XML 48 R11.htm IDEA: XBRL DOCUMENT v2.4.0.6
INVESTMENTS
 12 Months Ended
Mar. 31, 2013
INVESTMENTS [Abstract]  
INVESTMENTS
3. 
INVESTMENTS

We record our investments at fair value as determined in good faith by our Board of Directors in accordance with GAAP.  When available, we base the fair value of our investments on directly observable market prices or on market data derived for comparable assets.  For all other investments, inputs used to measure fair value reflect management's best estimate of assumptions that would be used by market participants in pricing the investments in a hypothetical transaction.

The levels of fair value inputs used to measure our investments are characterized in accordance with the fair value hierarchy established by ASC.  We use judgment and consider factors specific to the investment in determining the significance of an input to a fair value measurement.  While management believes our valuation methodologies are appropriate and consistent with market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.  The three levels of the fair value hierarchy and investments that fall into each of the levels are described below:
 
·
Level 1:  Investments whose values are based on unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access.  We use Level 1 inputs for publicly traded unrestricted securities.  Such investments are valued at the closing price for listed securities and at the lower of the closing bid price or the closing sale price for NASDAQ securities on the valuation date.

·
Level 2: Investments whose values are based on observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly.  These inputs may include quoted prices for the identical instrument in non-active markets, quoted prices for similar instruments in active markets and similar data.  We did not value any of our investments using Level 2 inputs as of March 31, 2013 and 2012.

·
Level 3: Investments whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.  These inputs reflect management's own assumptions about the assumptions a market participant would use in pricing the investment.  We used Level 3 inputs for measuring the fair value of approximately 70.8% of our investments as of March 31, 2013.  See "Notes to Consolidated Schedule of Investments" (c) on page 47 for the investment policy used to determine the fair value of these investments.

As required by ASC 820, when the inputs used to measure fair value fall within different levels of the hierarchy, the level within the fair value measurement is categorized based on the lowest level input that is significant to the fair value measurement which may include inputs that are observable (Levels 1 and 2) and unobservable (Level 3).  Therefore, gains and losses for such investments categorized within the Level 3 table below may include changes in fair value that are attributable to both observable inputs (Levels 1 and 2) and unobservable (Level 3).  We conduct reviews of fair value hierarchy classifications on a quarterly basis.  Changes in the observability of valuation inputs may result in a reclassification of certain investments.

Unobservable inputs are those inputs for which little or no market data exists and, therefore, require an entity to develop its own assumptions. The fair value determination of each portfolio company requires one or more of the following unobservable inputs:

·
Financial information obtained from each portfolio company, including audited and unaudited statements of operations and balance sheets for the most recent period available as compared to budgeted numbers;

·
Current and projected financial condition of the portfolio company;

·
Current and projected ability of the portfolio company to service its debt obligations;

·
Projected operating results of the portfolio company;

·
Current information regarding any offers to purchase the investment or recent private sales transactions;

·
Current ability of the portfolio company to raise any additional financing as needed;
 
·
Change in the economic environment which may have a material impact on the operating results of the portfolio company;

·
Qualitative assessment of key management;

·
Contractual rights, obligations or restrictions associated with the investment; and

·
Other factors deemed relevant.
 
Preferred Stock and Common Stock

The significant unobservable inputs used in the fair value measurement of our equity securities are EBITDA multiples, revenue multiples, net book values, tangible book value multiples, and the weighted average costs of capital ("WACC"). Generally, increases or decreases in EBITDA or revenue multiple inputs result in a higher or lower fair value measurement, respectively. Generally, increases or decreases in WACC result in a lower or higher fair value measurement, respectively. However, due to the nature of certain investments, fair value measurements may be based on other criteria, such as third party-appraisals. For recent investments, we generally rely on our cost basis to determine the fair value unless fair value is deemed to have departed from this level.
 
Debt Securities

The significant unobservable inputs used in the fair value measurement of our debt securities are risk adjusted discount factors used in the yield valuation technique and probability of principal recovery. Significant increase or decrease in any of these valuation inputs in isolation would result in a significantly lower or higher fair value measurement. However, due to the nature of certain investments, fair value measurements may be based on other criteria, such as third party inputs.
 
Limited Partnership or Limited Liability Company Interests

For recent investments, we generally evaluate limited partnership or limited liability company interests at cost, which is deemed to represent market value, unless or until there is substantive evidence that cost does not correspond to fair value. Thereafter, these securities are generally valued at our percentage interest of the fund or company's calculated net asset value, unless there is substantive evidence that the net asset value does not correspond to fair value. All investments of each fund are valued by each fund in accordance with ASC 820.
 
Warrants

We generally use the Black-Scholes option pricing model to determine the fair value of warrants held in our portfolio. Option pricing models, including the Black-Scholes model, require the use of subjective inputs, including expected volatility, expected life, expected dividend rate, and expected risk-free rate of return. In the Black-Scholes model, variation in the expected volatility or expected term assumptions has a significant impact on fair value.

The table below presents the valuation technique and quantitative information about the significant unobservable inputs utilized by the Company to value our Level 3 investments as of March 31, 2013 and March 31, 2012. Unobservable inputs are those inputs for which little or no market data exists and therefore require an entity to develop its own assumptions. The table is not intended to be all inclusive, but instead captures the significant unobservable inputs relevant to our determination of fair value.

Type
Valuation Technique
 
Fair Value at
 3/31/2013 (in
millions)
 
Unobservable Input
 
Range
  
Weighted
Average
 
Preferred & Common Equity
Market Approach
 $342.2 
EBITDA Multiple
  3.25x – 7.00x   6.45x
 
Market Approach
 $11.1 
Revenue Multiple
  0.25x – 1.82x   0.97x
 
Market Approach
 $7.9 
Cash and Asset Value
 
NA
  
NA
 
 
Discounted Cash Flow
 $0.7 
Discount Rate
  1.75%  1.75%
 
Market Approach
 $3.0 
Multiple of Tangible Book Value
  1.22x  1.22x
 
Market Approach
 $22.6 
Recent Transaction Price
 
NA
  
NA
 
 
Market Approach
 $0.2 
Market Value of Held Securities
 
NA
  
NA
 
     $387.7           
Debt
Discounted Cash Flow
 $3.1 
Discount Rate
  10.02% -12.00%  10.77%
 
Recent Transaction Price
 $3.5 
Recent Transaction Price
 
NA
  
NA
 
     $6.6           
Partnership Interests
Net Asset Value*
 $12.2 
Fund Value
 
NA
  
NA
 
 
Total
 $406.5           
 
Type
Valuation Technique
 
Fair Value at
3/31/2012 (in
millions)
 
Unobservable Input
 
Range
  
Weighted
Average
 
Preferred & Common Equity
Market Approach
 $270.2 
EBITDA Multiple
  3.25x - 6.50x   5.71x
 
Market Approach
 $11.7 
Revenue Multiple
  1.10x – 1.97x   1.48x
 
Market Approach
 $5.5 
Cash and Asset Value
 
NA
  
NA
 
 
Discounted Cash Flow
 $0.8 
Discount Rate
  3.56%  3.56%
 
Market Approach
 $2.3 
Multiple of Tangible Book Value
  1.00x  1.00x
 
Market Approach
 $5.0 
Recent Transaction Price
 
NA
  
NA
 
 
Market Approach
 $0.1 
Market Value of Held Securities
 
NA
  
NA
 
     $295.6           
Debt
Discounted Cash Flow
 $8.0 
Discount Rate
  10.31%-16.22%  14.74%
 
Recent Transaction Price
 $3.2 
Recent Transaction Price
 
NA
  
NA
 
     $11.2           
Partnership Interests
Net Asset Value*
 $11.0 
Fund Value
 
NA
  
NA
 
 
Total
 $317.8           
 
As of March 31, 2013 and 2012, 70.8% and 56.9%, respectively, of our portfolio investments were categorized as Level 3.

The following fair value hierarchy tables set forth our investment portfolio by level as of March 31, 2013 and March 31, 2012 (in millions):
 
      
Fair Value Measurements
at 3/31/13 Using
 
Asset Category
 
Total
  
Quoted
 Prices in
Active
Markets for
Identical
Assets
(Level 1)
  
Significant
Other
Observable
Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
 
Debt
 $6.6  $−  $−  $6.6 
Partnership Interests
  12.2   −   −   12.2 
Preferred Equity
  44.6   −   −   44.6 
Common Equity
  510.8   167.7   −   343.1 
Total Investments $574.2  $167.7  $−  $406.5 
 
      
Fair Value Measurements
at 3/31/12 Using
 
Asset Category
 
Total
  
Quoted
 Prices in
Active
Markets for
 Identical
 Assets
(Level 1)
  
Significant
Other
Observable
 Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
 
Debt
 $11.2  $−  $−  $11.2 
Partnership Interests
  11.0   −   −   11.0 
Preferred Equity
  33.9   −   −   33.9 
Common Equity
  502.4   240.7   −   261.7 
Total Investments $558.5  $240.7  $−  $317.8 
 
Changes in Fair Value Levels

We monitor the availability of observable market data to assess the appropriate classification of financial instruments within the fair value hierarchy. Changes in economic conditions or model based valuation techniques may require the transfer of financial instruments from one fair value to another.

The following table provides a summary of changes in the fair value of investments measured using Level 3 inputs during the years ended March 31, 2013 and 2012 (in millions):

   
Fair
 Value
3/31/12
  
Net Unrealized
 Appreciation
 (Depreciation)
  
New
Investments
  
Divestitures
  
Net
Changes
 from
Unrealized
to
 Realized
  
Conversion
of Security
from Debt
 to Equity
  
Transfer
out of
Level 3
  
Fair
Value
 at
3/31/13
 
Debt
 $11.2  $(5.4) $4.0  $−  $−  $(3.2) $−  $6.6 
Partnership Interest
  11.0   1.5   0.5   −   (0.8)  −   −   12.2 
Preferred Equity
  33.9   12.3   −   (9.8)  5   3.2   −   44.6 
Common Equity
  261.7   82.1   −   −   (0.7)  −   −   343.1 
Total Investments
 $317.8  $90.5  $4.5  $(9.8) $3.5  $−  $−  $406.5 
 
   
Fair
Value
3/31/11
  
Net Unrealized
Appreciation
(Depreciation)
  
New
Investments
  
Divestitures
  
Net
Changes
from
Unrealized
to
Realized
  
Conversion
of Security
from Debt
to Equity
  
Transfer
out of
Level 3
  
Fair
Value
at
3/31/12
 
Debt
 $12.7  $(4.6) $6.6  $(1.0) $(2.5)  −  $−  $11.2 
Partnership Interest
  9.5   0.2   1.3   −   −   −   −   11.0 
Preferred Equity
  45.8   (2.9)  6.3   (6.1)  (9.2)  −   −   33.9 
Common Equity
  394.5   87.0   0.0   −   7.3   −   227.1   261.7 
Total Investments
 $462.5  $79.7  $14.2  $(7.1) $(4.4)  −  $227.1  $317.8 

The total unrealized gains included in earnings that related to assets still held at the report date for the years ended March 31, 2013 and 2012 were $120,777,969 and $96,949,860, respectively.