10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number 814-00861

 

 

Fidus Investment Corporation

(Exact Name of Registrant as Specified in its Charter)

 

 

 

Maryland   27-5017321

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

1603 Orrington Avenue, Suite 1005

Evanston, Illinois

  60201
(Address of Principal Executive Offices)   (Zip Code)

(847) 859-3940

(Registrant’s telephone number, including area code)

 

 

n/a

(Former name, former address and former fiscal year, if changed since last report)

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☐    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:

 

Large accelerated filer        Accelerated filer  
Non-accelerated filer        Smaller reporting company  
       Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Name of each exchange on which registered

Common Stock, par value $0.001 per share   The NASDAQ Global Select Market (trading symbol: FDUS)
5.875% Notes due 2023   The NASDAQ Global Select Market (trading symbol: FDUSL)
6.000% Notes due 2024   The NASDAQ Global Select Market (trading symbol: FDUSZ)

As of April 30, 2019, the Registrant had outstanding 24,463,119 shares of common stock, $0.001 par value.

 

 

 


Table of Contents

FIDUS INVESTMENT CORPORATION

TABLE OF CONTENTS

QUARTERLY REPORT ON FORM 10-Q

 

  PART I — FINANCIAL INFORMATION     3  

Item 1.

 

Financial Statements

    3  
 

Consolidated Statements of Assets and Liabilities — March  31, 2019 (unaudited) and December 31, 2018

    3  
 

Consolidated Statements of Operations — Three Months Ended March 31, 2019 (unaudited) and 2018 (unaudited)

    4  
 

Consolidated Statements of Changes in Net Assets — Three Months Ended March 31, 2019 (unaudited) and 2018 (unaudited)

    5  
 

Consolidated Statements of Cash Flows — Three Months Ended March 31, 2019 (unaudited) and 2018 (unaudited)

    6  
 

Consolidated Schedules of Investments — March  31, 2019 (unaudited) and December 31, 2018

    7  
 

Notes to Consolidated Financial Statements (unaudited)

    19  

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

    39  

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

    54  

Item 4.

 

Controls and Procedures

    55  
  PART II — OTHER INFORMATION     56  

Item 1.

 

Legal Proceedings

    56  

Item 1A.

 

Risk Factors

    56  

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

    56  

Item 3.

 

Defaults Upon Senior Securities

    57  

Item 4.

 

Mine Safety Disclosures

    57  

Item 5.

 

Other Information

    57  

Item 6.

 

Exhibits

    58  

Signatures

    59  

Exhibit Index

    60  

 

2


Table of Contents

PART I — FINANCIAL INFORMATION

 

Item 1.

Financial Statements.

FIDUS INVESTMENT CORPORATION

Consolidated Statements of Assets and Liabilities

(in thousands, except shares and per share data)

 

    March 31, 2019
(unaudited)
    December 31,
2018
 

ASSETS

   

Investments, at fair value

   

Control investments (cost: $7,338 and $22,697, respectively)

  $ 5,098     $ 18,820  

Affiliate investments (cost: $66,636 and $70,924, respectively)

    121,522       123,051  

Non-control/non-affiliate  investments (cost: $548,730 and $505,129, respectively)

    543,861       501,111  
 

 

 

   

 

 

 

Total investments, at fair value (cost: $622,704 and $598,750, respectively)

    670,481       642,982  

Cash and cash equivalents

    26,209       42,015  

Interest receivable

    7,308       7,528  

Prepaid expenses and other assets

    851       1,351  
 

 

 

   

 

 

 

Total assets

  $ 704,849     $ 693,876  
 

 

 

   

 

 

 

LIABILITIES

   

SBA debentures, net of deferred financing costs (Note 6)

  $ 167,332     $ 186,734  

Public Notes, net of deferred financing costs (Note 6)

    115,087       48,411  

Borrowings under Credit Facility, net of deferred financing costs (Note 6)

    (84     36,358  

Accrued interest and fees payable

    1,717       2,812  

Base management fee payable – due to affiliate

    2,871       2,927  

Income incentive fee payable – due to affiliate

    2,485       2,785  

Capital gains incentive fee payable – due to affiliate

    9,770       9,415  

Administration fee payable and other – due to affiliate

    375       474  

Taxes payable

    215       803  

Accounts payable and other liabilities

    265       172  
 

 

 

   

 

 

 

Total liabilities

    300,033       290,891  
 

 

 

   

 

 

 

Commitments and contingencies (Note 7)

   

NET ASSETS

   
Common stock, $0.001 par value (100,000,000 shares authorized, 24,463,119 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively)     24       24  

Additional paid-in capital

    366,278       366,278  

Total distributable earnings

    38,514       36,683  
 

 

 

   

 

 

 

Total net assets

    404,816       402,985  
 

 

 

   

 

 

 

Total liabilities and net assets

  $ 704,849     $ 693,876  
 

 

 

   

 

 

 

Net asset value per common share

  $ 16.55     $ 16.47  
 

 

 

   

 

 

 

See Notes to Consolidated Financial Statements (unaudited).

 

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FIDUS INVESTMENT CORPORATION

Consolidated Statements of Operations (unaudited)

(in thousands, except shares and per share data)

 

     Three Months Ended
March 31,
 
     2019     2018  

Investment Income:

    

Interest income

    

Control investments

   $ 282     $ 57  

Affiliate investments

     1,520       1,655  

Non-control/non-affiliate  investments

     13,450       13,023  
  

 

 

   

 

 

 

Total interest income

     15,252       14,735  

Payment-in-kind interest income

    

Control investments

     1,237       153  

Affiliate investments

     83       400  

Non-control/non-affiliate  investments

     1,310       1,126  
  

 

 

   

 

 

 

Total payment-in-kind  interest income

     2,630       1,679  

Dividend income

    

Control investments

     —         —    

Affiliate investments

     368       444  

Non-control/non-affiliate  investments

     (73     (106
  

 

 

   

 

 

 

Total dividend income

     295       338  

Fee income

    

Control investments

     349       —    

Affiliate investments

     22       (4

Non-control/non-affiliate  investments

     1,728       1,441  
  

 

 

   

 

 

 

Total fee income

     2,099       1,437  

Interest on idle funds and other income

     54       44  
  

 

 

   

 

 

 

Total investment income

     20,330       18,233  
  

 

 

   

 

 

 

Expenses:

    

Interest and financing expenses

     3,724       2,932  

Base management fee

     2,871       2,685  

Incentive fee - income

     2,485       2,224  

Incentive fee - capital gains

     355       1,530  

Administrative service expenses

     399       399  

Professional fees

     590       510  

Other general and administrative expenses

     305       295  
  

 

 

   

 

 

 

Total expenses

     10,729       10,575  
  

 

 

   

 

 

 

Net investment income before income taxes

     9,601       7,658  

Income tax provision (benefit)

     2       131  
  

 

 

   

 

 

 

Net investment income

     9,599       7,527  
  

 

 

   

 

 

 

Net realized and unrealized gains (losses) on investments:

    

Net realized gains (losses):

    

Control investments

     (1,268     —    

Affiliate investments

     35       6,973  

Non-control/non-affiliate  investments

     (358     305  
  

 

 

   

 

 

 

Total net realized gain (loss) on investments

     (1,591     7,278  
  

 

 

   

 

 

 

Income tax (provision) benefit from realized gains on investments

     8       (1,747

Net change in unrealized appreciation (depreciation):

    

Control investments

     1,637       73  

Affiliate investments

     2,759       6,385  

Non-control/non-affiliate  investments

     (851     (4,341
  

 

 

   

 

 

 

Total net change in unrealized appreciation (depreciation) on investments

     3,545       2,117  
  

 

 

   

 

 

 

Net gain on investments

     1,962       7,648  

Realized losses on extinguishment of debt

     (189     (150
  

 

 

   

 

 

 

Net increase in net assets resulting from operations

   $ 11,372     $ 15,025  
  

 

 

   

 

 

 

Per common share data:

    

Net investment income per share-basic and diluted

   $ 0.39     $ 0.31  
  

 

 

   

 

 

 

Net increase in net assets resulting from operations per share — basic and diluted

   $ 0.46     $ 0.61  
  

 

 

   

 

 

 

Dividends declared per share

   $ 0.39     $ 0.39  
  

 

 

   

 

 

 

Weighted average number of shares outstanding — basic and diluted

     24,463,119       24,498,041  
  

 

 

   

 

 

 

See Notes to Consolidated Financial Statements (unaudited).

 

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FIDUS INVESTMENT CORPORATION

Consolidated Statements of Changes in Net Assets (unaudited)

(in thousands, except shares)

 

     Common Stock      Additional     Total        
     Number of     Par      paid-in     distributable     Total net  
     shares     value      capital     earnings     assets  

Balances at December 31, 2017

     24,507,940     $ 24      $ 370,796     $ 22,453     $ 393,273  
Repurchases of common stock under Stock Repurchase Program (Note 8)      (44,821     —          (582     —         (582
Net investment income      —         —          —         7,527       7,527  
Net realized gain (loss) on investments, net of taxes      —         —          —         5,531       5,531  
Net unrealized appreciation (depreciation) on investments      —         —          —         2,117       2,117  
Realized losses on extinguishment of debt      —         —          —         (150     (150
Dividends declared      —         —          —         (9,558     (9,558
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Balances at March 31, 2018

     24,463,119     $ 24      $ 370,214     $ 27,920     $ 398,158  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Balances at December 31, 2018

     24,463,119     $ 24      $ 366,278     $ 36,683     $ 402,985  
Net investment income      —         —          —         9,599       9,599  
Net realized gain (loss) on investments, net of taxes      —         —          —         (1,583     (1,583
Net unrealized appreciation (depreciation) on investments      —         —          —         3,545       3,545  
Realized losses on extinguishment of debt      —         —          —         (189     (189
Dividends declared      —         —          —         (9,541     (9,541
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Balances at March 31, 2019

     24,463,119     $ 24      $ 366,278     $ 38,514     $ 404,816  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

See Notes to Consolidated Financial Statements (unaudited).

 

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FIDUS INVESTMENT CORPORATION

Consolidated Statements of Cash Flows (unaudited)

(in thousands)

 

     Three Months Ended March 31,  
     2019     2018  

Cash Flows from Operating Activities:

    

Net increase in net assets resulting from operations

   $ 11,372     $ 15,025  

Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by (used for) operating activities:

    

Net change in unrealized (appreciation) depreciation on investments

     (3,545     (2,117

Net realized (gain) loss on investments

     1,591       (7,278

Interest and dividend income paid-in-kind

     (2,630     (1,724

Accretion of original issue discount

     (13     (57

Accretion of loan origination fees

     (367     (214

Purchase of investments

     (80,473     (60,913

Proceeds from sales and repayments of investments

     57,352       36,093  

Proceeds from loan origination fees

     586       323  

Realized losses on extinguishment of debt

     189       150  

Amortization of deferred financing costs

     415       317  

Changes in operating assets and liabilities:

    

Interest receivable

     220       1,256  

Prepaid expenses and other assets

     482       (293

Accrued interest and fees payable

     (1,095     (1,662

Base management fee payable – due to affiliate

     (56     99  

Income incentive fee payable – due to affiliate

     (300     70  

Capital gains incentive fee payable – due to affiliate

     355       1,530  

Administration fee payable and other – due to affiliate

     (99     (137

Taxes payable

     (588     1,635  

Accounts payable and other liabilities

     93       122  
  

 

 

   

 

 

 

Net cash provided by (used for) operating activities

     (16,511     (17,775
  

 

 

   

 

 

 

Cash Flows from Financing Activities:

    

Proceeds received from SBA debentures

     —         27,000  

Repayments of SBA debentures

     (19,750     (43,800

Proceeds received from issuance of Public Notes

     69,000       50,000  

Proceeds received from (repayments of) borrowings under Credit Facility, net

     (36,500     (11,500

Payment of deferred financing costs

     (2,504     (2,560

Dividends paid to stockholders, including expenses

     (9,541     (9,558

Repurchases of common stock under Stock Repurchase Program

     —         (582
  

 

 

   

 

 

 

Net cash provided by (used for) financing activities

     705       9,000  
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     (15,806     (8,775

Cash and cash equivalents:

    

Beginning of period

     42,015       41,572  
  

 

 

   

 

 

 

End of period

   $ 26,209     $ 32,797  
  

 

 

   

 

 

 

Supplemental disclosure of cash flow information:

    

Cash payments for interest

   $ 4,404     $ 4,277  

Cash payments for taxes, net of tax refunds received

   $ 582     $ 243  

See Notes to Consolidated Financial Statements (unaudited).

 

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Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (unaudited)

March 31, 2019

(in thousands, except shares)

 

Portfolio Company (a)(b)         Rate (d)       Principal           Fair     Percent of  

Investment Type (c)         

  Industry     Cash/PIK   Maturity   Amount     Cost     Value (e)     Net Assets  
Control Investments (t)              
FDS Avionics Corp. (dba Flight Display Systems)     Aerospace & Defense Manufacturing              

Second Lien Debt

    4.00%/11.00%   4/1/2020   $ 6,373     $ 6,369     $ 4,877    

Revolving Loan ($50 commitment)

    4.00%/11.00%   4/1/2020     221       221       221    

Common Equity (7,478 shares) (j)

            748       —      
         

 

 

   

 

 

   
            7,338       5,098       1
         

 

 

   

 

 

   
Total Control Investments           $ 7,338     $ 5,098       1
         

 

 

   

 

 

   
Affiliate Investments (l)              
FAR Research Inc. (n)     Specialty Chemicals              

Common Equity (1,396 units)

          $ —       $ 46       0
Fiber Materials, Inc.     Aerospace & Defense Manufacturing              

Common Equity (10 units)

            645       2,900       1
Medsurant Holdings, LLC     Healthcare Services              

Second Lien Debt

    13.00%/0.00%   6/30/2020     8,823       8,799       8,823    

Preferred Equity (126,662 units) (h)

            1,345       2,126    

Warrant (505,176 units) (h)(m)

            4,516       7,671    
         

 

 

   

 

 

   
            14,660       18,620       5
Microbiology Research Associates, Inc.     Healthcare Services              

Subordinated Debt

    11.00%/1.50%   3/13/2022     8,830       8,817       8,225    

Common Equity (1,625,731 units) (j)

            1,939       1,944    
         

 

 

   

 

 

   
            10,756       10,169       2
Mirage Trailers LLC     Utility Equipment Manufacturing              

Second Lien Debt (k)(f)

    13.98%/1.50%   11/25/2020     6,131       6,102       6,131    

Common Equity (2,500,000 shares) (g)

            2,180       3,154    
         

 

 

   

 

 

   
            8,282       9,285       2
Pfanstiehl, Inc.     Healthcare Products              

Subordinated Debt

    10.50%/0.00%   9/29/2022     6,208       6,198       6,208    

Common Equity (8,500 units) (j)

            850       15,348    
         

 

 

   

 

 

   
            7,048       21,556       5
Pinnergy, Ltd.     Oil & Gas Services              

Second Lien Debt (k)

    12.00%/0.00%   1/24/2020     4,000       3,995       4,000    

Common Equity - Class A-2 (42,500 units) (k)

            3,000       36,535    

Common Equity - Class B (1,000 units) (k)

            3,000       3,000    
         

 

 

   

 

 

   
            9,995       43,535       11
Steward Holding LLC (dba Steward Advanced Materials)     Aerospace & Defense Manufacturing              

Second Lien Debt

    12.00%/1.50%   5/12/2021     7,581       7,568       7,581    

Common Equity (1,000,000 units)

            1,000       1,485    
         

 

 

   

 

 

   
            8,568       9,066       2
Trantech Radiator Products, Inc.     Utility Equipment Manufacturing              

Second Lien Debt (j)

    13.75%/0.00%   12/31/2019     5,994       5,994       5,994    

Common Equity (6,875 shares) (j)

            688       351    
         

 

 

   

 

 

   
            6,682       6,345       2
         

 

 

   

 

 

   
Total Affiliate Investments           $ 66,636     $ 121,522       30
         

 

 

   

 

 

   

 

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Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (unaudited)

March 31, 2019

(in thousands, except shares)

 

Portfolio Company (a)(b)         Rate (d)       Principal           Fair     Percent of  

Investment Type (c)         

  Industry     Cash/PIK   Maturity   Amount     Cost     Value (e)     Net Assets  
Non-control/Non-affiliate Investments              
Accent Food Services, LLC     Vending Equipment Manufacturing              

Second Lien Debt (k)

    10.00%/5.00%   5/30/2022   $ 30,687     $ 30,588     $ 29,409    

Common Equity (7,885 units) (h)(j)

            800       400    
         

 

 

   

 

 

   
            31,388       29,809       7
Allied 100 Group, Inc.     Healthcare Products              

Common Equity (1,250,000 units) (j)

            1,250       1,520       0
Alzheimer’s Research and Treatment Center     Healthcare Services              

First Lien Debt (j)(x)

    8.58%/0.00%   10/23/2023     6,500       6,454       6,454    

Common Equity (1,000 units) (h)(j)

            1,000       1,000    
         

 

 

   

 

 

   
            7,454       7,454       2
American AllWaste LLC (dba WasteWater Transport Services)     Environmental Industries              

Second Lien Debt (j)

    11.00%/1.50%   11/30/2023     12,041       11,983       12,041    

Delayed Draw Commitment ($2,104 commitment) (i)(j)

    11.00%/1.50%   11/30/2019     —         (5     —      

Preferred Equity (500 units) (j)

            500       618    
         

 

 

   

 

 

   
            12,478       12,659       3
Argo Turboserve Corporation     Business Services              

Second Lien Debt (j)(y)

    12.56%/0.00%   6/28/2023     15,000       14,929       14,929       4
AVC Investors, LLC (dba Auveco)     Specialty Distribution              

Second Lien Debt (k)

    11.50%/0.00%   7/3/2023     22,500       22,411       22,500    

Common Equity (5,000 units) (j)

            500       605    
         

 

 

   

 

 

   
            22,911       23,105       6
B&B Roadway and Security Solutions, LLC     Component Manufacturing              

Second Lien Debt

    10.50%/1.50%   8/27/2023     10,167       10,122       9,188    

Common Equity (50,000 units) ($133 commitment) (h)(j)

            500       275    
         

 

 

   

 

 

   
            10,622       9,463       2
BCC Group Holdings, Inc.     Information Technology Services              

Subordinated Debt

    11.00%/1.00%   4/11/2023     18,032       17,859       17,859    

Common Equity (451 Shares)

            1       1    

Preferred Equity (37 Shares)

            374       374    
         

 

 

   

 

 

   
            18,234       18,234       5
BCM One Group Holdings, Inc.     Information Technology Services              

Subordinated Debt (k)

    11.00%/0.00%   7/3/2024     27,000       26,870       26,870    

Common Equity (2,286 shares)

            2       2    

Preferred Equity (133 shares)

            1,330       1,330    
         

 

 

   

 

 

   
            28,202       28,202       7
Bedford Precision Parts LLC     Specialty Distribution              

First Lien Debt (j)(s)

    8.85%/0.00%   3/12/2024     5,000       4,963       4,963    

Common Equity (500,000 units) (h)(j)

            500       500    
         

 

 

   

 

 

   
            5,463       5,463       1
Cardboard Box LLC (dba Anthony’s Coal Fired Pizza)     Restaurants              

Common Equity (521,021 units) (j)

            521       166       0
ControlScan, Inc.     Information Technology Services              

Subordinated Debt (j)

    11.00%/0.00%   1/28/2023     6,750       6,727       6,750    

Common Equity (3,704 shares) (j)

            4       638    

Preferred Equity (100 shares) (j)

            996       996    
         

 

 

   

 

 

   
            7,727       8,384       2
CRS Solutions Holdings, LLC (dba CRS Texas)     Business Services              

Second Lien Debt

    10.50%/1.00%   9/14/2023     9,096       9,060       9,096    

Common Equity (750,000 units) (j)

            750       838    
         

 

 

   

 

 

   
            9,810       9,934       2
Diversified Search LLC     Business Services              

First Lien Debt (r)

    8.74%/0.00%   2/7/2024     10,000       9,871       9,871    

Common Equity (500 units) (h)(j)

            500       500    
         

 

 

   

 

 

   
            10,371       10,371       3
EBL, LLC (EbLens)     Retail              

Second Lien Debt (j)

    12.00%/1.00%   1/13/2023     9,412       9,349       9,412    

Common Equity (75,000 units) (j)

            750       675    
         

 

 

   

 

 

   
            10,099       10,087       2

 

8


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (unaudited)

March 31, 2019

(in thousands, except shares)

 

Portfolio Company (a)(b)       Rate (d)       Principal           Fair     Percent of  

Investment Type (c)         

  Industry   Cash/PIK   Maturity   Amount     Cost     Value (e)     Net Assets  
Global Plasma Solutions, Inc.   Component Manufacturing            

First Lien Debt (j)(v)

    7.80%/0.00%   9/21/2023   $ 8,178     $ 8,108     $ 8,178    

Preferred Equity (947 shares) (j)

            360       375    

Common Equity (947 shares) (j)

            15       61    
         

 

 

   

 

 

   
            8,483       8,614       2
Gurobi Optimization, LLC   Information Technology Services            

Common Equity (5 shares)

            1,500       2,473       1
Hilco Plastics Holdings, LLC (dba Hilco Technologies)   Component Manufacturing            

Second Lien Debt

    11.50%/1.50%   12/31/2019     9,983       9,970       9,573    

Preferred Equity (1,000,000 units) (h)(j)

            1,000       1,152    

Common Equity (72,507 units) (h)(j)

            473       204    
         

 

 

   

 

 

   
            11,443       10,929       3
Hub Acquisition Sub, LLC (dba Hub Pen)   Promotional products            

Second Lien Debt (k)

    12.25%/0.00%   9/23/2021     25,000       24,925       25,000    

Common Equity (7,500 units)

            249       1,413    
         

 

 

   

 

 

   
            25,174       26,413       7
Hunter Defense Technologies, Inc.   Aerospace & Defense Manufacturing            

First Lien Debt (j)(w)

    9.60%/0.00%   3/29/2023     9,747       9,658       9,747       2
IBH Holdings, LLC (fka Inflexxion, Inc.)   Business Services            

Common Equity (150,000 units)

            —         —         0
inthinc Technology Solutions, Inc. (n)   Information Technology Services            

Royalty Rights

      4/24/2020       185       —         0
K2 Merger Agreement Agent, LLC (fka K2 Industrial Services, Inc.) (n)   Industrial Cleaning & Coatings            

Second Lien Debt

    0.00%/10.00%   1/28/2021     2,502       2,502       2,502       1
The Kyjen Company, LLC (dba Outward Hound)   Consumer Products            

Second Lien Debt (k)

    12.00%/0.00%   6/8/2024     15,000       14,939       13,792    

Common Equity (765 shares) (j)

            765       752    
         

 

 

   

 

 

   
            15,704       14,544       4
LNG Indy, LLC (dba Kinetrex Energy)   Oil & Gas Distribution            

Second Lien Debt (k)

    11.50%/0.00%   11/12/2021     5,000       4,987       5,000    

Common Equity (1,000 units)

            1,000       1,679    
         

 

 

   

 

 

   
            5,987       6,679       2
Marco Group International OpCo, LLC   Industrial Cleaning & Coatings            

Second Lien Debt

    10.50%/0.75%   1/21/2023     12,156       12,114       12,090    

Common Equity (750,000 units) (h)(j)

            750       765    
         

 

 

   

 

 

   
            12,864       12,855       3
Mesa Line Services, LLC   Utilities: Services            

Second Lien Debt (j)

    10.50%/1.00%   8/1/2024     17,046       16,944       17,046    

Delayed Draw Commitment ($2,160 commitment) (i)(j)

    10.50%/1.00%   12/31/2019     —         (10     —      

Common Equity (833 shares) (j)

            1,000       1,553    
         

 

 

   

 

 

   
            17,934       18,599       5
Midwest Transit Equipment, Inc.   Transportation services            

Warrant (14,384 shares) (j)(m)

            361       156    

Warrant (9.59% of Junior Subordinated Notes) (j)(q)

            381       443    
         

 

 

   

 

 

   
            742       599       0
New Era Technology, Inc.   Information Technology Services            

Common Equity (197,369 shares) (j)

            750       1,317    

Preferred Equity (632 shares) (j)

            77       155    
         

 

 

   

 

 

   
            827       1,472       0
NGT Acquisition Holdings, LLC (dba Techniks Industries)   Component Manufacturing            

Subordinated Debt

    12.50%/2.00%   3/21/2022     5,304       5,270       5,304    

Common Equity (378 units) (j)

            500       144    
         

 

 

   

 

 

   
            5,770     5,448     1

 

9


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (unaudited)

March 31, 2019

(in thousands, except shares)

 

Portfolio Company (a)(b)         Rate (d)           Principal           Fair     Percent of  

Investment Type (c)         

  Industry     Cash/PIK     Maturity     Amount     Cost     Value (e)     Net Assets  
Oaktree Medical Centre, P.C. (dba Pain Management Associates)     Healthcare Services              

First Lien Debt (j)(u)

      14.50%/0.00%       1/1/2018     $ 571     $ 649     $ 550    

First Lien Debt (j)(aa)

      10.00%/12.00%       1/1/2018       7,751       8,338       6,437    

Subordinated Debt (j)

      7.00%/0.00%       1/1/2020       88       88       —      

Revolving Loan (j)(u)

      14.50%/0.00%       1/1/2018       2,500       2,699       2,481    

Revolving Loan (j)(u)

      14.50%/0.00%       1/31/2019       200       200       184    

Revolving Loan ($500 commitment) (j)

      14.50%/0.00%       4/15/2019       1,250       1,250       1,149    
         

 

 

   

 

 

   
            13,224       10,801       3
OMC Investors, LLC (dba Ohio Medical Corporation)     Healthcare Products              

Second Lien Debt

      12.00%/0.00%       7/15/2021       10,000       9,958       9,094    

Common Equity (5,000 units)

            500       205    
         

 

 

   

 

 

   
            10,458       9,299       2
Palisade Company, LLC     Information Technology Services              

Subordinated Debt (j)

      11.75%/0.00%       5/15/2024       6,500       6,470       6,470    

Common Equity (100 shares) (j)

            1,000       1,000    
         

 

 

   

 

 

   
            7,470       7,470       2
Palmetto Moon, LLC     Retail              

First Lien Debt

      11.50%/2.50%       10/31/2021       5,497       5,477       5,497    

Common Equity (499 units) (j)

            494       48    
         

 

 

   

 

 

   
            5,971       5,545       1
Power Grid Components, Inc.     Specialty Distribution              

Second Lien Debt (k)

      11.00%/1.00%       5/20/2023       11,311       11,265       11,311    

Preferred Equity (392 shares) (j)

            392       433    

Common Equity (9,695 shares) (j)

            358       253    
         

 

 

   

 

 

   
            12,015       11,997       3
Pugh Lubricants, LLC     Specialty Distribution              

Second Lien Debt (k)

      12.25%/0.00%       5/10/2022       23,581       23,503       23,581    

Common Equity (6,125 units) (h)(j)

            612       1,162    
         

 

 

   

 

 

   
            24,115       24,743       6
Revenue Management Solutions, LLC     Information Technology Services              

Common Equity (2,250,000 shares)

            2,250       4,212       1
Rhino Assembly Company, LLC     Specialty Distribution              

Second Lien Debt (k)

      12.00%/1.00%       2/11/2023       11,353       11,306       11,353    

Delayed Draw Commitment ($875 commitment) (i)(j)

      12.00%/1.00%       5/17/2022       —         —         —      

Preferred Equity (8,864 units) (h)(j)

            945       1,180    
         

 

 

   

 

 

   
            12,251       12,533       3
Road Safety Services, Inc.     Business Services              

Second Lien Debt

      11.25%/1.50%       3/18/2024       10,106       10,062       10,106    

Common Equity (655 units)

            620       744    
         

 

 

   

 

 

   
            10,682       10,850       3
Rohrer Corporation     Packaging              

Subordinated Debt (j)

      10.50%/1.00%       4/1/2024       13,769       13,707       13,646    

Common Equity (400 shares)

            779       676    
         

 

 

   

 

 

   
            14,486       14,322       4
SES Investors, LLC (dba SES Foam)     Building Products Manufacturing              

Second Lien Debt

      15.00%/0.00%       12/29/2020       3,095       3,072       2,743    

Common Equity (6,000 units) (h)(j)

            600       367    
         

 

 

   

 

 

   
            3,672       3,110       1
Simplex Manufacturing Co.     Aerospace & Defense Manufacturing              

Subordinated Debt

      14.00%/0.00%       7/31/2019       4,050       4,050       4,050    

Warrant (29 shares) (m)

            1,155       2,776    
         

 

 

   

 

 

   
            5,205       6,826       2
Software Technology, LLC     Information Technology Services              

Subordinated Debt (k)

      11.00%/0.00%       6/23/2023       10,000       9,966       10,000    

Common Equity (12 shares)

            1,291       1,433    
         

 

 

   

 

 

   
            11,257       11,433       3
SpendMend LLC     Business Services              

Second Lien Debt (k)

      11.00%/1.00%       7/8/2023       10,427       10,384       10,427    

Common Equity (1,000,000 units)

            1,000       1,341    
         

 

 

   

 

 

   
            11,384       11,768       3

 

10


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (unaudited)

March 31, 2019

(in thousands, except shares)

 

Portfolio Company (a)(b)       Rate (d)       Principal           Fair     Percent of  

Investment Type (c)         

  Industry   Cash/PIK   Maturity   Amount     Cost     Value (e)     Net Assets  
Thermoforming Technology Group LLC (dba Brown Machine Group) (n)   Capital Equipment Manufacturing            

Common Equity (3,760 units) (h)(j)

          $ —       $ 10       0
TransGo, LLC   Component Manufacturing            

Second Lien Debt

    13.25%/0.00%   8/28/2022     9,500       9,471       9,500    

Common Equity (1,000 units)

            998       944    
         

 

 

   

 

 

   
            10,469       10,444       2
The Tranzonic Companies   Specialty Distribution            

Subordinated Debt (j)

    10.00%/1.50%   3/27/2025     6,844       6,784       6,770    

Preferred Equity (5,653 units) (j)

            565       539    

Common Equity (1 units) (j)

            —         —      
         

 

 

   

 

 

   
            7,349       7,309       2
UBEO, LLC   Business Services            

Subordinated Debt (j)

    11.00%/0.00%   10/3/2024     13,100       12,984       13,100    

Delayed Draw Commitment ($1,500 commitment) (j)(i)(z)

    11.00%/0.00%   8/7/2019     —         (7     —      

Common Equity (705,000 units) (j)

            705       990    
         

 

 

   

 

 

   
            13,682       14,090       3
United Biologics, LLC   Healthcare Services            

Preferred Equity (98,377 units) (h)(j)

            1,008       48    

Warrant (57,469 units) (m)

            566       40    
         

 

 

   

 

 

   
            1,574       88       0
US GreenFiber, LLC   Building Products Manufacturing            

Second Lien Debt (k)(p)

    12.00%/2.00%   7/15/2019     14,363       14,359       5,191    

Second Lien Debt (p)

    0.00%/16.00%   7/15/2019     1,000       1,000       1,000    

Common Equity (2,522 units) (h)(j)

            586       —      
         

 

 

   

 

 

   
            15,945       6,191       2
US Pack Logistics LLC   Transportation services            

Second Lien Debt (k)

    12.00%/1.75%   3/28/2023     7,444       7,430       7,169    

Common Equity (5,833 units) (h)(j)

            555       —      

Preferred Equity (9,458 units) (h)(j)

            927       761    
         

 

 

   

 

 

   
            8,912       7,930       2
Vanguard Dealer Services, L.L.C.   Business Services            

Common Equity (6,000 units)

            154       1,014    

Common Equity (2,380 units) (j)

            327       402    
         

 

 

   

 

 

   
            481       1,416       0
Virginia Tile Company, LLC   Specialty Distribution            

Second Lien Debt (k)

    12.25%/0.00%   4/7/2022     12,000       11,982       12,000    

Common Equity (17 units)

            342       1,165    
         

 

 

   

 

 

   
            12,324       13,165       3
The Wolf Organization, LLC   Building Products Manufacturing            

Common Equity (175 shares)

            664       3,818       1
Worldwide Express Operations, LLC   Transportation services            

Second Lien Debt (j)(o)

    10.86%/0.00%   2/3/2025     20,000       19,702       20,000    

Common Equity (4,000 units) (h)(j)

            2,956       3,837    
         

 

 

   

 

 

   
            22,658       23,837       6
         

 

 

   

 

 

   
Total Non-control/Non-affiliate Investments           $ 548,730     $ 543,861       135
         

 

 

   

 

 

   
Total Investments           $ 622,704     $ 670,481       166
         

 

 

   

 

 

   

 

(a)

See Note 3 to the consolidated financial statements for portfolio composition by geographic location.

(b)

Equity ownership may be held in shares or units of companies related to the portfolio companies.

(c)

All debt investments are income producing, unless otherwise indicated. Equity investments are non-income producing unless otherwise noted.

(d)

Rate includes the cash interest or dividend rate and paid-in-kind interest or dividend rate, if any, as of March 31, 2019. Generally, payment-in-kind interest can be paid-in-kind or all in cash.

(e)

The Company’s investment portfolio is comprised entirely of debt and equity securities of privately held companies for which quoted prices falling within the categories of Level 1 and Level 2 inputs are not available. Therefore, the Company values all of its portfolio investments at fair value, as determined in good faith by the board of directors, using significant unobservable Level 3 inputs.

(f)

The investment bears cash interest at a variable rate that is determined by reference to one-month LIBOR, which is reset monthly. The cash interest rate is set as one-month LIBOR + 11.50% and is subject to a 1.00% LIBOR interest rate floor. The Company has provided the interest rate in effect as of March 31, 2019.

(g)

Income producing. Maturity date, if any, represents mandatory redemption date.

(h)

Investment is held by a wholly-owned subsidiary of the Company, other than the Funds.

(i)

The disclosed commitment represents the unfunded amount as of March 31, 2019. The Company is earning 0.50% interest on the unfunded balance of the commitment. The interest rate disclosed represents the rate which will be earned if the commitment is funded.

 

11


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (unaudited)

March 31, 2019

(in thousands, except shares)

 

(j)

Investment pledged as collateral for the Credit Facility and, as a result, is not directly available to the creditors of the Company to satisfy any obligations of the Company other than the Company’s obligations under the Credit Facility (see Note 6 to the consolidated financial statements).

(k)

The portion of the investment not held by the Funds is pledged as collateral for the Credit Facility and, as a result, is not directly available to the creditors of the Company to satisfy any obligations of the Company other than the Company’s obligations under the Credit Facility (see Note 6 to the consolidated financial statements).

(l)

As defined in the 1940 Act, the Company is deemed to be an “Affiliated Person” of this portfolio company because it owns 5% or more of the portfolio company’s outstanding voting securities or it has the power to exercise control over the management or policies of such portfolio company. Transactions in which the issuer was an Affiliated Person are detailed in Note 3 to the consolidated financial statements.

(m)

Warrants entitle the Company to purchase a predetermined number of shares or units of common equity, and are non-income producing. The purchase price and number of shares are subject to adjustment under certain conditions until the expiration date, if any.

(n)

Investment in portfolio company that has sold its operations and is in the process of winding down.

(o)

The investment bears interest at a variable rate that is determined by reference to six-month LIBOR, which is reset semi-annually. The interest rate is set as six-month LIBOR + 8.00% and is subject to a 1.00% LIBOR interest rate floor. The Company has provided the interest rate in effect as of March 31, 2019.

(p)

Investment was on non-accrual status as of March 31, 2019, meaning the Company has ceased recognizing interest income on the investment.

(q)

Warrant entitles the Company to purchase 9.59% of the outstanding principal of Junior Subordinated Notes prior to exercise, and is non-income producing.

(r)

The investment bears interest at a variable rate that is determined by reference to three-month LIBOR. The interest rate is set as three-month LIBOR + 6.00% and is subject to a 1.75% LIBOR interest rate floor. In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 3.81% on its “last out” tranche of the portfolio company’s senior term debt, which was previously syndicated into “first out” and “last out” tranches, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

(s)

The investment bears interest at a variable rate that is determined by reference to three-month LIBOR. The interest rate is set as three-month LIBOR + 6.25% and is subject to a 2.00% LIBOR interest rate floor. In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 4.06% on its “last out” tranche of the portfolio company’s senior term debt, which was previously syndicated into “first out” and “last out” tranches, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

(t)

As defined in the 1940 Act, the Company is deemed to be both an “Affiliated Person” of and “Control” this portfolio company because it owns 25% or more of the portfolio company’s outstanding voting securities or it has the power to exercise control over the management or policies of such portfolio company. Transactions in which the issuer was both an Affiliated Person and a portfolio company that the Company is deemed to Control are detailed in Note 3 to the consolidated financial statements.    

(u)

The debt investment continues to pay interest, including the default rate, while the portfolio company pursues refinancing options.

(v)

The investment bears interest at a variable rate that is determined by reference to three-month LIBOR. The interest rate is set as three-month LIBOR + 5.00% and is subject to a 2.00% LIBOR interest rate floor. In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 3.49% on its “last out” tranche of the portfolio company’s senior term debt, which was previously syndicated into “first out” and “last out” tranches, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

(w)

The investment bears interest at a variable rate that is determined by reference to three-month LIBOR, which is reset quarterly. The interest rate is set as three-month LIBOR + 7.00% and is subject to a 1.00% LIBOR interest rate floor. The Company has provided the interest rate in effect as of March 31, 2019.

(x)

The investment bears interest at a variable rate that is determined by reference to three-month LIBOR. The interest rate is set as three-month LIBOR + 5.75% and is subject to a 2.00% LIBOR interest rate floor. In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 4.15% on its “last out” tranche of the portfolio company’s senior term debt, which was previously syndicated into “first out” and “last out” tranches, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

(y)

The investment bears interest at a variable rate that is determined by reference to three-month LIBOR, which is reset quarterly. The interest rate is set as three-month LIBOR + 9.75% and is subject to a 2.00% LIBOR interest rate floor. The Company has provided the interest rate in effect as of March 31, 2019.

(z)

The maturity date presented represents the final termination date of the commitment. $707 of the commitment expires on May 7, 2019.

(aa)

Investment was on PIK-only non-accrual status as of March 31, 2019, meaning the Company has ceased recognizing PIK interest income on the investment.

See Notes to Consolidated Financial Statements (unaudited).

 

12


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments

December 31, 2018

(in thousands, except shares)

 

Portfolio Company (a)(b)

Investment Type (c)         

  Industry   Rate (d)
Cash/PIK
  Maturity     Principal
Amount
    Cost     Fair
Value (e)
    Percent of
Net Assets
 

Control Investments (t)

             

FDS Avionics Corp. (dba Flight Display Systems)

  Aerospace & Defense Manufacturing            

Second Lien Debt

    4.00%/11.00%     4/1/2020     $ 6,203     $ 6,196     $ 5,397    

Revolving Loan ($50 commitment)

    4.00%/11.00%     4/1/2020       215       215       215    

Common Equity (7,478 shares) (j)

            748       —      
         

 

 

   

 

 

   
            7,159       5,612       2%  

K2 Industrial Services, Inc.

  Industrial Cleaning & Coatings            

Second Lien Debt (p)

    0.00%/15.00%     6/25/2020       10,453       10,423       10,453    

Second Lien Debt (p)

    0.00%/12.00%     6/25/2020       2,261       2,255       1,155    

Second Lien Debt (p)

    0.00%/19.00%     6/25/2020       1,600       1,592       1,600    

Common Equity (1,673 shares)

            1,268       —      
         

 

 

   

 

 

   
            15,538       13,208       3%  
         

 

 

   

 

 

   

Total Control Investments

          $ 22,697     $ 18,820       5%  
         

 

 

   

 

 

   

Affiliate Investments (l)

             

FAR Research Inc. (n)

  Specialty Chemicals            

Common Equity (1,396 units)

          $ —       $ 116       0%  

Fiber Materials, Inc.

  Aerospace & Defense Manufacturing            

Second Lien Debt

    12.00%/0.00%     5/30/2022     $ 4,044       4,032       4,044    

Common Equity (10 units)

            1,000       2,104    
         

 

 

   

 

 

   
            5,032       6,148       2%  

Medsurant Holdings, LLC

  Healthcare Services            

Second Lien Debt

    13.00%/0.00%     6/30/2020       8,823       8,795       8,823    

Preferred Equity (126,662 units) (h)

            1,346       2,703    

Warrant (505,176 units) (h)(m)

            4,516       9,820    
         

 

 

   

 

 

   
            14,657       21,346       5%  

Microbiology Research Associates, Inc.

  Healthcare Services            

Subordinated Debt

    11.00%/1.50%     3/13/2022       8,798       8,783       8,122    

Common Equity (1,625,731 units) (j)

            1,938       1,924    
         

 

 

   

 

 

   
            10,721       10,046       3%  

Mirage Trailers LLC

  Utility Equipment Manufacturing            

Second Lien Debt (k)(f)

    13.85%/1.50%     11/25/2020       6,109       6,075       6,109    

Common Equity (2,500,000 shares) (g)

            2,179       3,174    
         

 

 

   

 

 

   
            8,254       9,283       2%  

Pfanstiehl, Inc.

  Healthcare Products            

Subordinated Debt

    10.50%/0.00%     9/29/2022       6,208       6,197       6,208    

Common Equity (8,500 units) (j)

            850       13,815    
         

 

 

   

 

 

   
            7,047       20,023       5%  

Pinnergy, Ltd.

  Oil & Gas Services            

Second Lien Debt (k)

    12.00%/0.00%     1/24/2020       4,000       3,993       4,000    

Common Equity - Class A-2 (42,500 units) (k)

            3,000       33,878    

Common Equity - Class B (1,000 units) (k)

            3,000       3,000    
         

 

 

   

 

 

   
            9,993       40,878       10%  

Steward Holding LLC (dba Steward Advanced Materials)

  Aerospace & Defense Manufacturing            

Second Lien Debt

    12.00%/1.50%     5/12/2021       7,553       7,538       7,553    

Common Equity (1,000,000 units)

            1,000       1,357    
         

 

 

   

 

 

   
            8,538       8,910       2%  

Trantech Radiator Products, Inc.

  Utility Equipment Manufacturing            

Second Lien Debt (j)

    13.75%/0.00%     12/31/2019       5,994       5,994       5,994    

Common Equity (6,875 shares) (j)

            688       307    
         

 

 

   

 

 

   
            6,682       6,301       2%  
         

 

 

   

 

 

   

Total Affiliate Investments

          $ 70,924     $ 123,051       31%  
         

 

 

   

 

 

   

 

13


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments

December 31, 2018

(in thousands, except shares)

 

Portfolio Company (a)(b)

Investment Type (c)         

  Industry     Rate (d)
Cash/PIK
    Maturity     Principal
Amount
    Cost     Fair
Value (e)
    Percent of
Net Assets
 

Non-control/Non-affiliate  Investments

             

Accent Food Services, LLC

    Vending Equipment Manufacturing              

Second Lien Debt (k)

      10.00%/5.00%       5/30/2022     $ 30,312     $ 30,205     $ 28,879    

Common Equity (7,885 units) (h)(j)

            800       462    
         

 

 

   

 

 

   
            31,005       29,341       7

Allied 100 Group, Inc.

    Healthcare Products              

Common Equity (1,250,000 units) (j)

            1,250       1,744       0

Alzheimer’s Research and Treatment Center

    Healthcare Services              

First Lien Debt (j)(x)

      8.23%/0.00%       10/23/2023       6,500       6,451       6,451    

Common Equity (1,000 units) (h)(j)

            1,000       1,000    
         

 

 

   

 

 

   
            7,451       7,451       2

American AllWaste LLC (dba WasteWater Transport Services)

    Environmental Industries              

Second Lien Debt (j)

      11.00%/1.50%       11/30/2023       11,826       11,765       11,826    

Delayed Draw Commitment ($2,276 commitment) (i)(j)

      11.00%/1.50%       11/30/2019       —         (7     —      

Preferred Equity (500 units) (j)

            500       615    
         

 

 

   

 

 

   
            12,258       12,441       3

Argo Turboserve Corporation

    Business Services              

Second Lien Debt (j)(y)

      12.56%/0.00%       6/28/2023       15,000       14,925       14,925       4

AVC Investors, LLC (dba Auveco)

    Specialty Distribution              

Second Lien Debt (k)

      11.50%/0.00%       7/3/2023       22,500       22,406       22,500    

Common Equity (5,000 units) (j)

            500       682    
         

 

 

   

 

 

   
            22,906       23,182       6

B&B Roadway and Security Solutions, LLC

    Component Manufacturing              

Second Lien Debt

      10.50%/1.50%       8/27/2023       10,129       10,080       9,524    

Common Equity (50,000 units) ($133 commitment) (h)(j)

 

          500       304    
         

 

 

   

 

 

   
            10,580       9,828       2

Cardboard Box LLC (dba Anthony’s Coal Fired Pizza)

    Restaurants              

Common Equity (521,021 units) (j)

            521       108       0

Consolidated Infrastructure Group Holdings, LP

    Business Services              

Common Equity (298 units)

            378       49       0

ControlScan, Inc.

    Information Technology Services              

Subordinated Debt (j)

      11.00%/0.00%       1/28/2023       6,750       6,725       6,750    

Common Equity (3,704 shares) (j)

            4       620    

Preferred Equity (100 shares) (j)

            996       996    
         

 

 

   

 

 

   
            7,725       8,366       2

CRS Solutions Holdings, LLC (dba CRS Texas)

    Business Services              

Second Lien Debt

      10.50%/1.00%       9/14/2023       9,073       9,035       9,073    

Common Equity (750,000 units) (j)

            750       757    
         

 

 

   

 

 

   
            9,785       9,830       2

EBL, LLC (EbLens)

    Retail              

Second Lien Debt (j)

      12.00%/1.00%       1/13/2023       9,389       9,321       9,389    

Common Equity (75,000 units) (j)

            750       742    
         

 

 

   

 

 

   
            10,071       10,131       3

Global Plasma Solutions, Inc.

    Component Manufacturing              

First Lien Debt (j)(v)

      7.40%/0.00%       9/21/2023       8,703       8,629       8,629    

Preferred Equity (947 shares) (j)

            360       360    

Common Equity (947 shares) (j)

            15       15    
         

 

 

   

 

 

   
            9,004       9,004       2

Gurobi Optimization, LLC

    Information Technology Services              

Subordinated Debt (k)

      11.00%/0.00%       6/19/2023       20,000       19,920       20,400    

Common Equity (5 shares)

            1,500       2,323    
         

 

 

   

 

 

   
            21,420       22,723       6

Hilco Plastics Holdings, LLC (dba Hilco Technologies)

    Component Manufacturing              

Second Lien Debt

      11.50%/1.50%       12/31/2019       9,940       9,922       9,439    

Preferred Equity (1,000,000 units) (h)(j)

            1,000       1,112    

Common Equity (72,507 units) (h)(j)

            473       227    
         

 

 

   

 

 

   
            11,395       10,778       3

 

14


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments

December 31, 2018

(in thousands, except shares)

 

Portfolio Company (a)(b)

Investment Type (c)         

  Industry     Rate (d)
Cash/PIK
    Maturity   Principal
Amount
    Cost     Fair
Value (e)
    Percent of
Net Assets
 

Hub Acquisition Sub, LLC (dba Hub Pen)

    Promotional products              

Second Lien Debt (k)

      12.25%/0.00%     9/23/2021   $ 25,000     $ 24,918     $ 25,000    

Common Equity (7,500 units)

            249       1,417    
         

 

 

   

 

 

   
            25,167       26,417       7

Hunter Defense Technologies, Inc.

    Aerospace & Defense Manufacturing              

First Lien Debt (j)(w)

      9.80%/0.00%     3/29/2023     9,747       9,653       9,653       2

IBH Holdings, LLC (fka Inflexxion, Inc.)

    Business Services              

Common Equity (150,000 units)

            —         —         0

inthinc Technology Solutions, Inc. (n)

    Information Technology Services              

Royalty Rights

      4/24/2020       185       —         0

The Kyjen Company, LLC (dba Outward Hound)

    Consumer Products              

Second Lien Debt (k)

      12.00%/0.00%     6/8/2024     15,000       14,937       13,950    

Common Equity (765 shares) (j)

            765       754    
         

 

 

   

 

 

   
            15,702       14,704       4

LNG Indy, LLC (dba Kinetrex Energy)

    Oil & Gas Distribution              

Second Lien Debt (k)

      11.50%/0.00%     9/28/2021     5,000       4,985       5,000    

Common Equity (1,000 units)

            1,000       1,561    
         

 

 

   

 

 

   
            5,985       6,561       2

Marco Group International OpCo, LLC

    Industrial Cleaning & Coatings              

Second Lien Debt

      10.50%/0.75%     1/21/2023     12,133       12,089       12,133    

Common Equity (750,000 units) (h)(j)

            750       800    
         

 

 

   

 

 

   
            12,839       12,933       3

Mesa Line Services, LLC

    Utilities: Services              

Second Lien Debt (j)

      10.50%/0.50%     5/31/2023     10,014       9,963       10,014    

Delayed Draw Commitment ($3,160 commitment) (i)(j)

      10.50%/0.50%     5/31/2019     —         (4     —      

Common Equity (500 shares) (j)

            500       676    
         

 

 

   

 

 

   
            10,459       10,690       3

Midwest Transit Equipment, Inc.

    Transportation services              

Warrant (14,384 shares) (j)(m)

            361       436    

Warrant (9.59% of Junior Subordinated Notes) (j)(q)

            381       398    
         

 

 

   

 

 

   
            742       834       0

New Era Technology, Inc.

    Information Technology Services              

Common Equity (197,369 shares) (j)

            750       990       0

NGT Acquisition Holdings, LLC (dba Techniks Industries)

    Component Manufacturing              

Subordinated Debt

      12.50%/2.00%     3/21/2022     11,579       11,542       10,460    

Common Equity (378 units) (j)

            500       72    
         

 

 

   

 

 

   
            12,042       10,532       3

Oaktree Medical Centre, P.C. (dba Pain Management Associates)

    Healthcare Services              

First Lien Debt (j)(u)

      14.50%/0.00%     1/1/2018     571       649       566    

First Lien Debt (j)(u)

      10.00%/12.00%     1/1/2018     7,751       8,338       8,133    

Revolving Loan (j)(u)

      14.50%/0.00%     1/1/2018     2,500       2,699       2,490    

Revolving Loan (j)(u)

      14.50%/0.00%     1/31/2019     200       200       200    
         

 

 

   

 

 

   
            11,886       11,389       3

OMC Investors, LLC (dba Ohio Medical Corporation)

    Healthcare Products              

Second Lien Debt

      12.00%/0.00%     7/15/2021     10,000       9,954       8,748    

Common Equity (5,000 units)

            500       139    
         

 

 

   

 

 

   
            10,454       8,887       2

Palisade Company, LLC

    Information Technology Services              

Subordinated Debt (j)

      11.75%/0.00%     5/15/2024     6,500       6,468       6,468    

Common Equity (100 shares) (j)

            1,000       1,000    
         

 

 

   

 

 

   
            7,468       7,468       2

Palmetto Moon, LLC

    Retail              

First Lien Debt

      11.50%/2.50%     10/31/2021     5,512       5,490       5,512    

Common Equity (499 units) (j)

            494       108    
         

 

 

   

 

 

   
            5,984       5,620       1

 

15


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments

December 31, 2018

(in thousands, except shares)

 

Portfolio Company (a)(b)

Investment Type (c)         

  Industry     Rate (d)
Cash/PIK
  Maturity   Principal
Amount
    Cost     Fair
Value (e)
    Percent of
Net Assets
 

Power Grid Components, Inc.

    Specialty Distribution              

Second Lien Debt (k)

    11.00%/1.00%   5/20/2023   $ 11,282     $  11,234     $  11,282    

Preferred Equity (392 shares) (j)

            392       422    

Common Equity (9,695 shares) (j)

            358       260    
         

 

 

   

 

 

   
            11,984       11,964       3

Pugh Lubricants, LLC

    Specialty Distribution              

Second Lien Debt (k)

    12.25%/0.00%   5/10/2022     18,581       18,523       18,581    

Common Equity (6,125 units) (h)(j)

            612       1,000    
         

 

 

   

 

 

   
            19,135       19,581       5

Revenue Management Solutions, LLC

    Information Technology Services              

Common Equity (2,250,000 shares)

            2,250       3,888       1

Rhino Assembly Company, LLC

    Specialty Distribution              

Second Lien Debt (k)

    12.00%/1.00%   2/11/2023     11,324       11,275       11,324    

Delayed Draw Commitment ($875 commitment) (i)(j)

    12.00%/1.00%   5/17/2022     —         —         —      

Preferred Equity (8,864 units) (j)(s)

            945       1,272    
         

 

 

   

 

 

   
            12,220       12,596       3

Road Safety Services, Inc.

    Business Services              

Second Lien Debt

    11.25%/1.50%   3/18/2024     10,068       10,022       10,022    

Common Equity (655 units)

            621       621    
         

 

 

   

 

 

   
            10,643       10,643       2

Rohrer Corporation

    Packaging              

Subordinated Debt (j)

    10.50%/1.00%   4/1/2024     13,735       13,670       13,670    

Common Equity (400 shares)

            780       724    
         

 

 

   

 

 

   
            14,450       14,394       4

SES Investors, LLC (dba SES Foam)

    Building Products Manufacturing              

Second Lien Debt

    15.00%/0.00%   12/29/2020     3,095       3,069       2,703    

Common Equity (6,000 units) (h)(j)

            600       167    
         

 

 

   

 

 

   
            3,669       2,870       1

Simplex Manufacturing Co.

    Aerospace & Defense Manufacturing              

Subordinated Debt

    14.00%/0.00%   7/31/2019     4,050       4,050       4,050    

Warrant (29 shares) (m)

            1,155       3,036    
         

 

 

   

 

 

   
            5,205       7,086       2

Software Technology, LLC

    Information Technology Services              

Subordinated Debt (k)

    11.00%/0.00%   6/23/2023     10,000       9,964       10,000    

Common Equity (12 shares)

            1,291       1,364    
         

 

 

   

 

 

   
            11,255       11,364       3
SpendMend LLC     Business Services              

Second Lien Debt (k)

    11.00%/1.00%   7/8/2023     10,401       10,355       10,401    

Common Equity (1,000,000 units)

            1,000       1,179    
         

 

 

   

 

 

   
            11,355       11,580       3

The Wolf Organization, LLC

    Building Products Manufacturing              

Common Equity (175 shares)

            753       3,711       1
Thermoforming Technology Group LLC (dba Brown Machine Group) (n)     Capital Equipment Manufacturing              

Common Equity (3,760 units) (h)(j)

            —         10       0

Tile Redi, LLC

    Building Products Manufacturing              

First Lien Debt (j)(r)

    12.80%/0.00%   6/16/2022     10,194       10,122       10,156       2

TransGo, LLC

    Component Manufacturing              

Second Lien Debt

    13.25%/0.00%   8/28/2022     9,500       9,468       9,500    

Common Equity (1,000 units)

            998       905    
         

 

 

   

 

 

   
            10,466       10,405       3

The Tranzonic Companies

    Specialty Distribution              

Subordinated Debt (j)

    10.00%/1.50%   3/27/2025     5,664       5,614       4,997    

Preferred Equity (5,000 units) (j)

            500       391    

Common Equity (1 units) (j)

            —         —      
         

 

 

   

 

 

   
            6,114       5,388       1

UBEO, LLC

    Business Services              

Subordinated Debt (j)

    11.00%/0.00%   10/3/2024     13,100       12,979       13,100    

Delayed Draw Commitment ($1,500 commitment) (j)(i)(z)

    11.00%/0.00%   8/7/2019     —         (12     —      

Common Equity (705,000 units) (j)

            705       1,027    
         

 

 

   

 

 

   
            13,672       14,127       3

 

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Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments

December 31, 2018

(in thousands, except shares)

 

Portfolio Company (a)(b)

Investment Type (c)         

  Industry     Rate (d)
Cash/PIK
    Maturity     Principal
Amount
    Cost     Fair
Value (e)
    Percent of
Net Assets
 

United Biologics, LLC

    Healthcare Services              

Preferred Equity (98,377 units) (h)(j)

          $ 1,008     $ 64    

Warrant (57,469 units) (m)

            566       53    
         

 

 

   

 

 

   
            1,574       117       0

US GreenFiber, LLC

    Building Products Manufacturing              

Second Lien Debt (k)(p)

      12.00%/2.00%       5/31/2019     $ 14,363       14,359       6,549    

Second Lien Debt (p)

      0.00%/16.00%       5/31/2019       1,000       1,000       1,000    

Common Equity (2,522 units) (h)(j)

            586       —      
         

 

 

   

 

 

   
            15,945       7,549       2

US Pack Logistics LLC

    Transportation services              

Second Lien Debt (k)

      12.00%/1.75%       3/28/2023       7,412       7,396       7,412    

Common Equity (5,833 units) (h)(j)

            555       178    

Preferred Equity (9,458 units) (h)(j)

            927       1,046    
         

 

 

   

 

 

   
            8,878       8,636       2

Vanguard Dealer Services, L.L.C.

    Business Services              

Common Equity (6,000 units)

            154       851    

Common Equity (2,380 units) (j)

            327       338    
         

 

 

   

 

 

   
            481       1,189       0

Virginia Tile Company, LLC

    Specialty Distribution              

Second Lien Debt (k)

      12.25%/0.00%       4/7/2022       12,000       11,980       12,000    

Common Equity (17 units)

            342       1,455    
         

 

 

   

 

 

   
            12,322       13,455       3

Worldwide Express Operations, LLC

    Transportation services              

Second Lien Debt (j)(o)

      10.86%/0.00%       2/3/2025       20,000       19,690       20,000    

Common Equity (4,000 units) (h)(j)

            2,956       3,823    
         

 

 

   

 

 

   
            22,646       23,823       6
         

 

 

   

 

 

   

Total Non-control/Non-affiliate Investments

          $ 505,129     $ 501,111       124
         

 

 

   

 

 

   

Total Investments

          $ 598,750     $  642,982       160
         

 

 

   

 

 

   

 

(a)

See Note 3 to the consolidated financial statements for portfolio composition by geographic location.

(b)

Equity ownership may be held in shares or units of companies related to the portfolio companies.

(c)

All debt investments are income producing, unless otherwise indicated. Equity investments are non-income producing unless otherwise noted.

(d)

Rate includes the cash interest or dividend rate and paid-in-kind interest or dividend rate, if any, as of December 31, 2018. Generally, payment-in-kind interest can be paid-in-kind or all in cash.

(e)

The Company’s investment portfolio is comprised entirely of debt and equity securities of privately held companies for which quoted prices falling within the categories of Level 1 and Level 2 inputs are not available. Therefore, the Company values all of its portfolio investments at fair value, as determined in good faith by the board of directors, using significant unobservable Level 3 inputs.

(f)

The investment bears cash interest at a variable rate that is determined by reference to one-month LIBOR, which is reset monthly. The cash interest rate is set as one-month LIBOR + 11.50% and is subject to a 1.00% LIBOR interest rate floor. The Company has provided the interest rate in effect as of December 31, 2018.

(g)

Income producing. Maturity date, if any, represents mandatory redemption date.

(h)

Investment is held by a wholly-owned subsidiary of the Company, other than the Funds.

(i)

The disclosed commitment represents the unfunded amount as of December 31, 2018. The Company is earning 0.50% interest on the unfunded balance of the commitment. The interest rate disclosed represents the rate which will be earned if the commitment is funded.

(j)

Investment pledged as collateral for the Credit Facility and, as a result, is not directly available to the creditors of the Company to satisfy any obligations of the Company other than the Company’s obligations under the Credit Facility (see Note 6 to the consolidated financial statements).

(k)

The portion of the investment not held by the Funds is pledged as collateral for the Credit Facility and, as a result, is not directly available to the creditors of the Company to satisfy any obligations of the Company other than the Company’s obligations under the Credit Facility (see Note 6 to the consolidated financial statements).

(l)

As defined in the 1940 Act, the Company is deemed to be an “Affiliated Person” of this portfolio company because it owns 5% or more of the portfolio company’s outstanding voting securities or it has the power to exercise control over the management or policies of such portfolio company. Transactions in which the issuer was an Affiliated Person are detailed in Note 3 to the consolidated financial statements.

(m)

Warrants entitle the Company to purchase a predetermined number of shares or units of common equity, and are non-income producing. The purchase price and number of shares are subject to adjustment under certain conditions until the expiration date, if any.

(n)

Investment in portfolio company that has sold its operations and is in the process of winding down.

(o)

The investment bears interest at a variable rate that is determined by reference to six-month LIBOR, which is reset semi-annually. The interest rate is set as six-month LIBOR + 8.00% and is subject to a 1.00% LIBOR interest rate floor. The Company has provided the interest rate in effect as of December 31, 2018.

(p)

Investment was on non-accrual status as of December 31, 2018, meaning the Company has ceased recognizing interest income on the investment.

(q)

Warrant entitles the Company to purchase 9.59% of the outstanding principal of Junior Subordinated Notes prior to exercise, and is non-income producing.

(r)

The investment bears interest at a variable rate that is determined by reference to three-month LIBOR, which is reset quarterly. The interest rate is set as three-month LIBOR + 10.00% and is subject to a 1.00% LIBOR interest rate floor. The Company has provided the interest rate in effect as of December 31, 2018.

 

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Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments

December 31, 2018

(in thousands, except shares)

 

(s)

A portion of the investment is held by a wholly-owned subsidiary of the Company, other than the Funds.

(t)

As defined in the 1940 Act, the Company is deemed to be both an “Affiliated Person” of and “Control” this portfolio company because it owns 25% or more of the portfolio company’s outstanding voting securities or it has the power to exercise control over the management or policies of such portfolio company. Transactions in which the issuer was both an Affiliated Person and a portfolio company that the Company is deemed to Control are detailed in Note 3 to the consolidated financial statements.

(u)

The debt investment continues to pay interest, including the default rate, while the portfolio company pursues refinancing options.

(v)

The investment bears interest at a variable rate that is determined by reference to three-month LIBOR. The interest rate is set as three-month LIBOR + 5.00% and is subject to a 2.00% LIBOR interest rate floor. In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 3.54% on its “last out” tranche of the portfolio company’s senior term debt, which was previously syndicated into “first out” and “last out” tranches, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

(w)

The investment bears interest at a variable rate that is determined by reference to three-month LIBOR, which is reset quarterly. The interest rate is set as three-month LIBOR + 7.00% and is subject to a 1.00% LIBOR interest rate floor. The Company has provided the interest rate in effect as of December 31, 2018.

(x)

The investment bears interest at a variable rate that is determined by reference to three-month LIBOR. The interest rate is set as three-month LIBOR + 5.75% and is subject to a 2.00% LIBOR interest rate floor. In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 4.15% on its “last out” tranche of the portfolio company’s senior term debt, which was previously syndicated into “first out” and “last out” tranches, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

(y)

The investment bears interest at a variable rate that is determined by reference to three-month LIBOR, which is reset quarterly. The interest rate is set as three-month LIBOR + 9.75% and is subject to a 2.00% LIBOR interest rate floor. The Company has provided the interest rate in effect as of December 31, 2018.

(z)

The maturity date presented represents the final termination date of the commitment. $707 of the commitment expires on May 7, 2019.

See Notes to Consolidated Financial Statements (unaudited).

 

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Table of Contents

FIDUS INVESTMENT CORPORATION

Notes to Consolidated Financial Statements (unaudited)

(in thousands, except shares and per share data)

Note 1. Organization and Nature of Business

Fidus Investment Corporation (“FIC,” and together with its subsidiaries, the “Company”), a Maryland Corporation, operates as an externally managed, closed-end, non-diversified business development company (“BDC”) under the Investment Company Act of 1940, as amended (“1940 Act”). FIC completed its initial public offering, or IPO, in June 2011. In addition, for federal income tax purposes, the Company elected to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).

The Company provides customized debt and equity financing solutions to lower middle-market companies, and may make investments directly or through its three wholly-owned investment company subsidiaries, Fidus Mezzanine Capital, L.P. (“Fund I”), Fidus Mezzanine Capital II, L.P. (“Fund II”) and Fidus Mezzanine Capital III, L.P. (“Fund III”) (collectively Fund I, Fund II and Fund III are referred to as the “Funds”). The Funds are licensed by the U.S. Small Business Administration (the “SBA”) as small business investment companies (“SBIC”). The SBIC licenses allow the Funds to obtain leverage by issuing SBA-guaranteed debentures (“SBA debentures”), subject to the issuance of leverage commitments by the SBA and other customary procedures. As SBICs, the Funds are subject to a variety of regulations and oversight by the SBA under the Small Business Investment Act of 1958, as amended (the “SBIC Act”), concerning, among other things, the size and nature of the companies in which they may invest and the structure of those investments.

We believe that utilizing both FIC and the Funds as investment vehicles provides us with access to a broader array of investment opportunities. Given our access to lower cost capital through the SBA’s SBIC debenture program, we expect that the majority of our investments will continue to be made through the Funds until the Funds reach their borrowing limit under the program. For three or more SBICs under common control, the maximum amount of outstanding SBA debentures cannot exceed $350,000.

Fund I has also elected to be regulated as a BDC under the 1940 Act. Fund II and Fund III are not registered under the 1940 Act and rely on the exclusion from the definition of investment company contained in Section 3(c)(7) of the 1940 Act.

The Company pays a quarterly base management fee and an incentive fee to Fidus Investment Advisors, LLC (the “Investment Advisor”) under an investment advisory agreement (the “Investment Advisory Agreement”).

Note 2. Significant Accounting Policies

Basis of presentation: The accompanying consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) pursuant to the requirements for reporting on Form 10-Q, Accounting Standards Codification (“ASC”) 946, Financial Services – Investment Companies (“ASC 946), and Articles 6 or 10 of Regulation S-X. In the opinion of management, the consolidated financial statements reflect all adjustments and reclassifications that are necessary for the fair presentation of financial results as of and for the periods presented. Certain prior period amounts have been reclassified to conform to the current period presentation. The current period’s results of operation are not necessarily indicative of results that ultimately may be achieved for the year. Therefore, the unaudited financial statements and notes should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2018.

Use of estimates: The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Consolidation: Pursuant to Article 6 of Regulation S-X and ASC 946, the Company will generally not consolidate its investments in a company other than an investment company subsidiary or a controlled operating company whose business consists of providing services to the Company. As a result, the consolidated financial statements of the Company include only the accounts of the Company and its wholly-owned subsidiaries, including the Funds. All significant intercompany balances and transactions have been eliminated.

Investment risks: The Company’s investments are subject to a variety of risks. These risks may include, but are not limited to the following:

 

   

Market risk - In contrast to investment-grade bonds (the market prices of which change primarily as a reaction to changes in interest rates), the market prices of high-yield bonds (which are also affected by changes in interest rates) are influenced much more by credit factors and financial results of the issuer as well as general economic factors that influence the financial markets as a whole. The portfolio companies in which the Company invests may be unseasoned, unprofitable and/or have little established operating history or earnings. These companies may also lack technical, marketing, financial, and other resources or may be dependent upon the success of one product or service, a unique distribution channel, or the effectiveness of a manager or management team, as compared to larger, more established

 

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Table of Contents

FIDUS INVESTMENT CORPORATION

Notes to Consolidated Financial Statements (unaudited)

(in thousands, except shares and per share data)

 

 

entities. The failure of a single product, service or distribution channel, or the loss or the ineffectiveness of a key executive or executives within the management team may have a materially adverse impact on such companies. Furthermore, these companies may be more vulnerable to competition and to overall economic conditions than larger, more established entities.

 

   

Credit risk - Credit risk represents the risk that the Company would incur if the counterparties failed to perform pursuant to the terms of their agreements with the Company. Issues of high-yield debt securities in which the Company invests are more likely to default on interest or principal than are issues of investment-grade securities.

 

   

Liquidity risk - Liquidity risk represents the possibility that the Company may not be able to sell its investments quickly or at a reasonable price (given the lack of an established market).

 

   

Interest rate risk - Interest rate risk represents the likelihood that a change in interest rates could have an adverse impact on the fair value of an interest-bearing financial instrument.

 

   

Prepayment risk - Certain of the Company’s debt investments allow for prepayment of principal without penalty. Downward changes in market interest rates may cause prepayments to occur at a faster than expected rate, thereby effectively shortening the maturity of the debt investments and making the instrument less likely to be an income producing instrument through the stated maturity date.

 

   

Off-Balance sheet risk - Some of the Company’s financial instruments contain off-balance sheet risk. Generally, these financial instruments represent future commitments to purchase other financial instruments at defined terms at defined future dates. See Note 7 for further details.

Fair value of financial instruments: The Company measures and discloses fair value with respect to substantially all of its financial instruments in accordance with ASC Topic 820 — Fair Value Measurements and Disclosures (“ASC Topic 820”). ASC Topic 820 defines fair value, establishes a framework used to measure fair value, and requires disclosures for fair value measurements, including the categorization of financial instruments into a three-level hierarchy based on the transparency of valuation inputs. See Note 4 to the consolidated financial statements for further discussion regarding the fair value measurements and hierarchy.

Investment classification: The Company classifies its investments in accordance with the requirements of the 1940 Act. Under the 1940 Act, “Control Investments” are defined as investments in those companies where the Company owns more than 25% of the voting securities of such company or has rights to maintain greater than 50% of the board representation. Under the 1940 Act, “Affiliate Investments” are defined as investments in those companies where the Company owns between 5% and 25% of the voting securities of such company. “Non-Control/Non-Affiliate Investments” are those that neither qualify as Control Investments nor Affiliate Investments.

Segments: In accordance with ASC Topic 280 — Segment Reporting, the Company has determined that it has a single reporting segment and operating unit structure.

Cash and cash equivalents: Cash and cash equivalents are highly liquid investments with an original maturity of three months or less at the date of acquisition. The Company places its cash in financial institutions and, at times, such balances may be in excess of the Federal Deposit Insurance Corporation insurance limits. The Company does not believe its cash balances are exposed to any significant credit risk.

Deferred financing costs: Deferred financing costs consist of fees and expenses paid in connection with the Credit Facility (as defined in Note 6) and SBA debentures. Deferred financing costs are capitalized and amortized to interest and financing expenses over the term of the debt agreement using the effective interest method. Unamortized deferred financing costs are presented as an offset to the corresponding debt liabilities on the consolidated statements of assets and liabilities.

Realized losses on extinguishment of debt: Upon the repayment of debt obligations which are deemed to be extinguishments, the difference between the principal amount due at maturity adjusted for any unamortized deferred financing costs is recognized as a loss (i.e., the unamortized deferred financing costs are recognized as a loss upon extinguishment of the underlying debt obligation). In 2019, the Company elected to change the manner in which it presents the derecognition of unamortized deferred financing costs upon extinguishment of the related debt obligation. Previously, the Company classified the extinguishment as a component of interest and financing expenses on the consolidated statements of operations. Comparative prior periods presented have been reclassified retrospectively to conform to the revised presentation. There is no change in historical net increase in net assets resulting from operations due to this change in presentation.

Deferred offering costs: Deferred offering costs include registration expenses related to shelf filings. These expenses primarily consist of U.S. Securities and Exchange Commission (“SEC”) registration fees, legal fees and accounting fees incurred. These expenses are included in prepaid expenses and other assets on the Consolidated Statements of Assets and Liabilities. Upon the completion of an equity offering or a debt offering, the deferred expenses are charged to additional paid-in capital or deferred financing costs, respectively. If no offering is completed prior to the expiration of the registration statement, the deferred costs are charged to expense.

 

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Table of Contents

FIDUS INVESTMENT CORPORATION

Notes to Consolidated Financial Statements (unaudited)

(in thousands, except shares and per share data)

 

Realized gains or losses and unrealized appreciation or depreciation on investments: Realized gains or losses on investments are recorded upon the sale or disposition of a portfolio investment and are calculated as the difference between the net proceeds from the sale or disposition and the cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized. Net change in unrealized appreciation or depreciation on the consolidated statements of operations includes changes in the fair value of investments from the prior period, as determined in good faith by the Company’s board of directors (the “Board”) through the application of the Company’s valuation policy, as well as reclassifications of any prior period unrealized appreciation or depreciation on exited investments to realized gains or losses on investments.

Interest and dividend income: Interest and dividend income is recorded on the accrual basis to the extent that the Company expects to collect such amounts. Interest is accrued daily based on the outstanding principal amount and the contractual terms of the debt. Dividend income is recorded as dividends are declared or at the point an obligation exists for the portfolio company to make a distribution, and is generally recognized when received. Distributions from portfolio companies are evaluated to determine if the distribution is a distribution of earnings or a return of capital. Distributions of earnings are included in dividend income while a return of capital is recorded as a reduction in the cost basis of the investment. Estimates are adjusted as necessary after the relevant tax forms are received from the portfolio company.

PIK income: Certain of the Company’s investments contain a payment-in-kind (“PIK”) income provision. The PIK income, computed at the contractual rate specified in the applicable investment agreement, is added to the principal balance of the investment, rather than being paid in cash, and recorded as interest or dividend income, as applicable, on the consolidated statements of operations. Generally, PIK can be paid-in-kind or all in cash. The Company stops accruing PIK income when there is reasonable doubt that PIK income will be collected. PIK income that has been contractually capitalized to the principal balance of the investment prior to the non-accrual designation date is not reserved against interest or dividend income, but rather is assessed through the valuation of the investment (with corresponding adjustments to unrealized depreciation, as applicable). PIK income is included in the Company’s taxable income and, therefore, affects the amount the Company is required to pay to shareholders in the form of dividends in order to maintain the Company’s tax treatment as a RIC and to avoid corporate federal income tax, even though the Company has not yet collected the cash.

Non-accrual: Debt investments or preferred equity investments (for which we are accruing PIK dividends) are placed on non-accrual status when principal, interest or dividend payments become materially past due, or when there is reasonable doubt that principal, interest or dividends will be collected. Interest and dividend payments received on non-accrual investments may be recognized as interest or dividend income or may be applied to the investment principal balance based on management’s judgment. Non-accrual investments are restored to accrual status when past due principal, interest or dividends are paid and, in management’s judgment, payments are likely to remain current.

Origination and closing fees: The Company also typically receives debt investment origination or closing fees in connection with such investments. Such debt investment origination and closing fees are capitalized as unearned income and offset against investment cost basis on the consolidated statements of assets and liabilities and accreted into interest income over the life of the investment. Upon the prepayment of a debt investment, any unaccreted debt investment origination and closing fees are accelerated into interest income.

Warrants: In connection with the Company’s debt investments, the Company will sometimes receive warrants or other equity-related securities from the borrower (“Warrants”). The Company determines the cost basis of Warrants based upon their respective fair values on the date of receipt in proportion to the total fair value of the debt and Warrants received. Any resulting difference between the face amount of the debt and its recorded fair value resulting from the assignment of value to the Warrants is treated as original issue discount (“OID”), and accreted into interest income using the effective interest method over the term of the debt investment. Upon the prepayment of a debt investment, any unaccreted OID is accelerated into interest income.

Fee income: Transaction fees earned in connection with the Company’s investments are recognized as fee income and are generally non-recurring. Such fees typically include fees for services, including structuring and advisory services, provided to portfolio companies. The Company recognizes income from fees for providing such structuring and advisory services when the services are rendered or the transactions are completed. Upon the prepayment of a debt investment, any prepayment penalties are recorded as fee income when earned.

Partial loan sales: The Company follows the guidance in ASC 860, Transfers and Servicing, when accounting for loan (debt investment) participations and other partial loan sales. Such guidance requires a participation or other partial loan sale to meet the definition of a “participating interest,” as defined in the guidance, in order for sale treatment to be allowed. Participations or other partial loan sales which do not meet the definition of a participating interest should remain on the Company’s consolidated statement of assets and liabilities and the proceeds recorded as a secured borrowing until the definition is met. Management has determined that all participations and other partial loan sale transactions entered into by the Company have met the definition of a participating interest. Accordingly, the Company uses sale treatment in accounting for such transactions.

 

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FIDUS INVESTMENT CORPORATION

Notes to Consolidated Financial Statements (unaudited)

(in thousands, except shares and per share data)

 

Income taxes: The Company has elected to be treated as a RIC under Subchapter M of the Code, which will generally relieve the Company from U.S. federal income taxes with respect to all income distributed to stockholders. To maintain the tax treatment of a RIC, the Company is required to timely distribute to its stockholders at least 90.0% of “investment company taxable income,” as defined by Subchapter M of the Code, each year. Depending on the level of taxable income earned in a tax year, the Company may choose to carry forward taxable income in excess of current year distributions into the next tax year; however, the Company will pay a 4.0% excise tax if it does not distribute at least 98.0% of the current year’s ordinary taxable income. Any such carryover taxable income must be distributed through a dividend declared prior to the later of the date on which the final tax return related to the year in which the Company generated such taxable income is filed or the 15th day of the 10th month following the close of such taxable year. In addition, the Company will be subject to federal excise tax if it does not distribute at least 98.2% of its net capital gains realized, computed for any one year period ending October 31.

In the future, the Funds may be limited by provisions of the SBIC Act and SBA regulations governing SBICs from making certain distributions to FIC that may be necessary to enable FIC to make the minimum distributions required to maintain the tax treatment of a RIC.

The Company has certain wholly-owned taxable subsidiaries (the “Taxable Subsidiaries”), each of which generally holds one or more of the Company’s portfolio investments listed on the consolidated schedules of investments. The Taxable Subsidiaries are consolidated for financial reporting purposes, such that the Company’s consolidated financial statements reflect the Company’s investment in the portfolio company investments owned by the Taxable Subsidiaries. The purpose of the Taxable Subsidiaries is to permit the Company to hold equity investments in portfolio companies that are taxed as partnerships for U.S. federal income tax purposes (such as entities organized as limited liability companies (“LLCs”) or other forms of pass through entities) while complying with the “source-of-income” requirements contained in the RIC tax provisions. The Taxable Subsidiaries are not consolidated with the Company for U.S. federal corporate income tax purposes, and each Taxable Subsidiary will be subject to U.S. federal corporate income tax on its taxable income. Any such income or expense is reflected in the consolidated statements of operations.

U.S. federal income tax regulations differ from GAAP, and as a result, distributions in accordance with tax regulations may differ from net investment income and realized gains recognized under GAAP. Differences may be permanent or temporary. Permanent differences may arise as a result of, among other items, a difference in the book and tax basis of certain assets and nondeductible federal income taxes. Temporary differences arise when certain items of income, expense, gain or loss are recognized at some time in the future.

ASC Topic 740 — Accounting for Uncertainty in Income Taxes (“ASC Topic 740”) provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the consolidated financial statements. ASC Topic 740 requires the evaluation of tax positions taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” to be respected by the applicable tax authorities. Tax benefits of positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax expense in the current year. It is the Company’s policy to recognize accrued interest and penalties related to uncertain tax benefits included in the income tax provision, if any. There were no material uncertain income tax positions at March 31, 2019 and December 31, 2018. The Company’s tax returns are generally subject to examination by U.S. federal and most state tax authorities for a period of three years from the date the respective returns are filed, and, accordingly, the Company’s 2015 through 2017 tax years remain subject to examination.

Dividends to stockholders: Dividends to stockholders are recorded on the record date with respect to such distributions. The amount, if any, to be distributed to stockholders, is determined by the Board each quarter and is generally based upon the earnings estimated by management. Net realized capital gains, if any, may be distributed at least annually, although the Company may decide to retain such capital gains for investment.

The determination of the tax attributes for the Company’s distributions is made annually, and is based upon the Company’s taxable income and distributions paid to its stockholders for the full year. Ordinary dividend distributions from a RIC do not qualify for the preferential tax rate on qualified dividend income from domestic corporations and qualified foreign corporations, except to the extent that the RIC received the income in the form of qualifying dividends from domestic corporations and qualified foreign corporations. The tax characterization of the Company’s distributions generally includes both ordinary income and capital gains but may also include qualified dividends or return of capital.

The Company has adopted a dividend reinvestment plan (“DRIP”) that provides for the reinvestment of dividends on behalf of its stockholders, unless a stockholder has elected to receive dividends in cash. As a result, if the Company declares a cash dividend, the Company’s stockholders who have not “opted out” of the DRIP at least two days prior to the dividend payment date will have their cash dividend automatically reinvested into additional shares of the Company’s common stock. The Company has the option to satisfy the share requirements of the DRIP through the issuance of new shares of common stock or through open market purchases

 

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FIDUS INVESTMENT CORPORATION

Notes to Consolidated Financial Statements (unaudited)

(in thousands, except shares and per share data)

 

of common stock by the DRIP plan administrator. Newly issued shares are valued based upon the final closing price of the Company’s common stock on a date determined by the Board. Shares purchased in the open market to satisfy the DRIP requirements will be valued based upon the average price of the applicable shares purchased by the DRIP plan administrator before any associated brokerage or other costs. See Note 9 to the consolidated financial statements regarding dividend declarations and distributions.

Earnings and net asset value per share: The earnings per share calculations for the three months ended March 31, 2019 and 2018, are computed utilizing the weighted average shares outstanding for the period. Net asset value per share is calculated using the number of shares outstanding as of the end of the period.

Stock Repurchase Program: The Company has an open market stock repurchase program (the “Stock Repurchase Program”) under which the Company may acquire up to $5,000 of its outstanding common stock. Under the Stock Repurchase Program, the Company may, but is not obligated to, repurchase outstanding common stock in the open market from time to time provided that the Company complies with the prohibitions under its insider trading policies and the requirements of Rule 10b-18 of the Securities Exchange Act of 1934, as amended, including certain price, market value and timing constraints. The timing, manner, price and amount of any share repurchases will be determined by the Company’s management, in its discretion, based upon the evaluation of economic and market conditions, stock price, capital availability, applicable legal and regulatory requirements and other corporate considerations. On October 30, 2018, the Board extended the Stock Repurchase Program through December 31, 2019, or until the approved dollar amount has been used to repurchase shares. The Stock Repurchase Program does not require the Company to repurchase any specific number of shares and the Company cannot assure that any shares will be repurchased under the Stock Repurchase Program. The Stock Repurchase Program may be suspended, extended, modified or discontinued at any time. The Company did not make any repurchases of common stock during the three months ended March 31, 2019. During the three months ended March 31, 2018, the Company repurchased 44,821 shares of common stock on the open market for $582. Refer to Note 8 for additional information concerning stock repurchases.

Recent accounting pronouncements:

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) – Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements on fair value measurements. The guidance is effective for annual and interim reporting periods beginning after December 15, 2019. The Company is currently evaluating the impact this ASU will have on the Company’s consolidated financial position or disclosures.

In March 2019, the SEC issued Final Rule Release No. 33-10618, FAST Act Modernization and Simplification of Regulation S-K, which amends certain SEC disclosure requirements. The amendments are intended to simplify certain disclosure requirements, improve readability and navigability of disclosure documents, and discourage repetition and disclosure of immaterial information. The amendments are effective for all filings submitted on or after May 2, 2019. The Company adopted the amendments effective May 2, 2019. As it pertains to the Company for this Form 10-Q, the amendments include certain presentation changes that are not significant to the Company’s consolidated financial position or disclosures. The Company is still evaluating the impact this amendment will have on its other future periodic filings and registration statements.

Note 3. Portfolio Company Investments

The Company’s portfolio investments principally consist of secured and unsecured debt, equity warrants and direct equity investments in privately held companies. The debt investments may or may not be secured by either a first or second lien on the assets of the portfolio company. The debt investments generally bear interest at fixed rates, and generally mature between five and seven years from the original investment. In connection with a debt investment, the Company also may receive nominally priced equity warrants and/or make a direct equity investment in the portfolio company. The Company’s warrants or equity investments may be investments in a holding company related to the portfolio company. In addition, the Company periodically makes equity investments in its portfolio companies through Taxable Subsidiaries. In both situations, the investment is generally reported under the name of the operating company on the consolidated schedules of investments.

As of March 31, 2019, the Company had active investments in 61 portfolio companies and residual investments in four portfolio companies that have sold its underlying operations. The aggregate fair value of the total portfolio was $670,481 and the weighted average effective yield on the Company’s debt investments was 12.4% as of such date. As of March 31, 2019, the Company held equity investments in 93.8% of its portfolio companies and the weighted average fully diluted equity ownership in those portfolio companies was 6.4%. The weighted average fully diluted equity ownership was computed using the fully diluted equity ownership for equity investments (including warrants) at cost as of March 31, 2019.

As of December 31, 2018, the Company had active investments in 60 portfolio companies and residual investments in three portfolio companies that have sold their underlying operations. The aggregate fair value of the total portfolio was $642,982 and the weighted average effective yield on the Company’s debt investments was 12.6% as of such date. As of December 31, 2018, the Company held equity investments in 93.7% of its portfolio companies and the weighted average fully diluted equity ownership in those portfolio companies was 6.6%. The weighted average fully diluted equity ownership was computed using the fully diluted equity ownership for equity investments (including warrants) at cost as of December 31, 2018.

 

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FIDUS INVESTMENT CORPORATION

Notes to Consolidated Financial Statements (unaudited)

(in thousands, except shares and per share data)

 

The weighted average yield of the Company’s debt investments is not the same as a return on investment for its stockholders but, rather, relates to a portion of the Company’s investment portfolio and is calculated before the payment of all of the Company’s and its subsidiaries’ fees and expenses. The weighted average yields were computed using the effective interest rates for debt investments at cost as of March 31, 2019 and December 31, 2018, including accretion of OID and debt investment origination fees, but excluding investments on non-accrual status, if any.

Purchases of debt and equity investments for the three months ended March 31, 2019 and 2018 totaled $80,473 and $60,913, respectively. Proceeds from sales and repayments, including principal, return of capital distributions and realized gains, of portfolio investments for the three months ended March 31, 2019 and 2018 totaled $57,352 and $36,093, respectively.

Investments by type with corresponding percentage of total portfolio investments consisted of the following:

 

     Fair Value     Cost  
     March 31,     December 31,     March 31,     December 31,  
     2019     2018     2019     2018  

Second Lien Debt

   $ 362,680        54.0   $ 366,517        57.0   $ 377,350        60.6   $ 379,973        63.5

Subordinated Debt

     125,252        18.7       104,225        16.2       125,783        20.2       105,900        17.7  

First Lien Debt

     55,511        8.3       51,790        8.1       57,667        9.3       52,231        8.7  

Equity

     115,952        17.3       106,707        16.6       54,740        8.8       53,482        8.9  

Warrants

     11,086        1.7       13,743        2.1       6,979        1.1       6,979        1.2  

Royalty Rights

     —          —         —          —         185        —         185        —    
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 670,481        100.0   $ 642,982        100.0   $ 622,704        100.0   $ 598,750        100.0
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

All investments made by the Company as of March 31, 2019 and December 31, 2018 were made in portfolio companies headquartered in the U.S. The following table shows portfolio composition by geographic region at fair value and cost and as a percentage of total investments. The geographic composition is determined by the location of the corporate headquarters of the portfolio company, which may not be indicative of the primary source of the portfolio company’s business.

 

     Fair Value     Cost  
     March 31,     December 31,     March 31,     December 31,  
     2019     2018     2019     2018  

Midwest

   $ 149,133        22.3   $ 161,067        25.1   $ 134,355        21.5   $ 152,607        25.5

Southeast

     171,626        25.6       176,819        27.5       151,185        24.3       155,271        25.9  

Northeast

     148,874        22.2       89,661        13.9       142,227        22.8       84,246        14.1  

West

     59,719        8.9       62,824        9.8       54,505        8.8       54,469        9.1  

Southwest

     141,129        21.0       152,611        23.7       140,432        22.6       152,157        25.4  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 670,481        100.0   $ 642,982        100.0   $ 622,704        100.0   $ 598,750        100.0
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

The following table shows portfolio composition by type and by geographic region at fair value as a percentage of net assets.

 

By Type

   

By Geographic Region

 
     March 31,     December 31,          March 31,     December 31,  
     2019     2018          2019     2018  

Second Lien Debt

     89.7     90.9   Midwest      36.7     40.0

Subordinated Debt

     30.9       25.9     Southeast      42.4       43.9  

First Lien Debt

     13.7       12.9     Northeast      36.8       22.2  

Equity

     28.6       26.5     West      14.8       15.6  

Warrants

     2.7       3.4     Southwest      34.9       37.9  

Royalty Rights

     —         —           
  

 

 

   

 

 

      

 

 

   

 

 

 

Total

     165.6     159.6   Total      165.6     159.6
  

 

 

   

 

 

      

 

 

   

 

 

 

As of March 31, 2019 and December 31, 2018, the Company had no portfolio company investments that represented more than 10% of the total investment portfolio on a fair value or cost basis.

 

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FIDUS INVESTMENT CORPORATION

Notes to Consolidated Financial Statements (unaudited)

(in thousands, except shares and per share data)

 

As of March 31, 2019 and December 31, 2018, the Company had debt investments in two portfolio companies on non-accrual status, respectively:

 

     March 31, 2019     December 31, 2018  
     Fair           Fair        

Portfolio Company

   Value     Cost     Value     Cost  

K2 Industrial Services, Inc.

   $ —   (1)    $ —   (1)    $ 13,208     $ 14,270  

Oaktree Medical Centre, P.C. (dba Pain Management Associates)

     6,437 (3)      8,338 (3)      —   (2)      —   (2) 

US GreenFiber, LLC

     6,191       15,359       7,549       15,359  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 12,628     $ 23,697     $ 20,757     $ 29,629  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Portfolio company was no longer held at period end. Interest earned while on non-accrual was paid in full at exit.

(2)

Portfolio company debt investments were not on non-accrual status at period end.

(3)

Portfolio company last-out debt investment was on PIK-only on non-accrual status at period end, meaning the Company has ceased recognizing PIK interest income on the investment.

Consolidated Schedule of Investments In and Advances To Affiliates

The table below represents the fair value of control and affiliate investments as of December 31, 2018 and any additions and reductions made to such investments during the three months ended March 31, 2019, the ending fair value as of March 31, 2019, and the total investment income earned on such investments during the period.

 

                                  Three Months Ended March 31, 2019  
    March 31,                                                              
    2019                                   Net Change in                          
    Principal     December 31,                 March 31,     Net Realized     Unrealized           Payment-in-              
    Amount - Debt     2018     Gross     Gross     2019 Fair     Gains     Appreciation     Interest     kind Interest     Dividend     Fee  

Portfolio Company (1)

  Investments     Fair Value     Additions (2) Reductions  (3)     Value     (Losses) (4)     (Depreciation)     Income     Income     Income     Income  
Control Investments                      
FDS Avionics Corp. (dba Flight Display Systems)   $ 6,594     $ 5,612     $ 179     $ (693   $ 5,098     $ —       $ (693   $ 65     $ 177     $ —       $ —    
K2 Industrial Services, Inc.     —         13,208       3,435       (16,643     —         (1,268     2,330       217       1,060       —         349  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Total Control Investments   $ 6,594     $ 18,820     $ 3,614     $ (17,336