons. First, tender offer activity often produces extraordinarymovement in the price of the target company’s securities. Trading during this time is more likely to attract regulatory attention, and produces adisproportionate percentage of insider trading cases. Second, the Commission has adopted a rule expressly forbidding trading and “tipping” while inpossession of material, nonpublic information regarding a tender offer received from the company making the tender offer, the target company, or anyoneacting on behalf of either. Supervised Persons must exercise particular caution any time they become aware of nonpublic information relating to a tenderoffer. VI-5III.INSIDER TRADING PROCEDURES APPLICABLE TO ALL SUPERVISED PERSONSThe following procedures have been established to aid Supervised Persons in avoiding insider trading, and to aid Adviser in preventing, detecting andimposing sanctions against insider trading. Every Supervised Person must follow these procedures or risk serious sanctions, including dismissal, substantialpersonal liability and criminal penalties. If a Supervised Person has any questions about these procedures, he or she should consult the Chief ComplianceOfficer or designee. A.Responsibilities of Supervised Persons.8. All Supervised Persons must make a diligent effort to ensure that a violation of these Insider Trading Policies and Procedures does not eitherintentionally or inadvertently occur. In this regard, all Supervised Persons are responsible for:(a) Reading, understanding and consenting to comply with these Insider Trading Policies and Procedures. Supervised Persons will be required tosign an acknowledgment that they have read and understood the Compliance Manual and therefore their responsibilities under the Code;(b) Ensuring that no trading occurs for their account, for any account over which they have direct or indirect influence or control or for anyClient’s account in Securities for which they have material, nonpublic information (except in the limited circumstance in which the information is obtainedin connection with a private transaction with an issuer of securities, in which case the private transaction itself is permitted);(c) Not disclosing inside information obtained from any source whatsoever to inappropriate persons. Disclosure to family, friends oracquaintances will be grounds for immediate termination and/or referral to civil or governmental authorities for possible civil or criminal prosecution;(d) Consulting the Chief Compliance Officer or designee when questions arise regarding insider trading or when potential violations of theseInsider Trading Policies and Procedures are suspected;(e) Ensuring that Adviser receives copies of confirmations and statements from both internal and external brokerage firms for accounts ofSupervised Persons and members of the Immediate Family of such Supervised Persons sharing the same household;(f) Advising the Chief Compliance Officer or designee of all outside business activities, directorships, or ownership of over 5% of the shares of apublic company. No Supervised Person may engage in any outside business activities as employee, proprietor, partner, consultant, trustee officer or directorwithout prior written consent of the Chief Compliance Officer, or a designee of the Chief Compliance Officer (a form of which is attached as Appendix VIIthereto); and(g) Being aware of, and monitoring, any Clients who are shareholders, directors, and/or senior officers of public companies. Any unusual activityincluding a purchase or sale of restricted stock must be brought to the attention of the Chief Compliance Officer or designee. B.Security.In order to prevent accidental dissemination of material, nonpublic information, personnel must adhere to the following guidelines:1. Inform management when unauthorized personnel enter the premises.2. Lock doors at all times in areas that have confidential and secure files.3. Refrain from discussing sensitive information in public areas. VI-64. Refrain from leaving confidential information on message devices.5. Maintain control of sensitive documents, including handouts and copies, intended for internal dissemination only.6. Ensure that faxes and e-mail messages containing sensitive information are properly sent, and confirm that the recipient has received theintended message.7. Do not allow passwords to be given to unauthorized personnel. IV.SUPERVISORY PROCEDURESSupervisory procedures can be divided into two classifications — prevention of insider trading and detection of insider trading. A.Prevention of Insider TradingTo detect insider trading, the Chief Compliance Officer or designee should:1. Answer questions regarding Solar Capital’s policies and procedures;2. Resolve issues of whether information received by an officer, director or employee of Solar Capital constitutes Inside Information anddetermine what action, if any, should be taken;3. Review these Insider Trading Policies and Procedures on a regular basis and update them as necessary;4. When it has been determined that a Supervised Person has Inside Information:(a) Implement measures to prevent dissemination of such information other than to appropriate Supervised Persons on a “need to know” basis,and(b) Not permit any Solar Capital employee to execute any transaction in any securities of the issuer in question (except in the limitedcircumstance in which the information is obtained in connection with a private transaction with an issuer of securities, in which case the private transactionitself is permitted);1. Implement a program of periodic “reminder” notices regarding insider trading;2. Confirm with each trader no less frequently than quarterly whether there are any issuers for whom Adviser has Inside Information; and3. Compile and maintain the Restricted List of securities in which no Supervised Person may trade because Adviser as an entity is deemed tohave Inside Information concerning the issuers of such securities and determine when to remove securities from the Restricted List. B.Detection of Insider TradingTo detect insider trading, the Chief Compliance Officer or designee should:1. Review daily confirmations and quarterly trading activity reports filed by Supervised Persons; and2. Promptly investigate all reports of any possible violations of these Insider Trading Policies and Procedures. VI-7 C.Special Reports to ManagementPromptly upon learning of a potential violation of Solar Capital’s Insider Trading Policies and Procedures, the Chief Compliance Officer or designeeshall prepare a written report to management providing full details, which may include (1) the name of particular securities involved, if any, (2) the date(s)Solar Capital learned of the potential violation and began investigating; (3) the accounts and individuals involved; (4) actions taken as a result of theinvestigation, if any; and (5) recommendations for further action. D.General Reports to ManagementAt least yearly, the Chief Compliance Officer will prepare a written report to the management of Adviser setting forth some or all of the following:1. A summary of existing procedures to detect and prevent insider trading;2. A summary of changes in procedures made in the last year;3. Full details of any investigation, whether internal or by a regulatory agency, since the last report regarding any suspected insider trading, theresults of the investigation and a description of any changes in procedures promptly by any such investigation; and4. An evaluation of the current procedures and a description of anticipated changes in procedures. VI-8Exhibit 21.1Subsidiaries of Solar Senior Capital Ltd.The 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:ESP SSC Corporation (Delaware)–100%SUNS SPV LLC (Delaware)–100%The subsidiaries listed above are 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 22, 2017 /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 22, 2017 /S/ RICHARD L. PETEKA Richard L. PetekaChief Financial OfficerExhibit 32.1Certification 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, 2016 (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 22, 2017Exhibit 32.2Certification 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, 2016 (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 22, 2017Exhibit 99.1Gemino Healthcare Finance, LLCand SubsidiaryConsolidated Financial StatementsDecember 31, 2016 and 2015Gemino Healthcare Finance, LLC and Subsidiary Table of ContentsDecember 31, 2016 and 2015 Page Independent Auditors’ Report 1 Consolidated Financial Statements Consolidated Balance Sheet 3 Consolidated Statement of Operations 4 Consolidated Statement of Changes in Members’ Equity 5 Consolidated Statement of Cash Flows 6 Notes to Consolidated Financial Statements 7  Baker Tilly Virchow Krause, LLP1650 Market St, Ste 4500Philadelphia, PA 19103-7341tel 215 972 0701tel 800 267 9405fax 888 264 9617bakertilly.comIndependent Auditors’ ReportBoard of ManagersGemino Healthcare Finance, LLCWe have audited the accompanying consolidated financial statements of Gemino Healthcare Finance, LLC and Subsidiary, which comprise the consolidatedbalance sheet as of December 31, 2016 and 2015, and the related consolidated statements of operations, changes in members’ equity, and cash flows for theyears then ended, and the related notes to the financial statements.Management’s Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principlesgenerally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparationand fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.Auditors’ ResponsibilityOur responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance withauditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the consolidated financial statements are free from material misstatement.An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. Theprocedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financialstatements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fairpresentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose ofexpressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating theappropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating theoverall presentation of the consolidated financial statements.We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 1 An Affirmative Action Equal Opportunity EmployerOpinionIn our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Gemino HealthcareFinance, LLC and Subsidiary as of December 31, 2016 and 2015, and the results of their operations and their cash flows for the years then ended inaccordance with accounting principles generally accepted in the United States of America. Philadelphia, PennsylvaniaFebruary 14, 2017 2Gemino Healthcare Finance, LLC and Subsidiary Consolidated Balance SheetDecember 31, 2016 and 2015 2016 2015 Assets Assets Cash and cash equivalents $14,990,039 $6,751,322 Loans receivable, net of allowance of $1,001,079 and $1,194,676, respectively 92,863,789 116,689,953 Accrued interest receivable 736,095 902,137 Intangible asset—trade name 2,800,000 2,800,000 Goodwill 5,663,531 5,663,531 Furniture and equipment, net 23,702 26,588 Deferred financing costs, net 1,324,312 741,256 Other assets 88,390 103,055 Total assets $118,489,858 $133,677,842 Liabilities and Members’ Equity Liabilities Credit facility payable $83,000,000 $98,500,000 Accounts payable and accrued expenses 1,793,277 1,997,910 Accrued dividend payable 581,370 558,187 Total liabilities 85,374,647 101,056,097 Members’ Equity Units, $1,000 par value, issued and outstanding 34,893 and 34,843, respectively 33,918,486 33,867,146 Retained deficit (803,275) (1,245,401) Total members’ equity 33,115,211 32,621,745 Total liabilities and members’ equity $118,489,858 $133,677,842 See notes to consolidated financial statements 3Gemino Healthcare Finance, LLC and Subsidiary Consolidated Statement of OperationsYears Ended December 31, 2016 and 2015 2016 2015 Interest Income Interest income on loans $9,641,138 $8,737,635 Interest expense (3,378,279) (3,148,749) Net interest income 6,262,859 5,588,886 Credit (Provision) for Loan Losses 193,597 (44,558) Net interest income after credit (provision) for loan losses 6,456,456 5,544,328 Other Income 3,633,196 3,636,566 General and Administrative Expenses (5,527,594) (5,299,772) Net income $4,562,058 $3,881,122 See notes to consolidated financial statements 4Gemino Healthcare Finance, LLC and Subsidiary Consolidated Statement of Changes in Members’ EquityYears Ended December 31, 2016 and 2015 Balance at December 31, 2014 $32,317,933 Additional capital contributions 141,546 Dividends declared (3,718,856) Net income 3,881,122 Balance at December 31, 2015 32,621,745 Additional capital contributions 51,340 Dividends declared (4,119,932) Net income 4,562,058 Balance at December 31, 2016 $33,115,211 See notes to consolidated financial statements 5Gemino Healthcare Finance, LLC and Subsidiary Consolidated Statement of Cash FlowsYears Ended December 31, 2016 and 2015 2016 2015 Cash Flows from Operating Activities Net income $4,562,058 $3,881,122 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 16,654 27,657 Amortization of discount on loans — (23,698) Amortization of deferred origination fees and costs (539,072) (367,108) Amortization of deferred financing costs 289,745 269,547 (Credit) provision for loan losses (193,597) 46,785 Changes in assets and liabilities: Decrease (increase) in accrued interest receivable 166,042 (17,786) Decrease (increase) in other assets 14,665 (19,118) Increase in deferred origination fees and costs, net 489,250 516,855 (Decrease) increase in accounts payable and accrued expenses (204,633) 758,713 Net cash provided by operating activities 4,601,112 5,072,969 Cash Flows from Investing Activities Decrease (increase) in loans receivable, net 24,069,583 (4,660,729) Purchase of furniture and equipment (13,768) (15,023) Net cash provided by (used in) investing activities 24,055,815 (4,675,752) Cash Flows from Financing Activities (Repayments) proceeds from credit facility, net (15,500,000) 3,500,000 Financing costs paid and deferred for credit facility (872,801) — Dividends paid (4,096,749) (3,627,403) Proceeds from contributed capital, net 51,340 141,546 Net cash (used in) provided by financing activities (20,418,210) 14,143 Net increase in cash and cash equivalents 8,238,717 411,360 Cash and Cash Equivalents, Beginning 6,751,322 6,339,962 Cash and Cash Equivalents, Ending $14,990,039 $6,751,322 Supplemental Disclosure of Cash Flow Information Interest paid $3,108,074 $2,867,907 See notes to consolidated financial statements 6Gemino Healthcare Finance, LLC and Subsidiary Notes to Consolidated Financial StatementsDecember 31, 2016 and 2015 1.Description of BusinessGemino Healthcare Finance, LLC (“Gemino”), a Delaware limited liability company formed in December 2006, is a commercial finance company thatoriginates, underwrites, and manages primarily secured, asset-based loans for small and mid-sized companies operating across the U.S. in the healthcareindustry. Gemino’s loans are primarily in the form of revolving lines of credit, secured by accounts receivable of the borrowers. The accountsreceivable serving as collateral are primarily third party obligations from government payers, such as Medicare or Medicaid, and commercial insurers.In certain cases, Gemino may provide senior term loan financing to qualified borrowers in addition to a revolving line of credit. Senior term loans aretypically secured by accounts receivable, all other assets of the borrowers and a pledge of the stock of the borrowers.Gemino Healthcare Funding, LLC (“Gemino Funding”), is a wholly-owned special purpose limited liability company, that purchases and holds certaineligible loans and related property from Gemino.On September 30, 2013, Solar Senior Capital Ltd. (“Solar”), a Maryland corporation, acquired the controlling interest in Gemino. The remaininginterest is held by various employees of Gemino, through their investment in Gemino Management Investment, LLC. 2.Summary of Significant Accounting PoliciesPrinciples of ConsolidationThe consolidated financial statements include the accounts of Gemino and Gemino Funding (collectively, the “Company”). All significantintercompany balances have been eliminated in consolidation.Use of EstimatesThe preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requiresmanagement to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assetsand liabilities at the date of the financial statements and to report amounts of revenues and expenses during the reporting period. Actual resultscould differ from these estimates. The allowance for loan loss represents an estimate that is particularly susceptible to material change.Cash and Cash EquivalentsCash and cash equivalents include funds deposited with financial institutions and short-term, liquid investments in money market accounts withoriginal maturities of three months or less.Loans Receivable and Income RecognitionLoans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at theiroutstanding unpaid principal balances less the allowance for loan loss and any deferred fees or costs.Commitment terms of the Company’s financing agreements generally range from two to five years with interest charged on a floating rate basis.Funding under revolving loan commitments is subject to the Company’s estimation of the accounts receivable pledged as collateral. 7Gemino Healthcare Finance, LLC and Subsidiary Notes to Consolidated Financial StatementsDecember 31, 2016 and 2015 Income on loans receivable is recognized using the simple interest method. The accrual of interest on loans is discontinued at the time the loan is90 days delinquent unless the loan is well secured and/or in the process of collection. Typically, loans are placed on non-accrual or charged offat an earlier date if collection of principal or interest is considered doubtful. When a loan is placed on non-accrual status, all interest previouslyaccrued, but not collected, is reversed against current interest income and all future proceeds received will generally be applied against principalor interest, in the judgment of management. Loans are returned to accrual status when all principal and interest amounts contractually due arereasonably assured.Revolving loan origination fees and costs are deferred and amortized on a straight-line basis over the terms of the related loan commitments asan adjustment to interest income on loans. Term loan origination fees and costs are deferred and amortized using either the effective interestmethod or the straight-line method over the life of the loan as an adjustment to interest income. The straight-line method may be used for termloan facilities when it approximates the effective interest method. Other fees, such as collateral monitoring fees, unused balance fees andcollateral examination fees, are recognized when the services are provided. Termination fees are recognized when a loan is terminated. Theseother fees are included in other income.Impaired LoansA loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect allamounts due in accordance with the contractual terms of the loan agreement. Loans are evaluated for impairment by the Company based on anongoing analysis of each borrower’s repayment capacity, the value of the collateral support and the strength of any guarantees. Loans identifiedas impaired are further evaluated to determine the estimated extent of impairment.Allowance for Loan LossThe allowance for loan loss represents the Company’s recognition of the assumed risks of extending credit. The allowance is maintained at alevel considered adequate to provide for probable losses inherent in the loan portfolio. Management establishes a general portfolio reserve forunimpaired loans based on various factors including historical loss experience, the overall credit quality of the loan portfolio, economic trendsand conditions and the regulatory environment.The overall credit quality of the Company’s borrowers is reflected in the individual and weighted average credit risk ratings of the loans in theportfolio. Credit risk ratings for each borrower are established based on a number of qualitative and quantitative factors including an assessmentof management and strategy, historical and projected repayment capacity, collateral coverage and performance, financial condition andsponsorship, strength of guarantees and any contingencies.Specific allowances for loan losses on impaired loans are typically measured based on a comparison of the recorded carrying value of the loan tothe present value of the loan’s expected cash flow using the loan’s effective interest rate, the loan’s estimated market price or the estimated fairvalue of the underlying collateral, if the loan is collateral-dependent combined with the strength of any guarantee arrangements. Specificallowances are recorded when the discounted cash flows, collateral value, or aggregate market price of the impaired loan is lower than thecarrying value of that loan.Loans are charged off when collection is sufficiently questionable and when the Company can no longer justify maintaining the loan as an asseton the balance sheet. Loans qualify for charge off when, 8Gemino Healthcare Finance, LLC and Subsidiary Notes to Consolidated Financial StatementsDecember 31, 2016 and 2015 after thorough analysis, all possible sources of collection are determined to be insufficient to repay the loan. These include impairment ofpotential future cash flow, value of collateral and/or financial strength of guarantors. Recoveries of previous charge-offs are recorded whenreceived.Goodwill and Intangible AssetGoodwill represents the excess of consideration paid for an acquired business over the fair value of the related assets acquired and liabilitiesassumed. Intangible asset—trade name has an indefinite life. Goodwill and intangible asset—trade name arose from the acquisition of theCompany on September 30, 2013 (Note 1). The Company is required to assess its goodwill and indefinite-lived intangible asset for impairmentannually, or more frequently if events or changes in circumstances indicate impairment may have occurred.The Company assesses its indefinite-lived intangible asset for impairment by comparing the carrying value of the asset to its fair value, andassesses goodwill for impairment by comparing the carrying value of the Company to its fair value. The fair value of intangible asset—tradename is estimated using the relief from royalty method, which is an income approach based on the present value of royalties the Company wouldtheoretically have to pay to license the trade name from a third party. The fair value of the Company is estimated using a weighted averageamount of the present value of expected future cash flows and the adjusted market multiples of comparable companies. If the fair value is lessthan the carrying value, an impairment loss would be recorded. For the years ended December 31, 2016 and 2015, there were no impairments.Furniture and EquipmentFurniture and equipment are recorded at cost, net of accumulated depreciation, and are depreciated on a straight-line basis over their estimateduseful lives ranging from three to five years.Deferred Financing CostsDeferred financing costs represents capitalized expenses incurred with debt financing transactions. The Company incurred and capitalized$872,801 of deferred financing costs in 2016, in connection with its credit facility (Note 6). These costs are being amortized on a straight-linebasis over the life of the related credit facility agreement as an adjustment to interest expense.Income TaxesThe Company is not subject to federal or state income taxes. Members of the Company have elected to report the taxable income or loss on theirindividual tax returns. Accordingly, no provision for income taxes has been recorded in the accompanying consolidated financial statements.The Company applies authoritative guidance relating to the accounting for uncertain tax positions. Accordingly, a provision for uncertain taxpositions and related penalties and interest is recognized when it is more-likely-than-not, based on the technical merits, that the tax position willbe realized or sustained upon examination. The term more-likely-than-not means a likelihood or more than 50%. A tax position that meets themore-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than50% likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determinationof whether or not a tax position has met the more-likely-than-not recognition threshold 9Gemino Healthcare Finance, LLC and Subsidiary Notes to Consolidated Financial StatementsDecember 31, 2016 and 2015 considers the facts, circumstances, and information available at the reporting date and is subject to management’s judgment. The Company filesboth federal and state income tax returns; Gemino Funding is a disregarded entity for tax purposes. The Company is no longer subject toexamination by taxing authorities for the years before January 1, 2013.Recent Accounting PronouncementsIn May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue fromContracts with Customers (Topic 606) (ASU 2014-09). ASU 2014-09 provides a single comprehensive revenue recognition framework andsupersedes existing revenue recognition guidance. Included in the new principles-based revenue recognition model are changes to the basis fordeciding on the timing for revenue recognition. In addition, the standard expands and improves revenue disclosures. In August 2015, FASBsubsequently issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date which defers theeffective date of ASU 2014-09. After the deferral, ASU 2014-09 is effective retroactively for annual or interim reporting periods beginning afterDecember 15, 2017, with early adoption permitted for reporting periods beginning after December 15, 2015. The Company is currentlyevaluating the impact of adopting ASU 2014-09 on its consolidated financial statements.In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326) to replace the incurred loss model, which isreferred to as the current expected credit loss (“CECL”) model. The CECL model is applicable to the measurement of credit losses on financialassets measured at amortized cost, including loans receivable and held-to maturity debt securities. It also applies to off-balance sheet creditexposures including loan commitments, standby letters of credit, financial guarantees, and other similar instruments. For the assets within thescope of CECL, a cumulative-effect adjustment will be recognized in retained earnings as of the beginning of the first reporting period in whichthe guidance is effective. This new standard will be effective for the Company for fiscal years beginning after December 15, 2019. The Companyis currently evaluating the impact this new standard will have on its consolidated financial statements. 3.Loans ReceivableThe following table shows the composition of loans receivable, net as of December 31, 2016 and 2015: 2016 2015 Revolving loans receivable $86,855,086 $109,717,445 Term loans receivable 7,640,833 8,848,056 Total loans receivable 94,495,919 118,565,501 Less allowance for loan losses (1,001,079) (1,194,676) Less deferred origination fees and costs, net (631,051) (680,872) Loans receivable, net $92,863,789 $116,689,953 10Gemino Healthcare Finance, LLC and Subsidiary Notes to Consolidated Financial StatementsDecember 31, 2016 and 2015 4.Allowance for Loan Losses and Recorded Investment in Loans ReceivablesThe following table summarizes the activity in the allowance for loan losses by loan class for the respective years ended December 31, 2016 and 2015: BeginningBalance Charge-Offs Recoveries (Credit)Provisions EndingBalance EndingBalance:IndividuallyEvaluatedforImpairment EndingBalance:CollectivelyEvaluatedforImpairment Allowance for Loan Losses - December 31, 2016 Revolving loans $1,106,195 $— $— $(181,524) $924,671 $49,252 $875,419 Term loans 88,481 — — (12,073) 76,408 — 76,408 Total $1,194,676 $— $— $(193,597) $1,001,079 $49,252 $951,827 Allowance for Loan Losses - December 31, 2015 Revolving loans $1,043,131 $— $2,227 $60,837 $1,106,195 $— $1,106,195 Term loans 104,760 — — (16,279) 88,481 — 88,481 Total $1,147,891 $— $2,227 $44,558 $1,194,676 $— $1,194,676 The following table summarizes the activity in the recorded investment in loans receivable by loan class at December 31, 2016 and 2015: Ending Balance EndingBalanceIndividuallyEvaluatedforImpairment Ending BalanceCollectivelyEvaluated forImpairment Loans Receivables - December 31, 2016 Revolving loans $86,855,086 $49,252 $86,805,834 Term loans 7,640,833 — 7,640,833 Total $94,495,919 $49,252 $94,446,667 Loans Receivables - December 31, 2015 Revolving loans $109,717,445 $— $109,717,445 Term loans 8,848,056 — 8,848,056 Total $118,565,501 $— $118,565,501 11Gemino Healthcare Finance, LLC and Subsidiary Notes to Consolidated Financial StatementsDecember 31, 2016 and 2015 Credit Quality IndicatorsThe following table summarizes the loan portfolio by the Company’s internal credit rating (scale: 1 to 7) as of December 31, 2016 and 2015:Loans with a rating of 4 or better generally pose minimal risk to the Company as they exhibit, among other things, one or more of the followingattributes: (1) well-secured collateral position; (2) satisfactory cash flows; and (3) history of timely payment of debt obligations. Loans creditrated below 4 are considered “watchlist” loans; an overall degree of risk exists with these loans that warrants management’s review each quarter. December 31, 2016 RevolvingLoans Term Loans Rated 4 or better $85,673,388 $7,640,833 Rated 5 1,132,446 — Rated 6 49,252 — Total $86,855,086 $7,640,833 December 31, 2015 Rated 4 or better $98,119,532 $8,848,056 Rated 5 11,528,246 — Rated 6 69,667 — Total $109,717,445 $8,848,056 5.Furniture and EquipmentFurniture and equipment are comprised of the following at December 31, 2016 and 2015: 2016 2015 Computer software and equipment $65,345 $59,860 Furniture and fixtures 16,840 14,731 Leasehold improvement 12,026 12,026 Total 94,211 86,617 Less accumulated depreciation (70,509) (60,029) Furniture and equipment, net $23,702 $26,588 Depreciation expense was $16,654 and $27,657 for the years ended December 31, 2016 and 2015, respectively. 6.DebtThe Company had a four-year, non-recourse, $110,000,000 secured revolving credit facility, which was expandable to $150,000,000 under itsaccordion feature. On May 27, 2016, the Company entered into a new $125,000,000 secured revolving credit facility with its existing lenders whichreplaced the previously existing credit facility. The new credit facility has similar terms as compared to the previous credit facility, includes anaccordion feature increase to $200,000,000 and has a maturity date of May 27, 2020. Under the terms of the credit facilities, the Company has madecertain customary representations and warranties, and 12Gemino Healthcare Finance, LLC and Subsidiary Notes to Consolidated Financial StatementsDecember 31, 2016 and 2015 is required to comply with various covenants, including financial and reporting requirements and other customary requirements for similar creditfacilities. The credit facilities also include usual and customary events of default for credit facilities of this nature.Amounts available to borrow under the credit facilities are also subject to compliance with a borrowing base that applies different advance rates todifferent types of assets in the Company’s portfolio that are pledged as collateral. As of December 31, 2016 and 2015, there were principal borrowingsof $83,000,000 and $98,500,000 outstanding, respectively under the respective credit facilities. As of December 31, 2016 and 2015, there wereapproximately $113,031,000 and $119,571,000 of eligible loans and related security pledged as collateral under the credit facilities, respectively.Interest on the credit facilities accrues at a variable rate per annum of one-month LIBOR plus 2.60% and one-month LIBOR plus 2.75% as ofDecember 31, 2016 and 2015, respectively (3.37% and 3.18% at December 31, 2016 and 2015, respectively), payable monthly. The Company alsopays customary loan fees for the credit facilities. 7.Commitments and ConcentrationsAt December 31, 2016 and 2015, the Company has committed facilities to its borrowers totaling approximately $186,360,000 and $188,254,000,respectively, of which approximately $91,864,000 and $69,688,000, respectively, was unused. Borrowers may borrow up to the lesser of (i) thecommitted facility or (ii) the underlying collateral value multiplied by the advance rate. Of the unused committed facility amount at December 31,2016 and 2015, borrowers could borrow up to approximately $22,064,000 and $20,076,000, respectively.At December 31, 2016, the Company had one loan approximating 12% of the total loans receivable. 8.Lease CommitmentsThe Company leases its headquarters, regional sales offices and equipment under non-cancelable operating leases, which expire at various datesthrough 2020. As of December 31, 2016, future lease payments under non-cancelable operating leases, are as follows: Years ending December 31: 2017 $148,629 2018 134,515 2019 129,976 2020 10,750 Total $423,870 Total rent expense for all leases amounted to approximately $157,000 and $162,000 for the years ended December 31, 2016 and 2015, respectively. 9.401(k) Savings PlanThe Company has a savings incentive plan covering substantially all employees of the Company. Contributions are currently made by the Company inan amount equal to 100% of the first 5% of employee contributions after the employee has completed three months of continued employment. TheCompany’s contribution for the years ended December 31, 2016 and 2015 was approximately $144,000 and $139,000, respectively. 13Gemino Healthcare Finance, LLC and Subsidiary Notes to Consolidated Financial StatementsDecember 31, 2016 and 2015 10.Long-Term Incentive PlanThe Company has a Long-Term Incentive Plan (“LTIP Plan”) that provides for an annual bonus pool to employees based on the Company achievingcertain performance criteria. For the years ended December 31, 2016 and 2015, the Company has expensed approximately $167,000 and $131,000,respectively for the LTIP Plan. 11.Fair Value DisclosureManagement uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent weaknesses in anyestimation technique. The estimated fair value amounts have been measured as of the Company’s year-end and have not been reevaluated or updatedfor purposes of these consolidated financial statements subsequent to that date. As such, the estimated fair value of these consolidated financialinstruments subsequent to the reporting date may be different than the amounts reported at year-end. These estimates are subjective in nature andinclude uncertainties and matters of significant judgment and, therefore cannot be determined with precision. Changes in assumptions couldsignificantly affect the estimates. There are three levels of inputs that may be used to measure fair values:Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of themeasurement date.Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices inmarkets that are not active; or other inputs that are observable or can be corroborated by observable market data.Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use inpricing an asset or liability.The following information should not be interpreted as an estimate of the fair value of the entire Company, since a fair value calculation is onlyprovided for a limited portion of the Company’s assets and liabilities. The following methods and assumptions were used to estimate the fair values ofthe Company’s financial instruments as of December 31, 2016 and 2015:Cash and cash equivalents – The carrying value approximates fair value for cash and cash equivalents. (Level 1)Loan receivables, net – Fair values for loans are estimated using market interest rates currently being offered for loans with similar terms toborrowers of similar credit quality. (Level 2)Accrued interest receivable, accrued interest payable – Due to the short-term nature of these amounts, their carrying amounts approximate fairvalue. (Level 1)Credit facility payable – The fair value of the credit facility payable is determined from market sources based on current interest rates at thebalance sheet date for borrowers with similar credit ratings as the Company. (Level 2) 14Gemino Healthcare Finance, LLC and Subsidiary Notes to Consolidated Financial StatementsDecember 31, 2016 and 2015 The estimated fair values of the Company’s financial instruments as of December 31, 2016 and 2015 are as follows: 2016 Carrying Value Fair Value Financial assets: Cash and cash equivalents $14,990,039 $14,990,039 Loan receivables, net 92,863,789 93,494,840 Accrued interest receivable 736,095 736,095 Financial liabilities: Credit facility payable 83,000,000 83,000,000 Accrued interest payable 243,645 243,645 2015 Financial assets: Cash and cash equivalents $6,751,322 $6,751,322 Loan receivables, net 116,689,953 117,370,825 Accrued interest receivable 902,137 902,137 Financial liabilities: Credit facility payable 98,500,000 98,500,000 Accrued interest payable 263,185 263,185 Except for the loan evaluated individually for impairment (Note 4), at December 31, 2016, the Company had no financial assets or liabilities measuredat fair value on a nonrecurring basis. 12.Subsequent EventsThe Company evaluated subsequent events for recognition or disclosure through February 14, 2017, which was the date the consolidated financialstatements were available to be issued. 15Exhibit 99.2 First Lien Loan Program LLC (FLLP)Consolidated Financial StatementsDecember 31, 2016(With Independent Auditors’ Report Thereon) First Lien Loan Program LLCTable of Contents PAGE Independent Auditors’ Report 1 Consolidated Financial Statements: Consolidated Statements of Assets and Liabilities as of December 31, 2016 and December 31, 2015 2 Consolidated Statements of Operations for the year ended December 31, 2016 and for the period February 13, 2015 (commencement ofoperations) through December 31, 2015 3 Consolidated Statements of Changes in Net Assets for the year ended December 31, 2016 and for the period February 13, 2015(commencement of operations) through December 31, 2015 4 Consolidated Statements of Cash Flows for the year ended December 31, 2016 and for the period February 13, 2015 (commencement ofoperations) through December 31, 2015 5 Consolidated Schedule of Investments as of December 31, 2016 6 Consolidated Schedule of Investments as of December 31, 2015 7 Notes to Consolidated Financial Statements 8  Independent Auditors’ ReportThe MembersFirst Lien Loan Program LLC:We have audited the accompanying consolidated financial statements of First Lien Loan Program LLC, which comprise the consolidated statements of assetsand liabilities, including the consolidated schedules of investments, as of December 31, 2016 and 2015, and the related consolidated statements ofoperations, changes in net assets, and cash flows for the year ended December 31, 2016 and for the period from February 13, 2015 (commencement ofoperations) to December 31, 2015, and the related notes to the consolidated financial statements.Management’s Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with U.S. generally acceptedaccounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation ofconsolidated financial statements that are free from material misstatement, whether due to fraud or error.Auditors’ ResponsibilityOur responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance withauditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the consolidated financial statements are free from material misstatement.An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. Theprocedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financialstatements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fairpresentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose ofexpressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating theappropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating theoverall presentation of the consolidated financial statements.We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.OpinionIn our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of First Lien Loan ProgramLLC as of December 31, 2016 and 2015, and the results of its operations, changes in its net assets and its cash flows for the year ended December 31, 2016and for the period from February 13, 2015 (commencement of operations) to December 31, 2015 in accordance with U.S. generally accepted accountingprinciples. New York, NYFebruary 22, 2017KPMG LLP is a Delaware limited liability partnership,the U.S. member firm of KPMG International Cooperative(“KPMG International”), a Swiss entity. First Lien Loan Program LLCConsolidated Statements of Assets and Liabilities December 31, 2016 December 31, 2015 Assets Investments, at fair value (cost: $118,227,882 and $75,424,284, respectively) $117,286,663 $74,417,606 Cash 4,361,739 1,865,570 Interest receivable 503,512 475,140 Other receivable 72,776 30,000 Total Assets 122,224,690 76,788,316 Liabilities Credit facility payable (see notes 4 and 5) 75,941,108 43,997,500 Distributions payable 981,457 741,917 Service fees payable (see note 3) 18,546 12,368 Interest payable and other credit facility related expenses (see note 5) 707,583 400,568 Other liabilities and accrued expenses 221,689 100,666 Total Liabilities 77,870,383 45,253,019 Net Assets $44,354,307 $31,535,297 Net Assets Consist of: Paid-in capital $47,070,815 $33,810,243 Distributions in excess of net investment income (1,834,593) (1,268,268) Accumulated net realized gain 59,304 — Net unrealized depreciation on investments (941,219) (1,006,678) Total Net Assets $44,354,307 $31,535,297 Net Assets attributable to Solar Senior Capital Ltd. $38,810,019 $27,593,385 Net Assets attributable to Voya Financial 5,544,288 3,941,912 Total Net Assets $44,354,307 $31,535,297 See notes to consolidated financial statements. 2First Lien Loan Program LLCConsolidated Statements of Operations Year endedDecember 31, 2016 For the periodFebruary 13, 2015(commencement ofoperations) throughDecember 31, 2015 Investment Income Interest $6,343,892 $3,115,055 Expenses Service fees (see note 3) 65,516 31,665 Costs related to establishing and amending the credit facility * 836,273 1,316,593 Interest and other credit facility related expenses (see note 5) 2,239,797 910,573 Other general and administrative expenses 179,002 142,000 Total expenses 3,320,588 2,400,831 Net Investment Income 3,023,304 714,224 Realized and Unrealized Gain (Loss) on Investments Net realized gain on investments 59,304 — Net change in unrealized gain (loss) on investments 65,459 (1,006,678) Net Realized and Unrealized Gain (Loss) on Investments 124,763 (1,006,678) Net Increase (Decrease) in Net Assets Resulting From Operations $3,148,067 $(292,454) *First Lien Loan Program LLC made an irrevocable election to apply the fair value option of accounting to its secured revolving credit facility (the“FLLP Facility”) in accordance with ASC 825-10. As such, all expenses related to the establishment of and amendment to the FLLP Facility wereexpensed in the periods incurred.See notes to consolidated financial statements. 3First Lien Loan Program LLCConsolidated Statements of Changes in Net Assets For the year endedDecember 31, 2016 For the periodFebruary 13, 2015(commencement ofoperations) throughDecember 31, 2015 Increase (Decrease) in Net Assets Resulting From Operations: Net investment income $3,023,304 $714,224 Net realized gain 59,304 — Net change in unrealized gain (loss) on investments 65,459 (1,006,678) Net increase (decrease) in net assets resulting from operations 3,148,067 (292,454) Capital transactions: Proceeds received from members 13,260,572 33,810,243 Distributions of income to members (3,589,629) (1,982,492) Net proceeds from capital transactions 9,670,943 31,827,751 Net increase in net assets 12,819,010 31,535,297 Net assets, beginning of period 31,535,297 — Net assets, end of period $44,354,307 $31,535,297 See notes to consolidated financial statements. 4First Lien Loan Program LLCConsolidated Statements of Cash Flows For the year endedDecember 31, 2016 For the periodFebruary 13, 2015(commencement ofoperations) throughDecember 31, 2015 Cash Flows From Operating Activities: Net increase (decrease) in net assets resulting from operations $3,148,067 $(292,454) Adjustment to reconcile net increase (decrease) in net assets resulting from operations: Net realized (gain) on investments (59,304) — Net change in unrealized (gain) loss on investments (65,459) 1,006,678 (Increase) decrease in operating assets: Purchase of investments (66,897,357) (46,808,496) Proceeds from disposition of investments 24,153,063 968,175 Interest receivable (28,372) (475,140) Other receivable (42,776) (30,000) Increase in operating liabilities: Service fees payable 6,178 12,368 Interest payable and other credit facility related expenses 307,015 400,568 Other liabilities and accrued expenses 121,023 100,666 Net Cash Used in Operating Activities (39,357,922) (45,117,635) Cash Flows From Financing Activities: Proceeds from borrowings 46,096,600 43,997,500 Repayment of borrowings (14,152,992) — Proceeds received from members 13,260,572 4,226,280 Cash distributions of income paid (3,350,089) (1,240,575) Net Cash Provided by Financing Activities 41,854,091 46,983,205 Net Increase In Cash 2,496,169 1,865,570 Cash—Beginning of Period 1,865,570 — Cash—End of Period $4,361,739 $1,865,570 Non-cash operating and financing activities–During the period February 13, 2015 through December 31, 2015 $29,583,963 of investments were transferredfrom Solar Senior Capital Ltd. to First Lien Loan Program LLC.See notes to consolidated financial statements. 5First Lien Loan Program LLCConsolidated Schedule of InvestmentsDecember 31, 2016 Description Industry InterestRate MaturityDate ParAmount Cost Fair Value Investments* Bank Debt/Senior Secured Loans–264.4% 1A Smart Start LLC Electronic Equipment, Instruments &Components 5.75% 02/21/22 7,920,000 7,854,863 7,920,000 Alera Group Intermediate Holdings, Inc. Insurance 6.50% 12/30/22 3,456,075 3,421,541 3,421,515 Anesthesia Consulting & Management, LP Health Care Providers & Services 6.00% 10/31/22 5,000,000 4,951,167 4,950,000 Capstone Logistics Acquisition, Inc. Professional Services 5.50% 10/07/21 5,361,461 5,320,487 5,307,847 CIBT Holdings, Inc. Professional Services 6.25% 06/28/22 2,620,324 2,595,900 2,594,121 Confie Seguros Holding II Co. Insurance 5.75% 04/19/22 5,500,000 5,446,578 5,537,125 DB Datacenter Holdings, Inc. IT Services 5.75% 07/13/21 5,500,000 5,450,203 5,417,500 Empower Payments Acquisition, Inc. (RevSpring) Professional Services 6.50% 11/30/23 4,625,000 4,533,205 4,532,500 Falmouth Group Holdings Corp. (AMPAC) Chemicals 7.75% 12/14/21 5,486,146 5,486,146 5,486,146 Kellermeyer Bergensons Services, LLC (KBS) Commercial Services & Supplies 6.00% 10/29/21 2,437,650 2,419,100 2,388,897 Medrisk, LLC Health Care Providers & Services 6.25% 03/01/23 3,970,000 3,934,098 3,970,000 Metamorph US 3, LLC (Metalogix) Software 7.50% 12/01/20 4,000,000 3,927,626 2,860,000 Ministry Brands LLC Software 6.00% 12/02/22 2,746,333 2,719,179 2,718,870 Pearl Merger Sub, LLC (PetVet) Health Care Facilities 5.75% 12/17/20 5,390,000 5,312,794 5,329,363 Pet Holdings ULC & Pet Supermarket, Inc. Specialty Retail 6.50% 07/05/22 4,537,500 4,474,013 4,480,781 PSP Group, LLC (Pet Supplies Plus) Specialty Retail 5.75% 04/06/21 5,353,409 5,315,176 5,326,642 QBS Holding Company, Inc. (Quorum) Software 5.75% 08/07/21 3,430,000 3,403,974 3,292,800 Salient Partners, L.P. Asset Management 9.50% 06/09/21 5,153,958 5,072,752 5,025,109 Sarnova HC LLC Trading Companies & Distributors 5.75% 01/28/22 4,962,500 4,919,324 4,962,500 Suburban Broadband, LLC (Jab Wireless, Inc.) Wireless Telecommunication Services 5.50% 03/26/19 8,167,500 8,060,205 8,085,825 Telular Corporation Wireless Telecommunication Services 5.50% 06/24/19 5,063,297 5,046,749 5,050,638 The Hilb Group, LLC & Gencorp Insurance Group, Inc. Insurance 6.00% 06/24/21 3,814,008 3,747,167 3,775,868 Tronair Parent Inc. Aerospace and Defense 5.75% 09/08/23 4,987,500 4,938,522 4,962,563 VT Buyer Acquisition Corp. (Veritext) Professional Services 6.00% 01/29/22 4,481,071 4,442,869 4,458,666 Wirb-Copernicus Group, Inc. Business Services 6.00% 08/12/22 5,486,250 5,434,244 5,431,387 Total Investments—264.4% $118,227,882 $117,286,663 Liabilities in Excess of Other Assets—(164.4%) (72,932,356) Net Assets–100.0% $44,354,307 *All investments are in companies domiciled in the United States.See notes to consolidated financial statements. 6First Lien Loan Program LLCConsolidated Schedule of InvestmentsDecember 31, 2015 Description Industry InterestRate MaturityDate ParAmount Cost Fair Value Investments Bank Debt/Senior Secured Loans 1A Smart Start LLC Electronic Equipment, Instruments &Components 5.75% 02/21/22 $8,000,000 $7,923,559 $7,880,000 Athletico Management, LLC and Accelerated Holdings, LLC Health Care Facilities 6.25% 12/02/20 4,723,810 4,682,510 4,652,952 Capstone Logistics Acquisition, Inc. Professional Services 5.50% 10/07/21 5,436,212 5,387,285 5,395,441 Castle Management Borrower LLC (Highgate Hotels) Real Estate Management &Development 5.50% 09/18/20 3,950,000 3,915,918 3,811,750 Confie Seguros Holding II Co. Insurance 5.75% 11/09/18 5,458,422 5,454,436 5,390,192 Innovative Xcessories & Services, LLC Automotive Retail 5.25% 02/21/20 2,500,000 2,500,000 2,462,500 Kellermeyer Bergensons Services, LLC (KBS) Commercial Services & Supplies 6.00% 10/29/21 2,475,000 2,452,912 2,363,625 Metamorph US 3, LLC (Metalogix) Software 6.50% 12/01/20 4,875,000 4,767,869 4,485,000 Pearl Merger Sub, LLC (PetVet) Health Care Facilities 5.50% 12/17/20 5,445,000 5,349,990 5,336,100 PSP Group, LLC (Pet Supplies Plus) Specialty Retail 5.75% 04/06/21 5,458,750 5,410,660 5,349,575 QBS Holding Company, Inc. (Quorum) Software 5.75% 08/07/21 3,465,000 3,433,878 3,361,050 RCPSI Corporation (Pet Supermarket) Specialty Retail 6.75% 04/16/21 5,472,500 5,423,014 5,363,050 Salient Partners, L.P. Asset Management 7.50% 06/09/21 5,417,500 5,316,674 5,227,887 Suburban Broadband, LLC (Jab Wireless, Inc.) Wireless TelecommunicationServices 5.50% 03/26/19 8,229,375 8,075,472 8,064,788 Telular Corporation Wireless TelecommunicationServices 5.50% 06/24/19 5,354,006 5,330,107 5,273,696 Total Investments $75,424,284 $74,417,606 See notes to consolidated financial statements. 7FIRST LIEN LOAN PROGRAM LLCNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2016Note 1. OrganizationOn September 10, 2014, Solar Senior Capital Ltd. (“Solar Senior”) entered into a limited liability company agreement to create First Lien LoanProgram LLC (“FLLP”, the “Company”, “we” or “our”) with Voya Investment Management LLC (“Voya”). SolarSenior and Voya have committed to provide$50,750,000 and $7,250,000 respectively, of capital to the Company, which is a joint venture. All portfolio decisions and generally all other decisions inrespect of FLLP must be approved by an equal number of representatives of Solar Senior and Voya (with approval from a representative of each required). TheCompany’s investments involve certain risks, including the risk of loss of a substantial part of a member’s investment under certain circumstances. SolarSenior and Voya (the “Members”) understand that their interest will be highly illiquid and is not suitable for trading. The interest may represent an indirect,leveraged exposure to loans, which may expose the interest to disproportionately large changes in value. The interest will rank behind obligations of theCompany to all creditors (secured and unsecured and whether known or unknown) of the Company, including, without limitation, Solar Senior in its capacityas the servicer. On February 13, 2015, FLLP commenced operations.As of December 31, 2016, Solar Senior and Voya contributed combined equity capital in the amount of $41,186,963 and $5,883,852, respectively. Ofthe $47,070,815 of contributed equity capital at December 31, 2016, Solar Senior contributed $29,583,963 in the form of investments and $11,603,000 inthe form of cash and Voya contributed $5,883,852 in the form of cash. As of December 31, 2015, Solar Senior and Voya contributed combined equity capitalin the amount of $29,583,963 and $4,226,280, respectively. Of the $33,810,243 of contributed equity capital, Solar Senior contributed $29,583,963 in theform of investments and Voya contributed $4,226,280 in the form of cash. As of December 31, 2016, Solar Senior and Voya’s remaining commitments totaled$9,563,037 and $1,366,148 respectively. Solar Senior, along with Voya, controls the funding of FLLP and FLLP may not call the unfunded commitmentswithout approval of both Solar Senior and Voya.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. The Company isan investment company and follows the accounting and reporting guidance in Financial Accounting Standards Board (“FASB”) Accounting StandardsCodification Topic 946. The consolidated financial statements reflect all adjustments and reclassifications which, in the opinion of management, arenecessary for the fair presentation of the results of the operations and financial condition for the periods presented. All significant intercompany balances andtransactions, if any, have been eliminated.The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect thereported amount of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reported periods.Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differmaterially.In the opinion of management, all adjustments which are of a 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; 8FIRST LIEN LOAN PROGRAM LLCNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)December 31, 2016 (b)The Company conducts the valuation of its assets in accordance with GAAP. The Company generally values its assets on a quarterly basis, ormore frequently if required. The board of managers of the Company (the “Board”) shall determine the valuation of the assets of the Companyconsidering valuations provided to the Board by Solar Senior. Voya shall have the right to object to Solar Senior’s valuation of the Company’sassets and to hire an independent appraiser or other valuation expert with the requisite experience in valuing investments mutually acceptable toSolar Senior and Voya (the “Members”), which acceptance shall not be unreasonably withheld, at Voya’s expense to determine the value of theapplicable asset which is the subject of the objection; provided that any such objection is provided to Solar Senior by Voya in writing withinfive business days of its receipt.For the fiscal year ended December 31, 2016, there has been no change to the Company’s valuation techniques and the nature of the relatedinputs considered in the valuation process. (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,original issue discount, and market discounts are capitalized and we amortize such amounts into income using the interest method or on astraight-line basis, as applicable. Upon the prepayment of a loan, any unamortized loan origination fees are recorded as interest income. Werecord call premiums on loans repaid as interest income when we receive such amounts. Capital structuring fees, amendment fees, consent fees,and any other non-recurring fee income as well as management fee and other fee income for services rendered, if any, are recorded as otherincome when earned. (e)The Company is intended to be treated as a partnership for U.S. federal, state and local income tax purposes. As such, the Members of FLLP areindividually liable for the taxes, if any, on their share of FLLP’s net income. To the best of our knowledge, we did not have any uncertain taxpositions that met the recognition or measurement criteria of ASC 740-10- 25 nor did we have any unrecognized tax benefits as of the periodspresented herein. (f)Distributions to Members are recorded as of the record date. The amount to be paid out as a distribution is determined by the DividendCommittee of the Company. (g)The accounting records of the Company are maintained in U.S. dollars. Any assets and liabilities denominated in foreign currencies aretranslated into U.S. dollars based on the rate of exchange of such currencies against the U.S. dollar on the date of valuation. The Company willnot isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arisingfrom changes in market prices of securities held. Such fluctuations would be included with the net unrealized gain or loss from investments inthe Consolidated Statements of Operations. The Company’s investments in foreign securities, if any, may involve certain risks, includingwithout limitation: foreign exchange restrictions, expropriation, taxation or other political, social or economic risks, all of which could affect themarket and/or credit risk of the investment. In addition, changes in the relationship of foreign currencies to the U.S. dollar can significantly affectthe value of these investments in terms of U.S. dollars and therefore the earnings of the Company. (h)The Company has made an irrevocable election to apply the fair value option of accounting to its senior secured revolving credit facility (the“FLLP Facility”), in accordance with ASC 825-10. 9FIRST LIEN LOAN PROGRAM LLCNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)December 31, 2016 (i)Investments that are expected to pay regularly scheduled interest in cash are generally placed on non-accrual status when principal or interestcash payments are past due 30 days or more and/or when it is no longer probable that principal or interest cash payments will be collected. Suchnon-accrual investments are restored to accrual status if past due principal and interest are paid in cash, and in management’s judgment, arelikely to continue timely payment of their remaining principal and interest obligations. Cash interest payments received on such investmentsmay be recognized as income or applied to principal depending on management’s judgment. (j)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 orless would qualify, with limited exceptions. The Company believes that certain U.S. Treasury bills, repurchase agreements and other high-quality, short-term debt securities would qualify as cash equivalents.Note 3. Agreements and Related PartiesFLLP has a Servicing Agreement with Solar Senior, under which Solar Senior provides services to FLLP. For providing these services, Solar Seniorreceives a fee from FLLP in the amount of 0.125% per quarter (0.50% per annum) of each Member’s pro rata portion of FLLP’s average total assets in thepreceding fiscal quarter. The fee is calculated on a quarterly basis and paid in arrears. To the extent the fee is payable for any period that is less than a fullfiscal quarter in length, the fee will be prorated for the number of calendar days in such period. Affiliates of Solar Senior shall not be charged a fee withrespect to their interests in FLLP. Additionally, Solar Senior shall be reimbursed for all fees, costs, expenses and other liabilities or obligations borne by SolarSenior on behalf of FLLP. To the extent parties affiliated with Solar Senior participate in a transaction alongside FLLP, any costs related to transactionspursued by FLLP will be allocated for completed or anticipated transactions (to the extent such expenses are not reimbursed) pro rata amongst the SolarSenior-affiliated parties participating in such transaction based upon the amounts funded or anticipated to be funded by each such party.For the fiscal year ended December 31, 2016 and the period February 13, 2015 through December 31, 2015, the Company recognized $65,516 and$31,665, respectively, in fees to Solar Senior.Note 4. 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.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; 10FIRST LIEN LOAN PROGRAM LLCNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)December 31, 2016 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 assumptions about what assumptions a market participant would use inpricing 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).Gains and losses for assets and liabilities categorized within the Level 3 table below may include changes in fair value that are attributable to bothobservable inputs (Levels 1 and 2) and unobservable inputs (Level 3).A review of fair value hierarchy classifications is conducted on an annual basis. Changes in the observability of valuation inputs may result in areclassification for certain financial assets or liabilities. Such reclassifications are reported as transfers in/out of the appropriate category as of the end of thefiscal year in which the reclassifications occur.The following tables present the balances of assets and liabilities measured at fair value on a recurring basis, as of December 31, 2016 andDecember 31, 2015:Fair Value MeasurementsAs of December 31, 2016 Level 1 Level 2 Level 3 Total Assets: Bank Debt / Senior Secured Loans $— $— $117,286,663 $117,286,663 Liabilities: FLLP Facility $— $— $75,941,108 $75,941,108 Fair Value MeasurementsAs of December 31, 2015 Level 1 Level 2 Level 3 Total Assets: Bank Debt / Senior Secured Loans $— $— $74,417,606 $74,417,606 Liabilities: FLLP Facility $— $— $43,997,500 $43,997,500 11FIRST LIEN LOAN PROGRAM LLCNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)December 31, 2016 The following table provides a summary of the changes in fair value of Level 3 assets and liabilities for the year ended December 31, 2016, 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 31,2016:Fair Value Measurements Using Level 3 Inputs Bank Debt/SeniorSecured Loans Fair value, December 31, 2015 $74,417,606 Total gains or losses included in earnings: Net realized gain 59,304 Net change in unrealized gain (loss) 65,459 Purchase of investment securities 66,897,357 Proceeds from dispositions of investment securities (24,153,063) Transfers in/out of Level 3 — Fair value, December 31, 2016 $117,286,663 Unrealized gains (losses) for the period relating to those Level 3 assets that were still held by the Company at the end of the period: Net change in unrealized gain (loss): $65,459 During the year ended December 31, 2016, there were no transfers between levels.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, 2016: Beginning fair value at December 31, 2015 $43,997,500 Borrowings 46,096,600 Repayments (14,152,992) Transfers in/out of Level 3 — Ending fair value at December 31, 2016 $75,941,108 The Company has made an irrevocable election to apply the fair value option of accounting to the FLLP Facility, in accordance with ASC 825-10. OnDecember 31, 2016, there were borrowings of $75,941,108 on the FLLP Facility. For the year ended December 31, 2016, the FLLP Facility had no net changein unrealized (appreciation) depreciation. 12FIRST LIEN LOAN PROGRAM LLCNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)December 31, 2016 The following table provides a summary of the changes in fair value of Level 3 assets and liabilities for the period February 13, 2015 throughDecember 31, 2015, as well as the portion of gains or losses included in income attributable to unrealized gains or losses related to those assets and liabilitiesstill held at December 31, 2015:Fair Value Measurements Using Level 3 Inputs Bank Debt/SeniorSecured Loans Fair value, February 13, 2015 $— Total gains or losses included in earnings: Net change in unrealized gain (loss) (1,006,678) Purchase of investment securities 76,392,459 Proceeds from dispositions of investment securities (968,175) Transfers in/out of Level 3 — Fair value, December 31, 2015 $74,417,606 Unrealized gains (losses) for the period relating to those Level 3 assets that were still held by the Company at the end of the period: Net change in unrealized gain (loss): $(1,006,678) During the period February 13, 2015 through December 31, 2015, there were no transfers between levels.The following table shows a reconciliation of the beginning and ending balances for fair valued liabilities measured using significant unobservableinputs (Level 3) for the period February 13, 2015 through December 31, 2015: Beginning fair value at February 13, 2015 $— Borrowings 43,997,500 Repayments — Transfers in/out of Level 3 — Ending fair value at December 31, 2015 $43,997,500 The Company has made an irrevocable election to apply the fair value option of accounting to the FLLP Facility, in accordance with ASC 825-10. OnDecember 31, 2015, there were borrowings of $43,997,500 on the FLLP Facility. For the period February 13, 2015 through December 31, 2015, the FLLPFacility had no net change in unrealized (appreciation) depreciation.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. 13FIRST LIEN LOAN PROGRAM LLCNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)December 31, 2016 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, returns on equity and earnings before income taxes, depreciation and amortization (“EBITDA”) multiples of similarcompanies, and comparable market transactions for equity securities.Quantitative information about the Company’s Level 3 asset and liability fair value measurements as of December 31, 2016 is summarized in the tablebelow: Asset orLiability Fair Value atDecember 31,2016 Principal ValuationTechnique/Methodology UnobservableInput Range (WeightedAverage)Bank Debt / Senior Secured Loans Asset $117,286,663 Yield Analysis Market Yield 5.7% – 18.2%(6.7%) L+1.4%–L+4.8%FLLP Facility Liability $75,941,108 Yield Analysis Market Yield (L+2.5%)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.Quantitative information about the Company’s Level 3 asset and liability fair value measurements as of December 31, 2015 is summarized in the tablebelow: Asset orLiability Fair Value atDecember 31,2015 Principal ValuationTechnique/Methodology UnobservableInput Range (WeightedAverage)Bank Debt / Senior Secured Loans Asset $74,417,606 Yield Analysis Market Yield 5.7% – 8.7%(6.6%) L+0.5% – L+4.8%FLLP Facility Liability $43,997,500 Yield Analysis Market Yield (L+2.4%)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 5. DebtFLLP Facility—On February 13, 2015, FLLP as transferor and FLLP 2015-1, LLC, a newly formed wholly-owned subsidiary of FLLP, as borrowerentered into the FLLP Facility with Wells Fargo Bank, N.A. acting as administrative agent. Solar Senior acts as servicer under the FLLP Facility. The FLLPFacility was originally scheduled to mature on February 13, 2020. On August 15, 2016, the FLLP Facility was amended, expanding commitments to$100,000,000 and extending the maturity date to August 16, 2021. The FLLP Facility generally bears interest at a rate of LIBOR plus a range of2.25%-2.50%. FLLP and FLLP 2015-1, LLC, as applicable, have made certain customary representations and warranties, and are required to comply withvarious covenants, including leverage restrictions, reporting requirements and other customary requirements for similar credit facilities. The FLLP Facilityalso includes usual and customary events of default for credit facilities of this nature. There were $75,941,108 and $43,997,500 of borrowings outstanding asof December 31, 2016 and December 31, 2015, respectively. 14FIRST LIEN LOAN PROGRAM LLCNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)December 31, 2016 The Company has made an irrevocable election to apply the fair value option of accounting to the FLLP Facility, in accordance with ASC 825-10.During the year ended December 31, 2016, the Company recognized $836,273 in expenses related to the amendment of the FLLP Facility. During the periodFebruary 13, 2015 through December 31, 2015, the Company recognized $1,316,593 in expenses for the establishment of the five year facility. We believeaccounting for the FLLP Facility at fair value better aligns 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 FLLP Facility are reported in the Consolidated Statement of Operations.The average annualized interest cost for all borrowings for the year ended December 31, 2016 and the period February 13, 2015 through December 31,2015 was 3.16% and 2.78%, respectively. These costs are exclusive of other credit facility expenses such as unused fees and fees paid to the back-up servicer,if any. The maximum amount borrowed on the FLLP Facility during the year ended December 31, 2016 and the period February 13, 2015 throughDecember 31, 2015 was $81,441,108 and $43,997,500, respectively.Note 6. Financial Highlights For the year endedDecember 31, 2016 For the periodFebruary 13, 2015(commencement ofoperations) throughDecember 31, 2015 Ratios and Supplemental Data*: Total investment return 10.0% (0.8%) Net assets, beginning of period $31,535,297 $— Net assets, end of period $44,354,307 $31,535,297 Average net assets $33,665,453 $32,392,708 Ratio of net investment income to average net assets (a)** 11.46% 7.11% Ratio of expenses to average net assets (a): Service fees 0.19% 0.11% Interest and other credit facility related expenses** 6.66% 3.19% Other general and administrative expenses 0.53% 0.50% Total expenses** 7.38% 3.80% Total contributed capital to committed capital 81.2% 58.3% (a)Annualized for periods less than one year.*Ratios are calculated for the Members taken as a whole; an individual members’s ratios may vary from these ratios.**Ratios exclude the non-recurring expenses related to the amendment of the FLLP Facility in the year ended December 31, 2016 and the establishmentof the FLLP Facility in the period ended December 31, 2015, totaling $836,273 and $1,316,593, respectively, or 2.48% and 4.06% of average netassets on an unannualized basis, respectively. 15FIRST LIEN LOAN PROGRAM LLCNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)December 31, 2016 Note 7. Commitments and ContingenciesAs of December 31, 2016, the Company had unfunded debt commitments to various delayed draw term loans totaling $4,094,593. As of December 31,2015, the Company had no unfunded commitments or contingencies. December 31, 2016 December 31, 2015 Alera Group Intermediate Holdings, Inc $1,543,925 $— Pet Holdings ULC & Pet Supermarket, Inc 827,068 — Ministry Brands LLC. 753,666 — VT Buyer Acquisition Corp 485,714 — CIBT Holdings, Inc. 484,220 — Total Commitments $4,094,593 $— As of December 31, 2016 and December 31, 2015, the Company had sufficient cash, uncalled equity capital and/or liquid securities available to fundits commitments.Note 8. Subsequent EventsThe Company has evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date the consolidated financialstatements were issued. There were no subsequent events warranting disclosure. These financial statements were approved by management and available forissuance on February 22, 2017. 16

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