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 June 30, 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. (Check one):

 

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

 

Trading

Symbol

 

Name of each exchange

on which registered

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

As of July 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

 

Item 1.

 

Financial Statements

     3  
 

Consolidated Statements of Assets and Liabilities — June  30, 2019 (unaudited) and December 31, 2018

     3  
 

Consolidated Statements of Operations — Three and Six Months Ended June 30, 2019 (unaudited) and 2018 (unaudited)

  

 

4

 

 

Consolidated Statements of Changes in Net Assets — Three and Six Months Ended June 30, 2019 (unaudited) and 2018 (unaudited)

     5  
 

Consolidated Statements of Cash Flows — Six Months Ended June  30, 2019 (unaudited) and 2018 (unaudited)

     6  
 

Consolidated Schedules of Investments — June  30, 2019 (unaudited) and December 31, 2018

     7  
 

Notes to Consolidated Financial Statements (unaudited)

     20  

Item 2.

 

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

     40  

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

     56  

Item 4.

 

Controls and Procedures

     57  
PART II — OTHER INFORMATION

 

Item 1.

 

Legal Proceedings

     59  

Item 1A.

 

Risk Factors

     59  

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

     59  

Item 3.

 

Defaults Upon Senior Securities

     60  

Item 4.

 

Mine Safety Disclosures

     60  

Item 5.

 

Other Information

     60  

Item 6.

 

Exhibits

     61  

Signatures

     62  

 

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)

 

     June 30, 2019      December 31,  
     (unaudited)      2018  

ASSETS

     

Investments, at fair value

     

Control investments (cost: $7,522 and $22,697, respectively)

   $ 5,218      $ 18,820  

Affiliate investments (cost: $60,057 and $70,924, respectively)

     117,470        123,051  

Non-control/non-affiliate  investments (cost: $587,945 and $505,129, respectively)

     574,584        501,111  
  

 

 

    

 

 

 

Total investments, at fair value (cost: $655,524 and $598,750, respectively)

     697,272        642,982  

Cash and cash equivalents

     21,885        42,015  

Interest receivable

     5,898        7,528  

Prepaid expenses and other assets

     816        1,351  
  

 

 

    

 

 

 

Total assets

   $ 725,871      $ 693,876  
  

 

 

    

 

 

 

LIABILITIES

     

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

   $ 167,232      $ 186,734  

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

     115,314        48,411  

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

     28,232        36,358  

Accrued interest and fees payable

     3,151        2,812  

Base management fee payable – due to affiliate

     3,016        2,927  

Income incentive fee payable – due to affiliate

     1,299        2,785  

Capital gains incentive fee payable – due to affiliate

     8,481        9,415  

Administration fee payable and other – due to affiliate

     300        474  

Taxes payable

     —          803  

Accounts payable and other liabilities

     368        172  
  

 

 

    

 

 

 

Total liabilities

     327,393        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 June 30, 2019 and December 31, 2018, respectively)

     24        24  

Additional paid-in capital

     366,278        366,278  

Total distributable earnings

     32,176        36,683  
  

 

 

    

 

 

 

Total net assets

     398,478        402,985  
  

 

 

    

 

 

 

Total liabilities and net assets

   $ 725,871      $ 693,876  
  

 

 

    

 

 

 

Net asset value per common share

   $ 16.29      $ 16.47  
  

 

 

    

 

 

 

 

See Notes to Consolidated Financial Statements (unaudited).

 

3


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Statements of Operations (unaudited)

(in thousands, except shares and per share data)

 

     Three Months Ended     Six Months Ended  
     June 30,     June 30,  
     2019     2018     2019     2018  

Investment Income:

        

Interest income

        

Control investments

   $ 68     $ 61     $ 350     $ 118  

Affiliate investments

     1,414       1,883       2,934       3,538  

Non-control/non-affiliate  investments

     12,365       13,741       25,815       26,764  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest income

     13,847       15,685       29,099       30,420  

Payment-in-kind interest income

        

Control investments

     183       162       1,420       315  

Affiliate investments

     85       107       168       507  

Non-control/non-affiliate  investments

     2,687       1,061       3,997       2,187  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total payment-in-kind  interest income

     2,955       1,330       5,585       3,009  

Dividend income

        

Control investments

     —         —         —         —    

Affiliate investments

     573       197       941       641  

Non-control/non-affiliate  investments

     58       98       (15     (8
  

 

 

   

 

 

   

 

 

   

 

 

 

Total dividend income

     631       295       926       633  

Fee income

        

Control investments

     —         —         349       —    

Affiliate investments

     —         27       22       23  

Non-control/non-affiliate  investments

     601       748       2,329       2,189  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total fee income

     601       775       2,700       2,212  

Interest on idle funds and other income

     34       27       88       71  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total investment income

     18,068       18,112       38,398       36,345  
  

 

 

   

 

 

   

 

 

   

 

 

 

Expenses:

        

Interest and financing expenses

     4,052       3,046       7,776       5,978  

Base management fee

     3,016       2,821       5,887       5,506  

Incentive fee - income

     1,299       2,170       3,784       4,394  

Incentive fee - capital gains

     (1,289     (263     (934     1,267  

Administrative service expenses

     378       347       777       746  

Professional fees

     406       275       996       785  

Other general and administrative expenses

     510       691       815       986  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     8,372       9,087       19,101       19,662  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income before income taxes

     9,696       9,025       19,297       16,683  

Income tax provision (benefit)

     53       67       55       198  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income

     9,643       8,958       19,242       16,485  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gains (losses) on investments:

        

Net realized gains (losses):

        

Control investments

     —         —         (1,268     —    

Affiliate investments

     (134     (6,240     (99     733  

Non-control/non-affiliate  investments

     23       (8,956     (335     (8,651
  

 

 

   

 

 

   

 

 

   

 

 

 

Total net realized gain (loss) on investments

     (111     (15,196     (1,702     (7,918
  

 

 

   

 

 

   

 

 

   

 

 

 

Income tax (provision) benefit from realized gains on investments

     (301     (1     (293     (1,748

Net change in unrealized appreciation (depreciation):

        

Control investments

     (64     (272     1,573       (199

Affiliate investments

     2,527       9,353       5,286       15,738  

Non-control/non-affiliate  investments

     (8,492     4,802       (9,343     461  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total net change in unrealized appreciation (depreciation) on investments

     (6,029     13,883       (2,484     16,000  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net gain (loss) on investments

     (6,441     (1,314     (4,479     6,334  

Realized losses on extinguishment of debt

     —         —         (189     (150
  

 

 

   

 

 

   

 

 

   

 

 

 

Net increase in net assets resulting from operations

   $ 3,202     $ 7,644     $ 14,574     $ 22,669  
  

 

 

   

 

 

   

 

 

   

 

 

 

Per common share data:

        

Net investment income per share-basic and diluted

   $ 0.39     $ 0.37     $ 0.79     $ 0.67  
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 0.13     $ 0.31     $ 0.60     $ 0.93  
  

 

 

   

 

 

   

 

 

   

 

 

 

Dividends declared per share

   $ 0.39     $ 0.39     $ 0.78     $ 0.78  
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average number of shares outstanding — basic and diluted

     24,463,119       24,463,119       24,463,119       24,480,484  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net investment income

     —         —          —         8,958       8,958  

Net realized gain (loss) on investments, net of taxes

     —         —          —         (15,197     (15,197

Net unrealized appreciation (depreciation) on investments

     —         —          —         13,883       13,883  

Realized losses on extinguishment of debt

     —         —          —         —         —    

Dividends declared

     —         —          —         (9,541     (9,541
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Balances at June 30, 2018

     24,463,119     $ 24      $ 370,214     $ 26,023     $ 396,261  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

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  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net investment income

     —         —          —         9,643       9,643  

Net realized gain (loss) on investments, net of taxes

     —         —          —         (412     (412

Net unrealized appreciation (depreciation) on investments

     —         —          —         (6,029     (6,029

Realized losses on extinguishment of debt

     —         —          —         —         —    

Dividends declared

     —         —          —         (9,540     (9,540
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Balances at June 30, 2019

     24,463,119     $ 24      $ 366,278     $ 32,176     $ 398,478  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

See Notes to Consolidated Financial Statements (unaudited).

 

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Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Statements of Cash Flows (unaudited)

(in thousands)

 

     Six Months Ended June 30,  
     2019     2018  

Cash Flows from Operating Activities:

    

Net increase in net assets resulting from operations

   $ 14,574     $ 22,669  

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

     2,484       (16,000

Net realized (gain) loss on investments

     1,702       7,918  

Interest and dividend income paid-in-kind

     (5,585     (3,098

Accretion of original issue discount

     (30     (105

Accretion of loan origination fees

     (567     (434

Purchase of investments

     (128,460     (103,989

Proceeds from sales and repayments of investments

     75,320       65,270  

Proceeds from loan origination fees

     846       564  

Realized losses on extinguishment of debt

     189       150  

Amortization of deferred financing costs

     858       661  

Changes in operating assets and liabilities:

    

Interest receivable

     1,630       969  

Prepaid expenses and other assets

     517       (164

Accrued interest and fees payable

     339       228  

Base management fee payable – due to affiliate

     89       235  

Income incentive fee payable – due to affiliate

     (1,486     16  

Capital gains incentive fee payable – due to affiliate

     (934     1,267  

Administration fee payable and other – due to affiliate

     (174     (222

Taxes payable

     (803     19  

Accounts payable and other liabilities

     196       104  
  

 

 

   

 

 

 

Net cash provided by (used for) operating activities

     (39,295     (23,942
  

 

 

   

 

 

 

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

     (7,000     (4,500

Payment of deferred financing costs

     (4,004     (2,650

Dividends paid to stockholders, including expenses

     (19,081     (19,099

Repurchases of common stock under Stock Repurchase Program

     —         (582
  

 

 

   

 

 

 

Net cash provided by (used for) financing activities

     19,165       6,369  
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     (20,130     (17,573

Cash and cash equivalents:

    

Beginning of period

     42,015       41,572  
  

 

 

   

 

 

 

End of period

   $ 21,885     $ 23,999  
  

 

 

   

 

 

 

Supplemental disclosure of cash flow information:

    

Cash payments for interest

   $ 6,579     $ 5,089  

Cash payments for taxes, net of tax refunds received

   $ 1,151     $ 1,927  

 

See Notes to Consolidated Financial Statements (unaudited).

 

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Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (unaudited)

June 30, 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     $ 6,550     $ 6,547     $ 4,991    

Revolving Loan ($50 commitment)

      4.00%/11.00     4/1/2020       227       227       227    

Common Equity (7,478 shares) (j)

            748       —      
         

 

 

   

 

 

   
            7,522       5,218       1
         

 

 

   

 

 

   

Total Control Investments

          $ 7,522     $ 5,218       1
         

 

 

   

 

 

   

Affiliate Investments (l)

             

FAR Research Inc. (n)

  Specialty Chemicals            

Common Equity (1,396 units)

          $ —       $ 49       0

Fiber Materials, Inc.

  Aerospace & Defense Manufacturing            

Common Equity (10 units)

            645       3,116       1

Medsurant Holdings, LLC

  Healthcare Services            

Second Lien Debt

      13.00%/0.00     6/30/2020       8,823       8,804       8,823    

Preferred Equity (126,662
units) (h)

            1,346       1,944    

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

            4,517       6,992    
         

 

 

   

 

 

   
            14,667       17,759       4

Microbiology Research Associates, Inc.

  Healthcare Services            

Subordinated Debt

      11.00%/1.50     3/13/2022       8,863       8,852       8,683    

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

            1,939       2,305    
         

 

 

   

 

 

   
            10,791       10,988       3

Mirage Trailers LLC

  Utility Equipment Manufacturing            

Second Lien Debt (f)(k)

      13.93%/1.50     11/25/2020       6,155       6,129       6,155    

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

            2,181       3,297    
         

 

 

   

 

 

   
            8,310       9,452       2

Pfanstiehl, Inc.

  Healthcare Products            

Subordinated Debt

      10.50%/0.00     9/29/2022       6,208       6,199       6,208    

Common Equity (8,500 units) (j)

            850       17,377    
         

 

 

   

 

 

   
            7,049       23,585       6

Pinnergy, Ltd.

  Oil & Gas Services            

Second Lien Debt (k)

      12.00%/0.00     1/24/2020       4,000       3,997       4,000    

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

            3,000       36,392    

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

            3,000       3,000    
         

 

 

   

 

 

   
            9,997       43,392       11

Steward Holding LLC (dba Steward Advanced Materials)

  Aerospace & Defense Manufacturing            

Second Lien Debt

      12.00%/1.50     5/12/2021       7,610       7,598       7,610    

Common Equity (1,000,000 units)

            1,000       1,519    
         

 

 

   

 

 

   
            8,598       9,129       2
         

 

 

   

 

 

   

Total Affiliate Investments

          $ 60,057     $ 117,470       29
         

 

 

   

 

 

   

 

7


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (unaudited)

June 30, 2019

(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)(z)

      10.00%/5.00 %     5/30/2022     $ 32,609     $ 32,518     $ 30,823    

Subordinated Debt (j)

      0.00%/17.00     5/30/2022       1,502       1,502       1,502    

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

            800       393    
         

 

 

   

 

 

   
            34,820       32,718       8

Allied 100 Group, Inc.

  Healthcare Products            

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

            1,250       1,484       0

Alzheimer’s Research and Treatment Center, LLC

  Healthcare Services            

First Lien Debt (j)(x)

      8.34%/0.00     10/23/2023       6,500       6,456       6,500    

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

            1,000       1,267    
         

 

 

   

 

 

   
            7,456       7,767       2

American AllWaste LLC (dba WasteWater Transport Services)

  Environmental Industries            

Second Lien Debt (j)

      11.00%/1.50     11/30/2023       12,458       12,400       12,458    

Delayed Draw Commitment ($1,736 commitment) (i)(j)

      11.00%/1.50     11/30/2019       —         (3     —      

Preferred Equity (500 units) (j)

            500       530    
         

 

 

   

 

 

   
            12,897       12,988       3

Argo Turboserve Corporation

  Business Services            

Second Lien Debt (j)(y)

      12.35%/0.00     6/28/2023       14,719       14,652       14,719       4

AVC Investors, LLC (dba Auveco)

  Specialty Distribution            

Second Lien Debt (k)

      11.50%/0.00     7/3/2023       22,500       22,417       22,500    

Common Equity (5,000
units) (j)

            500       732    
         

 

 

   

 

 

   
            22,917       23,232       6

B&B Roadway and Security Solutions, LLC

  Component Manufacturing            

Second Lien Debt

      10.50%/3.50     8/27/2023       10,308       10,265       9,074    

Common Equity (50,000
units) (h)(j)

            500       135    
         

 

 

   

 

 

   
            10,765       9,209       2

BCC Group Holdings, Inc.

  Information Technology Services            

Subordinated Debt

      11.00%/1.00     4/11/2023       18,077       17,915       17,915    

Common Equity (451 shares)

            1       1    

Preferred Equity (37 shares)

            374       374    
         

 

 

   

 

 

   
            18,290       18,290       5

BCM One Group Holdings, Inc.

  Information Technology Services            

Subordinated Debt (k)

      11.00%/0.00     7/3/2024       27,000       26,876       26,876    

Common Equity (2,286 shares)

            2       2    

Preferred Equity (133 shares)

            1,330       1,330    
         

 

 

   

 

 

   
            28,208       28,208       7

Bedford Precision Parts LLC

  Specialty Distribution            

First Lien Debt (j)(s)

      8.69%/0.00     3/12/2024       5,000       4,965       4,965    

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

            500       500    
         

 

 

   

 

 

   
            5,465       5,465       1

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

  Restaurants            

Common Equity (521,021 units) (j)

            520       180       0

ControlScan, Inc.

  Information Technology Services            

Subordinated Debt (j)

      11.00%/0.00     1/28/2023       6,750       6,728       6,750    

Common Equity (3,704 shares) (j)

            4       595    

Preferred Equity (100 shares) (j)

            996       996    
         

 

 

   

 

 

   
            7,728       8,341       2

CRS Solutions Holdings, LLC (dba CRS Texas)

  Business Services            

Second Lien Debt

      10.50%/1.00     9/14/2023       9,119       9,085       9,119    

Common Equity (750,000 units) (j)

            750       890    
         

 

 

   

 

 

   
            9,835       10,009       3

Diversified Search LLC

  Business Services            

First Lien Debt (k)(r)

      8.32%/0.00     2/7/2024       11,800       11,591       11,591    

Common Equity (573 units) (h)(j)

            593       593    
         

 

 

   

 

 

   
            12,184       12,184       3

EBL, LLC (EbLens)

  Retail            

Second Lien Debt (j)

      12.00%/1.00     1/13/2023       9,436       9,377       9,436    

Common Equity (75,000 units) (j)

            750       650    
         

 

 

   

 

 

   
            10,127       10,086       3

 

8


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (unaudited)

June 30, 2019

(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
 

French Transit, LLC

  Consumer Products            

First Lien Debt (j)(aa)

      11.39%/0.00     6/21/2024     $ 8,000     $ 7,960     $ 7,960    

Revolving Loan ($500 commitment) (j)(u)(aa)

      11.39%/0.00     6/21/2024       500       495       495    
         

 

 

   

 

 

   
            8,455       8,455       2

Global Plasma Solutions, Inc.

  Component Manufacturing            

First Lien Debt (j)(v)

      7.60%/0.00     9/21/2023       7,518       7,452       7,518    

Preferred Equity (947 shares) (j)

            360       383    

Common Equity (947 shares) (j)

            15       179    
         

 

 

   

 

 

   
            7,827       8,080       2

Gurobi Optimization, LLC

  Information Technology Services            

Common Equity (5 shares)

            1,500       2,675       1

Hilco Plastics Holdings, LLC (dba Hilco Technologies)

  Component Manufacturing            

Second Lien Debt

      11.50%/1.50     12/31/2019       10,027       10,017       9,702    

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

            1,000       1,201    

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

            473       210    
         

 

 

   

 

 

   
            11,490       11,113       3

Hoonuit, LLC

  Information Technology Services            

First Lien Debt (ab)

      11.72%/0.00     6/7/2024       7,165       7,130       7,130    

Preferred Equity (610 units) (h)(j)

        1/1/2022         250       250    
         

 

 

   

 

 

   
            7,380       7,380       2

Hub Acquisition Sub, LLC (dba Hub Pen)

  Promotional products            

Second Lien Debt (k)

      12.25%/0.00     9/23/2021       25,000       24,932       25,000    

Common Equity (7,500 units)

            249       1,440    
         

 

 

   

 

 

   
            25,181       26,440       7

Hunter Defense Technologies, Inc.

  Aerospace & Defense Manufacturing            

First Lien Debt (j)(w)

      9.33%/0.00     3/29/2023       9,620       9,537       9,620       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       2,566       2,566       2,566       1

The Kyjen Company, LLC (dba Outward Hound)

  Consumer Products            

Second Lien Debt (k)

      12.00%/0.00     6/8/2024       15,000       14,942       14,309    

Common Equity (765 shares) (j)

            765       743    
         

 

 

   

 

 

   
            15,707       15,052       4

LNG Indy, LLC (dba Kinetrex Energy)

  Oil & Gas Distribution            

Second Lien Debt (k)

      11.50%/0.00     11/12/2021       5,000       4,988       5,000    

Common Equity (1,000 units)

            1,000       1,556    
         

 

 

   

 

 

   
            5,988       6,556       2

Marco Group International OpCo, LLC

  Industrial Cleaning & Coatings            

Second Lien Debt

      10.50%/0.75     1/21/2023       12,179       12,140       12,179    

Common Equity (960,482
units) (h)(j)

            960       966    
         

 

 

   

 

 

   
            13,100       13,145       3

Mesa Line Services, LLC

  Utilities: Services            

Second Lien Debt (j)

      10.50%/1.00     8/1/2024       17,089       16,992       17,089    

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

      10.50%/1.00     12/31/2019       —         (7     —      

Common Equity (833 shares) (j)

            1,000       1,345    
         

 

 

   

 

 

   
            17,985       18,434       5

Midwest Transit Equipment, Inc.

  Transportation services            

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

            361       418    

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

            380       450    
         

 

 

   

 

 

   
            741       868       0

New Era Technology, Inc.

  Information Technology Services            

Common Equity (197,369
shares) (j)

            750       1,384    

Preferred Equity (632 shares) (j)

            77       155    
         

 

 

   

 

 

   
            827       1,539       0

 

9


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (unaudited)

June 30, 2019

(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
 

NGT Acquisition Holdings, LLC (dba Techniks Industries)

  Component Manufacturing            

Subordinated Debt

      12.50%/2.00   3/21/2022   $ 5,331     $ 5,300     $ 5,331    

Common Equity (378 units) (j)

            500       112    
         

 

 

   

 

 

   
            5,800       5,443       1

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

  Healthcare Services            

First Lien Debt (j)(p)

      11.50%/3.00   5/31/2019     548       625       —      

First Lien Debt (j)(p)

      7.00%/15.00   5/31/2019     7,558       8,147       —      

Subordinated Debt (j)(p)

      7.00%/0.00   1/1/2020     63       63       —      

Revolving Loan (j)(p)

      11.50%/3.00   5/31/2019     2,398       2,597       —      

Revolving Loan (j)(p)

      11.50%/3.00   5/31/2019     194       194       —      

Revolving Loan (j)(p)

      11.50%/3.00   5/31/2019     1,742       1,742       —      
         

 

 

   

 

 

   
            13,368       —         0

OMC Investors, LLC (dba Ohio Medical Corporation)

  Healthcare Products            

Second Lien Debt

      12.00%/0.00   7/15/2021     10,000       9,963       10,000    

Common Equity (5,000 units)

            500       404    
         

 

 

   

 

 

   
            10,463       10,404       3

Palisade Company, LLC

  Information Technology Services            

Subordinated Debt (j)

      11.75%/0.00   5/15/2024     6,500       6,471       6,500    

Common Equity (100 shares) (j)

            1,000       936    
         

 

 

   

 

 

   
            7,471       7,436       2

Palmetto Moon, LLC

  Retail            

First Lien Debt

      11.50%/2.50   10/31/2021     5,058       5,039       5,058    

Common Equity (499 units) (j)

            494       17    
         

 

 

   

 

 

   
            5,533       5,075       1

Power Grid Components, Inc.

  Specialty Distribution            

Second Lien Debt (k)

      11.00%/1.00   5/20/2023     11,339       11,297       11,339    

Preferred Equity (392 shares) (j)

            392       439    

Common Equity (9,695 shares) (j)

            358       209    
         

 

 

   

 

 

   
            12,047       11,987       3

Pugh Lubricants, LLC

  Specialty Distribution            

Second Lien Debt (k)

      12.25%/0.00   5/10/2022     23,581       23,509       23,581    

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

            612       1,217    
         

 

 

   

 

 

   
            24,121       24,798       6

Revenue Management Solutions, LLC

  Information Technology Services            

Common Equity (2,250,000 shares)

            2,250       4,626       1

Rhino Assembly Company, LLC

  Specialty Distribution            

Second Lien Debt (k)

      12.00%/1.00   2/11/2023     11,380       11,338       11,178    

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

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

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

            945       1,074    
         

 

 

   

 

 

   
            12,283       12,252       3

Road Safety Services, Inc.

  Business Services            

Second Lien Debt

      11.25%/1.50 %   3/18/2024     10,144       10,103       9,398    

Common Equity (655 units)

            621       531    
         

 

 

   

 

 

   
            10,724       9,929       2

Rohrer Corporation

  Packaging            

Subordinated Debt (j)

      10.50%/1.00   4/1/2024     13,804       13,745       13,572    

Common Equity (400 shares)

            780       686    
         

 

 

   

 

 

   
            14,525       14,258       4

SES Investors, LLC (dba SES Foam)

  Building Products Manufacturing            

Second Lien Debt

      15.00%/0.00   12/29/2020     3,095       3,075       2,786    

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

            600       447    
         

 

 

   

 

 

   
            3,675       3,233       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       3,762    
         

 

 

   

 

 

   
            5,205       7,812       2

Software Technology, LLC

  Information Technology Services            

Subordinated Debt (k)

      11.00%/0.00   6/23/2023     10,000       9,968       10,000    

Common Equity (12 shares)

            1,290       1,496    
         

 

 

   

 

 

   
            11,258       11,496       3

 

10


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (unaudited)

June 30, 2019

(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
 

Specialized Elevator Services Holdings, LLC

  Business Services            

First Lien Debt (j)(ac)

      7.58%/0.00   5/3/2024   $ 5,000     $ 4,912     $ 4,912    

Common Equity (500 units) (j)

            500       500    
         

 

 

   

 

 

   
            5,412       5,412       1

SpendMend LLC

  Business Services            

Second Lien Debt (k)

      11.00%/0.75   7/8/2023     10,449       10,409       10,449    

Common Equity (1,000,000 units)

            1,000       1,381    
         

 

 

   

 

 

   
            11,409       11,830       3

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            

Common Equity (1,000 units)

            998       897       0

The Tranzonic Companies

  Specialty Distribution            

Subordinated Debt (j)

      10.00%/1.50   3/27/2025     6,870       6,813       6,870    

Preferred Equity (5,653 units) (j)

            565       579    

Common Equity (1 units) (j)

            —         —      
         

 

 

   

 

 

   
            7,378       7,449       2

UBEO, LLC

  Business Services            

Subordinated Debt (j)

      11.00%/0.00   10/3/2024     13,100       12,989       12,982    

Delayed Draw Commitment ($793 commitment) (i)(j)

      11.00%/0.00   8/7/2019     —         (2     —      

Common Equity (705,000
units) (j)

            705       637    
         

 

 

   

 

 

   
            13,692       13,619       4

United Biologics, LLC

  Healthcare Services            

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

            1,008       32    

Warrant (57,469 units) (m)

            566       27    
         

 

 

   

 

 

   
            1,574       59       0

US GreenFiber, LLC

  Building Products Manufacturing            

Second Lien Debt (k)(p)

      12.00%/2.00   10/15/2019     14,363       14,359       4,520    

Second Lien Debt (k)(p)

      0.00%/16.00   10/15/2019     1,800       1,800       1,647    

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

            586       —      
         

 

 

   

 

 

   
            16,745       6,167       2

US Pack Logistics LLC

  Transportation services            

Second Lien Debt (k)

      12.00%/3.75   3/28/2023     7,514       7,503       7,514    

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

            927       744    

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

            555       —      
         

 

 

   

 

 

   
            8,985       8,258       2

Vanguard Dealer Services, L.L.C.

  Business Services            

Common Equity
(6,000 units)

            154       2,106    

Common Equity (2,380 units) (j)

            327       836    
         

 

 

   

 

 

   
            481       2,942       1

Virginia Tile Company, LLC

  Specialty Distribution            

Second Lien Debt (k)

      12.25%/0.00   4/7/2022     12,000       11,984       12,000    

Common Equity (17 units)

            342       1,096    
         

 

 

   

 

 

   
            12,326       13,096       3

Wheel Pros, Inc.

  Specialty Distribution            

Second Lien Debt (j)(ad)

      10.89%/0.00   4/4/2026     20,000       19,804       19,804    

Preferred Equity (694,444
units) (j)

            1,500       1,500    
         

 

 

   

 

 

   
            21,304       21,304       5

The Wolf Organization, LLC

  Building Products Manufacturing            

Common Equity (175 shares)

            664       4,055       1

Worldwide Express Operations, LLC

  Transportation services            

Second Lien Debt (j)(o)

      10.52%/0.00   2/3/2025     20,000       19,715       20,000    

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

            2,956       3,934    
         

 

 

   

 

 

   
            22,671       23,934       6
         

 

 

   

 

 

   

Total Non-control/Non-affiliate Investments

          $ 587,945     $ 574,584       145
         

 

 

   

 

 

   

Total Investments

          $ 655,524     $ 697,272       175
         

 

 

   

 

 

   

 

 

(a)

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

 

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Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (unaudited)

June 30, 2019

(in thousands, except shares)

 

(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 June 30, 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 June 30, 2019.

(g)

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

(h)

Investment is held by a Taxable Subsidiary of the Company.

(i)

The disclosed commitment represents the unfunded amount as of June 30, 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.

(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 three-month LIBOR, which is reset quarterly. The interest rate is set as three-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 June 30, 2019.

(p)

Investment was on non-accrual status as of June 30, 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 + 5.75% 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 5.21% 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 disclosed commitment represents the unfunded amount as of June 30, 2019. The Company is earning 0.75% interest on the unfunded balance of the commitment. The interest rate disclosed represents the rate earned on the outstanding, funded balance of the commitment.

(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 3.44% 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 June 30, 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 4.11% 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 June 30, 2019.

(z)

For the six months ended June 30, 2019, all interest was treated as PIK interest and capitalized to the principal balance of the investment.

 

12


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (unaudited)

June 30, 2019

(in thousands, except shares)

 

(aa)

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 + 9.00% and is subject to a 2.25% LIBOR interest rate floor. The Company has provided the interest rate in effect as of June 30, 2019.

(ab)

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 + 9.25% and is subject to a 2.25% LIBOR interest rate floor. The Company has provided the interest rate in effect as of June 30, 2019.

(ac)

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 + 5.25% 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 3.75% 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.

(ad)

The investment bears interest at a variable rate that is determined by reference to one-month LIBOR, which is reset monthly. The interest rate is set as one-month LIBOR + 8.50%. The Company has provided the interest rate in effect as of June 30, 2019.

See Notes to Consolidated Financial Statements (unaudited).

 

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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
 

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
         

 

 

   

 

 

   

 

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
 

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

 

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
 

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

 

16


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

 

17


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 Taxable Subsidiary of the Company.

(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 quarterly. 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

 

20


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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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 the Company is 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 June 30, 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.