Source - RNS
RNS Number : 5244I
Special Value Opps Feeder Fund
31 August 2016
 

 

 

Semi-Annual Report

 

Special Value Opportunities Feeder Fund

(A Delaware Statutory Trust)

June 30, 2016



Special Value Opportunities Feeder Fund

(A Delaware Statutory Trust)

 

Commentary from the Investment Manager of the Trust

 

August 31, 2016

 

Dear Shareholder,

 

The Trust generated a total return of 1.2% on the Trust's equity for the six-month period ended June 30, 2016, mainly comprised of net investment income of 1.2% of average net assets, compared to a 4.2% gain on the Credit Suisse Leverage Loan Index, a 9.3% gain on the Credit Suisse High Yield Index II, and a 3.8% gain on the S&P 500 Index over the same period. The Trust's net return on equity during the prior year was 20.3%. Inception to date, the Trust has generated an internal rate of return of 3.3% on its common shares. The Trust declared cash distributions of $6,250,757 during the period, or approximately 8.3% of original invested equity. Through June 30, 2016, the Trust has declared $75,172,266 in distributions since inception, or approximately 99.6% of original invested equity.

 

In connection with its planned wind down, Special Value Opportunities Fund, LLC (the "Fund"), in which substantially all of the Trust's assets are invested, applied for and was granted deregistration under the Investment Company Act of 1940 during the prior year, and converted from a regulated investment company to a partnership for U.S. federal tax purposes. During the current period, the Fund's termination date was extended to July 13, 2018.   

 

We were pleased with the performance of the Fund and the Trust during the current period, in which volatility has continued. While economic and geopolitical challenges are increasing, financial asset valuations are steadily rising. Many financial assets are nearing or exceeding all-time highs. Investors now ignore, or at least accept: (1) slowing global GDP, which has fallen from 5.4% in 2010 to an expected 3% in 2016, (2) global turmoil, including terrorism becoming a disturbingly common occurrence in many countries, and (3) populism and unhappiness with the status quo dramatically reshaping election dynamics in many democracies. In contradiction to these fundamental concerns, the S&P 500 reached new highs in July and currently trades at over 18 times 2016 estimated, adjusted, non-GAAP earnings. These conditions require careful navigation skills as the Fund continues its wind down. The Fund's smaller, primarily equity portfolio will likely continue to be more volatile as we exit the remaining positions, and we are focused on maximizing the value of those remaining investments

 

Thank you for your continued support.

 

Sincerely,

Tennenbaum Capital Partners, LLC

Tennenbaum Capital Partners, LLC

Investment Manager of the Trust and the Fund



Special Value Opportunities Feeder Fund

(A Delaware Statutory Trust)

 

Responsibility Statement

 

 

 

 

 

I, Paul L. Davis, certify that, to the best of my knowledge and belief:

1.  The financial statements of the Trust, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Trust and the undertakings included in the consolidation taken as a whole; and

2.  The management report includes a fair review of the development and performance of the business and the position of the Trust and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

 

 

Date:  August 31, 2016

 

 

/s/ Paul L. Davis

 

Paul L. Davis

Chief Financial Officer

Tennenbaum Capital Partners, LLC

Investment Manager of the Trust

 

 

 


Financial Statements

(Unaudited)

 

Special Value Opportunities Feeder Fund

(A Delaware Statutory Trust)

June 30, 2016

 

 

Special Value Opportunities Feeder Fund

(A Delaware Statutory Trust)

 

Financial Statements (Unaudited)

 

 

 

June 30, 2016

 

 

 

 

Contents

 

 

 

Unaudited Financial Statements

 

 

Statement of Assets and Liabilities ............................................................................. 2

Statement of Operations............................................................................................ 3

Statements of Changes in Net Assets......................................................................... 4

Statement of Cash Flows........................................................................................... 5

Notes to Financial Statements.................................................................................... 6

 

 


 

Special Value Opportunities Feeder Fund

(A Delaware Statutory Trust)


Statement of Assets and Liabilities (Unaudited)


June 30, 2016













Assets



Investment in Special Value Opportunities Fund, LLC


 $          18,037,130

Total assets


             18,037,130





Liabilities



Other liabilities


                    61,930

Total liabilities


                    61,930





Net assets


 $          17,975,200





Analysis of net assets



Common shares, $0.001 par value, unlimited shares authorized,



    77,537,545.558 shares issued and outstanding


 $                 77,538

Paid-in capital


             58,311,186

Accumulated deficit


           (40,413,524)

Net assets


 $          17,975,200





Net asset value per share


 $                     0.23









See accompanying notes and financial statements



   of Special Value Opportunities Fund, LLC



 



 

Special Value Opportunities Feeder Fund

(A Delaware Statutory Trust)


Statement of Operations (Unaudited)





Six Months Ended June 30, 2016













Net investment income allocated from Special Value



Opportunities Fund, LLC




Interest income


 $               407,078


Lease income


                    88,621


Management and advisory fees


                  (92,439)


Other expenses


                  (40,900)

Net investment income allocated from Special Value



Opportunities Fund, LLC


                  362,360





Trust expenses




Professional fees


                    12,136


Custody fees


                      3,750

Total trust expenses


                    15,886





Net investment income


                  346,474





Net realized and unrealized gain (loss) allocated from



Special Value Opportunities Fund, LLC




Net realized gain


               1,505,319


Change in net unrealized appreciation/depreciation


             (1,507,717)

Net realized and unrealized loss


                    (2,398)





Net increase in net assets resulting from operations


 $               344,076

 

 

 



 

Special Value Opportunities Feeder Fund

(A Delaware Statutory Trust)






Statement of Changes In Net Assets (Unaudited)






Six Months Ended June 30, 2016



























Net assets, beginning of period


 $             23,881,881







Increase in net assets resulting from operations:




Net investment income


                     346,474


Net realized gain


                  1,505,319


Change in net unrealized appreciation/depreciation


                (1,507,717)


Net increase in net assets resulting from operations


                     344,076







Distributions


                (6,250,757)







Net assets, end of period


 $             17,975,200






















See accompanying notes and financial statements





   of Special Value Opportunities Fund, LLC







 

Special Value Opportunities Feeder Fund

(A Delaware Statutory Trust)


Statement of Cash Flows (Unaudited)


Six Months Ended June 30, 2016













Operating activities



Net increase in net assets resulting from operations


 $               344,076

Adjustments to reconcile net increase in net assets resulting



from operations to net cash provided by operating activities:



Investment in Special Value Opportunities Fund, LLC


               5,890,795

Increase in other liabilities


                    15,886

Net cash provided by operating activities


               6,250,757




  

Financing activities



Shareholder distributions


             (6,250,757)

Net cash used in financing activities


             (6,250,757)




  

Net change in cash


                              -

Cash at beginning of period


                              -

Cash at end of period


 $                           -

















See accompanying notes and financial statements



   of Special Value Opportunities Fund, LLC



 







1. Organization and Nature of Operations

 

Special Value Opportunities Feeder Fund, a Delaware Statutory Trust (the "Trust"), was established for the purpose of enabling qualified investors to participate indirectly in the investment objectives of Special Value Opportunities Fund, LLC, a Delaware Limited Liability Company (the "Fund").  The Fund is an investment partnership originally registered as a non-diversified investment company under the Investment Company Act of 1940.  In connection with its planned wind-down, the Fund applied for deregistration and, effective June 24, 2015, the Fund's registration under the 1940 Act ceased to be in effect. In connection with its deregistration, the Fund elected to convert from a regulated investment company to a partnership for U.S. federal tax purposes, effective April 1, 2015. The purposes of the Trust are exclusively to offer its common shares to certain eligible investors, invest substantially all of its assets in the common shares of the Fund, hold the common shares issued to it by the Fund and distribute any amounts received by the Trust on the shares of the Fund to the shareholders of the Trust.  At June 30, 2016, the Trust owned approximately 10.7% of the Fund's common shares.  The investment manager of the Trust is Tennenbaum Capital Partners, LLC (the "Investment Manager").

 

The Certificate of Trust of the Trust was filed with the Delaware Secretary of State on June 21, 2004.  Investment operations commenced on July 13, 2004.  The Trust received $75,500,000 in committed equity from investors and invested the proceeds in the Fund.  

 

The financial statements and accompanying notes of the Trust should be read in conjunction with the financial statements and accompanying notes of the Fund, including the Fund's schedule of investments.


 

 

2. Summary of Significant Accounting Policies

 

Basis of Presentation

 

The financial statements of the Trust have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). Subsequent events have been evaluated through August 29, 2016, the date the financial statements were available for issuance. The following is a summary of the significant accounting policies of the Trust.

 

Use of Estimates

 

The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period.

 

 

2. Summary of Significant Accounting Policies (continued)

 

Although management believes these estimates and assumptions to be reasonable, actual results could differ from those estimates.

 

Investment Valuation

 

The Trust's investment in the Fund is recorded at fair value based on the Fund's reported net asset value per share. Valuation of investments held by the Fund is discussed in the notes to the accompanying financial statements of the Fund.

 

Investment Income and Expenses

 

Net increase in net assets resulting from operations, as reflected in the statement of operations, includes the Trust's proportionate share of the Fund's investment income, operating expenses, and realized and unrealized gains and losses on investments. The Trust also incurred additional expenses of $15,886 during the six months ended June 30, 2016.

 

Income Taxes

 

The Trust is not subject to income, capital gains or corporation tax in the United States provided that various conditions applicable to grantor trusts under the Internal Revenue Code are met. Consequently, no provision for income taxes is required in the Trust's financial statements. In accordance with ASC Topic 740 - Income Taxes, the Trust recognizes in its financial statements the effect of a tax position when it is determined that such position is more likely than not, based on the technical merits, to be sustained upon examination.  The tax returns, the qualification of the Trust, and the amount of allocable Trust income or loss for all tax years since January 1, 2012 and 2011 are subject to examination by federal and California taxing authorities, respectively. No such examinations are currently pending. 

 

 

3. Share Equity

 

Each common share has a par value of $0.001 and the rights set out in the Agreement and Declaration of Trust.  At June 30, 2016, the Trust's accumulated deficit was comprised of the following:

Distribution in excess of net investment income



$       (6,447,493)

Accumulated net realized losses



       (35,913,016)

Accumulated net unrealized depreciation on investments



          1,946,985

Accumulated deficit



$     (40,413,524)

 

3. Share Equity (continued)

 

At June 30, 2016, persons holding equity interests in the Fund and/or the Trust included the following:

 



Common Shares


Name                                                     

Relationship                     

      Fund 

       Trust    

Interest

Northrop Grumman Corp. Master Trust

>10% Owner of the Fund

3,851.170

-

Direct

Unitrin Inc.

>10% Owner of the Fund

5,134.894

-

Indirect

SEB Pension

>10% Owner of the Trust

-

15,404,810           

Indirect

Sampension Alternative Investments F.M.B.A.

>10% Owner of the Trust

-

15,404,810           

Direct

Matignon Titrisation

>10% Owner of the Trust

-

10,269,874

Direct

BayernInvest KAG mbH BAVA - Fonds

>10% Owner of the Trust

-

25,674,684

Direct

Massachusetts Mutual Life Insurance Co

Affiliate of Co-Manager of the Fund

3,003.913

-

Direct

Massachusetts Mutual Life Insurance Co

Affiliate of Co-Manager of the Fund

77.023

-

Indirect

 

 

4. Dividends and Distributions

 

The Trust is entitled to receive, when declared by the Fund, cash dividends in an amount per share equal to the sum of the cash distributions divided by the number of shares outstanding on the record date.  Dividends received by the Trust are immediately distributed to the Trust's shareholders, after reduction for any Trust-level expenses. Distributions to Trust shareholders, including liquidating distributions upon termination and dissolution of the Trust, will be made pro rata in accordance with the number of shares owned. Distributions are recorded on the record date. As of June 30, 2016, the Trust had declared $75,172,266 in distributions to shareholders since inception.

 

 

5. Indemnification

 

Consistent with standard business practice, the Trust enters into contracts that contain a variety of indemnifications. The Trust's maximum exposure under these arrangements is unknown.  However, the Trust expects the risk of material loss to be remote.



 

6. Financial Highlights









 Six Months Ended


June 30, 2016

Per share operating performance: (1), (2)




Net asset value, beginning of year

$                              0.31



Investment operations:


Net investment income

 0.00

Net realized and unrealized gain (loss)

                    (0.00)

Total from investment operations

0.00



Distributions to shareholders

      (0.08)



Net asset value, end of year

$                              0.23



Total return (3), (6)

    1.2%



Ratios to average net assets: (1), (4)


Net investment income

  3.2%

Expenses (before performance fees)

 1.4%

Expenses (including performance fees)

 1.4%

 

 

Internal rate of return:

Inception-to-Date

June 30, 2016 (5)

 3.3%

    December 31, 2015 (5)

 3.3%

 


 

6. Financial Highlights (continued)

 

(1)   The per share amounts and ratios reflect income and expenses assuming inclusion of the Trust's proportionate share of income and expenses of the Fund.

 

(2)   Per share changes in net asset value are computed based on the actual number of shares outstanding during the time in which such activity occurred.

 

(3)   Return calculated on a monthly time-linked basis.  There were no performance fees allocated from the Fund for any of the periods presented.

 

(4)   Annualized for periods of less than one year.

 

(5)   Net of Fund and Trust expenses, distributions to the Fund's preferred shareholders and the reserve for distributions to the Fund's preferred shareholders.  Internal rate of return ("IRR") is the imputed annual return over an investment period and, mathematically, is the rate of return at which the discounted cash flows equal the initial cash outlays.  The IRR presented assumes liquidation of the Trust at net asset value as of the period end date.

 

(6)   Not annualized

 

 


 

 

Financial Statements

(Unaudited)

 

Special Value Opportunities Fund, LLC

(A Delaware Limited Liability Company)

June 30, 2016



 

Special Value Opportunities Fund, LLC

(A Delaware Limited Liability Company)

 

Financial Statements (Unaudited)

 

 

June 30, 2016

 

 

Contents

 

 

Statement of Assets and Liabilities ......................................................................................... 2

Schedule of Investments ........................................................................................................ 3

Statement of Operations ....................................................................................................... 5

Statement of Changes in Net Assets ...................................................................................... 6

Statement of Cash Flows ...................................................................................................... 7

Notes to Financial Statements ............................................................................................... 8

 


Special Value Opportunities Fund, LLC

(A Delaware Limited Liability Company)


Statement of Assets and Liabilities (Unaudited)


June 30, 2016



Assets


Investments, at fair value (cost $146,201,976)

 $          162,973,539

Cash and cash equivalents

                 4,498,754

Restricted cash

                 1,440,000

Other receivables

                    103,638

Unrealized appreciation on foreign currency forward contracts

                    241,591

Accrued interest income

                      74,518

Total assets

             169,332,040



Liabilities


Management and advisory fees payable

                    267,731

Payable to the Investment Manager

                      60,264

Accrued expenses and other liabilities

                    201,592

Total liabilities

                    529,587



Net Assets

 $          168,802,453








See accompanying notes to financial statements.



Special Value Opportunities Fund, LLC

(A Delaware Limited Liability Company)


Schedule of Investments (Unaudited)


June 30, 2016































Percentage











Principal or




of Net

Issuer


Instrument


Ref


Spread


Maturity


Shares


Value


Assets

Debt Investments















Aluminum Production















Revere Industries, LLC


Second Lien Term Loan


Fixed


10.0% PIK


2/20/2020


 $        19,537,612


 $                       19,537,612


11.57%

Revere Holdings, Inc.


Unsecured Subordinated Note


Fixed


5.0% PIK


9/30/2021


 $        63,294,168


                          36,438,452


21.59%













                          55,976,064


33.16%

Gaming















Harrah's Operating Company, Inc.


Second Priority Secured Notes


Fixed


10.00%


12/15/2018


 $        26,537,000


                          10,614,800


6.29%
















Plastics Manufacturing















TR Acquisition Holdings, LLC (WinCup)


Subordinated Promissory Note


LIBOR (Q)


10.0% PIK


  3/31/2017


 $        27,618,172


                          14,826,815


8.78%

WinCup, Inc.


Second Lien Term Loan C-2


LIBOR (M)


14.5% PIK


3/31/2017


 $        36,146,652


                          36,146,652


21.41%

WinCup, Inc.


Equipment Finance Loan


LIBOR (M)


14.5% PIK


3/31/2017


 $          2,551,479


                           2,551,479


1.51%













                          53,524,946


31.70%
















Total Debt Investments (Cost $95,396,696)












                        120,115,810


71.15%
















Equity Securities















Air Transportation















Epic Aero, Inc. (One Sky)


Warrants to Purchase Common Stock








                     587


                              794,530


0.47%

Aircraft Leased to United Airlines, Inc.















United N659UA-767, LLC (N659UA)


Trust Beneficial Interests








                     957


                           4,693,232


2.78%

United N661UA-767, LLC (N661UA) 


Trust Beneficial Interests








                     964


                           4,744,136


2.81%













                          10,231,898


6.06%

Aluminum Production















Revere Holdings, Inc.


Class A Common Shares








                       90


                                        -


                      -

Revere Holdings, Inc.


Class B Common Shares








                   6,940


                                        -


                      -













                                        -


                      -

Business Support Services















Findly Talent, LLC


Membership Units








               992,344


                              200,453


0.12%

STG-Fairway Holdings, LLC
  (First Advantage)


Class A Units








            1,179,050


                           2,888,673


1.71%













                           3,089,126


1.83%

Electronic Component Manufacturing















TPG Hattrick Holdco, LLC (Isola)


Common Units








            4,550,676


                                45,507


0.03%
















Financial Investment Activities















Marsico Holdings, LLC


Common Interest Units








               233,889


                                  2,339


                      -
















Metal and Mineral Mining















EPMC HoldCo, LLC


Membership Units








            2,561,000


                              614,640


0.36%
















Oil and Gas Extraction















Woodbine Intermediate Holdings, LLC


Membership Units








                     303


                              261,513


0.15%
















Other Manufacturing















Precision Holdings, LLC


Class C Membership Interests








                       48


                                  2,383


                      -
















Plastics Manufacturing















WinCup, Inc.


Common Stock








           73,517,938


                                      -  


                      -
















Radio and Television Broadcasting















SCG Financial Acquisition Corp.


Warrants to Purchase Common Stock








                 69,544


                                67,458


0.04%
















Retail















Shop Holding, LLC (Connexity)


Class A Units








               430,001


                                18,404


0.01%

Shop Holding, LLC (Connexity)


Warrants to Purchase Class A Units








                       -  


                                      -  


                      -













                                18,404


0.01%







 

 









Special Value Opportunities Fund, LLC

(A Delaware Limited Liability Company)


Schedule of Investments (Unaudited) (Continued)


June 30, 2016















Percentage














of Net

Issuer


Instrument


Ref


Spread


Maturity


Shares


Value


Assets

Equity Securities (continued)















Wired Telecommunications Carriers















Integra Telecom, Inc.


Common Stock








         5,728,661


 $                      23,685,149


14.02%

Integra Telecom, Inc.


Warrants








         2,272,561


                           1,292,178


0.77%

V Telecom Investment S.C.A.
  (Vivacom) (Luxembourg)


Common Shares








                2,127


                           3,547,134


2.10%













                         28,524,461


16.89%
















Total Equity Securities (Cost $50,805,280)












                         42,857,729


25.37%
















Total Investments (Cost $146,201,976)












 $                    162,973,539


96.52%































Notes to Schedule of Investments


LIBOR or EURIBOR resets monthly (M), quarterly (Q), or semiannually (S).


Derivatives at June 30, 2016 were as follows:















Instrument








Notional Amount


Fair Value



EUR/US Dollar Cross-Currency Basis Forward Contract with Wells Fargo, N.A., Pay EUR / Receive USD,


 €                              4,765,000


 $                           241,591



expires 9/5/17






























See accompanying notes to financial statements.














 

 


Special Value Opportunities Fund, LLC

(A Delaware Limited Liability Company)


Statement of Operations (Unaudited)


Six Months Ended June 30, 2016





Investment income


Interest income

 $             3,809,710

Lease income

                   829,376

Total investment income

                4,639,086



Operating expenses


Management and advisory fees

                   865,109

Legal fees, professional fees, and due diligence expenses

                   264,724

Custody fees

                     40,000

Insurance expense

                     21,174

Other operating expenses

                     56,872

Total operating expenses

                1,247,879



Net investment income

                3,391,207



Net realized and unrealized gain (loss) on investments and foreign currency


Net realized gain

              14,087,796

Change in net unrealized appreciation/depreciation

           (14,110,238)

Net realized and unrealized loss

                  (22,442)



Net increase in net assets resulting from operations

 $             3,368,765

























See accompanying notes to financial statements.

 





 

Special Value Opportunities Fund, LLC

(A Delaware Limited Liability Company)


Statement of Changes in Net Assets (Unaudited)



Six Months Ended June 30, 2016





Net assets, beginning of period

 $          223,933,688



Net investment income

                 3,391,207

Net realized gain

               14,087,796

Change in net unrealized appreciation/depreciation

              (14,110,238)

  Net increase in net assets resulting from operations

                 3,368,765



Distributions

              (58,500,000)





Net assets, end of period

 $          168,802,453













See accompanying notes to financial statements.


 

 


Special Value Opportunities Fund, LLC

(A Delaware Limited Liability Company)


Statement of Cash Flows (Unaudited)


Six Months Ended June 30, 2016





Operating activities


Net increase in net assets resulting from operations

 $              3,368,765

Adjustments to reconcile net increase in net assets resulting


from operations to net cash provided by operating activities:


Net realized gain

              (14,087,796)

Change in net unrealized appreciation on investments

               14,107,958

Interest and dividend income paid in kind

                (3,838,135)

Changes in assets and liabilities:


Proceeds from sales, maturities and paydowns of investments

               51,404,745

Decrease in dividends receivable

                    205,950

Decrease in accrued interest income

                    107,539

Increase in other receivables

                       (3,580)

Decrease in prepaid expenses and other assets

                      17,566

Increase in management and advisory fees payable

                      99,536

Decrease in payable to the Investment Manager

                          (837)

Increase in accrued expenses and other liabilities

                      22,796

Net cash provided by operating activities

               51,404,507



Financing activities


Distributions paid

              (58,500,000)

Net cash used in financing activities

              (58,500,000)



Net decrease in cash and cash equivalents

                (7,095,493)

Cash and cash equivalents at beginning of period

               11,594,247

Cash and cash equivalents at end of period

 $              4,498,754















See accompanying notes to financial statements.



1.  Organization and Nature of Operations

 

Special Value Opportunities Fund, LLC (the "Company"), a Delaware limited liability company, is an investment partnership. The Company was initially formed as a nondiversified, closed-end management investment company under the Investment Company Act of 1940 (the "1940 Act"). In connection with the planned wind-down of the Company, the Company applied for deregistration, and, effective June 24, 2015, the Company's registration under the 1940 Act ceased to be in effect. For federal tax purposes, the Company converted from a regulated investment company to a partnership effective April 1, 2015.

 

The Certificate of Formation of the Company was filed with the Delaware Secretary of State on February 18, 2004. Investment operations commenced and initial funding was received on July 13, 2004. The Company was formed to acquire a portfolio of investments consisting primarily of bank loans, distressed debt, stressed high yield debt, mezzanine investments and public equities. The stated objective of the Company is to generate current income as well as long-term capital appreciation using a leveraged capital structure. The Company was scheduled to terminate on July 13, 2016. On May 23, 2016, the Company's operating agreement was amended to extend the Company's termination date to July 13, 2018.

 

Tennenbaum Capital Partners, LLC ("TCP") serves as the Investment Manager of the Company. Babson Capital Management LLC serves as Co-Manager. The Managing Member of the Company is SVOF/MM, LLC. Both the Managing Member and the Investment Manager are registered investment advisors under the Investment Advisers Act of 1940.

 

Company Structure

 

The Company was formed with an initial maximum capitalization of $1,422 million, consisting of $711 million of committed common equity, $238 million of preferred equity, and a $473 million credit facility. On January 13, 2015, the Company repurchased approximately 227 shares of its common stock at a total cost of approximately $1.2 million. On July 21, 2015, the Company terminated its remaining credit facility and on January 2, 2015 the remaining preferred equity was redeemed.

 

2.  Summary of Significant Accounting Policies

                                                                                                             

Basis of Presentation

 

The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). The Company is an investment company following accounting and reporting guidance in Accounting Standards Codification ("ASC") Topic 946, Financial Services - Investment Companies. Subsequent events have been evaluated through August 29, 2016, the date the financial statements were available for issuance. The following is a summary of the significant accounting policies of the Company.


2.  Summary of Significant Accounting Policies (continued)

 

Use of Estimates

 

The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Although management believes these estimates and assumptions to be reasonable, actual results could differ from those estimates and such differences could be material.

 

Investment Valuation

 

Management values investments held by the Company at fair value. Fair value is generally defined as the amount for which an investment would be sold in an orderly transaction between market participants at the measurement date.

 

All investments are valued at least quarterly based on affirmative pricing or quotations from independent third-party sources, with the exception of investments priced directly by the Investment Manager which together comprise, in the aggregate, less than 5% of the total capitalization of the Company. Investments listed on a recognized exchange or market quotation system, whether U.S. or foreign, are valued using the closing price on the date of valuation. Investments not listed on a recognized exchange or market quotation system, but for which reliable market quotations are readily available are valued using prices provided by a nationally recognized pricing service or by using quotations from broker-dealers.

 

Investments for which market quotations are either not readily available or are determined to be unreliable are priced at fair value using affirmative valuations performed by independent valuation services or, for investments aggregating less than 5% of the total capitalization of the Company, by the Investment Manager.

 

Pursuant to this policy, investment professionals of the Investment Manager provide recent portfolio company financial statements and other reporting materials to independent valuation firms as applicable, which firms evaluate such materials along with relevant observable market data to conduct independent appraisals each quarter, and their preliminary valuation conclusions are documented and discussed with senior management of the Investment Manager.

 

Generally, to increase objectivity in valuing the Company's investments, the Investment Manager will utilize external measures of value, such as public markets or third-party transactions, whenever possible. The Investment Manager's valuation is not based on long-term work-out value, immediate liquidation value, nor incremental value for potential changes that may take place in the future. The values assigned to investments that are valued by the Investment Manager are based on available information and do not necessarily represent
2.  Summary of Significant Accounting Policies (continued)

 

amounts that might ultimately be realized, as these amounts depend on future circumstances and cannot reasonably be determined until the individual investments are actually liquidated.

 

Fair valuations of investments in each asset class are determined using one or more methodologies including the market approach, income approach, or, in the case of recent investments, the cost approach, as appropriate.

 

The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets. Such information may include observed multiples of earnings and/or revenues at which transactions in securities of comparable companies occur, with appropriate adjustments for differences in company size, operations or other factors affecting comparability.

 

The income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present value amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts. The discount rates used for such analyses reflect market yields for comparable investments, considering such factors as relative credit quality, capital structure, and other factors.

 

In following these approaches, the types of factors that may be taken into account also include, as relevant: available current market data, including relevant and applicable market trading and transaction comparables, security covenants, call protection provisions, information rights, the nature and realizable value of any collateral, the portfolio company's ability to make payments, its earnings and cash flows, the markets in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, merger and acquisition comparables, comparable costs of capital, the principal market in which the investment trades, and enterprise values, among other factors.

 

Investments of the Company may be categorized based on the types of inputs used in valuing such assets. The level in the GAAP valuation hierarchy in which an investment falls is based on the lowest level input that is significant to the valuation of the investment in its entirety. Transfers between levels are recognized as of the beginning of the reporting period. 

 

 

 

 

 

 

 

 

 

2.  Summary of Significant Accounting Policies (continued)

 

At June 30, 2016, the investments of the Company were categorized as follows:

 

 

Level


Basis for Determining Fair Value


Bank Debt


Other

Corporate Debt


Equity

Securities

1

 


Quoted prices in active markets for identical assets


$                        -


$                           -


$             67,458

2

 


Other direct or indirect observable market inputs*


                          -


            10,614,800


                         -

3

 

 


Independent third-party valuation sources that employ significant unobservable inputs


109,501,010


                             -


        41,663,436

3

 


Internal valuations with significant unobservable inputs


                          -


                             -


          1,126,835

Total




$      109,501,010


$        10,614,800


$      42,857,729


* E.g., quoted prices in inactive markets or quotes for comparable investments

 

Unobservable inputs used in the fair value measurement of the Company's Level 3 investments as of June 30, 2016 included the following:

 

Asset Type


Fair Value


Valuation Technique

Unobservable Input

Range (Weighted Avg.)

Bank Debt 


109,501,010


Market comparable companies

EBITDA multiples

6.3x - 8.0x (7.1x)

Equity


9,455,773


Income approach

Discount rate

5.5% - 11.3% (5.5%)



2,371,123


Market quotations

Indicative bid/ask quotes

1 (1)



30,963,375


Market comparable companies

EBITDA multiples

4.4x - 9.3x (6.9x)


$

152,291,281





 

Generally, a change in an unobservable input may result in a change to the value in the investment as follows:

 

Input



Impact to Value if

Input Increases

Impact to Value if

Input Decreases

Discount rate



Decrease

Increase

Revenue multiples



Increase

Decrease

EBITDA multiples



Increase

Decrease

 

 

 

 

 

 

 

 

2.  Summary of Significant Accounting Policies (continued)

 

Changes in investments categorized as Level 3 during the six months ended June 30, 2016 were as follows:

 



Independent Third-Party Valuation



  Bank Debt


Other

Corporate Debt


Equity

Securities

Beginning balance


$     109,527,079


$                          -


$     88,685,607

Net realized and unrealized gains


               (473,029)


                           -


         (1,477,565)

Acquisitions*


3,838,135


                           -


          1,220,418

Dispositions


            (5,238,419)


                       -


          (46,359,514)

Transfer into Level 3


1,847,244


                           -


                           -

Reclassifications within Level 3


-


-


            (405,510)

Ending balance


$    109,501,010


  $                       -


 $     41,663,436








 

 *           Includes payments received in kind and accretion of original issue and market discounts

            Comprised of one investment that transferred from Level 2 due to reduced trading volume

             Comprised of two investments that reclassified to Investment Manager Valuation           

 

 

 



Investment Manager Valuation



Bank Debt


Other

Corporate Debt


Equity

Securities

Beginning balance


$                          -


$                              -


$            1,834,081

Net realized and unrealized losses


                            -


                                -


                (498,116)

Dispositions


-


             -


                (614,640)

Reclassifications within Level 3


-


             -


              405,510

Ending balance


$                        -


$                              -


$            1,126,835








Net change in unrealized appreciation/depreciation during the year on investments still held at year end (included in net realized and unrealized losses, above)


$                          -


$                              -


$              (498,102)

  

  ‡          Comprised of two investments that reclassified from Independent Third-Party Valuation

2.  Summary of Significant Accounting Policies (continued)

 

Investment Transactions

 

The Company records investment transactions on the trade date, except for private transactions that have conditions to closing, which are recorded on the closing date. The cost of investments purchased is based upon the purchase price plus those professional fees which are specifically identifiable to the investment transaction. Realized gains and losses on investments are recorded based on the specific identification method, which typically allocates the highest cost inventory to the basis of the investments sold.

 

Cash and Cash Equivalents

 

Cash consists of amounts held in accounts with brokerage firms and the custodian bank. Cash equivalents consist of highly liquid investments with an original maturity of generally three months or less. Cash equivalents are carried at amortized cost.

 

Foreign Investments

 

The Company may invest in instruments traded in foreign countries and denominated in foreign currencies. At June 30, 2016, the Company had foreign currency denominated investments with an aggregate fair value of approximately 2.2% of the Company's total investments. Such positions were converted at the respective foreign exchange rates in effect at June 30, 2016 and reported in U.S. dollars. Purchases and sales of investments and income and expense items denominated in foreign currencies, when they occur, are translated into U.S. dollars on the respective dates of such transactions. Realized or unrealized gains and losses from investments resulting from changes in foreign exchange rates are included in the Statement of Operations with realized or unrealized gains and losses resulting from changes in the market prices of such investments.

 

Investments in foreign companies and securities of foreign governments may involve special risks and considerations not typically associated with investing in U.S. companies and securities of the U.S. government. These risks include, among other things, revaluation of currencies, less reliable information about issuers, different transaction clearance and settlement practices, and potential future adverse political and economic developments. Moreover, investments in foreign companies and securities of foreign governments and their markets may be less liquid and their prices more volatile than those of comparable U.S. companies and the U.S. government.

 

 


2.  Summary of Significant Accounting Policies (continued)

 

Derivatives

 

In order to mitigate certain currency exchange risks associated with foreign currency denominated investments, the Company entered into certain forward exchange transactions. All derivatives are reported at their net amounts as either assets or liabilities in the Statement of Assets and Liabilities.

 

The derivatives are subject to a master netting agreement and the net exposure is $241,591. The transactions entered into are accounted for using the mark-to-market method with the resulting change in fair value recognized in earnings for the current period. Risks may arise upon entering into these contracts from the potential inability of counterparties to meet the terms of their contracts and from unanticipated movements in interest rates, commodity prices, or the value of foreign currencies relative to the U.S. dollar. The Company is required under the terms of its derivative agreements to pledge assets as collateral to secure its obligation under the derivatives. As of June 30, 2016, $1,440,000 of cash was pledged as collateral in connection with certain of the Company's derivative instruments, and was included in restricted cash in the Statement of Assets and Liabilities.

 

During the six months ended June 30, 2016, the Company exited EUR currency option dollars with an aggregate notional value of $27,500,000.  The Company also exited a CAD cross currency basis forward contract with a notional value of CAD1,189,222 and reduced the notional value of its  EUR cross currency basis forward contract from €7,500,000 to €4,765,000. The remaining forward contract is reflected in the Statement of Assets and Liabilities as unrealized appreciation on foreign currency forward contracts.

 

All gains and losses from derivative transactions during the six months ended June 30, 2016 were included in net realized and unrealized gain in the Statement of Operations as follows:

 

 

Instrument



Realized



Unrealized

Foreign currency forward exchange contracts (CAD)


$

139,049


$

                 (139,319)

Foreign currency forward exchange contracts (EUR)



184,699



      (223,923)  

Foreign currency option contracts (EUR)



278,250



                 (210,992)                           

 

Valuations of foreign exchange contracts at June 30, 2016 were determined using observable market inputs other than quoted prices in active markets for identical assets and, accordingly, were classified as Level 2 in the GAAP valuation hierarchy.

 

 

 

 

 

2.  Summary of Significant Accounting Policies (continued)

 

The following table presents derivative financial instruments that are subject to enforceable netting arrangements as of June 30, 2016:

 

Derivative Assets as of June 30, 2016

 

 

 

 

Financial Instrument


 

 

Gross Amounts

of Recognized

Assets


 

Gross Amounts Offset in the Statement of Assets

and Liabilities


 

Net Amounts of Assets Presented in the Statement of Assets and Liabilities

Foreign Currency Forward Contracts


$          241,591


$                              -


$                   241,591

 



 

 

Net Amounts of Assets Presented in the Statement of Assets and Liabilities



Amounts Not Offset in

the Statement of

Assets and Liabilities



 

Counterparty




Financial Instruments

Other Cash Collateral


 

Net Amount

Wells Fargo Bank, N.A.


$                        241,591



$                -

$              -


$           241,591

 

Revenue Recognition

 

Interest and dividend income, including income paid in kind, is recorded on an accrual basis. Origination, structuring, closing, commitment and other upfront fees, including original issue discounts, earned with respect to capital commitments are generally amortized or accreted into interest income over the life of the respective debt investment. Other fees, including certain amendment fees, prepayment fees and commitment fees on broken deals, are recognized as earned. Prepayment fees and similar income due upon the early repayment of a loan or debt security are recognized when receivable and are included in interest income.

Certain debt investments are purchased at a discount to par as a result of the underlying credit risks and financial results of the issuer, as well as general market factors that influence the financial markets as a whole. Discounts on the acquisition of corporate bonds are generally amortized using the effective-interest or constant-yield method assuming there are no questions as to collectibility. When principal payments on a loan are received in an amount in excess of the loan's amortized cost, the excess principal payments are recorded as interest income.

 



2.  Summary of Significant Accounting Policies (continued)

 

Income Taxes

 

Effective April 1, 2015, the Company elected to convert from a regulated investment company ("RIC") for U.S. federal tax purposes to a partnership. As a RIC, the Company was not taxed on its income, provided it distributed such income and satisfied other applicable income tax requirements. The Company complied with such requirements through the date of its conversion, and, accordingly, no income taxes were incurred by the Company with respect to such period. For U.S. federal income tax purposes, the Company's conversion to a partnership was treated as a full disposition and distribution of all assets and liabilities on March 31, 2015 and an immediate contribution of such assets and liabilities to the partnership on April 1, 2015 at the fair value of such assets and liabilities as of March 31, 2015.

 

For period following the conversion on April 1, 2015, the Company's income or loss is reported in the members' individual income tax returns. Consequently, no income taxes with respect to such period are paid at the Company level or reflected in the Company's financial statements. In accordance with ASC Topic 740, Income Taxes, the Company recognizes in its financial statements the effect of a tax position when it is determined that such position is more likely than not, based on technical merits, to be sustained upon examination. As of June 30, 2016, all tax years since January 1, 2012 remain subject to examination by federal tax authorities. No such examinations are currently pending.

 

 

3.  Distributions and Performance Fees

 

As a performance fee, the Investment Manager receives an amount equal to 20% of distributions of net income and gain (gross of performance fees), after cumulative distributions to common shareholders have been made in an amount equal to an 8% annual weighted-average return on common shareholders' undistributed contributed equity (the "Hurdle"). After the Hurdle is met, the Investment Manager also receives a catch-up payment until its cumulative performance fee payments equal 20% of cumulative income and gain distributions (gross of performance fees). Performance fees are accrued in a consistent manner, based on cumulative net income or loss and realized and unrealized gains or losses. As of June 30, 2016, the Hurdle exceeded the cumulative performance of the Company; accordingly, no liability for accrued but unpaid performance fees was recorded. As of June 30, 2016, the Company had distributed $711,331,053 to common shareholders since inception.

 



4.  Management and Advisory Fees and Other Operating Expenses

 

The Company incurs an annual management and advisory fee, payable to the Investment Manager monthly in arrears. Through June 24, 2015, the date of the Company's deregistration, the management fee was equal to a percentage of the aggregate cost of assets as listed below. Commencing upon deregistration under the 1940 Act, the management fee rate will be based on
the lesser of (i) the cost basis of assets held by the Company or (ii) the fair value of assets held by the Company (excluding cash and cash equivalents). In addition to the management fee, the Investment Manager is entitled to a performance fee as discussed in Note 3 above. As compensation for its services, the Co-Manager receives a portion of the management and performance fees paid to the Investment Manager.

 

Time Period


Rate

January 1, 2014 through January 13, 2015


1.25%

January 14, 2015 through July 13, 2015


1.15%

July 14, 2015 through July 13, 2016


1.00%

 

Pursuant to the amendment of the Company's operating agreement on May 23, 2016, the Investment Manager has agreed to waive the advisory fee for the period July 14, 2016 through its scheduled termination on July 13, 2018.

 

The Company pays all expenses incurred in connection with the business of the Company, including fees and expenses of outside contracted services, such as custodian, trustee, administrative, legal, audit and tax preparation fees, costs of valuing investments, insurance costs, brokers' and finders' fees relating to investments, and any other transaction costs associated with the purchase and sale of investments of the Company.

 

 

5.  Commitments, Concentration of Credit Risk and Off-Balance Sheet Risk

 

The Company conducts business with brokers and dealers that are primarily headquartered in New York and Los Angeles, and are members of the major securities exchanges. Banking activities are conducted with a firm headquartered in the San Francisco area.

 

In the normal course of business, the Company's investment activities involve executions, settlement and financing of various investment transactions resulting in receivables from, and payables to, brokers, dealers and the Company's custodian. These activities may expose the Company to risk in the event such parties are unable to fulfill contractual obligations. Management does not anticipate any material losses from counterparties with whom it conducts business.

 



5.  Commitments, Concentration of Credit Risk and Off-Balance Sheet Risk (continued)

 

Consistent with standard business practice, the Company enters into contracts that contain a variety of indemnifications, and is engaged from time to time in various legal actions. The Company's maximum exposure under these arrangements and activities is unknown. However, the Company expects the risk of material loss to be remote.

 

 

6.  Related Parties

 

The Company, the Investment Manager, the Managing Member and their members and affiliates may be considered related parties. From time to time, the Investment Manager advances payments to third parties on behalf of the Company and receives reimbursement from the Company. At June 30, 2016, such reimbursable amounts totaled $60,264 as reflected in the Statement of Assets and Liabilities.

 

 

 

 

 

 

 

 

 

 

 



7.  Financial Highlights

 

The financial highlights of the Company were as follows:

 


Six Months Ended


June 30, 2016

Ratios to average net assets: 1


   Net investment income

           3.5%

   Expenses (before performance fees)

1.3%

   Expenses (including performance fees)

1.3%



Return on equity, net 2

1.3%




Inception-to-Date

Internal rate of return: 3


   June 30, 2016

3.4%

   December 31, 2015

3.4%

                                         

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes to Financial Highlights:

(1)  Annualized, except for performance fees

(2)  Returns (net of dividends to preferred shareholders and fund expenses, including financing costs and management and performance fees)

 calculated on a monthly geometrically linked, time-weighted basis

(3)   Net of dividends to preferred shareholders and Company expenses, including financing costs and management and performance fees.

 Internal rate of return ("IRR") is the imputed annual return over an investment period and, mathematically, is the rate of return at which the

 discounted cash flows equal the initial cash outlays. The internal rate of return presented assumes liquidation of the Company at net asset

 value as of the balance sheet date.

 

 

 

 

 

 

 

This announcement has been issued through the Companies Announcement Service of

The Irish Stock Exchange

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
ISEDFLBXQVFLBBD